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inventory cost control steps to save cost

Updated on March 16, 2011

invnetory cost control methods

We don't give much of importance to inventory lying in our stores or warehouse . Its when some consultants points out that we have blocked moneys in these stocks that we realise that something has to be done to cut cost of inventory . following are certain steps which one should take to reduce cost on inventory.

1. Codify all items which are kept as stock in stores or warehouse .Use any inventory management software to track stocks and movement from one centre to another.
2. Classify items by ABC so you know what are high value items and keep a tab on their consumption and procurement . Next focus on low value items .
3. Examine value of items on basis of return on investment .
4.Identify high stock out items and then adjust buffer stock on cost trade off basis
5.Examine all items for safety stocks with respect of lead time , demand , stock out cost , carrying , ordering don't pile up stock intuitively
6. Do physical stock verification periodically and eliminate dead stocks ,accept obsolescence write off for these items .
7. Determine Economic Order Quantities of all items.


inventory cost control ideas
inventory cost control ideas


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      Sajeesh Chandran 7 years ago

      For a manufacturing company, there will be some deliberate attempt from the costing department to cut down the cost per unit produced by increasing the volume of output as its possible to reduce the fixed expenses per unit when we have mass production. But we should be very keen in such situations concentrating more on the inventory carrying cost of such SKUs, like holding cost and cost deterioration. In such situations the ABC analysis, based on the turn over (fast and slow moving) of the SKUs has to be made systematically and a decision has to be taken.

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      SAJEESH CHANDRAN 7 years ago

      The said techniques are so useful, if those are managed very effectively. Let me say, while we proceeding with depleting the critical items the life cycle study of those critical items are also to be done systematically. Along with this an efficient management of stock levels and EOQ can play vital role in controlling the inventory cost up to a certain level.