5 Causes of Inventory Waste That’s Costing Your Business and How to Avoid Them

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Inventory waste can cost your business valuable time and resources. Inventory ties up capital and if you’re not managing it effectively it will quickly absorb important cash flow and worse, it can hide inefficiencies within your operations.

It is crucial to optimise inventory control to help reduce your inventory waste. However, before you can reduce waste, you need to first understand where this waste occurs. Based on the principles of lean manufacturing, we have identified five areas of inventory waste where companies can reduce waste to improve productivity and lift profit.

1. Overproduction

Producing too much stock in advance means you not only incur the high costs of holding inventory, but you could also be left holding stock you’re unable to sell.

Avoid overproduction by making things only as quickly as the customer wants. Just-in-time inventory lets you hold the minimum stock required to keep your business running. You can order what you want for your immediate needs and limit overproduction by only producing what is needed, when it is needed.

Accurate forecasting would also inform your manufacturing decisions. Here’s how to incorporate demand forecasting to your business.

2. Delays

Delays, referred to as the ‘waste of waiting’, increase production costs and generally occur through the inefficiencies of processing bottlenecks or late delivery of supplies or information.

Manufacturing bottlenecks can also adversely affect the entire processing chain. Whether waiting for a delivery of raw materials, a previous task to be completed or a machine to be fixed, having employees sit idle while they wait is a cost to the business.

Mitigate delays by automating the entire inventory replenishment process using smart software solutions for timely deliveries. Look at optimising other areas of your business such as your warehouse to help manage production flow and efficiency.

Watch the webinar How manufacturers use cloud software to unlock productivity gains. Watch now

3. Inventory defects

Defects can result from poor design and equipment to lack of operator training and non-standard procedures. The costs associated with inventory defects include the price of problem solving, rework, rescheduling, extended lead times, delivery fails and a very real likelihood of unhappy customers when you have failed to meet their needs.

Eliminate inventory waste by reducing raw materials, work in progress and finished goods. The leaner your inventory stock on-hand is, the easier it is to recognise and rectify defects as they occur. Invest in modern equipment and the right software that helps the business to remain competitive while maintaining a consistent quality while helping to reduce waste.

4. Over-processing

Doing more than the customer asks for sounds like a great way to encourage loyalty but it can very quickly result in inventory waste. If what you are doing doesn’t increase function, appearance or speed to market of a product, then it represents an inventory waste. Over-processing can also include double-handling or excessive product packaging.

Review each step in your operations to determine where waste can be effectively reduced. Any process inventory stock goes through that does not change its value should be eliminated.

5. Transportation

Overproduction of inventory is a leading factor in transport waste. This increases the need for manual handling, moving stock from one functional area to another with your warehouse or transporting inventory between factories and stores. Excessive transportation and handling increases the chance of damage or loss and every moment your loaded trucks are inactive at a loading dock can be considered inventory waste. From drop trailer programming to expedited freight, there are numerous reliable solutions that keep your freight moving seamlessly and your customers happy.

Manage resources to reduce inventory waste

Effective cost-cutting is the ability to reduce your material waste while keeping product quality high. This includes making good use of your electricity, gas, water and any other resources and will lead to greater resource efficiency, reduced environmental impacts and an increase in profits.

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Melanie - Unleashed Software

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.

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