How to Reduce the Costs of Inventory Storage
For industries from manufacturing to retail, inventory storage is an unavoidable business expense. In fact, for the average company that sells or transports products, storing them takes up about 20-30% of the total budget. To keep your business profitable, you don’t want these expenses getting out of hand. Let’s take a look at 5 ways to keep the cost of inventory storage down.
1. Reduce Deadstock
Deadstock is a term for all the products you have in storage that aren’t selling. They’re taking up valuable space and costing you money without providing any profit. You may feel reluctant to get rid of stock that you’ve already paid for at a reduced price or even for free, but the fact is, clearing deadstock out of your warehouse will save you money.
You have several options for freeing up inventory storage space by reducing your amount of deadstock, including:
- Returning it to your supplier if you purchased it recently enough for this to be an option. It should be noted that some suppliers charge fees for returned merchandise, so make sure you have all the relevant information before you choose this option.
- Selling it to customers at a steeply discounted price.
- Pairing it with a product that sells well. You can offer customers a reduced price if they buy both products or give your deadstock away as part of a “buy one, get one free” deal.
- Donating it to charity, which comes with the benefit of a tax writeoff and can create some positive press for your business.
The sooner you recognize that a certain product has become deadstock, the sooner you can get rid of it and stop paying to store it. Keeping detailed information about your inventory and how it’s actually selling compared to expectations is an important part of saving on inventory storage.
2. Reduce Your Supplier Lead Time
Your supplier lead time is the length of time in between deliveries from your product supplier. By getting smaller shipments delivered more often – for example, twice a month instead of once a month – you can reduce the amount of inventory you need to keep in storage. You may even be able to negotiate a discount from your supplier in exchange for placing repeating orders.
3. Set The Appropriate Reorder Point
Your reorder point is the minimum amount of a certain product that you intend to keep in storage. When the amount you have on hand dips below that point, it’s time to order more. Setting the right reorder point is important for keeping the costs of inventory storage down while also making sure you don’t run out of a product that’s in high demand.
The standard formula for determining your reorder point is: (Average daily sales of the unit x Average delivery lead time) + Safety stock.
Your delivery lead time is how many days it takes the delivery of the product to arrive after you’ve placed the order. Your safety stock is the amount of inventory you keep on hand just in case you have more orders than usual to make sure you don’t run out.
When figuring out your safety stock number, there’s a formula for that too: (Maximum daily sales x Maximum lead time) – (Average daily sales x Average lead time).
There are no guarantees against building up deadstock or running out of a product but using the right formulas to determine your reorder point will lower your risk for encountering these problems.
4. Invest in Theft Prevention
Unfortunately, losing inventory to theft is a common problem for businesses of all kinds. To avoid having to pay to replace stolen inventory, be sure to:
- Monitor inventory closely to make sure your stock levels match your sales records. Make sure you’re keeping records of any stock lost to damage, spoilage or other issues so you’ll know if any goes missing and may have been stolen.
- Maintain high visibility of inventory and employees in your warehouse.
- Keep enough managers on the floor to supervise workers throughout the day.
- Invest in effective security systems.
- Make sure all of your employees are aware of your company’s policy on theft and the penalties for it.
If you suspect theft is increasing your inventory storage costs, don’t delay starting your investigation. The sooner the problem is identified, the sooner it can be addressed.
5. Optimize Your Warehouse
When your warehouse is optimized for productivity and safety, you can reduce costs and increase profits by filling orders more quickly and reliably. There are a number of things to
consider, from choosing the best storage rack system for your operation to making sure the layout of your warehouse is designed for your company’s needs. You may even be able to automate more of your systems to save time and money.
If you haven’t consulted with a materials handling specialist before, now may be the time. They’ll be able to make recommendations and install storage and retrieval systems that will help your bottom line.
Speak to a Materials Handling Expert
Tri-R has been installing materials handling solutions for 41 years. We can work with you to provide the best inventory storage and retrieval system for your operation. Contact us today for a free quote.