Published On: Tue, Mar 3rd, 2015

Reducing Business Inventory Management Costs According to the Experts

Inventory is a major cost in business, and it could put you out of business if you can’t control it. Here are some of the best ways to control those costs, according to the experts.

Identify Current Risks

Gary Patterson, author of “Million Dollar Blind Spots: 20/20 Vision For Financial Growth,” suggests a multi-step plan. First, you need to establish your risks. Do you rely too much on a single vendor? Are you lacking a good inventory management system?

Do you have a dedicated team of personnel responsible for inventory? What are your worst-case or catastrophic risks? Without knowing what your risks are, you can’t make a plan to improve operations and control costs.

photo: TaxRebate.org.uk

photo: TaxRebate.org.uk

Create a Contingency Plan For Vendors

If you rely on just one vendor, Patterson recommends getting several more as “backups.” This makes sense for several reasons.

First of all, if your vendor can’t supply you with new or updated products that you need, you’ll need another vendor quickly. But, secondly, if your vendor starts having their own financial problems, you’ll end up paying for it directly or indirectly and you don’t want to be beholden to another company.

Your success should largely be independent of others, or at least not dependent on one or two other businesses. Spread your risk out, and reduce the odds that you’ll fail when one of your vendors does.

Asset Tracking

Use asset tracking software, if you’re not already. Most experts agree that you have no hope of containing costs if you don’t know where inventory is, how much it costs, where its going, and how much you have left.

Setting up a tracking system is hard work and, if your company doesn’t have anything in place right now, it’s going to feel a bit overwhelming. But, it’s worth the effort and initial cost. In the long run, it will save you money.

You’ll be able to spot fraud before it becomes a problem, keep inventory levels high (or at appropriate levels), reduce waste, and automatically shift inventory to where it’s needed. Inventory tracking also lets you track trends, so you know whether you need to start retooling or shifting business focus to meet new market expectations.

Challenge Minimum Order Thresholds and Price Breaks

Rick Smith, of Afflink, suggests challenging the MOQ or “minimum order quantities.” When vendors ask you to commit to a minimum order size, ask why. Some will be rigid in their requirements. Find vendors who aren’t and then capitalize on that to get started.

Often, it’s the large firms who are entrenched and unwilling to budge, but push them for lower minimums or threaten to move your business elsewhere. You might be surprised by how far you get.

The same can be said of price breaks and limit thresholds. If you’re not getting a discount for bulk orders, or if you keep “just missing” discounts because you’re not able to order enough, ask about reduced price break limits.

Maintain Discipline, Thought, And Control

Deborah Schroeder-Saulnier, the founder and CEO of Excel Leadership Solutions, suggests that you need to maintain discipline. It doesn’t matter how big or small your company is. You need to grow your business by satisfying customer demands and managing inventory costs.

Guest Author :

Ray Tompkins is an inventory and supply manager. Always on the lookout for ways to cut costs, he shares what he finds on the web. Look for his posts on business and industrial blogs.

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