Zero Inventory: The Benefits of Owning Less

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Zero inventory refers to the idea of little to no stock kept on hand and orders are fulfilled using the Just-In-Time (JIT) business model. This is implemented by major companies and lean manufacturing leaders, such as Toyota and Dell, and serves its purpose of keeping inventory costs low, reducing the risk of obsolescence or spoiling while maximising free capital that can be used in new business endeavours. In this article, we consider how zero inventory may be achieved and what some of the benefits are of its adoption.

How to tend towards zero

Zero inventory is a fantastic goal to aim towards for various reasons, however the risk that is avoided by having little to no inventory on hand, must of course be absorbed somewhere else in the supply chain and this usually occurs higher up with the supplier. Instead of ordering large amounts of stock, orders are placed at the time of a customer order coming in. This, of course, relies on a robust supply chain where demand, forecasting, ordering and sales data are transparent, transport is efficient and reliable, and suppliers possess the ability to fulfil orders at short notice.

Let us consider how suppliers do this. They must either re-organise their manufacturing model to accommodate smaller and more frequent production runs, or they themselves must identify suppliers further up the chain who can accommodate this method of fulfilment. Although complex to implement, zero inventory can be well worth the hassle of implementation.

Benefits of zero inventory

Reduced storage costs and risks

Storage is expensive, there is no doubt about it. If inventory is stored for a long period of time without being sold, the product can run the risk of becoming less valuable and the company loses the money it invested in the product. Therefore, the least amount of stored product equates to a reduction in risks and storage costs which acts to increase the bottom line.

Reduced time and labour costs

Just as storing product incurs costs, it also incurs time and labour to look after and organise. Stored inventory must be organised neatly, so it can be found and used appropriately. It must be moved when new stock comes in and it must be counted during stock-takes. As the saying goes, time is money, and wasting time on copious amounts of stored product can cost a company dearly.

Ideal for start-ups

Zero inventory requires less stock in the warehouse and so a company is only liable for smaller bills with their supplier due to reduced order volumes. Sometimes, it might be that they are not required to pay a bill until they have sold the merchandise and generated some cash flow. This is a far more preferable inventory management method for companies in their infancy as there are fewer risks involved and fewer funds required upfront.

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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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