6 Tips to Manage Inventory Cost and Improve ROI
6 Tips to Manage Inventory Cost and Improve ROI
When it comes to providing optimized inventory control, a major aspect of optimization is managing its cost.
There are various inventory costs, including ordering and setup costs, carrying costs, and stockout costs that affect the bottom line of your wholesale business and its inventory life cycle.
It’s not enough to look at the pricing of warehouses, or forklift drivers or pickers – there’s also an opportunity cost to think about. Here are some ways that companies can alleviate various kinds of inventory cost.
1. Evaluate Risk
Evaluating risk costs is part of sophisticated inventory management. There are several different types of risk relevant to wholesalers.
There’s the traditional type of property loss related to misplaced or stolen inventory. Although inventory theft may be relatively rare, a loose inventory chain can result in lost or misplaced freight. Lost freight means lost sales and possibly even chargebacks. Conduct monthly randomized audits rather than relying upon annual physical inventories alone.
Another related risk is the cost of reduced inventory value. Consumer goods are not like fine wine that increase or even maintain their value over time. Consumers are notoriously fickle and most consumer products are not like fine wine. Time isn’t on your side so carefully monitoring the age of your inventory is crucial to a wholesaler’s healthy bottom line..
2. Improve Forecasting for Your Replenishment Business
Forecasting is a valued tool in controlling your inventory, delivery, and fulfillment costs. When you are selling “evergreen” product and on a retailer replenishment program, retailers are relying on you to keep goods in stock. That requires careful planning and quality reporting is critical.
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When shipping can be predicted in terms of metrics like seasonal peaks, companies can improve planning and reduce inventory carrying costs.
Those plans are only as good as the forecasting behind the predictive analysis, and that’s one area in which a sensible investment in outsourced inventory management can provide superior returns. Quality outsourced services typically incorporate sophisticated forecasting analytics. Better forecasting sets the stage for efficiencies and increased cash flows.
3. Integrate Customer Service in Supply Chain and Inventory Management
This tip is particularly effective for wholesaler’s e-commerce sales.
The idea is that some companies basically reduce redundant labor, and therefore reduce cost, by combining customer service and fulfillment operations. Integrations are critical. API’s allow for wholesalers to track whether packages are really on the move or still sitting on the warehouse floor. Automated alerts increase customer satisfaction. With shared data assets and shared resources, companies can keep a closer eye on inventory and fulfillment processes while serving customers. These resources may even consist of surveys, follow-up checklists or other communications tools (see examples here) that tie fulfillment to follow-up and customer support.
4. Monitor Inventory Precision for Inventory Cost Reduction
Your warehouse is charging you monthly storage fees. New inventory is typically stacked efficiently and occupies fewer pallet positions. Older goods have been picked through and occupy more pallet positions than necessary. Whether you are paying by the pallet or by cube you can be sure that your warehouse is charging you for the luxury of storing older goods.
On top of that, older inventory is more likely to be misplaced and harder to locate. With that in mind, companies that achieve leaner inventory models reduce these costs. You see less product sprawl in warehouses – fewer questions about where product is going – and more effective elimination of chargebacks or stockout problems.
5. Divide and Conquer
Inventory segmentation is also a key tip in handling inventory.
Not all inventory is alike. By segmenting your inventory reports into meaningful categories you can locate and remediate current problems and be on the lookout for repeating patterns. Ecom, FOB China, POE, and LDP goods have different operational procedures and lifecycles and should be monitored separately. Product categories and divisions may also operate with differing processes and on different cycles and so should also be monitored separately.
When companies can customize inventory control for each type of product, they’re able to accrue all the benefits of leaner inventory positions.
This resource from Arkieva goes into some of the details of segmentation techniques that includes a product matrix that reveals how relative demand can guide treatment for segments.
6. Keep Everyone on the Same Page
Eliminate rogue spreadsheets.
When employees don’t find what they need in their ERP they tend to create their own worksheets. As a result, the rest of the team, including the executives, don’t have access to that information. Having employees in various departments operating from the same data set helps keep inventory control efficient and effective.
In general, investing in improved user experience for front-line staff pays dividends. That can mean a better understanding of tools which brings its own ROI. It can also help to leverage the creative power of a broader employee base.