Methods that can be used to reduce costs of stocks

There are various methods that can be used to reduce main types of stock costs. For instance, ordering costs can be reduced by buying optimal quantity required. The cost of carrying stock can also be avoided through reducing the amount of excess stock in the store, while costs of stock out can be reduced by ensuring that stock is available to meet customer needs. Essentially, the following are some methods that can be used to reduce and avoid unnecessary stock costs.

  • Just in time (JIT) purchasing also known as stockless buying: This is an inventory control philosophy whose goal is to maintain just enough material in just the right place at just the right time to make just the right amount of product.
  • Keeping minimum or buffer stock (Safety stock): This is stock allowance that covers variation in demand and lead time.
  • Avoid slow moving items: Slow moving items have a slow turnover rate and increases carrying costs which are an expense to the company.
  • Variety reduction: Means reducing the range of items or materials that are used in process, production or operation. Variety reduction can make substantial savings inventory by standardizing consumables kept in stock.
  • Economic Order Quantity (EOQ): This is the optimal ordering quantity for an item stock that minimizes costs. It is the optimal order of quantity that minimizes the total variable costs required to order and hold inventory.
  • Material Requirement Planning (MRP): This is a product-orientated computerized technique aimed at minimizing inventory and maintaining delivery schedules.

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