Inventory management is an important aspect of any small business. Owners need to manage the stock they buy, store and sell. Doing so allows them to fill the needs of their customers. Inventory carrying costs can accrue, if you fail to monitor them. These are expenses you can reduce to keep your cash flow steady and increase revenue.
These are some of the ways to reduce carrying costs.
Look into the Supplier Agreement Terms
Review the negotiation terms of your contract. Doing so allows you to understand the reasons behind the actions of your suppliers. You might need better lead times and credit terms because of your small business’ growth over the last year or few months. Delays along the supply chain are costly. Long lead times between deliveries lead to higher carrying costs because you need to buy safety stock to meet the needs of customers.
Better Storage Layout
Sometimes the best improvements are simple. You might just need to improve the layout of your warehouse or storeroom to reduce carrying costs. The receiving area must be spacious enough for staff to do their job such as moving and storing inventory. Factor in the distance of your storage area to your shop. Prioritize stock that is in high demand. Organize items based on customer demand to make them easy to move. Consider the kind of product that you will store, are these perishable or non-perishable, or hazardous. You have to plan for the right storage equipment for such items.
Determine Needed Stock on Demand Instead of Expectations
Your inventory holding cost may be rising because you have too much inventory without corresponding demand. Review your small business’ sales data over the last few months or the same months from the previous year. This provides you with insights about seasonal shifts you need to plan for. It also enables you to determine the amount of stock you need to buy so that your shop will have enough products for customers.
Consider Long-Term Contracts
The guarantee of a long-term business relationship develops good rapport with suppliers. They can provide you with favorable terms for deliveries, storage of the goods you want before they send it to you, and they can offer bulk pricing. This also puts you in a good bargaining position for possible re-negotiations of your contract.
These are just a few of the ways you can reduce inventory carrying costs. Cutting expenses allows you to get the most out of your small business’ budget while boosting profit. Robookkeeper can provide you with affordable bookkeeping services whenever you need to update your accounting books.