The Cost of Excess and Slow Moving Inventory

How much is Excess and Slow Moving Inventory costing
your business?

Inventory is a huge investment for most companies and in a recession, holding inventory can become a significant financial burden. Inventory that is not being utilized is creating a drain on your cash flow and ultimately, a negative impact on your corporate bottom line.

What is the real cost of holding onto inventory? Is it 20%, 30%, 40% or more?? Recent studies indicate that in many companies the carrying cost is no more than a guess, or a number given to them by accountants or other sources.

So how does excess or slow moving inventory cost money?

Interest
Interest is paid on borrowed money. When inventory doesn't sell, you are incurring more interest charges.

Taxes
Jurisdictions tax manufacturers’ inventory

Insurance
Insurance premiums cover replacement costs of inventory on hand

Obsolescence/Reserves
Financial reserve set aside to cover losses, write-offs, and shrinkage

Storage Space
Operational and Maintenance costs are incurred every day. If your warehouse is full of slow moving inventory, what will you do when you run out of space? Build or rent more warehouse space to accommodate more inventory? Your slow moving inventory is taking up space and eating up money that could be used on inventory that could be making you money.

Capital Equipment
The cost of supporting hardware should also be considered: forklifts, scales, bins, racks, and automated storage and retrieval systems.

Depreciation
Is your inventory depreciating as it sits there month after month?

Time and Personnel
Include Inventory and Warehouse managers, stock keepers, material handlers, cycle counters, planners,and controllers.

How much time are your company's employees spending on your excess inventory? How many man hours are spent looking at the issue, going to meetings about it, trying to figure out the most profitable way to deal with this inventory?

The bottom line is when you factor in the real costs, the maintenance of excess and slow moving inventory is not worth the negative effect on the profitability of any company. Inventory needs to be moving. The slower it moves, the less money you earn in revenue AND the more money and time you lose from all of these other negative consequences of holding this inventory.

In our next article I will discuss a solution for this excess and slow moving inventory that offers a way to eliminate ownership costs and free up warehouse space while still retaining inventory availability for long
term product support.
It is called The Inventory Bank.

OSMI solution via an Inventory Bank

Solutions for Excess Inventory in a Slow Economy

In our uncertain economy, many companies are looking to reduce inventories as a way to improve cash flows.  This usually results in sending excess and slow moving inventory to the scrap yard or dumping material onto the surplus market recovering pennies on the dollar.

However, these same companies find that substantial inventory cuts can have an adverse effect on customer service and production along with being detrimental to their corporate “green” initiatives.  Simply scrapping excess materials and sending them to the local landfill does not benefit anyone.

Whenever companies scrap or surplus material, they have little opportunity to recover an item for future use.  Minimum purchase requirements from their vendors will force them to order more items than needed which will ultimately recreate their excess material.  Long lead times may also be encountered which adversely affects their production and customer service goals.

And, if they sell their excess material into surplus outlets, they may be compromising their product market integrity.  Surplus items can end up competing against them and their customers!

A company headquartered in Dallas, Texas has come up with a better solution. It is called the Inventory Bank and it purchases excess, obsolete, and slow moving inventory (OSMI).  The parts are stored in its long term storage facilities where it becomes available for sale to the OEM and its authorized distribution network.

“Using our GPS Inventory Bank reduces operating costs and increases efficiencies while maintaining a high level of customer service and long term product support…all of which will ultimately increase profitability”, says Loretta Wallace, president of GPS Inventory Solutions. Adding, “Our Inventory Bank also protects our customer’s market integrity”. She concludes with saying, "GPS provides profitable solutions for unprofitable inventory."

GPS Inventory Solutions has over 30 years experience managing and distributing a variety of industrial products.  They have strategic warehouse locations in the Dallas, TX and Knoxville, TN areas to provide their proven cost effective programs to Manufacturers throughout the U.S.

http://www.gpspartsmart.com