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13 Winning Solutions to reduce inventory even further


Antoine Grand'Maison

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Many managers of inventory, when attempting reduction, frequently turn to the tried-and-true techniques. These practices may include a periodic review of inventory, instituting cycle counting procedures, and shifting inventory ownership back to the suppliers. These, and similar practices are an excellent starting point. However, others with more experience tend to  » raise the bar  » and become more creative in their approach to inventory reduction. They devise and apply unique approaches to further reduce their inventory.

Floating inventory plan helps to quickly adjust to developing market conditions. The director of inventory planning and pricing at a large retail chain for farm equipment and products relates how he has implemented a floating inventory plan.  » The plan quickly adjusts purchases to demand in reaction to current market trends,  » he explains.  » Thus far, this methodology, which has been developed in-house, has proven to be extremely successful as it enables us to attain our annual turn and gross margin return on investment.  » Other tools he uses are inventory turn ratios and an inventory balance index.

Incentives paid to inventory personnel spurs increase in inventory turns.  » We benchmark inventory turns and offer quarterly incentives to inventory control personnel for exceeding budgeted turns for each quarter,  » relates the inventory control coordinator at a small producer of piping for fire protection systems.  » We have seen a 15 % increase in turns during the six months that the plan has been in place,  » she shares.

Salary increase dependent upon achieving inventory reduction goals. In a similar situation, the material manager at a large producer in the food sector indicates that they, too, benchmark inventories and combine it with a pay for performance plan for their warehouse supervisors.  » Our supervisors’ wage increase and bonus are awarded, in part, on their efforts to reduce inventory and increase turnover rates. «

Developing a pull system both internally and externally reduces stock levels.A business unit manager at a midsize producer of fluid systems share, We are implementing a pull system of components between us and suppliers and internally between individual departments. This has necessitated a more formal stocking agreement with suppliers and more frequent and timely communications of production rates from us to the suppliers.

Moving from an MRP driven to pull system with Kanban. The supplier now hold the safety stock that once held by the purchaser. The Kanban cards are scanned twice a week resulting in two material deliveries per week. Beside eliminating thousand of purchase order and invoices, the Kanban system handles spikes in demand better than MRP. The result has been in significantly fewer work stoppages because of parts outages.

Modifying software to reflect actual conditions slashes raw material inventories. The director of manufacturing/planning at a midsize producer describe her problem as managing obsolete inventory and reducing present raw material inventories. Through a careful evaluation of how our existing software really works, we modified some aspects to reflect the way we really do business. In some example the raw material can be reduce by 20% during the first year of operation.

Solving bill of material problems which lead to large inventory deficits. Major organizations are using order process mapping to reduce cycle time. They think by doing this study with department and functional representative on a team, they will better identify the inventory control problem.

Ordering fewer part more often reduce inventory and frees additional floor space. The purchasing director at a small manufacturer explain how the delivery of parts are now based on actual two weeks buckets of required amount versus the monthly forecast which has been based on history. Switching to a local vendor that can deliver more frequently fewer part would in some case reduce inventory by 8% while increasing available floor space by 10%.

Smaller order quantities help reduce overall inventory levels. Generally speaking to much asset is tied up in inventory. As a solution, the single biggest improvement was in ordering in small quantities within efficient cost efficient limits. The success of the program has been reflected in a lower carrying cost while avoiding back orders.

Hybrid MRP/Kanban system doubles inventory turns. In a manufacturing environment, all subassembly are Kanban driven, while all finished goods components are MRP driven. This has allowed us to double our inventory turns while reducing inventory dollars.

Centralized haulage process slashes inventory level and dollars. One solution was to centralize the haulage process which reduced stock levels at each serviced center since their needs were managed and service from a national warehouse.

Benchmarking and JIT combination leads to higher turns. Many inventory manager benchmark there inventory performance with other similar enterprise. Also with the introduction of JIT the field warehouses have been able to realize quick replenishment, so there is less requirement to keep slow moving items on the shelves.

Days supply on hand a new metric introduced, highlights slow moving inventory quicker. Generally speaking this initiative linked with an ABC analysis provide an easy way to identify and act on the high dollar slow moving items more quickly.

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