Inventory costs are a major expense for many businesses, and even the most effective inventory control procedures can leave executives cringing at the figures on cost reports. There are many best practices that enable companies to gain tighter control over their inventory, and as a result, the associated costs.
But if you’re facing increasing inventory costs and need to determine the most effective way to cut inventory costs and see results, what’s the best way or the single tactic that can result in real cost savings? To gain some insight into the best strategies for cutting and regaining control over inventory costs, we asked a panel of executives and inventory managers to answer the following question:
“What’s the single most effective way to lower inventory costs?”
Find out what our experts had to say below.
Meet Our Panel of Inventory Managers and Executives:
Gary C. Smith
Gary C. Smith is the president of NAEIR. For more information on how companies can realize an enhanced federal tax deduction on donations of excess inventory, contact NAEIR at (800)-562-0955 or [email protected], or visit www.naeir.org. Since NAEIR’s founding in 1977, it has collected and redistributed over $3 billion worth of new, donated supplies and equipment. Over 7,000 corporations across the United States have donated merchandise to NAEIR to support schools, nonprofits and charitable organizations while at the same time taking advantage of tax deductions and reducing storage costs. NAEIR members gain access to that merchandise for free, and NAEIR handles sorting, processing, cataloguing and redistribution of the merchandise. NAEIR’s services to donating corporations are completely free.
“The most effective way to reduce inventory costs is to…”
Manage excess inventory. Even the most efficient of companies often stumble when it comes to managing excess inventory. Common practices such as discounting or liquidating items devalue products and undermine sales. Today, Ecommerce can magnify that problem, making it easier for shoppers to find products for cut-rate prices. But it doesn’t have to be that way. Here’s how to avoid the biggest inventory management mistakes, and come out on top.
1. Make a plan. It sounds simple, but one of the biggest mistakes companies make is to put off decisions about what to do with their slow-moving inventory. But the inevitable accumulation of inventory could lead to a company paying increased taxes at the year’s end.
2. Avoid the hoarder mentality. Leasing additional space to store overage might sound like a good idea, but all it will be doing is contributing to the profitability of storage and logistics warehouse companies—and incurring more costs.
3. Rethink liquidation. Selling excess inventory for a dime or even pennies on the dollar may cost more than just a loss in profits for those items. The product may wind up in secondary markets competing against a company’s efforts to sell current stock. When price comparisons are just a click away, you can bet that many customers and potential customers will choose the cheaper option.
4. Move on. Sure, you can continue to sell merchandise that has become outdated or stale, but why would you want to? If sales have tapered off on certain products, there is no reason to believe those sales will magically pick up at a later date. Why not move on to newer, more attractive and likely more profitable product lines?
5. Remember employees are not your customers. Sure, employee discounts are a nice perk, but offering unsold items at steep discounts to employees is just a Band-Aid approach that will only mildly— and temporarily—reduce inventory levels.
6. Employees are not charities either. Thinking about spreading some good will by donating excess inventory to your staff? If employees are allowed to take moderate amounts of product home with them, expect that product to start showing up on eBay.
7. Avoid landfills. Besides risking multi channel products landing on the secondary market, in today’s environmentally friendly society, do you really want to tarnish your company’s image by just dumping products in the trash?
8. Donate for tax benefits. Through the help of a gifts-in-kind organization, excess inventory can be donated to nonprofit schools, civic groups, churches and other charitable organizations that need it. If you’re a Regular C Corporation, you can receive an up to twice-cost federal tax deduction. Plus there is no worry about the products finding their way back on the open market. That’s because provisions in the tax code stipulate that donated merchandise cannot be resold, bartered or traded and must be used in a manner consistent with the charity’s mission.
When you weight the pros and cons, donating excess inventory to a company that distributes it to charities nationwide could be the best way to solve inventory headaches while protecting a company’s brand and bottom line.
Kayla Ethan works at Rebateszone and has written articles on major media outlets like Huffington Post and Lifehack. In her spare time, she loves to rock climb and snowboard.
“The single most effective way to lower your inventory costs would be to…”
Establish a JIT (Just in Time) inventory. However, depending on the type of business it may or may not be possible. For example, if you have an assembling business, introducing JIT can bring your inventory storage costs down to nil. However, to set up the system you need some really reliable suppliers and efficient management. Just order the materials before the products are to be delivered. Assemble them and then send them on. This will reduce the overall inventory management costs, as you will no longer have to rent large warehouses and guard them.
The beauty of this system lies in the fact that it does not have any effect on product turnover and final product volumes can be increased or decreased based purely on demand.
Eric M. Chen
Eric M. Chen is an Associate Professor of Business Administration at the University of Saint Joseph, where he teaches the strategy, law, and finance courses at both undergraduate and graduate levels. Prior to becoming a professor, he held a variety of senior-level managerial positions in the financial services industry, where he led or participated in transactions totaling over $1 billion in value.
“The simple answer to your question is this: the single most effective way to lower inventory costs is to…”
Keep as little inventory as possible.
From the business standpoint, this means that you have your inventory when your customer is ready to buy it and take it home. There’s good news and there’s bad news on inventory.
The bad news is that inventory costs money.
There are significant costs to storing inventory. It takes up space. Having inventory sit in a warehouse incurs costs. Sometimes, the storage costs are particular to the kind of inventory that you have. For example, if you’re storing perishable choice cuts of beef, you might need refrigeration..
You might also incur costs in moving inventory from one place to another. Consider a situation where your company has a warehouse in Salt Lake City, Utah but your customer is in Bangor, Maine, where you happen to have a store. You’ve got to get your inventory from Utah to Maine so that you can sell it to your customer. You can look at strategies such as drop shipment. You should also consider what kind of product it is that you are selling. It isn’t just perishable items that will give you pause for additional thought. Think about shipping and packing glass bottled beverages, which are heavy and don’t pack easily.
You will also have a problem with inventory if it becomes obsolete or you can’t sell it. Sometimes, companies try to hide inventory that isn’t moving. Clothing designers and manufactures may choose to offload such items by selling their unsellable wares to T.J. Maxx or by employing an outlet strategy. Unsellable doesn’t mean defective. It could mean that you ordered too many items or the style didn’t take during a particular season. This happens regularly – think about the day after Christmas holiday sales.
So, the easiest way to avoid these problems is to have less inventory on hand, and only have inventory when your customer is ready to buy.
The good news is that there are tools – relatively inexpensive ones, even – that can allow a company to track and manage inventory. The technology is there. Companies like UPS and Fedex know where their packages are at any given time during the shipping process. Knowing how much inventory you have at any given time is very possible. When Wal-Mart sells an item at the register, a message is sent to the supplier of that item so that restocking can occur immediately. Having inventory show up on a just-in-time basis occurs often these days, and not just in the manufacturing or automotive industries.
The emphasis then, should be shifted to customer acquisition and the transaction itself. If you know when your customer is ready to buy, then you can arrange to have the inventory on hand. You should try to find out as much as you can about your customer – why the customer buys, when the customer buys – so that you can anticipate your customer’s purchasing behavior.. This doesn’t obviate the need for a showroom to display wares, but does give the opportunity to achieve efficiency in just-in-time inventory.
Ultimately, the strategies to achieve holding as little inventory as possible have to do with the collection of good data that leads to just-in-time inventory that is available when your customer is ready to go home with your product.
Bob Shirilla is the owner of Simply Bags, a U.S. distributor of personalized and custom tote bags.
“The single most effective way to reduce inventory costs is through…”
As an alternative to purchasing large quantities of inventory, partner with suppliers and have them become an extension of your fulfillment center. If correctly done, a reduction in capital, lower risk, and improved logistics
can be realized.
The key success factor is to require selected vendors to act as “One Face to the Customer” and provide a seamless user experience. This involves total business integration of order management processes and systems.
This model facilitates business growth with limited capital expenditures.
Jay Dwivedi is a management consultant who helps senior executives make better business decisions about strategy. He is the founder of Xinvest Consultants.
“The single most effective way for organizations to reduce inventory costs is…”
Throughout my experience, I’ve noticed several problems including…
1. Companies not tracking their inventory costs.
2. Trying not to upset their customers by running out of inventory – they end up stocking anything and everything in an effort to meet the needs of their customers. They fail to realize that they lose money on many orders despite being able to claim that they have everything in stock all the time.
3. Failing to invest in technology that can help them track inventory (you will be surprised by how many companies still use paper records or just spreadsheets to manage their inventory) and its costs.
So the single most effective way to deal with this huge financial burden is to use technology to accurately track what they have in inventory and how much it is costing them.
Anderson Schmitt is the founder of Alura Beauty Shop.
“We lowered our inventory costs through a mix of…”
Drop shipping and personal storage.
Products with high demand go to my own warehouse, and products with low demand are sold through drop shipping.
Basically the problem is that storing inventory in a warehouse is expensive, but has lower shipping costs. Drop shipping doesn’t have storage costs, but does have high shipping costs. By using a combination of these two models, I have low shipping costs for products I sell all the time, and have no storage costs for products that don’t move as frequently.
Jim Herst is the CEO of Perceptive Selling Initiative, Inc. and helps businesses build sales and accelerate cash flow.
“To reduce inventory costs, companies should…”
Commit to key suppliers, seek product on consignment, and guarantee payment within 24 hours of ‘draw/use.’ A supplier benefit may be space savings as well as ‘instant payment’ on use, rather than waiting days from a future billing date.
Bob Dixon was on the front line of Supplier Management, and strategic sourcing for Honeywell, Siemens, Teradyne, and Brooks Automation. Today, he consults and is a keynote speaker at corporations and universities where he sometimes guest lectures on topics such as Supplier CRM, Strategic Sourcing, and Asia Pacific Sourcing.
“There are many things which drive inventory cost. One of them is…”
The design; a second is what you pay for the inventory, and finally the MOQ you are required to buy from your suppliers.
The best strategy to lower both the purchase price of the material and to reduce MOQ is to create strategic relationships with your key suppliers. These are the suppliers where you spend 80% of your purchasing budget. It’s easier to negotiate lower material purchase cost when the supplier knows you are looking at creating and fostering a long term relationship – one that can be mutually beneficial to both companies and strategic to your business.
Another way to reduce inventory cost is to insure the product(s) is not over designed. In other words it is designed to perform its intended function – which the customer is willing to pay for – but it is not designed with capabilities or functionality that customers do not want. So be clear on what needs of the customer or market you are seeking to satisfy and design your products to support those needs.
Angie Stocklin is the Co-Founder and COO of One Click and its three global eyewear brands: Readers.com, Sunglass Warehouse, and felix + iris. Angie oversees business operations, including customer service, order fulfillment, merchandising, and vendor account management.
“The most effective way to lower inventory costs is to…”
Decrease the amount of inventory that you have on hand by increasing your turns. Faster turns will increase the pressure on your purchasing team, but will reduce your chances of getting stuck with a lot of aged or slow moving inventory.
Jake Rheude is the Director of Business Development for Red Stag Fulfillment, an efulfillment company born out of ecommerce, and designed for ecommerce. When the owners of e-retail businesses could not find a high-quality fulfillment partner, the decision was made to build the ideal fulfillment partner themselves. The result, Red Stag Fulfillment; a company taking a new approach to the fulfillment industry by sweating the small stuff so that you don’t have to.
“Particularly for ecommerce businesses, the single most effective way to lower total inventory costs is to…”
Avoid self-inflicted wounds when receiving, processing, and shipping product. Any failure within your operation or on the part of a third party’s fulfillment company’s operation, creates unnecessary and expensive artificial supply variation, which can drastically increase the cycle time and cost to process inventory and get it to your customers.
Implementing a JIT (Just In Time) or other lean inventory management solution is only effective when the inventory can be received, processed, and made available to customers in a unwaveringly consistent and accurate timeframe. A JIT model that predicts an increased demand of specific products coupled with a procurement team that ensures delivery of those products before the expected demand spike, sees all of its efforts lost if the inventory is not received, processed, and made available to customers in time for the increased demand.
Furthermore, errors or inaccuracies of actual inventory levels can leave money on the table (when unaccounted for inventory is not sold due to an incorrect inventory count) or cause significant added costs to required to expedite additional inventory to customers when there is a false overcompensation of inventory levels. The same criteria holds true processing inventory into orders. Any process that is unnecessarily repeated or lengthened due to product mispicks, erroneous labeling, or lackadaisical packing, causes increases in labor, materials, and ultimately drives up the cost of inventory contained in an order. Not to mention the effect on a customer’s lifetime value when their order arrives late, damaged, or incorrect, and the subsequent process that then must begin to fix the customer’s problem.
Alex Reichmann is the CEO of iTestCash and a retail loss prevention expert. His career goes back to his families roots when his Grandfather owned the company Dri Mark, which invented the counterfeit detector pen.
“One of my favorite ways to reduce inventory costs is to…”
Keep track of the statistics of all our products. By doing this it can help you to predict the demand for your products, which in turn helps us save money both in terms of investment we put into the products and so we don’t end up overstocked on any items. It is important not to be low on inventory either, so having a little bit of an extra inventory can be good as well.
AJ Saleem is the Director of Suprex Private Tutoring, a leading private tutoring and test prep company based in Houston. AJ has created a big dent in the private tutoring market by offering well-trained, high qualified teachers who are also dynamic instructors. The company also operates in New York and Chicago.
“One of the most effective ways to reduce inventory costs is to…”
The majority of my company’s inventory is based on test prep material as well as other learning tools, and that can take up a lot of space. In order to save on these costs, e.g., test prep materials, I would actually print the material as needed. To achieve this sustainability I purchased a laser printer to save on costs. 10,000 pages costs less than 10 dollars using this method, and I do not have to store the material. In addition, I purchased Amazon Prime in order to save on inventory space. They have a feature, Amazon Prime Now, that allows me to receive my item in 2 hours, which is enough time for me. Finally, I try to keep most of my material accessible via Dropbox because it can be accessed without a physical copy. These are my main methods of saving money on inventory costs.
For the last thirty years or so Jim McCallum has used his unique Be the Best approach to help some of the leading companies around the world dramatically transform their business operations and become the best in their sector.
“There are several best practices companies can use to reduce inventory costs…”
In most companies, inventory levels are a consequence of supply chain efficiency into, thru, and out from the company. Too often, they are determined on a purely arbitrary basis as some form of insurance. However, they are a very expensive form of insurance, often utilizing vast amounts of working capital that could be better used elsewhere in the business.
Minimum stock levels at any point in the supply chain are determined by cumulating the precise requirements of five elements, and then adding a sixth element if required. The five elements are:
– Variability in demand
– Variability in supply
– Cycle time
– Shipping time
– Safety stock
The sixth element that may or may not be added depending on circumstances is Strategic stock. Let’s look at each of these elements separately.
Variability in Demand
Demand patterns are determined by a combination of the Volume of product ordered and the Frequency of ordering.
For ‘REGULAR’ demand patterns, with a high level of certainty and consistency, you don’t need to carry any stock to cover for variability in demand – because there isn’t any.
For ‘VARIABLE’ demand patterns, with less certainty and consistency in terms of volumes, you need to carry a ‘LOW’ stock level – typically the average customer demand rate for one cycle of the production rhythm wheel. This ‘LOW’ stock level cushions the difference between the variability in demand volumes and the consistent production volumes.
For ‘SPORADIC’ demand patterns, with less certainty and consistency in terms of frequency, you need to carry a ‘MEDIUM’ stock level – typically the average customer demand rate for two cycles of the production rhythm wheel. This ‘MEDIUM’ stock level then cushions the difference between the variability in demand frequency and the consistent production frequency operated by the plant.
For ‘ERRATIC’ demand patterns, with less certainty and consistency in terms of both volume and frequency, you need to carry a ‘HIGH’ stock level – typically the average customer demand rate for four cycles of the production
rhythm wheel. This ‘HIGH’ stock level then cushions the differences between the variability in demand volume and frequency and the consistent production pattern of the plant
The recommended typical stock levels in the above scenarios should be taken as starting points. Your main focus as far as variations in demand are concerned, is to use modern principles to move your supply patterns to ‘REGULAR’ in order to eliminate the need to carry any of these stock levels.
Variability in Supply
At any given point in the supply chain, you need to carry enough stock to cover for any variability in the supply patterns. This variability could arise because of various operational problems such as unexpected changes in
thruput time, yield levels or quality problems. In a modern production operation, these problems should rarely occur.
For ‘REGULAR’ supply patterns, with a high level of certainty and consistency, you don’t need to carry any stock to cover for variability in supply – because there isn’t any. This scenario should be the norm in a modern production operation.
For ‘VARIABLE’ supply patterns, with less certainty and consistency in terms of volumes, perhaps because of variable yield levels or inconsistent thruput times, you may need to carry a ‘LOW’ stock level – typically the average customer demand rate for one cycle of the production rhythm wheel. This ‘LOW’ stock level then cushions the variability in supply volumes.
For ‘SPORADIC’ supply patterns, with less certainty and consistency in terms of frequency, perhaps because of quality problems or material supply issues, you may need to carry a ‘MEDIUM’ stock level – typically the average customer demand rate for two cycles of the production rhythm wheel. This ‘MEDIUM’ stock level then cushions the variability in supply frequency.
For ‘ERRATIC’ supply patterns, with less certainty and consistency in terms of both volume and frequency, perhaps because of a combination of the above, you need to carry a ‘HIGH’ stock level – typically the average customer demand rate for four cycles of the production rhythm wheel. This ‘HIGH’ stock level then cushions the variability in supply volumes and frequency.
The recommended typical stock levels in the above scenarios should be taken as starting points. Your main focus as far as variations in supply are concerned, is to use modern principles to move your supply patterns to ‘REGULAR’ in order to eliminate the need to carry any of these stock levels.
Cycle time in this context means the cycle time of the applied production rhythm wheel category. So, for example, Category A products would have a cycle time of 1 week, Category B products 2 weeks, Category C 4 weeks, and
Thus at any given point in the supply chain, you need to carry enough stock to cover for the production rhythm wheel cycle time applied in the immediate upstream production center. In other words, if you ran out of stock on a given product, it would normally take one production rhythm wheel cycle to replenish it, so you need to have enough stock to cover for this eventuality.
Shipping time in this context means the normal time it takes to ship from the immediate upstream production center. Thus, if you are based on the West Coast, and your supplier is in Europe say, then the normal time to ship could be several weeks if the normal method is by sea. You therefore need to carry enough stock to cover you for this shipping time.
However, you do of course have the option in emergencies to ship by air, so you might reduce your shipping time stock level to one week on this basis.
Safety stock means the level of stock you need to hold to cover you for unforeseen events such as equipment breakdown or process failure in the upstream production centers. Hopefully these would be very rare occurrences, but nevertheless you need to cover for them.
In most instances, with modern operations in place, the recovery period should be quick, and therefore you should only need to carry one, or at the very most, two week’s safety stock level. However, you should make a proper evaluation of the risks of such occurrences, and carry the required level of safety stock accordingly.
In conclusion therefore, your total stock holding level at any point in the supply chain, and particularly with finished goods at the distribution center, is determined by cumulating or aggregating the stock level requirements of the five elements outlined above.
However, depending on circumstances, you may want to carry additional strategic stock at certain key points in the supply chain to cover for unpredictable catastrophic events, such as a major fire, earthquake or flood, or a pandemic illness, or a major systems fault, that renders a key supplier incapable for several weeks or months. These events have a very low probability of occurring but have a potentially huge business impact.
Many world class companies proactively develop and maintain business continuity plans that allow them to continue operations in the face of such major events. These plans usually include having alternate suppliers readily available for key materials and operations, but it takes time for such alternate actions to kick in. Strategic stocks therefore are designed to cover the risk of such an event and to bridge the gap until an alternate is up and running.
Strategic stocks are usually maintained at key points in the supply chain operating in a first in first out manner. Their level may also rise or fall in line with on-going risk assessments.
[Extracted from the online course, Be the Best in Your Business]
Dimitris Verdelis is Support and Testing Engineer at Megaventory, the leading cloud-based inventory management system.
“The best way to reduce inventory costs is through making…”
Data-driven decisions. A strong reporting solution is needed. Every company has its own pains, and different ways to optimize the inventory are needed. For this reason, it is important to have reporting tools in place that can help business owners identify ways to improve their inventory costs. An inventory management software with a strong reporting module can help to find slow moving inventory, products with large value, and to optimize the restocking or marketing efforts accordingly. The reporting module needs to allow the user to group results by products, supplier, or inventory location and to have drill-down capabilities to help businesses make the correct decisions.
Andreea Borcea works at Clever Element, a new retail gallery in Carlsbad, CA that specializes in unique clothing, accessories, toys, jewelry, gifts, and more from local and international artisans that are self-sustaining through their craft. We had new items every week!
“One of the best ways we’ve found to reduce inventory costs is…”
At Clever Element, we have focused on reaching out and partnering with new vendors in order to work out a mutually beneficial arrangement similar to consignment. We don’t have to pay inventory costs up front but our retail shop is full, they get exposure and added legitimacy from being in a retail location. While this isn’t an arrangement that will work if you only source from well-established vendors, but with enough hunting you can find plenty of high quality, sizable vendors that are looking to expand into new markets or are interested in being more closely tied to the direct selling data and they often end up getting paid more than they typically wholesale for.
Matthew Mercuri is an SEO and SEM Specialist with 10 years of experience in Digital Marketing. Under his leadership at Dupray, he has managed to expand the brand to 6 countries and to increase website traffic by over 5000%. He has worked for brands such as the Montreal Canadiens and Montreal Impact.
“The best way to lower their inventory cost is to…”
Use predictive data analysis. Conduct analytical research on browsing patterns which could lead to actionable logistics insights such as increasing efficiency in the marketing or inventory processes. (Greater queries for one specific item in one geographical market should result an increasing in marketing expenditure with a transfer of stock to that market).
After booking numerous modeling jobs for billion dollar companies such as Merz, Best Buy, and Pfizer, Zondra Wilson decided to launch a USDA-certified organic skin care line. Blu Skin Care, LLC manufactures and distributes the only American-made, USDA-certified organic powdered facial cleanser sold in the United States. Zondra is also the only female, African American owner, manufacturer & distributor of a skin care company with USDA-certified organic accreditation in the United States.
“One way to lower inventory cost is to…”
Purchase the right quantities. Your ongoing inventory count can help you make the right decision on how much of a particular product to buy. Whenever possible, avoid the temptation to buy in large volumes just to take advantage of the discounts. Instead, seek out the best deal with the smallest quantity your business must have in stock.
“A big way you can lower inventory costs is by…”
Not taking on excessive warehouse overhead costs, but rather outsourcing to fulfillment centers in low-cost areas of the country that can warehouse your inventory very cost effectively so you don’t have to take on the monthly large storage expense of owning or renting your own facility.
And the biggest and most effective way to lower inventory cost is on-time delivery. In other words, if you did not have to manufacture in Asia and could do it in America, you can turn on a dime and just make products as needed, when needed, which is exactly why we returned the whole rubber duck industry back to America – to be the only ones making them here once again. Now we can make deadlines that before were previously impossible and keep lower inventory. It was a game changer for us!
Troy Hazard has founded and nurtured 12 businesses in the recording, real estate, advertising, marketing, restaurant franchise, pool service, and technology industries. He is the author of the book Future-Proofing Your Business, former cable TV talk show host of ‘Gettin’ Down 2 Business’, regular co-host of ‘The Big Biz’ Show on CBS Talk Radio and a former Global President of the Entrepreneurs’ Organization. Originally from Australia, Troy currently lives in Florida.
“There are a few key ways companies can lower inventory costs…”
- Seek better supply chain deals in order to reduce cost of goods. Try to be more of a conduit between your vendors and your clients.
- Look to incentivize your staff to look for ways to keep the inventory costs of the business under control.
- Monitor your inventory and P&L monthly not annually – a business is typically going broke 12 months before it does, so an annual review is too little too late.
Simon Slade is CEO and co-founder of SaleHoo, an online wholesale directory of over 8,000 prescreened suppliers; Affilorama, an affiliate marketing training portal with 300,000 members and over 100 free video lessons; and their parent company Doubledot Media Limited, which provides seven different training and software applications to over 500,000 customers worldwide.
“One of the best and most effective ways to lower inventory costs is through…”
Dropshipping, which eliminates the hassle of maintaining an inventory, packaging the item and shipping it. Plus, your supplies are much more substantial – essentially unlimited.
“The single most effective way to reduce inventory cost is…”
Putting in place processes that will encourage customers and suppliers to hold inventory. For example, large customers can have a local storage for spare parts, and spare units that can be used for them to purchase immediately and put into use as needed. Suppliers can be asked to assist in various processes such as quality control, packaging etc. By letting some business processes take part at the supplier or customer locations you can eliminate defects at the source and increase the level of service quality and inventory availability. Suppliers can also ship directly to customer storage and reduce the inventory handling in your warehouse.
Michael O’Donnell is the owner and operator of Cave Tools, a high end brand of BBQ and Cooking accessories that focuses on superior strength, design & durability.
“Many companies try to reduce inventory costs primarily through tough…”
Negotiating with suppliers. While this may lower costs, it is not the most effective means because you increase the pressure on your manufacturers and can possibly force them into a position where they cut corners or produce inferior products for you. We take a relationship oriented approach with our manufacturers because we understand that for the relationship to work, both of us need to be making a profit. When we analyzed our supply chain statistics, we realized that shipping costs were the most variable costs that factored in to our cost of goods sold. By using superior demand forecasting and combining shipments into full containers instead of LCL shipments, we were able to make a significant impact on our costs of goods sold.
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