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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. These various inventory management also have different inventory costs. Understanding factors that affect this costs will help you decide whether to keep a 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. The Efficient Consumer response was introduced by several food manufacturers and grocers almost 20 years ago to move away from 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. Since 1982, many companies have reported reduction in inventory costs by at least 60%, while hauling expenses also dropped by 20%. Most companies now are pushing for inventory reduction strategy in their supply line because of the marked reduction in inventory costs. But first, these companies must understand the principles of an effective logistical strategy, such as 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. Step one is to monitor inventory levels by items, such as used by most retailers who use the inventory control approach. Second, manufacturers are typically more concerned with production scheduling and use flow management to manage 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

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