The importance of inventory optimisation

The importance of inventory optimisation

All businesses need to make sure they have the right amount of inventory in the right places to meet the demands of the business.

The balancing between supply and demand can be difficult, too much inventory can lead to cash flow issues and the costs associated with storage and waste. Not enough and customers orders get delayed or unfilled. 

 

Key benefits

Businesses that excel at inventory optimisation have a strong understanding of demand. 

For capital intensive organisations there are real benefits of improved inventory optimisation. You have the opportunity to minimise your inventory investment and free cash flow while lowering your supply chain costs, improve forecasting and ultimately increase profits.

Businesses that excel at inventory optimisation have a strong understanding of demand. They therefore have the flexibility in their supply chain to reduce/increase inventory level as demand changes without sacrificing availability for customers or impact on customer service levels.

Challenge to achieve 

Most businesses have an understanding that while optimisation is a good thing, it can be difficult to achieve. There are many challenges - businesses often goes through periods when they have high inventory levels as they seek to meet customer expectations.

By the same token, they may go through other periods where sales are slow and costs are scrutinised - which will lead them to reduce inventory levels. In addition, increased commodity prices and higher travel costs have led to some businesses moving away from inventory optimisation and instead stock piling inventory. 

In fact there may be certain commodities that are in the businesses benefit to hold in volume. But given the global economic issues and the increased level of competition, any efficiencies and cost savings that can be achieved through inventory management can be used to your advantage over your competitors.

Achieving the right balance

Businesses need to regularly review their stock levels and put processes in place to try and accurately forecast demand. Using averages when planning inventories frequently leads to problems. By contrast, targeting accuracy is a much more successful way of achieving the full benefits of inventory optimisation.

The key is for businesses to achieve the right balance so that cash flow remains strong, wastage is low and margins are not hit too hard but customer service remains the main priority.

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