Stock reduction

What does stock reduction mean?

The stock in the company exists to meet customer demand. Due to more competition and a growing market with with rapidly changing products and functions to increase the price of inventory. The process of stock reduction ensures that a company's inventory is reduced without creating out-of-stock situations and is able to meet customer demand at all times. Usually, it is implemented with the help of special software. It is also one of the most effective strategies for cost reduction in inventory management and is used to eliminate excess products, free up warehouse space, save money, reduce inventory costs, increase warehouse processes as well as profits.  

Many companies have problems with excess inventory. This can be caused by poor warehouse organization, incorrect demand forecasting, poor inventory control, and more. Keeping track of inventory levels and calculating the optimal reporting point is key to avoiding this problem. 

Benefits of stock reduction

A stock reduction is usually done when there is a need to make room for new items. Items that have been in storage for a long time and are selling poorly do not need to waste storage space unnecessarily. Appropriate measures ensure that companies can increase their competitiveness, reduce capital commitment costs and thus invest elsewhere. So reducing inventory has several benefits:

• Reduce capital commitment
• Reduce inventory costs
• Improve delivery performance
• Increase planning accuracy
• Accelerate material flow
• Always have the right quantity in stock
• Increase throughput times
• Make storage areas and quantities visible
• More flexibility
• Less depreciation/ spoilage

Increased liquidity: reduce stocks sensibly

Low stocks ensure that capital can be freed up for investments. Products that have been stored for a long time and do not generate sales should not take up space unnecessarily. Stocks tie up capital - but inventory reductions should be made on the basis of accurate sales forecasts to avoid shortages. In many companies, a stock reduction is an important first step in making the best use of existing warehouse capacity. Reducing safety stock of tending slow-moving items, for example, can free up a lot of tied-up capital for other purchases. Apart from increasing cash, stock reduction also increases the logistical efficiency of a warehouse. Therefore, stocks should ideally be kept as low as possible without affecting the company's ability to deliver.

However, especially in the case of large inventories, it is difficult to maintain a balance between reducing unproductive stocks and the risk of out-of-stock situations without appropriate software for demand-driven inventory management. Stock reductions should therefore only be made on the basis of accurate sales forecasts.

The use of software

An ERP system already plays an important part in recording and managing the company's inventory. However, especially with an extensive portfolio and in view of the rapidly changing markets, an ERP system quickly reaches its limits. There is potential here for optimizing inventory levels. The scope of the flow of goods and the supply chain is constantly increasing, making it increasingly difficult to maintain an overview. 

Special software helps to make inventories transparent, identify potential savings and optimize stocks on a sustainable basis. It calculates the optimum order quantity for all items, taking into account various factors such as dynamic safety stock. In this way, the company's ability to deliver can remain consistently high without incurring unnecessary costs. 

The software should also be able to distinguish between one-off and seasonal outliers. In this way, the stocks can be adjusted to an adjusted seasonal pattern. Ideally, current trends, promotions, holidays and sales deadlines are also included in the sales forecast. This enables stocks to be reduced while maintaining a high level of delivery capability. The calculations are based on ABC and XYZ analyses, which allow safety stock levels to be controlled by article class.

The goal is to use appropriate software to determine the optimum inventory level so that demand is covered at all times without having an unnecessarily large number of items in the warehouse at the same time or running into out-of-stock situations. Stock reduction is therefore part of inventory management.