How to do to greatly reduce the inventory value
Updated: Sep 26
Common to stock-keeping companies with large inventories is that they have similar challenges when it comes to lowering the inventory value. These include the difficulty of optimizing stock levels and customer service, and that there are sometimes stock shortages interspersed with excessive stock levels when sales decline and demand patterns change.
Many companies also have problems with a lack of inventory control, where the consequence can be that an unwanted amount of capital is tied up in excessively large inventories. These are challenges that have not diminished in recent years as a result of the pandemic, component shortages and disruptions in global supply chains.
"After all, we have to have high enough stock levels in order not to lose sales and make our customers dissatisfied!" When competition is tough and customer demands are tough, it can be easy to think like that. The problem is that it can lead to unwanted consequences such as high costs for stocking goods and that capital is tied up and affects cash flow negatively. This is something that many e-commerce companies recognize.
Reduced inventory values, freed up capital, improved profitability and a high level of customer service are high on the agenda of many company managements. Is it an impossible equation? The answer is no, but to succeed it requires both a long-term strategy and good system support.
Must question old purchasing routines to succeed in lowering inventory value
There are two factors that make it extra difficult for companies carrying inventory to lower their inventory values and maintain a desired level of customer service. One is the use of business systems that do not have the functionality required to optimize inventory management.
The second is that many buyers and warehouse planners have to rely on Excel as a work tool. This results in complicated and time-consuming purchasing work, and this applies not least in fast-growing companies. Control often becomes worse, capital tied up increases and customer service deteriorates.
For company management in growth companies, it is therefore important to question old purchasing routines. Once you realize that, the step from manual procedures to an automation of purchasing work and inventory control is not far away!
With Promosoft's system SOLO, a company with a couple of buyers can easily manage a tenfold increase in turnover without requiring an expansion of the purchasing department. But then what will be the effect when it comes to lowering inventory value and sharpening customer service?
One company that knows this is Schenker Dedicated Services division HDHC – Home Distribution Health Cared.
Reduced inventory value from SEK 26 million to SEK 16 million in 4 months
The department delivers healthcare products to patients' homes and has a stock range of over 1,300 items. In order to replace a system with limited functionality, and to avoid time-consuming manual procedures, a decision was made to automate with SOLO.
Two of the goals were a reduced inventory value and a sharpened customer service. Promosoft supported by setting parameters, ABC-classifying articles and setting important key figures.
After just four months, the department's inventory value had been reduced from SEK 26 million to SEK 16 million. At the same time, the customers felt that a very good customer service had become even better. Delivery reliability is over 99%.
In addition, the automation with SOLO has provided significant time savings for the buyers. It is estimated that the time saving is half a working day per purchase order.
The solution is an automated and data-driven inventory optimization
We've written about it in previous blog posts and it bears repeating here: automatically calculated demand forecasts based on statistical calculations are the best tool for reducing inventory value. The combination of manually generated sales forecasts and manual ordering routines often results in overstocking and service levels that leave customers dissatisfied.
When a company switches to an automated and data-driven inventory optimization, results come quickly, just like with Schenker Dedicated Services division HDHC – Home Distribution Health Cared.
With today's fast-changing world where stock management is constantly faced with new challenges, SOLO becomes an important tool when the goals are to streamline, improve, stock optimization and create profitability. We can tell you about many companies that achieved just that by taking the step over to data-driven routines with SOLO.
With gut feeling and guesswork, it is difficult to get optimal inventory levels
There are a number of cornerstones on which SOLO builds an automated, digitized and cloud-based purchasing and inventory control where reduced inventory values are one of the big wins. One is the automated information collection of, for example, sales statistics, trends and demand patterns. SOLO then uses, among other things, AI and various algorithms to analyze and optimize order points. With accurate demand forecasts, both overstocks and stock shortages are prevented. It is when data and automatic routines replace gut feeling and guesswork that you get correct and optimal stock levels!
Do you want to know more about how SOLO can help you reduce inventory value? Submit a meeting booking and we will help you.