Improving profitability by managing inventory costs

Inventory may be essential to your business. However, if it is inefficiently handled it can cause issues when it comes to spending, and costs can easily spiral out of control. Taking steps to better manage your inventory costs can fundamentally shift the trajectory of profit and efficiency within the business, freeing up resources you can use to add value elsewhere and increasing profits. There are some simple steps you can take to improve profitability by managing inventory costs.

Review the way you’re using space

Effective space utilisation when it comes to inventory storage is one of the most effective ways to start reducing the cost of inventory. Look at your existing storage arrangements and assess whether you’re handling inventory effectively – for example is it taking up space and making it hard for anyone to work around it? Could you use different storage options – such as vertical shelves or automated systems – to make better use of space? It’s also worth looking at the inventory you’re holding and ensuring it’s relevant. If room is being taken up by out of date items, old stock or defective materials this could be unnecessarily costing you profitable space.

Plan and organise your inventory

If your business is leaking profits and inventory handling is causing this then it’s very easy to find someone else to blame. The sales team can blame the shipping team for low picking and packing speeds and shipping could blame sales for not closing enough deals. Avoid this type of situation by ensuring that you take central control over inventory management and put profitability at the heart of the planning process.

Use an inventory management system

One of the simplest ways to optimise inventory handling is to invest in inventory management. There are a lot of options for inventory management today, from simple software to advanced and sophisticated systems that can instantly tell you where a single item is. Look for inventory management that works for your business, that will enable to you see how stock is being handled and provide insights on where improvements could generate increased profits.

Don’t hold on to safety stock

Most businesses will require safety stock, for example to help cover a spike in orders. However, it’s essential to ensure that you’re not holding on to unnecessarily large volumes of safety stock so that this eventually becomes dead stock. A warehouse management system will enable you to track stock in real time and ensure you’re not holding on to what you don’t need.

Consider your options

Depending on your business there may be different ways to invest in inventory that make it easier to avoid increased costs. For example, buying consignment inventory can considerably reduce up front costs because the inventory remains the vendor’s until you use it and doesn’t have to be paid for until that point.

There are lots of ways to improve profitability by better managing your inventory costs. Taking the first step could be transformative for your business outcomes this year.