Inventory Reduction Opportunities with MOQ and INCO terms

With so many SKUs to manage, and some with high minimum order quantities (MOQ), it is small wonder that companies will buy and hold inventory in bulk, especially when there could be full container load savings.

However, if the Sales Terms, or International Commercial (INCO) Terms agreed is such that the supplier/principal pays for freight, then there could be opportunity to buy more often, and less at a time, to reduce inventory and space requirement.

How do you know? Just plot a graph showing high MOQ/Average demand during leadtimes on the left, and the order frequency in the right for products with CNF and beyond. Do a quick sanity check to compare if high MOQ/Average demand during leadtime translates to lower number of orders (unless it is planned orders). Those products that you see that is ordered infrequently are opportunities and savings.

Forecasting To Reduce Inventory

Setting higher reorder points because you do not know how sales will be like, and you feel it is better to buffer with higher inventory?

This is a common refrain by companies who are not forecasting well. This is especially useful for products with short lead times, and where space is expensive.

The change in sigma in the safety stock allows you to compare better forecast with current safety stock for savings. There are a number of forecast accuracy measures to choose from, ranging from mean average deviation (MAD) to root mean square error (RMSE).

In terms of savings, there will be capital cost, space and it's corresponding operations savings. More accurate forecast means less rework too.