Keeping inventory costs – a lot. Traditionally, manufacturing and distribution businesses have held inventory stock, usually at an expensive but what was seen as necessary surplus, to ensure their ability to produce sufficient goods to meet customer demand, thereby generating revenue and profit. But your company can now cut expensive stock-keeping costs and improve customer service at the same time thanks to zero inventory.
Inventory stock costs
It has been estimated that holding inventory can cost as much as a third of that inventory stock’s unit value. But access to the materials and goods necessary for production is essential to the success of manufacturing enterprise, businesses have typically chosen to combat the risk of under-supply or stock-out by holding a buffer of inventory stock in high-cost warehouses or distribution centres that carry significant financial overheads. That’s all changing with more manufacturers and distributors moving towards zero inventory.
Zero inventory stock
Zero inventory management threatens the traditional supply chain and is behind the success of some of the worlds biggest businesses. Toyota and Dell, for example, have for decades both popularised and benefited from forms of zero inventory management at the vastest scales.
While it isn’t a new idea, it’s only now being widely realised and used by companies big and small around the world, largely thanks to advances in digital stock management technology.
Benefits of holding zero inventory
Zero inventory stock saves money
Zero inventory management will reduce, if not eliminate, the traditional costs of holding stock, driving down ultimate manufacturing costs and thereby maximising profits.
Zero inventory stock speeds sales
With a zero inventory management strategy, businesses can reduce the time taken to fulfil orders and meet delivery deadlines, improving customer service and increasing stock turnover – both key indicators of a healthy, highly-performing business.
Zero inventory stock frees capital
With less capital tied up in maintaining inventory, a manufacturing business has the freedom to invest in and/or pursue other profitable business projects.
Zero inventory management is taking off in many innovative businesses worldwide. The enormous Amazon Marketplace, for example, relies on thousands of distributor companies’ zero inventory strategies. Manufacturers and distributors are beginning to take advantage of the efficiencies and cost savings offered by zero inventory management. So take stock – your business can benefit too from zero inventory!
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.