In a world of growing inflation and persistently increasing prices, most businesses today are constantly looking for methods to control their costs. The major cost components of the average business include personnel expenses, occupancy expenses and inventory expenses. Therefore, when attempting to increase their profitability, businesses usually begin by making cuts to these cost components. Inventory expenses, in particular, comprise a significant area of business expenditure and businesses can utilize various storage methods with the aim of reducing these costs. Thus, let us examine some methods of achieving reductions in inventory expenditure.
Maintaining Close Relationships with Suppliers
Businesses that maintain strong relationships with suppliers are in a better position to decrease their inventory expenses. This can be achieved because close relationships with suppliers helps to ensure that raw materials and supplies are delivered to the business as and when they are needed. Strong supplier relationships also mean that suppliers will be more willing to quickly respond to any urgent orders. All this will allow the business to minimize the amount of inventories of raw materials held, thus helping to reduce inventory management expenditure.
Understanding Customers and Forecasting Demand
Businesses, in their attempts to minimize their inventory costs, would need to take steps to forecast the demand for their products. This would require businesses to understand their customers in terms of customer buying behaviour, preferences and habits. However, no matter how successful a business is in forecasting the demand for its products, it would find it wise to keep a buffer of inventory in anticipation of unexpected increases in demand, shortages in supply of raw materials and other unforeseen situations. In order to meet their inventory storage requirements, a business may use its own warehouses or hire storage units in Northern Beaches. Therefore, a business can minimize its inventory costs by forecasting the demand for its products and maintaining inventory levels accordingly but it must also keep a buffer of inventory in anticipation of the unexpected.
Use of Contemporary Inventory Management Models and Software
Contemporary inventory management techniques such as the Just-In-Time (JIT) Production System and Kanban Scheduling System can be utilized to minimize inventory costs. As its name suggests, JIT Production requires that inventory be purchased only when customer orders are received, with the aim of minimizing inventory levels and thus inventory costs. Kanban Scheduling is system that supports the efficient scheduling of materials and inventory in a manufacturing organization.
Businesses can also install software such as Supply Chain Management Systems, which, in addition to managing all aspects of a business’ supply chain, also includes modules for inventory management. These systems can monitor inventory levels and can even connect to the information systems of suppliers in order to automatically place orders for raw materials and supplies. Thus by increasing the efficiency of inventory management, the business can achieve significant reductions in its inventory costs.