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Home»Articles»5 Ways To Reduce Inventory Costs And Boost Profitability
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5 Ways To Reduce Inventory Costs And Boost Profitability

Tito Philips, Jnr.By Tito Philips, Jnr.February 21, 201425 Mins Read
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Unusual Entrepreneurs are in business to make a profit by making a difference. Around here, we simply call it; changing the world and profiting from purpose.

Neither is an easy task. While you should always strive to create products/services that positively impact the life of your customers, you should never lose sight of the bottom-line –profits. The more profits you are able to make, the more impact you will eventually make.

So in this unusual article, we would be looking at one of the often overlooked ways of increasing profits in business; cutting costs, in this case, inventory cost.

5 Ways to Reduce Your Inventory Costs And Boost Your Profits

You’ve been successful at marketing your offerings to your customers, and now your business is growing. You’re in a great position now, but you’re running into the challenges of growth. These are good problems to have, but if you’re not careful and don’t plan ahead, you can sink your business’s profits with too much overhead.

When you think about ways to streamline your business, one of the most effective ways to cut overhead costs is to better manage your inventory. As was pointed in this unusual article about the 7 warning signs of a dying business, poor inventory management can lead to overstocking which eventually affects your profitability.

So to help you out, here are 5 ways to reduce your inventory costs and also increase your bottom-line:

 

1. Perform Disruption Analysis

The success of your business depends on other businesses to deliver goods and services on time. If partner businesses fail to perform their obligations for whatever reason, your business could take a big hit. How heavily do you rely on a given supplier? How would your business respond if that supplier went down?

If you rely on a single provider and disruptions occur, you can count on one of two things happening: You would have to pay exorbitantly to keep your customers satisfied or you would lose them to another provider.

The business partner relationship is one of the most crucial and complex in your supply chain, and should be carefully examined so that you can implement contingencies when disruptions occur. Audit your supply chain to identify the ways in which it can be disrupted.

2. Audit Your Inventory System

One of the biggest factors affecting your bottom line is your inventory. Not only do you have the costs for purchasing your inventory, you have the overhead of warehousing it. You need to keep enough products on hand to satisfy your clients and keep your sales volume high. Nothing sends a customer to another provider faster than the words, “Out of stock.”

But you have to be careful about stocking too much, and depending on the type of inventory you carry, you also have to be careful of its shelf life. Products that are hot today may be very cold tomorrow. The last thing you want in your warehouse is a bunch of inventory that no one is interested in anymore.

If your inventory isn’t complicated enough, add to it the market fluctuations you need to account for from seasonal and holiday trends. So, make sure you regularly audit your inventory so that you always have on hand the inventory you need.

3. Plan to Succeed

Now that you have analyzed your supply chain for possible disruptions and identified your inventory balance concerns, you can create a plan that mitigates your risks and optimizes your bottom line. Look at your suppliers, for example.

Even though one supplier may be more cost-effective than others, using multiple suppliers creates safety through redundancy. This way, if one supplier goes down, your entire operations don’t go down with it. Your approach to planning needs to include external variables, such as the ways in which government regulations may affect the way you or your business partners operate.

4. Regular Updates

You aren’t done! This process is ongoing. It requires constant re-evaluation. Over time, your suppliers will change and your inventory will expand. One of the biggest factors of successful businesses today is their ability to quickly react to the changes that occur in the market.

You don’t want to be the business that gets left behind because you assumed that the plans you’ve put in place won’t need to be changed. Make sure your business is ahead of the curve by consistently updating your disruption analysis, inventory balance audit, and your optimization plans.

5. Supply Chain Solutions

Believe it or not, you can streamline your costs and maximize your bottom line by adding a middleman. Professional athletes hire agents to broker their contracts. These agents get paid large commissions in return for their work.

Why don’t athletes just work their own deals? Because athletes are good at, well, athletics; and they might not be proficient at negotiating contracts. Agents aren’t just good at contract negotiation, they also very good at finding other opportunities for revenue, such as endorsement deals and product development. The athlete’s bottom line is a lot higher because of their “middleman.”

Think of your supply chain in the same way. You are very good at running your business, but the time you spend managing your supply chain is time you could be using to expand your business more rapidly in other ways.

Supply chain tracking providers are experts at managing and optimizing all of the elements I’ve been talking about, from managing your suppliers to keeping your supply chain up to date to everything in between. Supply chain solutions can also identify new ways of cutting costs that you might not be aware of. They truly are the agents in your corner.

About The Author

Nicole is a small business owner, and she enjoys the growth she receives from both the successes and the defeats she experiences from running her business. She enjoys writing about ways to more successfully run and manage a business.

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Tito Philips, Jnr.
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Hi! My name is Tito Philips Jnr, an unusual Nigerian that is MAD – Making A Difference. I'm the Chief Community Leader here and this is where we raise the bar of entrepreneurship. We are a TRIBE of Unusual Entrepreneurs, we are not your every day entrepreneurs who go into business to put food on the table and pay bills. For us, business is more than making ends meet [survival]. It is our means of doing what we love [passion], changing the world [purpose] and being financially rewarded for it [profit]™. Want to become ONE of us?

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2 Comments

  1. udoh godwin on April 15, 2014 6:46 am

    This is beautiful…

    Reply
  2. Krafting Networks on January 31, 2017 7:39 am

    Inventory cost play key role in the business. For reducing that inventory cost above techniques are useful. Thank you for the sharing.

    Reply
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