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How to Reduce Inventory Cost

Reducing costs associated with your inventory is vital to maximizing space, increasing profits and enhancing the customer experience. Getting a return on your investment is a top priority for any retailer, but maximizing this return can be challenging without the right processes and tools. Modern approaches to reducing inventory costs rely on data and innovative solutions to provide valuable insights about demand, competitors and current products.

Below, you can discover several strategies for addressing cost challenges and where you can find a reliable partner to enhance your operations.

Challenges With Inventory Cost

There are several challenges associated with inventory cost. When an organization has too much or too little product, it loses opportunities to make profits. Common challenges include:

  • Excess inventory takes up space: Having too much of a product indicates there isn’t enough demand from your consumers to sell your current stock. This problem can also create unorganized workplaces and minimize opportunities to bring in new products. With shelves full of unwanted products, you lose opportunities to sell other goods that are higher in demand, decreasing your profit potential twofold.
  • Businesses lose money on unsold items: Another issue with excess inventory involves selling items at a significant discount. Although this can be a great strategy for clearing your shelves, it’s possible that you may have a net loss, ultimately negatively impacting your business.
  • Organizations could be more competitive: Selling the right products is a large aspect of being competitive in the market. If you have an excess of items, you could lose opportunities to purchase newer or more popular products to capitalize on trends, potentially impacting your competitive edge. Conversely, lacking enough products to meet demand can make your organization seem unreliable compared to others on the market. Either way, these inefficiencies can negatively impact the customer experience and make it more challenging to find new, loyal customers.

Inventory Cost Reduction Tactics

Though the challenges in this industry continue to evolve, there are several ways you can address them and even turn them around to make a profit. Consider these inventory cost reduction tactics:

  • Demand forecasting: Demand forecasting is one of the best ways to ensure you can meet market needs without having excess stock. You can leverage solutions to better understand seasonal patterns, competitive shifts, changes in assortment and other factors that can influence customer purchases.
  • Improve data management: Data is powerful when it comes to management. Improving data collection allows you to make informed and more accurate decisions. For example, you can collect data on sales by location, demographic, product and other criteria to understand where you can capitalize on your investments.
  • Recycle and reuse: Reusing or recycling items is an excellent way to maximize your profit opportunities with stock. Recyclable containers or components can help you clear obsolete inventory from your shelves while cutting future costs by using your available supplies.
  • Automate processes: Automation is one of the most important tools to leverage in the modern market. Automated processes can improve accuracy, reduce manual errors and allow you to cut costs by being more efficient. Automations you may benefit from include tracking inventory locations, expiration dates, order arrivals, purchase orders, stock levels and more.
  • Be picky with suppliers: Improving supplier processes is just as important as leveraging your internal operations. If a supplier cannot provide the products you need promptly, you risk disappointing your customers and losing potential sales. Ensure you can purchase consistent, high-frequency product orders from your partners without overspending.

Inventory Reduction Strategies and Benefits

Inventory reduction refers to reducing your inventory to meet the current demand. This process spans more than moving excess inventory. This method aims to prevent excess inventory from building up while increasing your available volume of better-selling products. Inventory reduction can lead to benefits such as:

  • Less waste: Expired perishables, damaged products, or signs of decay like corrosion and mold can compromise your product’s integrity. Limiting your amount of stock can also limit the amount that goes unsold, reducing the likelihood of potential losses from these circumstances.
  • Lower costs: Carrying more stock than necessary can have several adverse impacts. For example, you may need to secure additional space for the products, pay more in utility fees or boost staffing to handle the load. At a minimum, you will always have to account for each item’s initial price. By limiting your stock, you can reduce these collective costs.
  • Enhanced cash flow: As a result of realizing the first two benefits, you’ll typically find that you have more cash on hand. Spare capital empowers you to invest in a timely fashion and ensure you can purchase new items that enter the market. This additional cash can also help you achieve objectives like purchasing new software, upgrading facilities or improving your day-to-day operations.
  • Increased flexibility: Being adaptable is essential for any organization. Having a more stable cash flow and more efficient processes empowers your business to better respond to changes in the market.

Below, you can find several strategies for achieving inventory reduction.

1. Evaluate Safety Stock

Although you want to avoid extreme inventory excess, every organization can benefit from having a small amount of safety stock. Having a little too much inventory often boasts better outcomes than having too little because you can ensure you meet customer demands quickly to enhance your reputation and profits. Evaluate your safety stock to ensure you have enough products in the event of a demand surge or high per-unit purchases.

2. Remove Obsolete Inventory

It may be tempting to squeeze every sale possible from your inventory, but at some point, it becomes too expensive to hold on to this stock rather than remove it. Using software solutions and valuable insights, you can determine which products are stationary, moving slowly or entering the end of their life cycle. Consider selling these products at a high discount, negotiating with a clearance retailer or scrapping the stock to make room for new products.

3. Use Data for Purchasing Time and Allocation

We cannot emphasize the importance of data enough. When it comes to purchasing and maximizing profits, timing is everything. Buying products too early can result in excess stock, while buying items too late can harm the customer experience. Using data to time your orders can help you navigate and avoid these challenges while potentially lowering transportation costs.

4. Automize Replenishment

Automation offers many opportunities to streamline your processes. One of the best places to implement automation is in the replenishment process. Using this strategy, you can minimize time-consuming manual tasks while ensuring you can continue meeting customer demands promptly. Pairing this strategy with demand forecasting is an excellent way to ensure your customers can always rely on you.

5. Optimize Price

Naturally, prices will impact your bottom dollar. However, it is essential to consider whether you can make more sales by adjusting your prices. For example, you may be able to sell 2,000 units at $20 but can maximize your profits by selling 3,500 units at $15. Optimizing your prices can help you get more products through the door, preventing excess stock while maximizing your overall sales.

Optimize Your Inventory and Reduce Costs With Blue Ridge

Blue Ridge has a 100% success rate providing game-changing solutions that support diverse organizations, and we’ve been doing so for more than a decade. We offer a simple solution, unmatched support and proven returns to enhance your business. Our cloud-based AI-assisted platform makes it easy to gather a holistic view of your organization to spot inefficiencies and areas where you can maximize opportunities and profits.

With Blue Ridge, you can find solutions for demand planninginventory replenishment softwarebusiness planning software and supply capacity planning. Request a demo to see our solutions in action.