How you will reduce your inventory value which is already covered the limit ?

Hello Ans,

A lot has been written about inventory, which function it has and about costs. I will not go further into these facts. However I can give you my experience in inventory management. You can reduce your inventory by2 main things. In case of having a warehouse with a lot of SKU’s you buy less than you sell, or you have to sell more than you buy. Suppose that you cannot sell more than you buy, you can do following to reduce inventory.

Make an analysis of all your stock items using the ABC analysis. Qualify fast movers, slow movers and non movers (items that have not been moved for over a year; obsolete stock). Determine how much stock you want to have per SKU in your warehouse. Determine which method you want to use to determine your planned stock level (e.g. mean moving average for historical data, or just determine for new articles your stock level). Which articles have a lot of added value to your profit, and which do not have it? Make a choice what to do with item that do not have much added value. But beware of liquidating them, it is possible that some items are service items (e.g. if you do not have them, your client will not buy items which have a lot of added value). In which stock items is the most capital invested? In case of having too much stock: can you easily perhaps with promotions sell items? Is there a possibility to contact your supplier if he wants to take some material back (slow movers, non movers, overstocked items)? Can you give these items another function (change properties) so you can sell it better? If you contact your supplier, does he want to cooperate with you to let you have consignation stock? Consignation stock gives you a very good possibility to reduce your invested capital in stock and still you have availability. Remember, the less capital you have invested in stock, the better your results.

If you are working in a production environment, it is almost the same. Buy less raw materials and produce less than you sell if possible. If not possible in case of e.g. long lead times, determine on which level you want to have your stock level. It is almost always possible to have these stock levels on the cheaper half products. Determine also where is your critical path and your bottleneck (read ‘The Goal’ from Eli Goldrath).

There is so much to tell about this issue, that it is difficult to start with the beginning. I hope this answer can satisfy you and other people that wants to reduce stock.

Best regards,

Leon Kloor