Managing inventory is still a challenge for small and medium businesses, which struggle with keeping costs under control in this field. Whether you’re a restaurant owner, a small manufacturer, or a web shop owner, you need to take a closer look at your inventory if you want to lower your costs.
A high level of inventory and poor turnover can influence business efficiency. It’s not just about the money you block in your inventory, but also about the costs of owning space, insurance, maintenance, operational controls, to mention a few.
An efficient inventory management system, custom-made for your business, can help you control your costs better. Check these five effective ways to lower inventory costs, to make the most of your capital:
Here are five ways to reduce your inventory cost:
- Know Your Up-to-Date Inventory Levels
Keeping track of your inventory levels is the most straightforward way to prevent overstocking inventory and, as a result, reduce inventory cost. Although a spreadsheet-based inventory management system might give you a general idea of how much inventory you have at a given point in time, solutions like Goods Order Inventory Management System, help keep that information automatically up-to-date; allowing small businesses to make quick, strategic decisions about how much inventory to have on-hand.
- Evaluate Your SKUs
Simply put, SKU intensity is how many SKUs your business has per unit. If your business sells items like gifts, you might only have one SKU per item. However, if your business sells items like clothing, which can come in multiple colors and sizes, one item can have numerous SKUs, which can lead to a higher SKU intensity. Are you not selling any size two dresses because there is no demand for size two dresses or because you don’t stock size two dresses? Knowing the difference will help your business not only avoid stock outs but also avoid overstocking items that aren’t selling. The information needed to understand your SKU intensity is available in your inventory system’s history file, but you also need to understand what your system is telling you. Tailor your SKU intensity by pulling together sales and inventory information to figure out exactly what’s going on with your inventory.
- Track Inventory Movements to Automatically Re-Order
How quickly can you get replacement merchandise when you run low? The longer it takes, the more items you must keep on hand and, as a result, the higher your costs. Implementing an inventory systemwill allow you to track sales and inventory movements in real-time—allowing you to automatically re-order stock when it makes the most sense for your business.
- Manage Excess Inventory
Excess inventory is a perpetual source of extra costs. In most cases, it brings more expenses than what you could gain with long-term storage. Do the math and, if the excess stock costs your business too much, find a smart solution to remove it from your warehouse.
Here are some practical ways to reduce excess inventory:
- Return it – depending on your relationship with your suppliers, you may get a refund, a discount of credit for your next order. The only challenge in this situation is covering shipping costs, but it can result in a smart investment.
- Trade with your competitors – they say keep your friends close and enemies closer. In business, you can use this to solve excess inventory issues. Find a competitor that could use your stock and see if you can find something you need in its warehouse for a fair exchange.
- Contact a liquidator – it’s not the most economical solution, as you generally sell the stock a lot under the market price, but it’s always better than adding inventory costs.
- Use it for different products – if you have multiple plants, check if any of them needs your inventory. This way, you recover most of your investment (minus the transportation costs).
- Donate it – in this situation, everybody wins. In fact, many important manufacturers and retailers donate excess stocks, which helps them keep costs low while helping people in need.
- Lower Shipping CostsJust like excess stocks, shipping can add up significant costs to your balance. Between what you pay to have your inventory in your warehouse and the costs of shipping goods to your customers, you’ll end up with a lot of money leaving your accounts every month.
Try to negotiate multiple carriers, to find better deals. Many shipping companies give special discounts based on volume, so if you can combine shipments to trim your costs.
Better than that, you can try to take advantage of possible association discounts. Check if there’s an arrangement in your industry that can obtain smaller prices for your business and see how can you drag benefits from it.
When inventory is a big part of your small business’ daily activities, having an understanding of what kind of inventory you have on-hand at any given moment and how quickly that inventory is moving, is key to reducing inventory costs. Learn more about how Goods Order Inventory Management System can help your business dramatically increase your profitability by automating your inventory management.
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