4 Tips on How to Reduce the Cost of Handling Stock
How To Improve Supply Chain Efficiency
Supply chain costs account for a significant proportion of the overheads for any company, and streamlining this process has the potential to yield substantial savings, depending on the size of the operation.
Because supply chain dynamics extend well beyond your own company’s activities, to get the maximum benefit it’s necessary to approach the task systematically. The best place of all to start is at home, with an enhanced understanding of your existing stock control procedures and a better grasp of your customers’ needs.
Here are some practical suggestions to get you started.
1. Tighten Up Forecasting
Accurate forecasting is clearly the holy grail of low-cost stock handling, and, like the Holy Grail of myth, is unlikely to be attained by any of us any time soon. The harsh reality is that all forecasting is wrong; however, you can do a lot to make sure that yours approximates a minimal level of wrongness. To do this, you need to examine each part of the forecasting process in detail.
The first thing to think about is whether your forecasts are actually based on all the relevant data: if it’s mainly marketing campaigns which drive demand for your products, you need to make this factor a part of the equation.
Secondly, you must be as accurate as possible about measuring and recording the data you use for forecasting, because even a mathematical genius can’t hope to get a good result from poor quality observations. Lastly, make sure the forecasting methodology you use has a track record of delivering good results.
2. Apply the Pareto Principle
The Pareto Principle – the idea that 80% of your costs come from 20% of your inventory – is as true in stock handling as it is in other areas of business. Happily, you can use this principle to perform an intelligent analysis of your stock and rationalise it as appropriate. The idea is to make sure that your inventory accurately reflects your sales.
For the analysis you’ll need to draw up two charts: one for your sales revenue by item, and one for your inventory by item. Allocate each item into one of four groups: A (80% of sales or inventory), B (15% of sales or inventory), C (5%) or D (0%). Then view the two charts together to see how closely they match.
3. Centralise Your Warehouse Facilities
This is a contentious topic, since the size and scope of your operation may not permit the centralisation of your entire stock. But if it’s possible to centralise, you should. Because the amount of stock you hold as a buffer increases for every extra warehouse facility, which is clearly a less cost-efficient way of managing your supply chain.
Even if you’re not able to centralise completely, you can still apply centralised thinking to your stock handling. Remember that the biggest advantage of centralised stock is that it enables you to hold a reduced inventory and place orders more frequently.
Using the Pareto Principle outlined above, it may be possible for you to hold your most in-demand items centrally and run regular replenishment shuttles to your satellite warehouses.
4. Revise Your Service Level
Carrying out in-depth research into the needs and expectations of your customers can be the revelation that enables you to completely overhaul your supply chain. For example, you might be running a distributed network of warehouses and carrying a large inventory on the assumption that your customers need as short a lead-time as possible.
Very few customers would actively ask for a longer lead-time, but they might not need a short one.
So your research should focus on the way the customer interacts with your products, and how they go about ordering stock. Perhaps they would be happy to get a few critical items quickly, but wait longer for others. This is the type of research finding which can make it feasible to move to a centralised distribution model.
In many ways, the last point is the most important: it’s the golden piece of information which will stop you accidentally driving your customers away by making misguided rationalisations.
It’s best to take a holistic view. After you’ve considered all four areas outlined here, you’ll have an understanding of your supply chain and of what your customers need from you. You’ll be well equipped to ‘hit the sweet spot’ where you’re supplying the very thing your customers desire, and at the right cost to you.
For more information about how Marpak’s products can improve the efficiency of your supply chain, get in touch today.
Call 0843 289 0273 or contact us online.