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The Relationship Between Waste Generation And Effective Inventory Management

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Waste has always been a tricky matter to work around. Of course, you want to achieve as little of it as possible, but it’s almost impossible to handle every bit of noise and error that could potentially occur throughout the production process, supply chain management, and even transportation. As a result, practices such as reverse supply chain and lean manufacturing have grown in popularity and also out of necessity to make businesses greener and eco-friendly.

However, one crucial aspect of business that is acknowledged for the waste it generates but doesn’t receive enough attention is inventory management — the system behind all the purchasing, storing, and selling of a company’s raw materials, ingredients, and finished products. So, today we’ll be going over its relationship with waste generation and some of the practices we can adopt to alleviate the impact and get closer to our goal of zero waste.

How Does Bad Inventory Management Create Waste?

To start, let’s explore what bad inventory management creates in terms of waste, and, as you would expect, it’s nothing pretty. Yes, strong sales performance and excellent commercial cleaning services can offset some of the waste you generate, but the loss incurred through bad inventory management is substantial. And, unlike your typical noise that is unavoidable, waste caused by bad inventory management is unrealized profit that had a lot of potentials.

  • Too Much Unprocessed Inventory: While it’s good practice to have stock on hand in case of an unexpected rise in demand or last-minute orders, these extra items would all be for naught if they go unprocessed. Especially for companies that deal with products and ingredients that are perishable or a shorter shelf-life, you risk losing a lot of resources because of mismanaging the inventory you need to meet current demand.
  • Inefficient Distribution And Logistics: No company is exempt from logistics and distribution problems, and if we take a look at current events, the block of the Suez Canal was a logistical nightmare for world trade. However, when there exists severe inefficiency in these areas of inventory management, it can lead to a lot of waste generated. From excessive time taken to transportation errors, there are many variables at play that can impact the outcome.
  • Lack Of Technology: Last but not least, there’s also the issue of lack of technology within your inventory management practices. If you’re warehousing facilities don’t have the capacity to hold the amount of stock required to meet demand, it’s natural that you’ll run into problems over the course of the year. And, failure to alleviate this problem will only lead to diminishing gains over time.

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What Can We Do To Fix This Issue?

Lucky for us, there are many ways we can improve the different facets of inventory management to reduce the amount of waste generated, and while it’s by no means perfect, it’s a place to start. Just remember that these fixes are but the tip of the iceberg, and you can be more comprehensive if need be. There’s only so much we can offer without observation of your business operations, so identify the areas that need attention and fixing the most.

#1 Practice Prudence With Safety Stock

Once again, there’s nothing inherently wrong with the practice of safety stock; in fact, it’s good to have a safety cushion in case anything abrupt were to happen. However, as a good rule of thumb, always practice prudence with your safety stock to avoid having too much on hand. We recommend careful analysis of current demand and pending backorders to avoid allocating an excess that is unreasonable. Plus, don’t be too confident with amounts based on historical numbers. Always take into account the current context and utilize the numbers from prior years only as a benchmark.

#2 Continous Vs. Periodic Review Of Inventory

Although not all industries can afford the luxury of a continuous review of inventory, for those that are fortunate enough, we strongly recommend implementing its practice. Yes, continuous review of inventory does require a lot more to be done, but it comes with the benefit of less waste generated and a better approximate number on required safety stock. As a result, you’ll have a better grasp of your cost constraints and be more liquid in the long-term.

#3 Upgrading Necessary Capabilities

Lastly, never forget to upgrade the necessary capabilities either through new machinery, a centralized warehousing system, or any means to improve the capacity of your inventory management. Holistically, there’s only an extent to which techniques, frameworks, and practices remain helpful until they are held back by physical and technical limitations. So, make the investment early to reap the profit much sooner.

Maximizing Profit, Minimizing Waste

Overall, if you want to maximize your profits, then you must minimize waste. So, employ these tips into your business, and we guarantee that you will experience two immediate benefits; (1) more profits to be realized and (2) a greener and eco-friendly company image.

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