7 Realistic Ways to Reduce Inventory Costs

If you are managing a business, it would be your prerogative to ensure it brings profit. Sales and warehousing are two areas that would need your unstinted support. Efficient warehousing with quick stock rotation would ensure your money moves out but comes in fast too. As an example, if you buy a pen, but it is in your warehouse for one month, your money is blocked during the time. On the contrary, if it moves out the next day after it arrives, we are in for a profit as we have a very efficient stock movement system in place to ensure that. This is achieved because we can reduce inventory costs.

1. Discard obsolete stock

obsolete Inventory

From time to time, companies would accumulate obsolete stocks. Keeping them in the warehouse would cost space and money. Have a cutoff time and when stocks reach that point ensure you get rid of them. You could sell at a discount, bundle up with another product as a promotion, or even give it away to charity and claim a tax benefit. The more you keep them it is money and space blocked.

2. Reduce lead time

reduce lead time

Ensure the lead time between your ordering and receiving goods at the warehouse is as short as possible. The shorter the time would ensure you could get your orders faster, which would permit you to hold the minimum stocks in hand. This would mean you have less money blocked in the stocks in your warehouse. If you want to reduce inventory costs, you should seriously look into how you could reduce lead time. Both would go hand in glove and bring you additional profits.

3. Move away from minimum order quantities

minimum order quantity

Order and receive goods in your warehouse that you could sell in a specific time frame. Your supplier would try to reduce their inventory and increase yours. If you are prudent, try to get away from it. You would notice that your inventory would be growing every day, and warehouse space would be constricting. Order what you could sell or if there are price incentives in purchasing a minimum order, tie-up with another buyer and get both together. Once it arrives, divide it among the two of you. This would reduce inventory costs and help to increase profits.

4. Streamline the warehouse

Streamline the warehouse

Ensure that your warehouse is streamlined and is managed efficiently. Appoint an efficient and experienced head to oversee it. Eliminate loss, theft, and damages and ensure all stocks are stored in an organized system. What comes first should go out early and ensure that there is proper stock rotation. If your warehouse is run efficiently, you could be saving money which would add to your profits. The warehouse is the nerve center of your business operation, and having to pay as little as possible would add to your profit. This would help you to reduce inventory costs and bring additional profits.

5. Operate a just in time inventory system

Just in time Inventory

An efficient warehouse would enjoy a fast rotation of goods. The products that come in should move out of the warehouse before it gets comfortable. Inventory that moves rapidly in and out is the signs of a profitable organization. Comparing that with another warehouse where goods come in and stay for months without moving out is a company that is sliding down the abyss.

6. Use consignment inventory

consignment inventory

You could save space in your warehouse and have just the minimum space if you give the products to be sold on a consignment basis. Moreover, this would be a very prudent way to use the warehouse of another while selling your goods in his store while you do less on the storage front. This may not sound too great, but you could sell without a warehouse or one with the minimum space needed. This would help to reduce inventory costs.

7. Implement a perpetual inventory system

perpetual inventory system

The perpetual inventory system with the right software would ensure you have a very streamlined warehouse. You could have many advantages that would come along with such a sophisticated system. Everything would be readily available at your fingertips if you prudently select and implement a perpetual inventory control system.

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