How To Maximize Profits With These 7 Inventory Reduction Tips

Inventory reduction has been known and proven to be one of the key goals for most businesses. Dr. Muddassir Ahmed, a researcher, strategist and speaker in Supply Chain Management, Procurement and Operations Management, has outlined 7 tried and tested tips that he has used in his career and believes has returned effective results. Here they are:

Smaller order sizes

Placing inventory orders that are of a smaller volume, more frequently, is advantageous for the company and enables the management of cash flow and inventory reduction. This will reduce costs caused by keeping a higher volume of inventory, although it all depends on the product at hand. As a result, the inventory will be low, but the frequency of replenishment will be higher. Having less inventory reduces numerous risks associated with keeping inventory. For example, issues that can cause a product to depreciate in value.

More accurate forecasting

Having a consistent, reliable way of forecasting demand will disallow ordering excess stock and will reduce the chance of obsolete stock. Using all the data available and making use of recent technology can assist with reductions. A streamlined supply chain with information being passed along and shared can also increase the chance of a better forecast as more information is made available.

Improve supplier rapport

Developing a relationship between you and suppliers that is stable and continuously improves is highly beneficial to both the supply chain and inventory reduction. A solid affiliation with the supplier will mean that communication between the parties is effective. The suppliers have the best knowledge of a product they produce and this can be utilised with a good rapport as this information can be shared. Communication with the suppliers will be made much easier when there’s a good relationship in place.

Better measuring system

Implementing a system that is dynamic and will be able to note when a product needs restocking can also be very crucial. Making use of a system that can change how much to order based on how much current stock there is and a change in trends will assist in reducing any chance of obsolete and excess stock.

Pull based demand / replenish based on demand

Having a pull based demand system is another way of inventory reduction. This simply means only manufacturing the product once it has been made, as it will reduce the risk of obsolete stock given that the materials ordered are being used to make the product. Ordering inventory only as it is needed aids in inventory reduction, but this can only work if there is good supplier relationship and short lead time.

Reduce Lead Times

A reduction in lead time will result in products/materials being kept in stock for lesser time. Both a reduction in supplier lead time and manufacturing lead time will contribute to inventory reduction. WIP and cycle time will have to be measured in order to get a realistic estimation of a reduction in lead time so to reduce it all throughout. This will then decrease the risks related to holding inventory for longer periods of time.

More versatile components

Utilizing material or components that are versatile will result in inventory reduction. Getting material that can be used in many different products can reduce the inventory. This is because the one material can go into several products, and if the material has a high inventory turnover, then it can be ordered in a smaller quantity often as above.


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