What do you mean by financial cost reduction through inventory control?

Answer 1

There are some common techniques and some unique business processes which can be implemented to achieve cost reduction and help with the better management of inventory. Many organizations should implement the following ten practices to reduce inventory costs:

1. Conduct periodic reviews and audits of various inventories being held in-house.

2. Analyze the usage and lead times of on-hand and order book inventory.

3. Reduce safety stock based on customer demand.

4. Use 80/20 rule (ABC approach) for inventory control.

5. Improve cycle counting techniques for inventory management.

6. Use vendor managed inventory or implement vendor stocking programs, which means supplier are managing inventory with the organization.

7. Use collaborative planning and replenishment (CPFR) business processes and IT standards to collaborate among multiple parties in the supply chain network.

8. Improve the forecast of each product at the item level, i.e. use a variety of demand forecasting arithmetic models. No single set of algorithms fits all customers' forecast or product families.

9. Communicate demand/hard orders to suppliers for better delivery of inventory.

10. Implement new inventory software which uses inventory quality ratio methodology and multi-echelon inventory optimization tools.