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Understanding logistics inventory management

Written by business on February 11th, 2010

Many experts believe that a successful supply chain management is based on the efficient logistics inventory management of inventories and inventory control. Different industries manage their inventories in a different way. Depending on the inventory management your company employs, expect to incur varying degreey of inventory costs. Knowing the underlying factors that influences costs will guide you in decidinig whether to have large or small inventories.

In a way, food companies are quick to embrace a logistics inventory management strategies to reduce costs compared with the agribusiness industry. A group of food manufacturers and grocers launched the Efficient Consumer Response almost 20 years agoto veer away from the traditional practice of controlling logistical costs to examining supply chains.

The industry also realized then the importance of customer service as a crucial competitive differentiation point for firms which are focused on value creation for end consumers. Learning to characterize inventories into two distinct categories, such as cost reduction and improving customer service for the system to be effective.

The idea is to have a balance of inventories and solve the problem of maintaining a large inventory (which can lead to huge expenses) as against having too little inventory (which can also result to lost sales).

Most companies believe that reductions in inventory could result to reduction in costs in supply chain management. A significant drop in inventory costs have been reported by many companies since 1982 totalling 60% reduction, as well as a 20% drop in hauling costs. The inventory strategy in supply line has proven to be a very effective way to reduce inventory costs as reported by most companies. To effectively draft an effective logistical strategy, your operations managers must first fully understand the principles of product demand, inventory costs, and supply chain capabilities.

For an effective logistics inventory management strategy, a company must use one of the three general approaches to management inventory. The first step is to carefully consider inventory levels, and watch for the most common approach such as the inventory control approach practised by majory of retailers. Also, most manufacturers are focused in maintaining their production sechedule and flow management to monitor inventories. Third, a number of firms (for the most part those processing raw materials or in extractive industries) do not actively manage inventory.

Tags: inventory, logistics, management