Every piece of inventory your business holds has a physical cost associated with it as well as less obvious costs. These costs also include transportation and movement of this inventory, the storing space required, the use of containers and packaging, the administration of tracking inventory, the cost of damages, losses and writing inventory off that has become obsolete, even to the costs of insuring inventory.
Precious time and resources are tied up in inventory and if you are not managing it effectively it will quickly deplete valuable cash flow that consequently will not be available for other parts of your business. Understanding strategies to help prevent inventory waste is imperative so businesses can reduce this costly excess and improve the bottom line.
Inventory waste is occurring because there are inefficiencies in your business’ workflow causing inventory to build up before or after different processes. If this is happening to your business, then this is a good indication that your processes need reviewing. In order to help prevent inventory waste, you need to be able to identify it. One of the best ways of achieving this is to increase your inventory visibility as much as possible, including up-to-date inventory management systems, at every step of the process.
1. Implement improved inventory management systems
If you are still manually recording inventory levels, waste, and manufacturing information, stop! Often this produces inaccurate data that results in creating inaccurate inferences. A good inventory management system will help businesses keep quality levels high, reduce inventory shrinkage, and reduce excessive inventory waste. Just in time manufacturing processes involve ordering raw materials and other inputs only when absolutely necessary. JIT management is a strategy that is best facilitated through online inventory management solutions.
2. Contingency plans for equipment failure
Modern equipment helps businesses stay competitive, reducing waste and keeping quality consistent. However, equipment and machinery can fail. With this in mind future planning is important to help prevent inventory waste that can be a direct consequence of this. Try creating protocols for repairing equipment, having contingencies in place, and ensuring the relevant employees understand these contingency plans.
3. Recover waste
Look carefully at the waste you are disposing – can any of it could be put back into the production process or reused for another purpose? Products are being increasingly manufactured with recycled content. Where possible, use materials that have already been recycled or can be reused, recycled or recovered to help prevent inventory waste.
The true cost of excess inventory levels should be analysed carefully before a business orders excess raw materials. Lean manufacturing can eliminate such unnecessary costs by matching production to demand in real time to eliminate the need for excessive inventory, warehouse and equipment space; inventory reduction is just one facet to reducing inventory waste. For manufacturers, using raw materials more efficiently can bring significant cost savings. To help prevent the waste of materials, continually assess systems and revise procedures and policies. This should be an iterative process that needs to be monitored, to continuously identify areas that could result in major cost saving benefits that directly impacts your bottom line.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.