Zero Inventory: A Primer for Manufacturers

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With more and more businesses touting zero inventory as the secret to their success, boards and executive teams are increasingly looking at cutting stock as a way to gain a competitive advantage. Zero inventory is the practice of keeping little to no inventory often through a use of just-in-time production or manufacturing inventory as a consumer orders a product. Amazon, the second company in the world to be worth $1 trillion, wouldn’t be where it is today without the use of zero inventory practices in its businesses.

Manufacturing inventory to order

One obvious example of Amazon’s use of zero inventory is its Marketplace where it provides a platform for sellers but holds none of the products listed itself. Other large web-based businesses also use a zero inventory model which has consumers place orders for products through their websites which link into manufacturers through online inventory management software. The seller themselves order directly from the manufacturer who then ship the product shipped to the consumer.

Another example of a business which practices zero inventory and just-in-time production is Dell, the computer manufacturing company. It is widely known and used as a promotional tool used by Dell for manufacturing inventory to order. They hold minimal stock of finished products which allows consumers to customise their product and feel like they are getting a product created just for them. This is a clever use of zero inventory and inventory control as it makes the consumer feel like they get to customise their computer, while Dell benefits from reduced warehousing costs and capital tied up in stock.

Zero inventory’s effect on manufacturers

Zero inventory moves stock back up the supply chain to the manufacturer removing the risk from the retailer of holding a large amount of product that may not sell. Manufacturers need to anticipate factors affecting inventory management and minimise the risk to themselves of being stuck with a large amount of inventory.

Online inventory management software allows manufacturers to track demand for products based on historical trends and map out future product demand. This, in turn, allows for manufacturing inventory management and products to only be manufactured when it is anticipated there will be a demand from consumers via end retailers for the product. Accurate forecasting of demand for inventory stock minimises costs to a manufacturer of having large amounts of stock sitting in warehouses unsold.

The supply chain effect of zero inventory

As the trend of zero inventory takes off it is changing the way which consumers are supplied with products. Manufacturers now often will send products directly to the consumer without it passing through the retailer who may have initiated the order. This means producers need to use manufacturing inventory management software to anticipate the demand on the supply chain in advance. Manufacturers need to know what transport demands such as the need for road and air transport they will require to get products to consumers. They will also need to ensure that they have enough warehouse space to hold packages while they await shipping, whether there may be reasons for holding stock to meet spikes in demand which may not be predicted. Manufacturers will increasingly need to use inventory manufacturing software to match this new trend and minimise the risks to their businesses and revenue.

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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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