8 Ways to Reduce Manufacturing Inventory
What is your attitude toward manufacturing inventory? Well, that could depend on your position within the organization. For instance, the production supervisor views inventory as a safeguard against everything that can go wrong during manufacturing, and your accountant looks at it as an asset that has value.
On the other side, your controller sees manufacturing inventory as a liability, or more accurately, a disadvantage since it ties up working capital that could be needed in the short-term. And, depending on the type of manufacturing you do, your financial people could fear you’ll be stuck with excess inventory if the nature of your business turns in a different direction.
But no matter which side of the equation they happen to fall on, everyone can agree that inventory is costly, and it makes good business sense to employ certain strategies to reduce it and help your company remain competitive and profitable.
Here are ten suggestions to consider. Not all of them will apply to your business, but even if you employ a few of them, they can help you reduce your operating costs substantially:
#1 Decrease supply chain lead times
Any reductions in total supply chain lead-time can result in materials being held in stock for shorter times. By using a domestic supplier, for instance, you could reduce your lead times by up to two weeks. Ordering smaller quantities more frequently, as opposed to ordering in bulk, has been shown to decrease lead times along the supply chain.
One method to help you understand supply chain time is to perform what is called “supply chain mapping.” A supply chain map, usually produced at a higher level in your organization, is a graphical representation of your supplier network. It provides transparency, which helps you determine how your lead times can be reduced.
#2 Reduce production lead times
Cycle times are the amount of time it takes to complete various phases of the manufacturing process. The faster these processes are done, the shorter the cycle time. Quicker production results in lower manufacturing inventory levels because the stock of raw materials is reduced and work-in-process is moved to finished goods, which are shipped out of the plant rapidly.
#3 Automate the ordering process
Many manufacturing businesses are reducing inventory and minimizing the costs of purchasing by automating their ordering process with the help of Manufacturing Resource Planning (MRP) systems. By eliminating paper purchase orders, and their associated costs, businesses save money. And with an MRP system to signal shrinking stock levels, the “safety net” of excess manufacturing inventory is no longer necessary.
When you implement a dynamic system that recognizes when stock needs replenishing and identifies changes in trends, you greatly reduce the chances of both excess and obsolete inventory.
#4 Improve relations with your suppliers
A close relationship with each of your suppliers enhances the entire supply chain and assists with inventory reduction. Having a strong connection with them is an indication that communication is effective. Suppliers know their products best, and with a solid relationship, they will share their knowledge. This kind of communication can result in faster deliveries, fewer returns, and lower inventory.
#5 Purge or re-purpose obsolete stock
You can lessen the direct and indirect costs of keeping obsolete inventory by removing or re-purposing it. Obsolete stock is a result of having a large inventory of items that are no longer needed because of an unforeseen change in the direction of the business. This leads to Tip #6.
#6 Reduce order sizes
Order smaller volumes of inventory more frequently. It helps to manage your cash flow and keeps your inventory levels lower, which will prevent you from being saddled with an overflow of obsolete stock if business changes. Once again, MRP system can play a crucial role in maintaining lower manufacturing inventory levels.
#7 Forecast more accurately
If you have a reliable way of forecasting demand, you can all but eliminate excess stock and drastically reduce the chances of it becoming obsolete. MRP systems utilize data from each of the manufacturing processes to provide the most accurate forecasts possible. Along with an efficient supply chain, the manufacturing inventory software can allow you to keep your stock levels low confidently.
#8 Switch to versatile components
Depending on the type of manufacturing you do, using materials or components that are versatile or interchangeable will help reduce your inventory. Keeping a material in stock that you can use in various products translates into a smaller inventory and lower costs. If the material has a high turnover, you can order it in smaller quantities and more frequently, as mentioned.
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- Reduce supply chain lead times
- Reduce production lead times
- Automate your purchasing
- Order smaller quantities
- Forecast with accuracy
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