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Top 8 Ways to Reduce Inventory Costs in Your Warehouse
By Angela Carver
Why Focus on Cost Reduction?
Supply chain businesses worldwide are constantly competing to gain market share, optimize operations and reduce costs.
For many supply chain solutions providers competing on cost has proved to provide a significant competitive advantage. To compete on cost, it is necessary to first reduce costs.
There are many ways for your business to reduce costs. Let’s take a closer look at the top 8 areas where cost savings may be available.
Optimize Facility Layout
• With some warehouses, distribution centers and manufacturing facilities spanning hundreds of thousands of square feet a lot of time is spent traveling from one location to another and back again.
• Analyzing inventory flow through rates can help you to identify fast moving items or items that require constant replenishment.
• Identifying these items can help you prioritize putaway and picking locations within your facility, putting fast moving items closer to staging areas.
Optimize Facility Layout
• Strategically organizing your warehouse facility can help to reduce travel time and associated costs such as maintenance on lift trucks, labor hours and more.
• Once inventory priorities have been determined you can associate location priorities within your warehouse management system.
• This will help to improve labor efficiency by automating picking and putaway route optimization.
Implement EDI Solutions and ASN
• Electronic data interchange is a method of sending and receiving information with little to no human disruption. Once received EDI data is typically transferred to supply chain software where data is available instantly.
• This communication method is used frequently in supply chain and manufacturing industries due to its ability to increase information visibility, provide data to your staff in real-time, simplify operations and improve supplier relations.
• The implementation of EDI can result in significant cost savings associated to order fulfillment
• Manufacturers, on average, spend $78 to process each order when ASNs and EDI are not used
• With the use of EDI your business can reduce that cost to approximately $0.01 -$0.02 per order
Learn more about EDI in the warehouse
Implement EDI Solutions and ASN
• Advance shipment notices are electronic records containing order information that are typically sent to supply chain solutions providers via email or electronic data interchange (EDI).
• Once ASNs are received order information is transmitted directly into your warehouse management software
• Using advance ship notices (ASNs) to transmit incoming order information can help your supply chain facility to properly schedule your workforce, plan concurrent outgoing shipments, optimize order receiving and much more.
• This helps to reduce costs associated to:• Handling and putaway of inbound inventory• Wasted labor hours when overstaffed• Manual order entry• Much more…
Forecast
• Demand forecasting is the process of estimating product or service quantity based on previous activity.
• Utilizing forecasting in a warehouse management capacity allows your team to more effectively determine what inventory levels will provide you with the best balance of order fulfillment efficiency and reduced costs.
• More closely monitoring sales trends allows your business to reduce carrying excess inventory, reducing the associated storage and handling costs.
Use Analytics to Make Inventory Adjustments
• With analytics derived from demand forecasting your business can also make any inventory adjustments as needed ranging from:
• Reducing on-hand quantity• Eliminating low performing product lines
• These types of adjustments can free your sought-after warehouse space for new customers and reduce unnecessary inventory holding costs for slow moving product.
Take Advantage of Bulk Discounts
• If your supply chain facility owns inventory, holding costs and labor associated to handling are not the only costs to consider.
• If there are opportunities to receive bulk discounts on items that are fast moving, there is further cost savings to be recognized.
• These bulk discounts can reduce the cost of the inventory item itself. Combined with reduced labor and holding costs, significant cost savings can be passed on to customers.
Implement Crossdocking
• Crossdocking is another method that many supply chain solutions providers use to reduce inventory holding costs. Rather than keep quantities of inventory on-hand, distributors often use crossdocking to ship items to end consumers and retailers as they are received rather than storing excess inventory.
• This helps your business to create a more efficient just-in-time (JIT) inventory management strategy.
Implement Crossdocking
• Crossdocking can help your supply chain business to reduce costs in areas including:
• Shipping/delivery• Inventory holding• Order fulfillment labor• Transaction processing
Learn More About Crossdocking
Monitor Workforce Performance
• Monitoring labor Key Performance Indicators (KPIs) and comparing them to industry benchmarks enables your business to assess and adapt how you manage your workforce.
• Having labor tracking and custom labor reporting integrated into your warehouse management system allows you to monitor, report on and make changes to your labor strategy in real-time, reducing wasted labor in the process.
Postpone Final Manufacturing
• For facilities performing manufacturing or final assembly, storing inventory in a work-in-process (WIP) format can potentially reduce the amount of space required for storage and the associated storage costs.
• This scenario is optimal for manufacturers with customers who do not require short lead times on final products.
• WMS software that includes a manufacturing module can assist your facility in managing manufacturing execution as needed using demand forecasting, product component and final product tracking.
Conclusion• Effectively managing your inventory and workforce using proper
technology and processes can give your business an opportunity to be more successful in winning new business, especially with companies that are price sensitive.
• You can do this by:
• Utilizing analytics for forecasting and inventory adjustments• Optimizing your facility layout and inventory flow• Implementing EDI and ASNs• Getting specialized pricing on large quantities• Focusing on JIT with crossdocking• Monitoring labor KPIs and make adjustments• Postponing final component manufacturing
Making some adjustments to your operational processes can result in major benefits for your business, today and in the future.
