How to Minimize Inventory Waste in your Warehouse

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Keith CoppersmithBusiness Consultant

Friday, February 7, 2020

Inventory waste can harm your bottom line in multiple ways. Be it raw materials or finished goods, each piece of inventory costs your business; these could be the costs of inventory movement and transportation, the storage space, packaging, administration processes, and so forth. Not to mention the costs of damages and obsolete products.

Article 4 Minutes

Storage waste requires greater machine capacity and requires hiring more employees. It prevents you from turning over your products efficiently, leads to shipping delays, and hides inefficiencies in your daily operations.

Apart from harming your bottom line, these issues can also compromise your overall brand image and hurt customer satisfaction.

Here are a few simple tactics to use to reduce and prevent inventory waste.

1. Understand the causes of inventory waste

Apart from eliminating inventory waste from your warehouse, you also need to know what causes it so you can prevent it in the future. Now, waste can be defined as any kind of material or item that doesn’t deliver value to a customer or contribute to your bottom line.

These are the most common types of inventory waste you should be familiar with:

  • Overproduction: producing more of a product than is needed.
  • Over-processing: putting more in a product than is expected by customers.
  • Motion: often related to overproduction. The costs of transportation include moving items from one area to another, keeping your loaded trucks inactive, product damage, etc.
  • Product defects: often a result of using unreliable manufacturing procedures or the lack of employee training. These problems lead to rework, higher lead times, delivery delays, and greater customer dissatisfaction.
  • Slow business processes or inefficient collaboration.
  • The waste of resources: failing to use your resources effectively.

2. Consider inventory management software

In the past, businesses needed to manage their inventory levels, waste, and manufacturing data manually. This often led to inconsistencies, harming both their cash flow and performance.

Today, with the evolution of sophisticated technologies, managing inventory is simpler. Reliable manufacturing software lets you integrate inventory management with other significant business processes, including sales, purchasing, and manufacturing. With such tools, you can handle orders from multiple channels, print inventory labels easier, and use barcodes to increase your data safety.

Above all, by observing your business processes holistically and eliminating silos, you’ll have a better picture of your inventory efficiency. For example, you will be able to use your historical data on sales, suppliers, or transactions to detect areas that need improvement, get a 360-degree overview of your customers, and identify new market trends.

3. Forecast inventory demands

Inventory waste is often a result of the inability to manage product control. Therefore, to reduce it, you need to regularly estimate your inventory needs. Inventory forecasting is a scientific approach to predicting your market demand and sales. This process also relies heavily on collecting and analyzing marketing trends, your sales, and historical customer data.

The simplest kind is naïve forecasting that compares your historical data with your current data and uses these stats to predict your current inventory demand. The only problem lies in the fact that it doesn’t include any market variables, such as holidays, slow months for retail sales, competitors, changes in customer behaviors and habits, etc.

Another type of inventory forecasting is demand forecasting. It’s more precise, as it considers numerous factors and variables when conducting the market analysis. To provide a well-rounded picture of your target market, demand forecasting combines quantitative data (exponential smoothing, seasonal indexes, moving averages, Box-Jenkins models) with qualitative data (game theory, customer surveys, sales force composite, prediction methods, historical life-cycle analogy).

4. Recover and Recycle

What you consider inventory waste may be an invaluable resource for someone else. That’s why you need to invest in recycling. As well as helping you minimize inventory waste, recycling will make your business greener and build trust with your customers. You can recycle numerous materials like paper, plastic, textile, and metal, so encourage employees to sort recyclable materials and even assign someone to control the bins.

Product recovery is a similar process that includes reusing your inventory waste for another purpose. Many popular companies create products out of recycled content, for you, this means reducing waste, going green, and reducing costs.

Over to you

Keeping your inventory waste low and product quality high is one of the most powerful ways to gain a competitive advantage, build trust with customers, and boost your bottom line. First, you need to understand the different types of inventory waste and their causes. Second, invest in a piece of software that will streamline your manufacturing processes and integrate your key activities. Third, analyze your market and audit business processes to estimate your future inventory demands. Finally, recover and recycle to make your business processes more sustainable, eliminate waste, and cut costs.

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Keith Coppersmith

Business Consultant

Keith is an Adelaide based business consultant with a degree in Media Management

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