How to Lower Your Inventory Holding Costs

  inventory management

Smart business owners should know how to make money and how to save it too. In our previous post, we talked about how to increase sales. Today we will share some tips on how to save cost. For most growing wholesale companies, the major cost lies in your inventory. Take a look at the breakdown of your inventory cost first:

  • Ordering Cost: the cost created from making inventory orders
  • Shortage Cost: the cost created by the shortage of inventory
  • Holding Cost: the cost that arises from holding your inventory.

If you want to dig deeper into the details of each cost category, take a look here to understand what goes into each segment.

Today we offer you four tips to lower your inventory holding cost:

1. Reduce supplier lead-time

The first tip is to reduce the supplier lead-time. When supplier lead-time is high, you need to store more safe stock so that you can still fulfill all the orders. This means higher carrying cost to store extra stock levels. When a supplier offers you lower lead times, you have the flexibility when it comes to making orders. It will reduce stock carrying costs in the short run; and in the long run, lower the risk of holding stock becoming obsolete.

2. Get rid of obsolete stock

Sometimes when you overestimate the potential of a certain product, you might end up with a large amount of stock that doesn't have any customer demand. One way to avoid this problem is to monitor the product life cycles of each unique items and make better estimation when purchasing. Once you have a better knowledge of product lifecycle and the customer demand pattern, you will make better decisions for ordering inventory.

cash inventory

3. Watch out for minimum order quantity

A minimum order quantity (MOQ) is the minimum order size accepted by a supplier. Some suppliers have a higher MOQ so they can make a larger margin profit from big order. Although small business owners have less leverage to negotiate with suppliers to lower the MOQ, what you can use as a negotiation term is to add purchase frequency. Smaller, more frequent orders allow your business to have more flexibility when there’s demand shift.

4. Use smart inventory management tool

When you just start a new business, it is challenging to forecast customer demand due to unfamiliarity to the market. So you would want to have a smart inventory management tool to help you analyze and understand product performance. Sweet is smart inventory management tool that offers business reporting of unique product sales. Try it today and reduce your inventory holding cost!