No matter what industry you work in, it’s easy for costs to creep in. There is a lot to manage, and over time, you can lose track of the various bills, services, and overhead your company accrues.
Fortunately, in our modern world, there are plenty of tools at your disposal to combat creeping costs. For those in the manufacturing sector, an inventory management system is one of the best tools available. In this post, we’re going to look at how good inventory management helps reduce costs for manufacturers.
How inventory management helps reduce costs
Setting minimum stock
Also known as “par levels”, your minimum stock is the lowest number of a particular product you plan to carry. Whenever your item stock falls below your minimum stock, it’s time to order more of that product.
How does this save you cash? By setting the right par level for each item. If your par level is too high, you risk having slow-moving stock for a particular item which can increase storage costs.
On the other hand, if your par level is too low, you risk not having enough of your product, costing you sales. To keep things balanced (and improve your expenses), be nuanced and specific with the minimum stock level you set for each product. A generalised approach may be easier, but you’ll end up paying for it later.
Real-time forecasting is heavily related to your minimum stock, so getting the two right around the same time is a good idea.
Demands are constantly changing, and consumer and enterprise trends can come and go in a flash in the online world. And when they do, you’ll either be the business that missed out, overcorrected, or handled the changing tide just right.
An inventory management system can help you master your real-time forecasting by collecting data and presenting it in a clear, intuitive way. This will help you better understand where the market stands and quickly clue you in on how you can capitalise on the moment. This way, you won’t over-order on a short-lived trend or underestimate the staying power of a hit product.
Production scheduling is one of the most important and often least effectively implemented practices for manufacturing businesses. Production scheduling is deciding what will be manufactured, where it will be manufactured, when, and how long after manufacturing before the product is sold.
This is not something you want to wing. It can lead to unpredictable product availabilities, low stock during high demand (and vice versa), and other core challenges that will cost your business heavily.
With an inventory management system, you can simplify your production scheduling by unifying your forecasting, stock levels, and orders all in one place. You’ll be able to see where you stand, get an idea of where you need to be, and as a result, create a cost-efficient schedule.
First In, First Out or FIFO is a good way to keep costs down. This is especially effective for the food and beverage sector, where product spoilage is a concern.
That said, it applies to non-perishable products as well. By following FIFO, you can reduce the chances of products wearing out or experiencing damage before being sold. You can be sure you’re freeing up valuable space within your warehouse.
Supply chain management and relationships
Another highly effective way to reduce your manufacturing costs is to form solid, lasting relationships across your supply chain. Forming strong relationships with your suppliers helps you get the best deals and can land you exclusive access to sales, inventory, materials, and more.
Regular communication with suppliers can also give you early insights into supply chain disruptions and opportunities. So much of what we do as manufacturers relies on our suppliers, so being connected to them is a must.
Auditing is an essential part of financial housekeeping for manufacturers (and one that an inventory management system can help with). Auditing allows you to check for a variety of things that are costing your company money, including:
- Double-checking your stock levels
- Removing out-of-date stock
- Comparing your current suppliers against other options
- Clearing discrepancies throughout your warehouse
All businesses make mistakes and find discrepancies in their records, which can lead to additional overhead that grows with time. Regular auditing is one of the best ways to counteract these costs. And using the data from a smart inventory management system can make the auditing process much easier.
For those not in the know, dropshipping is when you ship directly from your manufacturing site or through a third-party wholesaler. This is different from traditional shipping, where you store the product in a warehouse until it sells.
The benefit here is that you spend less on shipping and storage. While it’s not always advisable for larger businesses, it can be a great tool for leaner business models.
Make cost-savings your new norm with a smart, configurable inventory management system
When it comes down to it, one of the best ways to follow the above cost-saving practices and more is by using an inventory management system. A configurable platform like Workhorse will help your business save money by automating many of these tasks, performing detailed stock reports, helping you set accurate minimum stock levels, improving your forecasting capabilities, and making auditing a breeze.
Book a demo today and learn more about how Workhorse can empower your business.