How to Reduce Inventory Cost?
How to Reduce Inventory Cost?

Both retail and manufacturing businesses heavily invest in their inventory. The cost of inventory directly affects profits.

In this write up, we are going to discuss some effective tips to reduce the inventory cost.

So, without any further ado, let’s just get into it.

What is Inventory Cost? 

In business, inventory cost refers to:

  • Ordering Cost

Expenses bore by businesses while ordering material is known as ordering cost. The transportation and insurance expense is part of this cost as well.

  • Material Cost 

 Cost of material paid to the suppliers is called material cost.

  • Storing Cost

Businesses usually can’t sell products immediately after purchasing. They need to store it. Therefore, companies spend lots of money on storage space.

The rent of a warehouse, security, etc. are examples of the storing cost.

Avoid Overstock Situation

If a business purchases a product in excess quantity but it is not selling, it has to bear the cost in two ways.

  • Storing cost.
  • Dead stock

To cut these costs, never buy more stock than you need. Another tip to avoid dead stock is to always follow the sales trends and buy products that are high in demand.

Use Key Performance Indicators (KPI)

Set key performance indicators (KPI) to evaluate the performance of inventory. There are a number of formulas and methods that can be used for this purpose including:

  • Inventory turnover
  • Lead time
  • Rate of return
  • Stockout times

 Plan Your Future 

A strong strategy for the future helps a lot in cutting the cost of inventory. Use the previous reports to plan future strategies.

Organized Warehouse 

The organization of the warehouse is very necessary for cutting the cost of inventory.

 Products should be properly aligned and stored in sequence.

It helps to get easy access to these products. Furthermore, it reduces the cost of storing.

Fewer employees need to manage the place if the warehouse is organized.

Avoid Damage or Spoilage

Damaged and spoiled products increase the inventory cost. Due to unfavorable environment, products get easily damaged.

There is a need to manage the storeroom according to the nature of the products and track the inventory to monitor expiry dates. This will help sell products before their any damage or spoilage.

Stock Management Software: Ultimate Solution to Reduce the Inventory Cost

Without using stock management software, it is very difficult to apply the above-mentioned techniques.

To have strong control over the business inventory, you   need an inventory management software.

It helps you to track every item of your stock   get on-time inventory alerts.

These alerts help to avoid any difficult situation.

For example, if there is stock in your inventory reaching its expiry date, the inventory system alerts you by sending a mail or message about the situation.

Inventory management software will not only cut the cost of inventory, but it also increases your customer’s trust in your brand.

Many software is available in the market to control the inventory. We suggest you choose one that suits your business the most.


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