With the volatile supply chains sparked by COVID-19, many distributors were forced to thoroughly analyze inventory levels and reduce expenses while maintaining great service levels. Because the cost of carrying inventory is 25-55 percent of inventory value each year, efficient distributors realize that the cost savings from reducing consignment inventory are both one-time and ongoing.
So, how can distributors meet inventory cost-reduction targets this year?
Optimize Inventory Stocking Levels
With actual usage data, distributors can more efficiently manage and replenish consignment inventory in their customers’ stockrooms. Replenishment based on order history instead of actual usage can create forecast errors, especially when demand is volatile and the supply chain is unpredictable.
The right technology will tell distributors how much cash can be freed up by removing inventory from the customer site that is unneeded, reducing carrying costs yet still maintaining the correct levels of on-hand stock. And when they know what products their customers will order, in what quantities and on what date, distributors can also optimize their own distribution centers.
Increase Inventory Turns
Increasing the inventory-turnover ratio means increased efficiency and a faster rate of payment on the inventory. For example, if ABC Distribution has $500,000 of inventory in their customer’s stockroom, and it is turning over four times per year, ABC is being paid every 91 days (not good) and has $125,000 in cash tied up in inventory.
By increasing inventory turns by just one per year, ABC Distribution now gets paid every 73 days and lowers the cash tied up in inventory by $25,000 annually, which also reduces inventory-carrying costs. One way to do this is by adopting an inventory replenishment app that can track usage and optimize consignment inventory, to ensure you are only stocking a customer's shelves with the items they absolutely need.
Eliminate Dead Stock
Distributors can identify slow-moving, dead or obsolete stock much faster with a replenishment app based on actual usage than with traditional forecasting and reordering parameters of other software systems. This allows them time to explore ways to eliminate the extra stock most profitably.
Get More Value from Your Sales Team
Distributors need every tool at their disposal to reduce consignment inventory costs and to utilize one of their most expensive assets - their sales team - for revenue-generating work rather than manual tracking. Technology that optimizes consigned inventory is not a luxury, but a necessity today to not only meet cost-reduction targets, but to shift a distributor’s focus to selling, providing a better customer experience and inspiring customer loyalty.
Rock Rockwell is CEO of eTurns, a point of use inventory management app that automates inventory replenishment in stockroom and service trucks using phones, RFID and TrackStock SensorBins. Contact Rockwell at email@example.com.