What If You Could Reduce Inventory Costs By 30 Percent?

It’s well known that inventory management is a key driver of supply chain value. No other logistics area contributes as much to supply chain cost reduction. Unfortunately, the average business’s inventory management strategy has struggled to keep pace with the global, multi-party outsourcing of the modern supply chain.

Supply chain optimization is a continuous goal that relies on process innovation and a willingness to embrace new strategies. And when these new strategies can reduce a business’s inventory costs by as much as 30 percent across the board, a marked distinction will be created between businesses that adapt to new strategies and those that don’t.

Inventory Optimization

According to research by Aberdeen Group, 91 percent of companies indicated that they were reviewing opportunities for improving inventory performance through process changes. Despite these efforts, enterprises have struggled with inventory optimization. Among the challenges that produce significant expenses for inventory management are:

  • Expedited shipping costs to meet demand
  • Redundant infrastructure and labor investments
  • Excess inventory kept on balance sheets during key reporting periods

Each of these variables poses a challenge for businesses operating with current inventory management systems.  And while these processes have allowed businesses to grow their supply chains to the global level, new strategies are evolving that offer significantly higher levels of competitive and cash advantage.

Inventory On Demand

One innovative new strategy has recently entered the market, known as Inventory On Demand (IOD). Unlike current inventory management systems, IOD transfers ownership of inventory to a third-party service provider who actively manages it across each leg of the supply chain. This methodology allows businesses to time and place shift inventory procurement to increase supply chain service capacity.

The process begins at the factory dock, where the inventory title is transferred from a business to an IOD provider. This provider works with each vendor in supply chain and identifies the most optimal transportation routes for shipping inventory across the globe. As inventory nears its point of final fulfilment, the IOD provider routes shipments to strategically-located distribution hubs. When a customer orders, a pull signal is activated and the inventory is sent from the distribution hub to the customer’s door. This system allows business owners to keep excess inventory off their balance sheets without sacrificing service quality or supply chain agility, as inventory is only logged after a sale has been made.

By leveraging IOD solutions as a natural evolution to your current supply chain solution, businesses improve inventory management and reduce costs in numerous ways:

  • Minimizing buffered inventory costs by time and place shifting procurement to create a system of immediate product availability
  • Increasing service performance by leveraging in-transit goods as a store of inventory
  • Decreasing warehousing and distribution costs by housing goods closer to the point of final fulfilment

IOD guarantees constant product availability for all customers without relying on buffered inventory or maintaining excessive stock on balance sheets. It removes the uncertainty of supply and demand and provides faster service fulfilment at lower costs than any other solution on the market. Inventory cost reduction is where the biggest supply chain benefits begin—but guided by IOD-based improvements, operators gain stronger and more agile supply chains that create substantial value over time.

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