Buti James JB

Inventory reduction strategies by Buti James JB
Inventory comprises an important part of current assets, particularly in manufacturing industry. A lot of cash flow is committed to inventories so as to ensure a smooth flow of production to meet a demanding customer service level. However, maintaining inventory also involves holding or carrying costs along with opportunity cost. Therefore, identifying inventory reduction strategies becomes critical for supply chain and operations professionals.
Inventory management therefore plays a crucial role in balancing the benefits and disadvantages associated with holding inventory. Efficient and effective inventory reduction strategies go a long way in the successful running and survival of a business firm.
Here is List of Inventory Reduction Strategies you can Try to Improve Inventory Turns
1. Reduce Total Supply Chain Lead Times
A reduction in total supply chain lead-time will lead to products / materials not being held in stock for a long time. Both a reduction in supplier lead-time and manufacturing lead-time will contribute to inventory reduction. To reduce lead-time, the throughput, WIP and cycle time will need to be measured in order to get a realistic estimation of a reduction in lead-time. This in turn will reduce the risks related to holding inventory for longer periods of time.
2. Reduce Manufacturing Lead Time
Whilst I have seen a lot of focus in reducing the total supply chain lead-time and/or supplier lead-time, there is, however, not enough focus in reducing the internal manufacturing lead-time.
When considering the planning method, you are using, you should consider manufacturing lead-time in the total planning lead-time.
3. ABC Analysis
Using Pareto ABC analysis will help determine which inventory is used most often. In very simple terms A is the inventory that is used the most, B- product that are important but are used less frequently and C these are products that are rarely used. “A” classification products are ones that are used frequently and can therefore be ordered in a small quantity, or be delivered Just in time and will require less safety stock, and C products can be ordered less frequently but with more safety stock kept. In my experience this is the most effective method of inventory reduction and fast!
4. Improve Supplier Rapport
Having an improved relationship with suppliers is highly beneficial not only to the whole supply chain but also with inventory reduction. Having a rapport with the supplier will mean that communication between the parties is effective. The suppliers have the best knowledge of product they produce and this can be utilized with a good rapport as this information can be shared. By having a good relationship with the suppliers, communicating will be easier.
5. Smaller Order Sizes
Ordering a smaller volume of inventory, more frequently is beneficial for the company to manage cash flow and also inventory reduction. Depending on the product this will reduce costs associated with keeping a higher volume of inventory. As a result, the inventory on hand will be low but the frequency of replenishment will be higher. Having less inventory reduces several risks associated with keeping inventory e.g. issues that can cause a product to depreciate in value.
6. Reduce Obsolete Stock
By identifying, re-purposing or removing obsolete inventory the volume of inventory on hand will decrease. With this, both direct and indirect costs of keeping the obsolete inventory will be reduced. This closely links to reducing order sizes as a smaller volume of the inventory will be in stock and as a result, fewer inventories will be in stock to become obsolete.
7. Conduct Regular Safety Stock Review
Once Made to Made-to-Stock (MTS) items have been identified post-ABC Analysis, planners should review the safety stock every 6 months (may be every 3 months in some cases) as a minimum as one of the most essential inventory reduction strategies.
8. Check Aging and Reach of Stock (ROS) for your inventory
One way to find out what inventory to target is understand what items you are carrying are more than 12 months old, meaning, they are not turning faster and need special focus actions to reduce them.
Reach of stock is a simple analysis, which identify how many days’ certain stock inventory will last based on historical demand.
9. Pull Based Demand / Replenish Based on Demand
A way for inventory reduction is by having a pull based demand system or JIT System. This means to only manufacture the product once it has been made therefore reduce the risk of obsolete stock as all the materials ordered are being used to make the product. This is different from making a product then selling it therefore as the demand is not certain, this will make forecasting easier. Therefore, reducing inventory as it is only ordered when it is needed (this needs a good supplier rapport and short lead time.)
10. More Accurate Forecasting
Having a standardized reliable way of forecasting demand will mean that excess stock is not ordered and will reduce the chance of obsolete stock. Utilizing all the data available and using up-to-date technology can help with reductions. Having a more streamlined supply chain with information being passed along and shared can also increase the chance of a better forecast, as more information is available.
11. Better Measuring System
Implementing a system that will recognize when a product needs replenishing and is dynamic can also be useful. Using a system that can change how much to order not only by using how much current stock is on hand but by also a change in trends will help reduce the chance of obsolete stock and excess stock.
12. More versatile components
Using a material or component that is versatile will result in inventory reduction. Ordering a material that can be used in many different products can reduce the inventory on hand. This is because the one material can go into several products. If the material has a high inventory turnover, then it can be ordered in a smaller quantity often as above.
13. Highest Spend Supplier should be on VMI or Consigned Inventory Programs
Move inventory upstream in supply chain by using Vendor Managed Inventory (VMI) or Consigned Inventory Program. With Strategic suppliers who supply high value, volume and frequency items can keep a minimum and maximum stocks for you as long as you can cover the liability of that inventory. That means you can simply cut the manufacturing lead-time and pull from stock, in turn reduce your safety stocks and/or cycle stocks.
Final Thoughts:
A consistent use of these inventory reduction strategies over the next few months will help your business to remain competitive and decrease inventory, while reducing operating costs and improving customer service.
Furthermore, the inventory management strategies will augment business operations by the effective and efficient flow of goods and services. It adds to profitability, competitiveness, service optimization and market diversification.
Note: If you like this article or have any other inventory reduction strategies to add please add in comments below.

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Buti James JB Supply Chain Analyst and Business Strategist

Kaizen as a cutting edge in Business and supply chain Management.
Today’s business environment is ultra-competitive. Smart businesses are opting for better practices and operations that focus on eliminating waste, reducing costs, while also creating an environment that supports continuous business growth. 5S Kaizen help you achieve all that.
Kaizen is a part of the lean manufacturing system which was developed to maintain a continuous improvement in processes. 5S is the foundation of Kaizen. It aims to achieve a visual organization, cleanliness, and standardization.
What Does 5S Stand for?
This is a question that business owners and managers looking into the 5S system are interested in. The 5S methodology is built on 5 pillars: Sort, set in order, Shine, Standardize, and Sustain. Its ultimate goal is to eliminate waste, boost productivity and improve the bottom line.
To help individuals and business to capitalize on the below-mentioned benefits, I have developed a detailed 5s Kaizen Guide. Organizing the workplace for flow. The guide aims to help supply chain professionals establish the trust and skills needed to go the distance with lean. It puts the shop and office in order, eliminates the “low hanging fruit” of process waste, and establishes the discipline required to implement more advanced continuous flow techniques.
Key Benefits of the 5S Kaizen to Businesses
1. Increased Productivity and Efficiency
5S elements are geared towards making every aspect of business organized. Therefore, enterprises that embrace the system become more efficient. For instance, if all items in cashier station are uniformly labeled and organized, any of the employees can step in and start serving customers. As a result, the cashier will spend more time serving customers rather than being distracted by non-productive tasks or pursuits.
2. Increased Workplace Safety
A well-structured workspace reduces accidents and successively creates a safe environment. The 5S safety-first procedures require employees to keep aisles free of clutter, to immediately clean spills and to store items in the right place.
This is especially beneficial for businesses that need to comply with the Occupational Safety and Health Administration regulations. Storing frequently used items close to the workstation and in ergonomically sound locations reduces unnecessary movement and also reduces potential injuries like carpal tunnel syndrome caused by repetitive tasks.
When a work area that is clean and well organized, there is less tendency of tripping hazards and any other physical dangers to occur.
3. Reduced Waste
Implementing 5S Kaizen leads to a reduction of lost or damaged items in a workplace. A clean, organized workstation with properly labeled tools enables employees to decide on what needs to be replaced and repaired in their designated places; this minimizes the number of damaged, misplaced or lost tools. Proper management of tools helps to eliminate the damage caused to tools parts and products.
4. Effective Cost Control
A business embracing the 5S system can lead to a significant reduction in direct and indirect costs. For one, better organization leads to the more efficient use of storage space. Secondly, employees are less likely to lose or misplace inventory items.
For manufacturing businesses, the routine cleaning and preventive servicing make it easier for employees to spot and address any problems with machines before the issues compound and lead to costly repairs. Because 5S kaizen engenders a safer working space, it can decrease business and insurance costs.
5. Improved Employee Morale, Commitment and Customer satisfaction
Every step taken in a 5S system works to provide customers with more value and ultimately increases customer satisfaction. For instance, most customers aren’t interested in your cleaning routines or how the cash station is organized, but they do care about a well-organized and clean store and fast moving checkout lines. This is a big plus for supply chain management.
Because the implementation of 5S Kaizen requires employee participation, it leads to increased employee engagement and creates an environment in which employees take greater pride in their work and contributions.
Conclusion:
5S is a cost-effective and accessible lean technique. It lays the foundation for other lean techniques. Thus, it is an excellent system to adopt for business owners who want to improve the overall business performance and operations.