5 inventory reduction strategies for a more profitable business

5 Inventory Reduction Strategies
for a More Profitable Business

Contact Us: M: +91 9611 171 345
Website: www.salesbabu.com Email: sales@salesbabu.com
Inventory reduction is one of the most pressing issues for many manufacturing companies. Holding a lot of
inventory in warehouses is the major reason of reduction in working capital for an organization and most of the
times the main cause of huge losses for the businesses.
Many companies in today’s working model, hold extra inventory as safety stock to drift away from emergency
situations where delay in product delivery can cause huge business losses. But if these safety stocks are not
stored in a calculated manner, it ends as huge inventory backlogs which creates useless and outdated stock up
in the warehouse. Due to these outdated items in stock, companies have to either sell them in promotional offers
or discard them completely. In both the cases, organisations end up incurring huge losses due to these excess
inventory storage and wasting their working capital on something completely useless in business revenue cycle.

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Reason for high Inventory levels?
There are many companies which support the concept of excess inventory and the uses of it in emergency
situations but in most cases, higher inventory levels are major reasons for incurring losses for
organizations. Let’s understand some of the reasons for the high level of inventory in warehouses and the
disadvantages of having them.
Increase in lead time
Many companies face this issue of delayed raw material delivery from suppliers due to numerous reasons,
which causes organisations to store excess inventory as safety stock to unblock them from these supplier
delivery issues. These delays not only increases the transportation and overall inventory holding cost but
also cause many product delivery issues to the end users. These daytoday issues in increased lead time
cause distressed customers and bad client experience.

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Variation in demand supply chain
With cheaper products available online and foriegn inroads of new product varieties, many manufacturing
companies face a huge variation in demand supply chain for usual stocks. In most of the cases, many
ordered stocks remain unsold due to other competitive products in the market and lower rates on
international websites. In the longer run, these unsold products either remain stocked up in the warehouses
or gets sold on promotional rate, which in either case is a loss for the organization capital inflow.
Improper Inventory forecasting
Demand forecasting is a very critical part of inventory planning. If done inefficiency can cause a lot of
un-demanded stocks to be ordered repetitively from the suppliers which end up being unsold and queued
up in the warehouses. Futuristic view on the various product requirements is very important to maintain a
proper balance in our demand supply chain.

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Changing customer trends
With new options in hand, customers tend to order different variety of products through various vendors
and organizations to understand their customer support and business model. These varied customer
trends are difficult to understand and predict in the long run of supply chain cycle. Hence, today’s
organization either stick with old customers and try giving 100% productive results to avoid customer
attrition or try to gain new customers who have a stable shopping trend in past, so that their shopping
behaviour can be correctly understood and relative inventory can be ordered as per their demand
requirements.

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Returned and damaged product delivery.
Major disadvantage of flexible demand and supply chain is that usually many customers return their goods
due to various reasons. Some customers simply reject the whole batch of products if the shipment is
delayed by some hours or due to some minor misunderstanding. These returned and dangling products
which are specifically made for any organisation remain in the warehouse as excess stocks as these
cannot be sold to open market due to policy restrictions and other legal obligations. These old and unused
stocks cost a bounty to the production company and can cause major reason for loss.

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Benefits of Inventory Reductions
There are numerous advantages of inventory reduction, some of them are listed below:-
■ Lower Costs
■ Less working capital tied up in inventory.
■ Lesser investment in warehouse spaces.
■ Lower insurance costs as the risk factor is reduced.
■ Less wastage cost due to expired or out-of-date products.
■ Less Labor
■ Reduced labor for inventory tracking.
■ Less labor for warehouse maintenance and upkeep.
■ Security requirement reduced due to smaller warehouses.
■ Improved Quality
■ With a consistent amount of raw material requirement, quality and maintenance of final products
is improved.
■ Wastage and damage due to expiry is reduced, hence customers get fresh stock items.

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Strategies for Inventory reduction
1. Inventory Auditing
Many companies follow once a year auditing strategy which results in the end of year analysis of the
maintenance and stock counting results. Usually most of the products get reordered continuously without any
regular audit. These repetitive ordering results into overstocking of out of demand and outdated products.
Regular period of inventory auditing and routine checkup of the inventory helps in understanding the
requirements of reordering of the products. Once the auditing system is in place, organisations find it very easy
to maintain their products with a systematic process and can avoid any excess stock cluttering.

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2. Enhanced Demand forecasting
Demand forecasting is a challenging component within a demand supply chain. Considering we live in a
technology rich world, where every second a new technology and product is avaiable for customers,
understanding every product demand in the market is very important to have a sustainable business model.
Consistent analysis and systematic view of product demand trends help organisations to understand the
current requirements of a product, based on which the reordering process can be maintained for inventory
management.
Various demand forecasting methods can be implemented as per the requirement of a particular
manufacturing sector, which can help in striking a balance between sales and demand of its product.
Automated features of SalesBabuCRM inventory management software helps in forecasting the demand of
various products through metrics which will let you know when you’re low on stock, your best-selling items,
your worst-selling items, and trends in demand. This helps in better inventory planning and reordering of
your stocks and maintaining an adequate amount of inventory in your warehouses.

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3. Just in time Inventory system
Just-in-time inventory (JIT) management is an inventory management strategy where organizations store
almost no extra inventory in their warehouses, instead, order everything they need for manufacturing their
products at the realtime and exhaust them at the end of the production cycle.
This process of just-in-time inventory management, considerably reduce the cost of inventory storage but is
not easily implementable for every business model.
Just in time inventory management is very useful for retail business where the stock have a real time outflow
and suppliers are ready to provide multiple time delivery.

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4. Reduce Lead time
Lead time reduction is the process of reducing the time for raw material and other purchase delivery. The
shorter the lead time is , the better the inventory planning can be done.
Lead time reduction helps in inventory cost reduction in following ways:
■ It allows you to keep less safety stock inventory – With consistent delivery cycle, less obsolete stock
needs to be stored for future requirement.
■ It allows you to order less stock more frequently – When the delivery cycle is consistent, firms can
order less stock at the time and reduce the cost of inventory storage.

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5. Get Rid of Obsolete Stock
Many companies prefer to store a huge pile of stocked up products due to various reasons like precautionary
inventory planning, handling out of stock scenarios, keeping stocks for competitive market cases etc. In this
scenario, a lot of stocks gets collected and increases the maintenance cost of warehouse, insurance and
many other investments.
Traditional inventory management model, stack up a lot of outdated and out of demand products which have
no market value. These products often results in zero income scenario and incur huge losses for the
organizations.
Getting rid of obsolete stock in regular interval using product bundling to sell more of old stock or discounting
them individually on offers help to earn minimum returns on the old and outdated products.
Also, when this cluttered old stock is cleared up, you can invest and make room for fast-selling products and
earn better revenues for the organisation.

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Conclusion
A cloud-based inventory management system like SalesBabuCRM is the best fit for any inventory tracking
tool. It can help you to know your reorder timelines, streamline your stock intake, reduce your lead time, and
deliver accurate metrics for better demand forecasting.
The better your inventory management tool is,the more profit you can make for your organization.

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E-mail: sales@salesbabu.com
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