How to effectively reduce your stock levels

There is often potential in companies to reduce stock levels. The following are usually stored

  • Raw materials and primary materials,
  • auxiliary and operating materials,
  • semi-finished goods
  • and finished goods.

Goods are stored in order to have them available for subsequent production steps. Thus, stored goods have the function of a buffer in the overall process. If one reflects on this definition, ideas already arise as to which goods should not be stored. Availability can be ensured in other ways through agreements with suppliers than through own storage.

The more stock, the higher the costs

Storage not only entails the procurement and payment of the stored goods, but also costs for the storage space taken up, the storage and retrieval process, which incurs costs, and the liability for the goods. There may even be slow-moving items that cost money on an ongoing basis.

In other cases, one will be inclined to store more of certain goods than before because one has overestimated their availability. In any case, there is potential for optimisation in companies with regard to warehousing.

Not just reducing inventory, but storing it smarter

Warehousing costs money, but it can increase production efficiency. We are dealing with an optimisation question that a good controller should be able to solve. In many companies, key figures are kept on the development of the total storage volume. However, it is not just about reducing the warehouse value to a certain target value, but about the quality of the composition of the warehouse stock. And for that you have to look a little more closely into the stocks. It is easy to recognise slow-moving items. Unfortunately, manufacturing companies often have incredibly high stocks of slow-moving items. These can be reduced through special promotions for selling to customers. After all, it is often possible to achieve certain sales revenues for written-off articles, which have an effect on earnings. Unfortunately, the implementation of such campaigns is not a matter of course because neither sales, nor purchasing, nor warehouse management sees this as their task. Implement such campaigns regularly in your company so that liquidity flows into your company and unnecessarily occupied warehouse space is freed up. Create this breathing space for yourself! The other items in the warehouse stock should be examined for their usefulness for the round trip of the business process. The starting point of the considerations should always be the requirement for availability. Before items are put into stock, possibilities for framework agreements with suppliers as well as quotas of items available for call-off from suppliers should be examined. In this way, liquidity and stocking can be optimised. Of course, there must be no shortage of materials. Missing operating and auxiliary materials and input materials can cause machine downtimes and make expensive and capacity-consuming retooling necessary. The interests of production must always take precedence in decisions about stockpiling.

The optimal stock level

Optimal finished goods inventory levels depend largely on the company’s business model. If the finished goods are standard items, the optimal stock levels can be determined from past sales figures by extrapolating into the future. Statistical methods can also be used to determine the optimal stock levels.

Replenishment of stock levels is triggered by minimum and maximum stock levels to be defined. If product variants are involved, a statistical determination is not sufficient to determine the optimal stock levels. Rather, you are dependent on information or assumptions about the concrete future orders of your customers. Reliable personal customer relationships are just as useful as order forecasts that you can obtain from your customers. In return, you can promise your customers shorter delivery times.

Reduce inventories – not only in manufacturing, but also in trade

Even in trading companies, which usually only store finished goods, stock levels can often be reduced significantly. Here, too, the task is to identify which items cannot be turned over. Conduct sales campaigns for these slow sellers. What cannot be sold at all, be sure to scrap it so that you can concentrate on the current “fast-moving items”.

The stored quantities of other articles can also be reduced. In the case of trading companies, however, make sure that the company is able to deliver. Some articles hardly turn over, but are indispensable in the assortment to be able to sell other attractive articles. For such strategically important items, refrain from selling off and scrapping them.

For some items, it is necessary to promise suppliers larger minimum quantities in order to obtain them at all. These minimum quantities often exceed multi-year sales expectations. Try to make consignment agreements with suppliers for these items, which will preserve your liquidity and save you on warehousing.


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