5 Ways Retailers Can Reduce Inventory Costs

As demand increases, retailers ought to add more inventory to their stores. However, the cost of having an additional collection is significantly high. Adding new collections to your store will make you incur more purchasing costs, carrying costs, and even more shortage costs. In general, managing inventory costs a lot. Renting warehouse space and quality control are examples of additional expenses brought about by holding inventory.

Reducing the cost of holding inventory is a priority among retailers. Decreasing inventory costs is fundamental to increasing net income. Fortunately, there are ways to reduce inventory holding costs. Read on to find out more about these ways.

Optimize Product Reorders

Knowing the right time to reorder products and the right amount is vital in managing inventory. Optimizing product reorders involves holding the correct size of inventory that fulfills customers' demands. Demand forecasting tools come in handy when optimizing product reorders.

Tips for Optimizing Product Reorders

• Planning for demand – demand planning entails knowing your customers' demands and planning for the demands in advance. When you are aware of the size and when your customers will need a particular product, you can restock accordingly. Demand planning helps in scheduling reorders accordingly.

• Understand the supply capacity – Knowing the supply levels will help you avoid running out of stock. At the same time, understanding supply capacity is crucial when determining the size of inventory to hold.

• Determine seasonal sales – Some products' demand varies depending on the season. Accurately determining the seasonal sales helps you know products to stock at a particular time.

• Increase inventory visibility – Know what inventory you have in your stores. Inventory visibility is helpful when restocking, since you are aware of what you have and don't.

 Avoid Overstocking

Overstocking occurs when retailers hold more stock than they can sell. Overstocking negatively affects the profitability of your business. Most suppliers offer good discount deals when a supplier purchases a large volume of products. It may seem profitable but leaves you with a large deadstock in the long run. The fear of running out of stock, misjudged customer demand, and seasonality are the leading causes of overstocking.

How to Prevent Overstocking

The following tips are effective in preventing overstocking.

• Keep a record of the economic and market trends – being up-to-date with economic and market trends is essential when anticipating supply and demand fluctuations. Updates on supply and demand fluctuations assist in making accurate stocking decisions.

• Audit your inventory regularly – auditing your inventory assists retailers to measure the performance of their inventory against the key performance indicators. The audits help you determine the correct amount of inventory to hold.

• Use of inventory management software – inventory management software helps in the analysis and tracking of the inventory. The software provides helpful insights when stocking.

Decrease Supplier Lead Times

Supplier lead time is the time elapsed between when a retailer makes an order and the time when the order is delivered. Besides annoying, extended lead time contributes to high shipping costs. Prolonged lead time also slows delays in response to the fluctuating demand patterns.

How to Reduce Lead Time

Consider these tips to reduce lead time.

• Increase order frequency – Frequent orders guarantee quick shipments. Consider breaking your orders into smaller quantities to enable frequent orders.

• Get your orders from a domestic supplier – Using a supplier within your locality can significantly help in reducing lead time. Using a domestic supplier also eliminates any delay that could be due to language barriers. In addition, getting your orders locally reduces the carrying costs.

• Provide your supplier with sales forecasts – Make your suppliers aware of the dates you make your reorders based on sales forecasts. The awareness enables suppliers to anticipate orders and make proper preparations for shipments.

• Communicate with your suppliers – Effective communication with the supplier is necessary. This ensures that the supplier meets your expectations. Stating your expectations helps in reducing lead time.

Order Directly from Manufacturers

Locate the manufacturers of your products and order directly from them. The manufacturers often provide the goods at a lower cost. Besides, manufacturers are always willing to negotiate discounts with you. Buying directly from the manufacturers eliminates middlemen, who exaggerate the prices.

Reasons to Buy Directly from the Manufacturer

• Saves you money – Prices are the main reason for buying directly from the source. Distributors usually increase the prices of products to increase the profit margin.

• Manufacturers provide convenient sales – it is easy to buy from manufacturers. Most manufacturers have websites where you can view their inventory and easily add an item to your cart.

• Manufactures offer direct sales – Traditionally, manufacturers used wholesalers to distribute their products in the market. The trend has changed with time. More manufacturers are offering sales directly to retailers.

• Guaranteed quality of inventory – When you buy directly from the source, you are assured of the quality of the product. There is no interference with the inventory, since middlemen are not involved.

Rely on Scan-Based Trading (SBT)

Most retailers in the food and beverage industry have challenges with managing their inventory. The aim of managing inventory is to maximize inventory while minimizing inventory costs. Using scan-based trading has helped retailers in the food and beverage industry achieve their goals. In scan-based trading, suppliers are responsible for the inventory within retailers' stores until items are scanned at the point of sale. The following are the benefits of scan-based trading.

• Retailers are not exposed to any financial risks since the suppliers are responsible for the inventory until the point of sale.

• It reduces the risk of retailers holding dead stock.

• Suppliers control the products sold at various retail points.

• It provides POS data used to develop a marketing strategy.

However, retailers are struggling to adapt to scan-based trading. There is a lot of work involved when collecting POS data and submitting the data to suppliers to update their price book. Luckily, the scan-based trading accounting software helps retailers maintain their price books.

Benefits of the Scan-Based Trading Accounting Software

1. It maintains the pricebook. SBT accounting software accurately maintains and updates POS data on behalf of the retailer.

2. By using the SBT accounting software, suppliers can monitor sales transactions in real-time.

3. SBT accounting software eliminates holding and carrying costs.

4. SBT accounting software helps in generating invoices, and is vital in managing account receivables.

5. SBT accounting software handles store operations such as markdowns and price adjustments.

The Bottom Line

Retailers need to reduce inventory costs to increase their profit margins. Some ways can effectively help retailers reduce inventory costs. Relying on scan-based trading is the best option. If you are a retailer having challenges with implementing scan-based trading in your business, iControl is here to help. Ensure you get a demo today to streamline your operations.