“When evaluating supply chain initiatives, companies often discount or even omit the benefits of reducing inventory noncapital carrying costs because they do not possess credible estimates of these costs. Most agree that the benefits exist. But without credible estimates, the benefits typically are excluded from the analysis. This practice is understandable. Nevertheless, if the impact on these costs cannot be reasonably measured, the true value of many supply chain initiatives will be understated”.
That being said, it can be argued that not all expenses are so easily reduced. But while it is true that some expenses (concerning warehousing or equipment for instance) can’t easily be reduced without significant changes in the organization, most of them are directly related to the inventory value, and can be easily quantified as a percentage of average inventory value (taxes or insurance, or obsolescence). Therefore, any reduction of the inventory value carries indeed great benefits.
The benefits carried by any improvement surrounding inventory management are the reason why Lokad specializes in inventory optimization. Lokad offers several webapps to serve that purpose, chief among them, our inventory forecasting webapp dedicated to demand forecasting, that aims to deliver optimized sales forecasts and reorder points to keep just the right amount of inventory.