4 Ways to Reduce Inventory Costs

By Lee Polevoi

5 min read

Aside from employees, inventory generally factors as any small business’ most substantial asset. But maintaining just the right amount of inventory is a delicate and often maddening balance to achieve.

If you fail to stock enough of the “right items,” you risk being unable to meet customer demands. But by stocking an excess number of the “wrong items,” you can end up with useless merchandise sitting on your shelves.

Either way, you’re looking at lost sales or unnecessary expenses that can eat away at your profits. Here are four ways to better monitor your inventory and cut costs.

1. Count Everything in Stock

It’s tempting to maintain a cushion of inventory in the event that demand for a particular item spikes. But this usually leads to overstocking, which can cause unnecessary cost overruns.

When was the last time you conducted a thorough count of your existing inventory? Yes, this can be a dull and time-consuming process, but without an accurate count, you’re retaining merchandise whose sole purpose appears to be gathering dust.

With the help of additional staff or using the services of an inventory control firm, accurately count and document all the merchandise you have. From there, you can determine what sells the fastest and what languishes on the shelves for long periods of time.

Conducting regular inventory counts can help you determine which items could be discounted (in order to clear your shelves) and replaced with more popular merchandise that results in active sales. By combining an accurate inventory with identified sales patterns, you can determine trends that guide your future selection of merchandise.

2. Get Rid of Excess Merchandise

Your inventory count will likely turn up excess merchandise. Instead of paying costs to maintain inventory with little or no chance of sale, bite the bullet and get rid of it. Some ideas on how to do this include:

  • Mark unwanted merchandise as “obsolete,” and offer customers a special promotional sale on selected items.
  • Bundle these items with hotter sellers on your sales floor.
  • Donate excess inventory to a charity (so you can get a tax write-off).

3. Purchase the Right Quantities

Your ongoing inventory count can help guide the decision on how much of a product to buy. Whenever possible, avoid succumbing to large-volume discounts that only add to existing inventory. Instead, seek out the best deal with the smallest quantity your business must keep on hand.

4. Set Up Reorder Alerts

Of course, you also want to avoid running out of popular items. One solution to this problem is to integrate bar-code scanners in your point-of-sale system with inventory control software. This way, you can program software to issue alerts when merchandise is running low so you can reorder before your supply gives out.

It’s easy for a small business owner to get distracted by any number of business operational issues and wind up housing an unprofitable mix of useful and useless inventory. But merchandise that just takes up space (while also requiring ongoing attention) is too expensive to maintain for long. Focused and conscientious inventory management, on the other hand, enables you to spend money on inventory that’s more likely to sell and generate the desired return on investment.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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