Inventory Cost Control

𝗜𝗻𝘃𝗲𝗻𝘁𝗼𝗿𝘆 𝗰𝗼𝗻𝘁𝗿𝗼𝗹 𝗶𝘀 𝗻𝗼𝘁 𝗮𝗯𝗼𝘂𝘁 𝗰𝗼𝘂𝗻𝘁𝗶𝗻𝗴 𝘀𝘁𝗼𝗰𝗸.  𝗜𝘁’𝘀 𝗮𝗯𝗼𝘂𝘁 𝗰𝗼𝗻𝘁𝗿𝗼𝗹𝗹𝗶𝗻𝗴 𝗰𝗮𝘀𝗵 𝗳𝗹𝗼𝘄, 𝗰𝘂𝘀𝘁𝗼𝗺𝗲𝗿 𝘀𝗲𝗿𝘃𝗶𝗰𝗲, 𝗮𝗻𝗱 𝗰𝗵𝗮𝗼𝘀. If you're not applying structured inventory techniques, you're inviting stockouts, overstocking, or worse—cash trapped in the wrong places. Here are 6 high-impact inventory control techniques used by top-performing supply chains: (1). ABC Analysis Categorizes items by value contribution: • A = High-value, tight control • B = Moderate-value, periodic review • C = Low-value, simple checks Focus where it financially matters most. (2). XYZ Classification Uses Coefficient of Variation (CV) to classify demand variability: • X = Stable • Y = Moderate • Z = Erratic Drives how much buffer or planning flexibility you need. (3). EOQ (Economic Order Quantity) Finds the optimal order size that minimizes total holding + ordering cost. Formula: EOQ = √(2DS/H) (4). ROP (Reorder Point) Calculates when to place the next order so you never run dry. Formula: ROP = Daily Demand × Lead Time (5). Safety Stock Holds extra inventory to cover demand or supply shocks. Formula: SS = Z × σ × √LT Z = service level, σ = demand variability (6). VED Classification Ranks inventory by criticality: • Vital – no stockout allowed • Essential – important, but manageable • Desirable – lowest priority Crucial in healthcare, aerospace, and military supply chains. 🧠 I use this exact framework when training supply chain teams or auditing stock strategies. Which technique do you use most? #InventoryManagement #SupplyChain #DemandPlanning

Shipping doesn’t have to be a nightmare. Learn how to streamline your logistics and save big. This thread reveals the tools that work. 💡 Struggling with High Inventory Costs? Here's How to Optimize for Savings! Inventory management is one of the biggest balancing acts in business. Stock too much, and you tie up cash while risking obsolescence. Stock too little, and you risk losing sales and frustrating customers. The secret? Smart optimization. Here are 5 proven strategies to trim costs and boost efficiency: 1️⃣ Embrace Data-Driven Forecasting 👉 The Problem: Stocking based on guesswork leads to overstocking or stockouts. 💡 The Fix: Use historical sales data, market trends, and predictive analytics to forecast demand. Tools like ERP systems or inventory management software make this easier than ever. 2️⃣ Adopt Just-In-Time (JIT) Inventory 👉 The Problem: Holding large quantities of inventory drives up storage and carrying costs. 💡 The Fix: With JIT, you order stock only as needed. This reduces waste, but it requires strong supplier relationships and a reliable supply chain. 3️⃣ Categorize Inventory with ABC Analysis 👉 The Problem: Treating all inventory as equal drains resources on low-value items. 💡 The Fix: Prioritize high-value (A), medium-value (B), and low-value (C) items. Focus most of your attention and resources on A items—they drive the most revenue. 4️⃣ Monitor Inventory Turnover 👉 The Problem: Slow-moving inventory ties up capital and risks becoming unsellable. 💡 The Fix: Track your inventory turnover ratio (COGS ÷ average inventory) regularly. Aim to increase this number by running promotions or bundling slow-moving items. 5️⃣ Standardize Stock Replenishment 👉 The Problem: Erratic ordering patterns lead to inconsistent inventory levels and cash flow issues. 💡 The Fix: Establish reorder points and safety stock thresholds for every SKU. Automating replenishment through inventory systems reduces human error. ✨ Bonus Tip: Conduct regular inventory audits! Spotting inaccuracies early can save you thousands in unnecessary purchases or lost sales. Why It Matters: Optimizing inventory isn’t just about cutting costs—it’s about improving your cash flow, reducing waste, and staying competitive. The better your inventory processes, the more agile your business becomes. 💬 What’s your inventory management approach? Are you using any of these strategies today? What’s been your biggest challenge in keeping costs down? Share your thoughts below or tag someone in logistics or operations who might find these tips useful! Let’s keep this conversation going. 📦🚀

Inventory misses = ruined profits + no cash This infographic shows 7 metrics to review weekly to keep inventory under control: # 1 - Stockout Frequency ↳ What: how many times each SKU went out of stock this week ↳ Why: repeated stockouts point to demand surges, planning errors, or supplier delays ↳ Calculation: Count of stockout events per SKU during the week # 2 - Weeks of Supply (WOS) ↳ What: how long current inventory will last based on recent consumption ↳ Why: helps flag SKUs at risk of future stockouts or excess ↳ Calculation: On-Hand Quantity ÷ Average Weekly Demand (last 4 weeks) # 3 - Inventory Turns (Weekly View) ↳ What: how efficiently you’re rotating stock ↳ Why: low turns tie up cash; high turns increase stockout risk ↳ Calculation: (COGS for week ÷ Average Inventory Value) × 52 # 4 - Inbound Plan vs. Actual ↳ What: planned vs. actual deliveries from suppliers ↳ Why: variances affect availability and future production or orders ↳ Calculation: % of purchase orders delivered on time and in full (OTIF) # 5 - Outbound Plan vs. Actual ↳ What: were outbound shipments made as scheduled? ↳ Why: delays impact customer service and revenue recognition ↳ Calculation: % of outbound orders shipped on time and in full # 6 - Aging Inventory ↳ What: items sitting in stock for too long ↳ Why: aging stock becomes obsolete, expired, or devalued ↳ Calculation: Value or quantity of inventory aged over 90, 180, 360+ days # 7 - Fast-Mover Coverage ↳ What: how many weeks of stock you have for your top 10–20 fastest-moving SKUs ↳ Why: these SKUs often drive the business ↳ Calculation: On-Hand Qty ÷ Average Weekly Demand (top SKUs) Any others to add?

𝗜𝗻𝘃𝗲𝗻𝘁𝗼𝗿𝘆 𝗰𝗼𝗻𝘁𝗿𝗼𝗹 𝗶𝘀 𝗻𝗼𝘁 𝗮𝗯𝗼𝘂𝘁 𝗰𝗼𝘂𝗻𝘁𝗶𝗻𝗴 𝘀𝘁𝗼𝗰𝗸. 𝗜𝘁’𝘀 𝗮𝗯𝗼𝘂𝘁 𝗰𝗼𝗻𝘁𝗿𝗼𝗹𝗹𝗶𝗻𝗴 𝗰𝗮𝘀𝗵 𝗳𝗹𝗼𝘄, 𝗰𝘂𝘀𝘁𝗼𝗺𝗲𝗿 𝘀𝗲𝗿𝘃𝗶𝗰𝗲, 𝗮𝗻𝗱 𝗰𝗵𝗮𝗼𝘀. If you're not applying structured inventory techniques, you're inviting stockouts, overstocking, or worse—cash trapped in the wrong places. Here are 6 high-impact inventory control techniques used by top-performing supply chains: (1). ABC Analysis Categorizes items by value contribution: • A = High-value, tight control • B = Moderate-value, periodic review • C = Low-value, simple checks Focus where it financially matters most. (2). XYZ Classification Uses Coefficient of Variation (CV) to classify demand variability: • X = Stable • Y = Moderate • Z = Erratic Drives how much buffer or planning flexibility you need. (3). EOQ (Economic Order Quantity) Finds the optimal order size that minimizes total holding + ordering cost. Formula: EOQ = √(2DS/H) (4). ROP (Reorder Point) Calculates when to place the next order so you never run dry. Formula: ROP = Daily Demand × Lead Time (5). Safety Stock Holds extra inventory to cover demand or supply shocks. Formula: SS = Z × σ × √LT Z = service level, σ = demand variability (6). VED Classification Ranks inventory by criticality: • Vital – no stockout allowed • Essential – important, but manageable • Desirable – lowest priority Crucial in healthcare, aerospace, and military supply chains. 🧠 I use this exact framework when training supply chain teams or auditing stock strategies. Which technique do you use most? Courtesy: Norman Gwangwava #InventoryManagement #SupplyChain #DemandPlanning

Economic Order Quantity (EOQ) : Know your Inventory Appetite! For many companies, inventory is one of their biggest assets. They need to keep enough stock to meet customer demands, but holding too much ties up a lot of money. By using tools like EOQ (Economic Order Quantity), businesses can reduce excess inventory and free up cash. This extra money can then be used for other important parts of the business, helping it grow and succeed. What is EOQ? Consider dining at a restaurant. If you order more food than your appetite requires, you risk wasting both food and money. Similarly, EOQ ensures that businesses order just the right amount of inventory, avoiding excess stock that could lead to unnecessary financial waste. EOQ represents the optimal number of units a company should order to satisfy demand while minimizing associated inventory costs, including holding, shortage and ordering expenses. The EOQ model operates under the assumption that demand as well as the costs of ordering and holding inventory, should remain stable over time. EOQ formula is in Thumbnail. Objective of EOQ : The goal of the EOQ formula is to identify the optimal number of product units to be ordered. If achieved, a company can minimize its costs for buying, delivering, and storing units. The EOQ formula determines the inventory reorder point of a company. When inventory falls to a certain level, the EOQ formula, if applied to business processes, triggers the need to place an order for more units. By determining a reorder point, the business avoids running out of inventory and can continue to fill customer orders. If the company runs out of inventory, there is a shortage cost, which is the revenue lost because the company has insufficient inventory to fill an order. An inventory shortage may also mean the company loses the customer or the client will order less in the future. Benefits of EOQ : 1. Cost Reduction: Minimizes the total costs of ordering and holding inventory. 2. Inventory Optimization: Balances stock levels to avoid overstocking and understocking. 3. Cash Flow Improvement: Frees up capital that can be invested in other areas of the business. 4. Operational Efficiency: Streamlines inventory management processes, reducing administrative burden. 5. Enhanced Forecasting: Provides a data-driven basis for future inventory planning and ordering. 6. Waste Minimization: Reduces the risk of obsolete or expired stock, leading to less waste. 7. Better Supplier Relationships: Facilitates consistent ordering patterns, which can improve supplier terms and reliability. Conclusion : Managing inventory is a key component of success for a company. Having too much results in higher costs and Having too little means losing sales by not meeting demand. Economic order quantity helps ensure companies manage their inventories efficiently. #eoq #inventory #supplychain #procurement #inventorymanagement #supplychainmanagement #sourcing

🚀 6 Inventory Control Techniques for Stock Optimization Let’s face it—managing stock in FMCG is like walking a tightrope. Too much? You’re bleeding money. Too little? You’re losing customers. That’s where Inventory Optimization becomes a game-changer. So what is it? 📦 Inventory Optimization = Keeping the right products, in the right quantity, at the right place — without locking up your cash or running out during peak demand. 🧠 Here are 6 smart techniques to help you optimize your stock and increase ROI: 📊 1. Stock Audit "If you don’t know what you have, how can you manage what you need?" Regular audits reduce shrinkage and ensure your system matches reality. ✅ Physical Inventory: Full stock count (usually yearly) ✅ Cycle Counting: Monthly/weekly checks by item groups ✅ Spot Checks: Surprise inspections to catch issues early 💰 2. Inventory Budgeting "Plan your stock before it drains your wallet." Set monthly or quarterly budgets for stock procurement. Use past sales, upcoming promotions, and supplier trends to decide how much to spend. ⏱️ 3. Just-In-Time (JIT) "Stock only when needed — not too early, not too late." Keep minimal stock and reorder based on real-time needs. Ideal for predictable SKUs and strong supplier chains. 🔠 4. ABC Analysis "Not all products deserve the same attention." Classify inventory by value to manage smarter: 🅰️ A-items = 10-20% of items, 70-80% of value → tight control 🅱️ B-items = 20-30% of items, 15-25% of value → medium focus 🆑 C-items = 60-70% of items, 5-10% of value → basic control 📈 5. Demand Forecasting "Predict better to prepare better." Use past sales + trends + seasonal changes to plan future stock. Forecasting avoids overbuying slow movers and missing out on fast sellers. 🧠 Tip: Treat every SKU differently based on value and demand pattern. 🏗️ 6. Organizational Planning "Inventory doesn’t exist in a vacuum — plan it across levels." 🧭 Strategic: Where will goods be made? Where stored? 🛠️ Tactical: How much should we produce and when? 📦 Operational: How do we execute this? (ERP, logistics, reordering) #FMCG #InventoryManagement #SupplyChain #BusinessGrowth

>>> Most Used Excel Formulas Every Supply Chain Professional Needs To Know” list, organized by functional area <<< 📦 Inventory Management > Economic Order Quantity (EOQ): =SQRT((2 * D * S) / H) >Safety Stock: =Z * STDEV(Demand) Where Z = Z-score based on the desired service level > Reorder Point (ROP): =Average Daily Usage * Lead Time > Total Inventory Cost: =Ordering Cost + Holding Cost + Purchase Cost > Inventory Turnover: =COGS / Average Inventory > Holding Cost: =Average Inventory * Holding Cost Rate > Average Inventory: =(Beginning Inventory + Ending Inventory) / 2 > Fill Rate: =Orders Fulfilled / Total Orders 📈 Demand Forecasting > Simple Moving Average: =AVERAGE(B2:B6) > Weighted Moving Average: =SUMPRODUCT(B2:B4, C2:C4) > Exponential Smoothing: =(Alpha * Current Demand) + ((1 - Alpha) * Previous Forecast) > Forecast Error (%): =(Forecast - Actual) / Actual > Mean Absolute Deviation (MAD): =AVERAGE(ABS(Forecast - Actual)) > Mean Absolute Percentage Error (MAPE): =AVERAGE(ABS((Forecast - Actual) / Actual)) > Linear Regression Forecast: =FORECAST(x, known_y’s, known_x’s) > Trendline Equation (Linear Estimation): =LINEST(y_values, x_values) > Seasonal Index: =Period Demand / Average Demand 💰 Costing & Financial Analysis > Total Cost: =Unit Cost * Quantity > Cost Variance: =Actual Cost - Budgeted Cost > Contribution Margin: =Revenue - Variable Cost > Break-Even Point (Units): =Fixed Cost / (Selling Price - Variable Cost) > Total COGS: =SUM(Product Costs * Units Sold) > Markup Percentage: =(Selling Price - Cost Price) / Cost Price > Return on Investment (ROI): =(Net Profit / Investment) * 100 📊 Performance Metrics > OTIF (On-Time In-Full): =On-Time Deliveries / Total Deliveries > Lead Time: =Delivery Date - Order Date > Service Level (%): =Fulfilled Orders / Total Demand > Capacity Utilization: =Actual Output / Maximum Capacity > Supplier Defect Rate: =Defective Units / Total Units Received > Scrap Rate: =Scrap Units / Total Units Produced > Efficiency Ratio: =Actual Output / Standard Output 🛠 Excel Utilities for Supply Chain > VLOOKUP(Lookup_Value, Table_Array, Col_Index_Num, FALSE) > XLOOKUP(Lookup_Value, Lookup_Array, Return_Array) > INDEX(Return_Range, MATCH(Lookup_Value, Lookup_Range, 0)) > IF Statement (Conditional Logic): =IF(A2 > 100, "Bulk", "Standard") > SUMIFS (Conditional Summing): =SUMIFS(Sales, Region, "East", Product, "A") > COUNTIFS (Conditional Counting): =COUNTIFS(Region, "West", Status, "Delayed") > TEXT Function (Date Formatting): =TEXT(Date, "YYYY-MM-DD") > NETWORKDAYS (Workday Calculation): =NETWORKDAYS(Start_Date, End_Date) > DATEDIF (Lead Time in Days): =DATEDIF(Order_Date, Delivery_Date, "D") > CONCATENATE / TEXTJOIN (Combining Text): =TEXTJOIN(" ", TRUE, A2, B2, C2) (Alternative to CONCATENATE)

Your inventory method is draining your profit. Are you sure you chose the right one? Mixing up FIFO (First-In-First-Out) and LIFO (Last-In-First-Out) isn't just a small mistake. It's a financial stumbling block. When you misapply these methods, your Cost of Goods Sold (COGS) becomes inaccurate. This ripples through your entire financial statement.  Your profits look different on paper than they do in reality.  Tax calculations go messy. Suddenly, you're making decisions based on faulty data. I've seen businesses struggle with this for years. As a CFO, I can fix this. Here's how: 1. Assess your current inventory flow. 2. Understand FIFO and LIFO impacts. 3. Choose the right method for your business. 4. Implement proper tracking systems. 5. Regular review and adjustment. With the right method, you'll make informed decisions and steer your business towards greater profitability. #inventorymanagement   #finance  #accounting

Want to trim down your inventory and product fulfillment expenses? Here are some strategies:   📦 Reduce inventory cost:   1. Focus on minimizing write-offs due to damage, spoilage, shrinkage and obsolescence. Use the first expire, first out (FEFO) method for inventory management, maintain proper storage conditions and ensure accurate tracking. 2. Inspect goods upon receipt from suppliers and hold them accountable for damaged items through chargebacks and logging infractions. 3. Implement regular cycle counting for continuous visibility on inventory levels, reducing shrinkage. 4. Strengthen upstream processes to modulate the demand signal effectively to avoid overstocking and reduce dead inventory.  📦 Reduce cost of fulfillment:   1. Streamline receiving and putaway processes for incoming goods to minimize labor and touches. 2. Drive throughput in transforming raw materials into finished goods through optimized work orders, kitting and assembly processes. 3. Improve accuracy of picking, packing and shipping processes for finished goods to customers.    Don’t know what to start with? I recommend prioritizing value over the cheapest option.   Why? Because you get what you pay for. Shortcuts tend to become long term headaches that risk the customer relationships you worked so hard to build.   #fulfillment #SupplyChainManagement #supplychain #supplychaintrends #inventorycosts

Economic Order Quantity (EOQ): A Key Tool for Inventory Optimization EOQ represents the point where inventory carrying costs are equal to ordering costs, offering a balance that helps businesses reduce waste and enhance efficiency. It aims at optimal order quantity that minimizes the total annual costs of ordering and holding inventory, assuming stable conditions and predictable annual demand. Key Assumptions of EOQ: 1. Goods are always available when needed. 2. Purchase quantities are certain and predictable. 3. Stable prices lead to consistent carrying costs. Advantages of EOQ: - Provides precise insights into when to reorder, how much to reorder, and limits unnecessary stock replenishment. - Customized to a business’s specific inventory needs, ensuring cost efficiency and better customer service. Disadvantages of EOQ: - Relies on mathematical calculations that may seem complex. - Assumptions may not account for seasonal or economic fluctuations. Example: Imagine a retail store with: Annual Demand (D): 10,000 units Ordering Cost (C): $15 per order Holding Cost (H): $5 per unit/year EOQ Formula: EOQ = √((2 × D × C) ÷ H) = √((2 × 10,000 × $15) ÷ $5) ≈ 245 units This means the store should order 245 units at a time to optimize costs. By doing so, they balance frequent reordering with excessive inventory, streamlining their operations. #Lean #OperationsManagement #SupplyChain #LeanSixSigma #QualityAssurance #Cost #Productivity #OperationalExcellence #BusinessExcellence #ContinuousImprovement #ProcessExcellence