So you are a manager and you are in search of cost-effective ways to reduce inventory?
We term these tactics as levers for reducing inventory.
Cycle Inventory/Pipeline Inventory
The primary lever is to reduce the lot size. JIT (Just in Time) Systems use extremely small lot sizes. But again, making only changes in Q (Lot Size) and neglecting other modifications of business processes can result in devastating scenarios. For example, setup cost can shoot visibly, leading us to use secondary levers.
1- Streamline methods of placing orders and making setups, so that costs proportionate to decrease Q may also be reduced
2- Increase Repeatability; it may include flexible automation, one worker - multiple tasks concepts or group technology, devoting resources to a product exclusively.
Safety Stock Inventory
The primary lever to reduce safety stock inventory is to place orders closer to the time when they must be received. But this approach can lead to undesirable customer service scenarios and stockouts. Four secondary levers can be used in this case:
1- Improve demand forecast so that there may be little surprises through using judgments or statistical tools available (we will discuss about them in times to come)
2- Cut lead times through using efficient sources of transportation. Also local alternate suppliers can also be used to cut lead times exponentially.
3- Suppliers can be reliable if demand forecast may be shared with them.
4- Always keeping an account of capacity cushion and labor buffers (cross-trained workers)
Anticipation Inventory
The primary lever to reduce anticipation inventory is to simple match demand rate with production rate (in vendor/manufacturer communication)
Secondary levers may be as follows to reduce anticipation inventory
1- Add new products with different demand cycles.
2- Provide off-seasonal promotional campaigns
3- Offer seasonal pricing plans
We term these tactics as levers for reducing inventory.
Cycle Inventory/Pipeline Inventory
The primary lever is to reduce the lot size. JIT (Just in Time) Systems use extremely small lot sizes. But again, making only changes in Q (Lot Size) and neglecting other modifications of business processes can result in devastating scenarios. For example, setup cost can shoot visibly, leading us to use secondary levers.
1- Streamline methods of placing orders and making setups, so that costs proportionate to decrease Q may also be reduced
2- Increase Repeatability; it may include flexible automation, one worker - multiple tasks concepts or group technology, devoting resources to a product exclusively.
Safety Stock Inventory
The primary lever to reduce safety stock inventory is to place orders closer to the time when they must be received. But this approach can lead to undesirable customer service scenarios and stockouts. Four secondary levers can be used in this case:
1- Improve demand forecast so that there may be little surprises through using judgments or statistical tools available (we will discuss about them in times to come)
2- Cut lead times through using efficient sources of transportation. Also local alternate suppliers can also be used to cut lead times exponentially.
3- Suppliers can be reliable if demand forecast may be shared with them.
4- Always keeping an account of capacity cushion and labor buffers (cross-trained workers)
Anticipation Inventory
The primary lever to reduce anticipation inventory is to simple match demand rate with production rate (in vendor/manufacturer communication)
Secondary levers may be as follows to reduce anticipation inventory
1- Add new products with different demand cycles.
2- Provide off-seasonal promotional campaigns
3- Offer seasonal pricing plans
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