Inventory reduction is about eliminating excess inventory, improving inventory turn rates, increasing inventory turnover, and meeting on time delivery. Excess inventory ties up money and needs to be reduced in order to free up cash for investment in revenue-growth activities. One of the major problems to inventory reduction is the mistaken notion that improved inventory control management is all that is required to improve inventory rates, increase inventory turnover and provides an on going inventory reduction program. Certainly, lack of control contributes to excessive inventory, but often an organizations negative reaction to material shortages, and that the major focus of most material groups is to supply required inventory and not look for ways to improve inventory turns, is the driving factor in poor performance in inventory reduction.
Many companies have achieved inventory reduction and improved on time delivery by implementing systems such as Enterprise Resource Planning (ERP), Just in Time (JIT), Kaban, and other approaches to inventory management, and these systems do reduce inventory and improve inventory turnover, but there is still room for improvement. There are some basic steps that any company can use to improve inventory turnover:
Set a realistic objective for inventory levels.
Identify those items that are in excess of acceptable inventory levels
Identify obsolete and defective inventory.
Make a list of actions to be taken to reduce the inventory
Devise new procedures to help eliminate future build up of inventory.
Measure, measure, measure
