portableworkforce.com/blog » Inventory Costs » Inventory Carrying Costs: Improve Accuracy and Cost Management

16

Jan 12

Inventory Carrying Costs: Improve Accuracy and Cost Management

Interested in knowing how upgrading your manual processes to enterprise mobility hardware can help reduce inventory carrying costs for your company? Perhaps you are unaware of what these expenditures entail and how detrimental they are to your bottom line. Do you know that your inventory costs are likely driven by two main factors? One is your costs to purchase and hold inventory, while the other is your cost of losing revenue when inventory is not in your warehouse. Most enterprises assume that their carrying costs only pertain to the time it takes to purchase, hold and sell their inventory. The time it takes to complete these steps means companies must invest large amounts of capital in inventory without immediate returns. Equally impactful are the high costs associated with losing market share and sales, simply because your company does not have the right amount of inventory to fulfill customer orders. That comes from inaccurate inventory counts and tracking, which is often the result of companies that are slow to adopt best business practices with respect to how they manage their inventory. However, upgrading your warehouse management practices with enterprise mobility solutions can reduce the impact of these costs across the board. What can you expect from upgrading your inventory processes?

  1. Importance of inventory accuracy
  2. Your enterprise’s costs of sales must be measured by your company’s financing costs to support your inventory. When your company upgrades its warehouse personnel with handheld computers, you gain instant access to more accurate inventory counts. These mobile devices do away with the costs associated with manual processes, processes that often fall prey to key entry errors and inaccurate counting. Bar-coding inventory means your inventory counts are not only more accurate, but that ultimately your enterprise is able to retain more cash on hand by not purchasing too much. In addition, you’ll have an easier time consolidating the high costs associated with inventory damage, obsolescence and will have a much better picture of your freight costs on shipments. By bar-coding inventory you’ll be able to break down your monthly, quarterly and yearly costs on all things inventory related. More importantly, that information will be accurate. Just think of how much easier it will be to manage an inventory where you never have to second guess the information presented to you. Think of how much stronger that will make your enterprise.

  3. Improved material and part allocation
  4. Every company wants to be able to measure the gross profit generated on individual product lines. Upgrading your enterprise mobility solutions with barcode scanners dramatically improves material and part allocation in manufacturing. Each individual work station can be equipped with barcode scanners, allowing your enterprise to measure your costs at a granular level. This allows your enterprise to measure costs by product line. In addition, you can take this analysis a step further and analyze your production efficiency in each production work cell. Not only will this mean more accurate inventory counting, but it will also ensure that your bill of material (BOM) and assembly outlines are more accurate and up-to-date. More accurate outlines and bill of material requirements means more accurate work orders and better tracking of material allocation.

  5. Faster inventory reconciliation

How can upgrading your manual approaches with rugged mobile computers help you reconcile inventory faster? First, you’ll no longer have to worry about the costs of data entry errors. Second, your warehouse employees will be able to provide immediate updates. Third, your inventory and procurement department will have more accurate information, information that can be used to lower costs. Finally, your entire enterprise will benefit from having access to real-time, up-to-the-minute updates on part and material availability. A more accurate inventory means a less costly inventory. However, it’s not merely about what happens in the warehouse, but how an upgrade of your enterprise mobility network will improve your company’s operations. From your sales and marketing departments, all the way through to invoicing and shipping, your entire enterprise will operate faster and with improved performance.

Defining your inventory carrying costs is an essential part being able to reduce expenditures. Most companies apply a 3% to 4% monthly cost to hold inventory. However, in order to know for sure what range your company falls under, you must first identify what impacts your inventory the most. Some companies try to do this via excel spreadsheets and tables. Unfortunately, these tools aren’t live and can’t catch the day-to-day transactions accurately in your inventory and across your shop floor. However, the right enterprise mobility solution can!

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