5 Ways to Reduce Inventory Costs Today

Updated on May 26th, 2022
Reduce Costs

Managing your inventory is one of the most frustrating but nonetheless important aspects of running a small business. Keep too little inventory on hand, and you may get caught short when clients want to make a purchase, and lose a sale; keep too much on hand and you may lose money due to warehousing costs or obsolescence. Either way, your company is losing out. Here are five quick tips to split the difference, manage your inventory more effectively, and reduce inventory costs.

Determine Everything You Have in Stock

The first step in reducing inventory costs is to determine exactly what inventory you have on hand. Your company should account for every single type of item it has in stock, whether in warehouses or on shelves, by type. Once accountability has been established, you should work to maintain it by regular counts. Your company can do this internally or, if required, hire an outside inventory management firm to do this for you. Maintaining constant track of your inventory will enable you to compare items on hand to sales. It’ll also help your company determine which inventory items are selling steadily, and which need to be discounted and then discontinued.

Liquidate Excess Inventory

Inventory items that are not selling cost your company money. It is expensive to have them take up space in your warehouse or storage facility; it is even more costly to have them on shelves at your store, stealing space from items that customers would otherwise be purchasing. Get rid of your excess inventory as expeditiously as possible. Consider selling it at a discounted price, or offer some other sort of promotion to enable rapid sales. If you have exhausted all options and you still cannot move unwanted inventory items at any discount, consider donating them to a charity; it is the right thing to do, and it may even make your company eligible for some sort of tax deduction.

Centralize Your Inventory

Consider consolidating your inventory in one location, if possible. Centralizing your inventory can help reduce facility maintenance, utility, management, and rental costs. Additionally, inventory kept at separate locations will often decrease your company’s accuracy in accounting for it, and lead to excessive safety stocks kept. Centralizing your inventory in one location can help you maintain a better accounting of all inventory on hand, and will help streamline management of that inventory.

Collaborate with Customers and Vendors

When it comes to the supply chain, a little transparency goes a long way. Establishing a good relationship with your customers will allow you to better understand their demand. This will enable you to forecast what you need to produce for your customers more effectively. It’ll also minimize any excess inventory you keep on hand due to uncertainty. Likewise, signaling to vendors the materials you are going to require will help them better meet your needs in a timely manner as well, and further decrease the amount of excess inventory you have to store in a warehouse at cost.

Leverage Technology

Technology will make life easier on a constant basis. This includes counting and re-counting discussed earlier. The constant use of technology simplifies this work like no other. Point of sale inventory management tools allow bar code scans at sales registers to do multiple things. It can capture every purchase, update inventory databases, and provides critical information for companies to manage inventory. It helps determine what items are selling, where sales are flat, and what needs to be re-ordered. Today’s sophisticated inventory management software can also provide alerts based on sales. Automatic re-order of items is a common attribute in many of these technologies. This will help companies to manage their inventories more effectively, and reduce costs.

William Lipovsky

William Lipovsky

William Lipovsky owns the personal finance website First Quarter Finance. He began investing when he was 10 years old. His financial works have been published on Business Insider, Entrepreneur, Forbes, U.S. News & World Report, Yahoo Finance, and many others.

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