Inventory remains one of the most tangible and significant investments of any retail, eCommerce, or manufacturing business. Many business owners fail to realize that inventory can account for up to 30% of the total budget. So, for every $100,000 in products you store, you could be paying up to $30,000 to hold and move them around your warehouse.
Inventory management is essential for the health and survival of your business for several reasons. Here’s why you should be making this one of your priorities and five ways you can cut the cost of managing your inventory.
Why Your Business Needs Good Inventory Management
Inventory management helps your business identify which and how much stock to order and when. It tracks inventory from the time you purchase, store, and sell it. The practice lets you know when you are running short so that you always have the right amount to respond to customer needs.
But inventory management isn’t simple or cheap. Here are some of the reasons your business needs to make this part of its operations a priority:
- Keeps track of your inventory by giving you a centralized view of your stock
- Improves your operations by reducing stockouts and meeting customer expectations
- Reduces the time needed to manage inventory by keeping all records in one place
- Controls your costs by making reordering simple
- Access to more data to reduce overstocking and allow for better forecasting
5 Ways to Cut the Cost of Inventory Management
Now that you know how inventory management contributes to your overall business, how can you streamline this process and get better results? Here are five ways you can cut the costs of inventory management:
1. Use the Right Warehouse Management System (WMS)
It’s going to be tough to manage your inventory if you don’t know what you have. Your first step should be to make sure you are using a reliable and feature-rich warehouse management system (WMS). One of the features of these systems is real-time visibility into your inventory.
Many warehouses track inventory through barcodes or RFID tags. Whichever option you choose, this type of tracking can help you reduce your inventory management costs. Instead of relying on clipboards and spreadsheets, you will have all the data you need at your fingertips to make accurate forecasts and inventory decisions.
2. Get Rid of Obsolete and Excess Inventory
Having outdated and excess inventory is always going to costs your business a lot of money. You have to pay to store a bunch of products that customers are unlikely to purchase. So, how can you get rid of some of this stuff and save some cash? Here are several options:
- Return It — There’s always the possibility that your suppliers will take the items back, giving you a refund or credit. But, you’ll want to consider shipping costs in this decision.
- Liquidate It — Either drastically reduce the price to sell the products quickly or contact a liquidator to have them do it for you.
- Trade It — If you have a relationship with any other businesses in the industry, see if you can make a trade for items they need to offload.
- Use It — If you have a large operation, you might be able to make use of some of your excess inventory items.
- Donate It — You can also donate your excess stock to a charitable organization. In some cases, you might even get a tax break with this option.
3. Set Up Automatic Reordering
When you use inventory management software, you can establish rules for the amount of stock you want to have on hand for each item. Then, your software will do the work for you by tracking your stock levels, calculating lead times for new product orders, and determining the correct date to place an automatic replenishment order.
If you have multiple sales channels or locations, this cost-saving strategy is a must-have. Your software can track inventory levels for each channel and location and even transfer stock from one place to another to save you money before placing a replenishment order. This prevents overstocking and stockouts, ensuring the most cost-effective approach possible.
4. Optimize Your Warehouse Storage
A disorganized warehouse is an inefficient and expensive warehouse. When your employees can’t find the items they need, products get damaged, or you aren’t sure where to put new deliveries, your costs will be much higher than necessary.
Invest time and resources into proper warehouse organization. Use your storage space wisely, placing frequently accessed items on lower shelves. Good warehouse organization helps your employees store and pick items more efficiently. You can also leverage wireless RFID technology and voice-directed work to streamline these processes.
5. Choose Your Partners Wisely
There has been an ongoing supply chain crisis for a reason. Many companies have become lock-in with certain suppliers that don’t make sense logistically. If a business partner takes too long to fulfill your order, this can impact the customer experience and your bottom line.
At the same time, you should choose shippers that can deliver on time consistently and at the best possible rates. See if you can negotiate with multiple carriers to get the most favorable terms. If you can combine shipments, many shippers will offer discounts based on volume.
Nearly all businesses that sell goods struggle with controlling inventory costs. But the information you get from an inventory management system can help you make data-driven decisions about optimizing your processes to control these expenses. You can also leverage various technology and automation solutions to help your business run more smoothly and deliver a better overall customer experience.