Various inventory optimization strategies can be used to achieve optimal inventory levels. These levels are determined by the factors of inventory level, order quantity, and delivery reliability.
These factors can be optimized using the following approaches:
- ABC analysis
- Determining optimal ordering procedures
- Reviewing the MRP parameters
An ABC analysis establishes the relationship between inventory value and consumption value. This determines the access frequency of a product. This method helps identify slow-moving items that take up valuable storage space. Products with low access frequency can thus be reduced to create new storage space. Dead stock generates no revenue and should be removed from the warehouse entirely.
The determination of the optimal ordering procedure follows the ABC analysis. You now know how long each item remains in stock and can therefore order more effectively and cost-efficiently. Items with a high access frequency require a fixed ordering procedure. They come and go, with inventory levels remaining as consistent as possible. Stockouts or excess inventory must be prevented. Items with low access frequency should be stocked at the minimum required storage capacity or removed from the product range entirely. These products can be handled as special orders in the future. The ordered goods go directly to the customer or are stored in a buffer warehouse. The company can continue to offer these goods for sale but saves on storage costs.
The disposition parameters relate to purchasing, which is usually handled centrally. Reorder and safety stock levels are used to determine when specific goods need to be purchased. In addition, transportation costs and delivery times must be taken into account. Large shipments of goods result in lower purchase prices and eliminate transportation costs. At this point, however, it is essential to consider the ABC analysis. How much of each item do I need? Volume discounts on purchases do not necessarily ensure optimal inventory levels. Large, and perhaps partly unnecessary, shipments of goods result in the loss of valuable storage space.
Direct consultation with all affected departments can also help optimize inventory. For seasonal items, for example, computer data does not always provide the correct answer, since demand for a particular item varies depending on the season. In winter, for example, fewer lawn mowers are sold, while more snow shovels are sold.
For more information on inventory management, see Inventory Strategy – FEFO.
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