The 5 best ways to reduce inventory costs

February 27th, 2024 5 minute read

Ioana Neamt

Contributing Writer

February 27th, 2024 5 minute read
calculating costs

Inventory costs can be a drag, but you don’t have to let them hold you back. In fact, there are several ways to reduce inventory costs in your warehouse, as well as reduce handling and storage costs without reducing inventory.

We searched far and wide for the best ways to reduce those pesky inventory costs and compiled them into a list for you. Keep reading to learn more!

How to reduce inventory costs

There’s nothing worse than high inventory costs. Unfortunately, these costs can have drastic effects on your working capital. Most of the time, you’ll need to worry about the following categories when it comes to inventory costs:

  • Taxes
  • Acquisition costs
  • Labor expenses
  • Obsolescence
  • Security costs
  • Transportation and handling fees
  • Insurance charges

Chances are, the cost of your inventory is higher than it needs to be. With these tips, you’ll be able to improve your cash flow — and stop agonizing about overblown expenses. Let’s take a look at some of the best ways that you can reduce inventory costs below.

1. Get better at planning and demand forecasting

You may not have thought that in order to reduce inventory costs, you’d have to take a trip down memory lane, but it’s actually a very important step. By scrutinizing past sales records, you can create forecasts rooted in the trends of customer demand. It’s important that you factor in seasonal changes and global locations when deciding where to stock specific inventory, too.

Real-time data from your enterprise inventory management software should help you improve your demand forecasting. You’ll no longer have to rely on manual methods and infrequent data updates when it comes to creating inventory reports. This will cut down significantly on delays and inaccuracies — which should help to reduce inventory costs. Yes, it’s true — demand forecasting doesn’t always have to be a total headache. With real-time inventory data, it’ll be easy-peasy.

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2. Improve your order processing system

What do customers love? An easy ordering process, quick shipping, and great customer service, of course. Seriously, by integrating your online store with your inventory management system, you can reduce inventory costs and make your customers happy.

You’ll find this helpful when you’re keeping an eye on customer orders and organizing them using real-time inventory updates. Naturally, you want to make sure that customers are able to get their hands on what they ordered quickly — even if it’s a hot-selling item.

Far too often, we worry about running out of stock.

If you streamline your ordering process, though, you won’t have to worry about this happening. You also won’t have to spend nearly as much on order handling, not to mention the resources that are usually required for fulfilling orders.

3. Cut down on excess inventory

Getting rid of excess inventory ASAP is a super smart move if you’re trying to reduce inventory costs. Returning those surplus products to your supplier is one effective way to trim down that extra stock. Depending on your relationship with the supplier, you could either get a refund or have the excess accounted for in your next round of orders.

You may also want to consider liquidating your excess inventory by selling the products at a significant discount from the market price. While this might not bring in huge profits immediately, it’ll help you cut down on the costs associated with managing excess inventory in the long run.

Customers love a good sale, too. It might just inspire them to come back and buy your products at full price later on!

4. Organize your warehouse

You know what they say — “cluttered space, cluttered mind.” Or something along those lines. If you’ve had to spend hours looking through the warehouse for a specific item only to find it shoved behind a tower of cardboard boxes, it’s probably time to organize your warehouse and make it easier to find things. Also, do not, under any circumstances, let the Michael Scott of your office drive the forklift. If you know, you know.

It may not seem necessary, but organizing your warehouse can be a serious game-changer. Organization is even more important in larger warehouses, where employees might find themselves trekking hundreds or even thousands of square feet for one item. We’d recommend prioritizing your high-demand items by placing them right up front in the staging area. No more having to deal with the costs of lost or unaccounted-for inventory!

The biggest challenges faced by manufacturing industries, big or small, are always usually associated with inventory management.

5. Use inventory management software

Thinking about investing in inventory management software? Take it from us — it’s the right move! A tool like this automates the whole inventory management process, cutting down on costs significantly.

Cloud inventory software like Katana improves accuracy in tracking inventory, reduces the need for paperwork, creates handy audit reports, and takes care of replenishing supplies. By doing away with manual processes, this software doesn’t just save on labor costs but also speeds up the entire inventory tracking process. What’s not to love?

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Reduce inventory costs with Katana inventory management software

With Katana Cloud Inventory, managing different product variations is a total breeze. You can easily keep track of stock levels across different locations, which means you’ll never run out of your most popular items. Katana also allows you to set reorder points, which helps to keep things consistent.

Not only that, but it’ll provide you with a full view of your stock, including serial numbers, batches, and expiration dates. There’s honestly no better way to keep tabs on your product, streamline your ordering process, and keep your stock levels accurate. The best part is that you get to save money while doing it since you’ll be reducing inventory costs!

Reach out to our sales team to request a demo and see how you can optimize operations, manage all your sales channels, and more with our flexible, powerful, and enjoyable cloud inventory software solution.

Get a demo and discover the power of real-time insights