Inventory cost is defined as the cost of holding goods in stock. If you’re looking for a way to reduce your inventory cost, chances are you’re stocking too much inventory. Too much on-hand inventory increases your storage costs—thus your cost of goods sold—and ties up liquid cash.
Here are three ways to reclaim that cash and reduce your inventory cost:
Know Your Up-to-Date Inventory Levels
Keeping tack of your inventory levels is the most straightforward way to prevent overstocking inventory and, as a result, reduce inventory cost. Although a spreadsheet-based inventory management system might give you a general idea of how much inventory you have at a given point in time, solutions like Wasp’s Software and Inventory Management systems, help keep that information automatically up-to-date; allowing small businesses to make quick, strategic decisions about how much inventory to have on-hand.
Evaluate Your SKUs
Simply put, SKU intensity is how many SKUs your business has per unit. If your business sells items like gifts, you might only have one SKU per item. However, if your business sells items like clothing, which can come in multiple colors and sizes, one item can have numerous SKUs, which can lead to a higher SKU intensity. Are you not selling any size two dresses because there is no demand for size two dresses or because you don’t stock size two dresses? Knowing the difference will help your business not only avoid stock outs but also avoid overstocking items that aren’t selling. The information needed to understand your SKU intensity is available in your inventory system’s history file, but you also need to understand what your system is telling you. Tailor your SKU intensity by pulling together sales and inventory information to figure out exactly what’s going on with your inventory.
Track Inventory Movements to Automatically Re-Order
How quickly can you get replacement merchandise when you run low? The longer it takes, the more items you must keep on hand and, as a result, the higher your costs. Implementing a perpetual inventory system will allow you to track sales and inventory movements in real-time—allowing you to automatically re-order stock when it makes the most sense for your business.
When inventory is a big part of your small business’ daily activities, having an understanding of what kind of inventory you have on-hand at any given moment and how quickly that inventory is moving, is key to reducing inventory costs.