The Cost of Ordering Unneeded Inventory

April 2, 2018 Karli Langner

 

The rule of thumb for inventory carrying costs is between 20% and 30%. Carrying too much inventory adds risk to a business – if products don’t sell as quickly as anticipated, the products can lose value or become obsolete. Many in the ready-mix concrete business manage their inventory using Excel spreadsheets. As with any manual process, problems can occur because data is not updated in real-time. You will in essence be making important business decisions based on outdated information.

This “information gap” can cause a host of problems.

Surplus inventory is one of the largest costs your company has. The cost of the products themselves, the loss of working cash and the ongoing holding costs are just a few ways that surplus inventory can eat away at bottom-line profits. Carrying too much inventory ties up business funds that the business could use in other areas of the business. It also increases storage costs due to space requirements. Storing excess products can lead to quality problems due to the degradation of the materials.

Companies may stock high levels of raw materials based on typical demand from customers, but if customers change the specification of their ready mix concrete orders, then new materials must be purchased, leaving quantities of the wrong products in inventory and requiring added costs for new materials. Anything above and beyond the amount of inventory needed is a waste to the business.

The best way to eliminate the cost of excess inventory is to avoid it up front. By having accurate demand and customer information, improving the procurement and inventory processes, and changing ineffective processes and procedures, you can succeed in avoiding surplus inventory. Some ready mix concrete market leaders in the U.S. have reported 20% reductions in inventory holding costs and working capital from better forecasting processes.

For example, you have a large pour coming up, and you’ve readied trucks for delivery. All of a sudden the job is cancelled and you are left with materials that can easily cost your business a lot of money. If your inventory processes were automated, when the job cancels, inventory levels would be automatically updated and you could look through orders and find other jobs that could use the inventory.

Command Alkon’s supplyCONNECT centrally monitors inventory levels in real time from all plants. You can forecast demand based on actual ready mix concrete orders to see when loads are needed. You can also coordinate replenishment plans with trading partners by sharing plans with them. Whether you’re a ready mix producer, material supplier or logistics company, supplyCONNECT can improve efficiencies, improve customer service and reduce waste.

Could your supply chain operations benefit from supplyCONNECT? Click here to start a conversation with us.

Previous Article
Issues Regarding Lack of Visibility in the Field
Issues Regarding Lack of Visibility in the Field

Visibility within the supply chain has been a top priority for supply chain managers for years. Not only do...

Next Article
Inventory Replenishment On-the-Go

Jason Campbell, Command Alkon's Product Manager for Supply Chain, Discusses Supply Chain Management and How...