What Is Lean Inventory Management? Principles, Benefits, and Best Practices

Modern-day businesses across a wide range of industries operate in a highly competitive and customer-centric environment. As such, they have to constantly strike a balance between their inventory levels and meet changing demand for their products.

Lean Inventory Management is one of the key strategies that help businesses reduce inventory storage & handling costs, minimize spoilage, and improve agility in the core inventory operations. Read on to know how your business can benefit from it.

Lean Inventory Management System:

Lean Inventory Management is a modern approach to inventory management that refines traditional inventory practices and focuses on reducing excessive inventory, minimizing inventory costs, and achieving greater profitability.

Businesses across the world deploy ERP software to adopt lean inventory practices, such as holding only that part of the inventory they would need within a specific duration of time. This business-critical software automates core inventory operations, enables end-to-end inventory analysis, and plays a critical role in reducing inventory costs.

Key Principles of Lean Inventory Management

• Cost-Efficiency in Inventory Operations

One of the core principles of Lean Inventory Management is to bring down the cost of core inventory operations such as inventory storage and handling. This money is then diverted to other important business aspects, such as investments in new technological solutions, such as the Internet of Things (IoT), and other critical projects.

• Precision in Inventory Forecasting

Use the modern-day Business Intelligence Tools to analyze the demand for your products through historical trend analysis. The aim is to develop effective inventory handling strategies, get projections about the inventory expenditures, lower inventory costs, optimize production schedules, and allocate resources efficiently.

• Multi-enterprise Collaboration

Multi-enterprise collaboration encompasses the sharing of data, knowledge, and resources between different companies. It aims to solve problems faster, pave the way for innovation & cost-cutting, and achieve better results. Maintain dedicated relationships with your suppliers and partners, and make use of a dedicated Online Procurement Management System to streamline back-order management, reduce procurement expenditures, and improve operational efficiency.

• Buffer Stock Management

Maintaining adequate reserves of Buffer Stock (also known as Safety Stock) protects you from sudden demand spikes, absorbing supply chain shocks, and meeting customer expectations. The lean inventory management approach involves adjusting & minimizing your buffer stock levels according to the demand & supply variability, inventory replenishment time, and other factors.

• Process Standardization

We all know that adopting process standardization helps provide a consistent experience to the consumers. Lean inventory management focuses on improving employee efficiency, reducing duplication of tasks, and lowering wasted time.

4 Types of Inventory Management System?

1. Days Sales of Inventory (DSI)

Days Sales of Inventory (DSI) tells businesses how long their inventory sits in the warehouse before it is sold in the market. In order to calculate it, you will need to know two factors: The Cost of Goods Sold (COGS) and the Time Period.

2. Just-in-Time (JIT)

The Just-in-Time (JIT) Inventory enables businesses to make the inventory readily available as and when they need it. It helps prevent excess stock and reduces the inventory storage costs. In order to accomplish the goal of JIT, they closely work with the suppliers and partners.

3. Material Requirements Planning (MRP)

The Material Requirements Planning (MRP) method focuses on identifying the need for specific materials at different stages of the process and ensuring their easy availability. A thorough analysis of the materials helps businesses bring down their inventory costs and reduce wastage.

4. Economic Order Quantity (EOQ)

Businesses use this method to calculate the ideal inventory quantity they need and bring down the costs. Lower inventory storage, handling, and insurance costs translate into higher profits and better growth opportunities.

The 5S Framework of Effective Lean Inventory Management

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