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magento & ecommerce

How to Reduce Inventory Management Costs in eCommerce

When compared to other expenses involved with running an online retail business, the inventory costs don’t seem like too big of a concern. However, inventory costs are much less benign than they sound and they can seriously compromise the wellbeing of your business if they get out of hand.

Fortunately, there are practical and clever ways to reduce your inventory costs. They are relatively easy to apply and make a whole lot of sense in the long run, even if some of them might initially seem counter-intuitive. Here is how to efficiently reduce inventory costs in eCommerce.

Reduce the stock

Yes, reducing the stock definitely does sound like a completely logical thing, but for some reason, many retailers tend to unnecessarily stock up on items. This, in turn, costs quite a bit and can leave you with the pockets turned inside-out.

Like with most things in life, the best solution here is moderation. Stock optimization takes careful consideration, thorough planning, and precise calculation. It’s all about taking pre-orders and specifying shipping dates.

So, how does this work? Well, simply put, you don’t get into large-scale or even mid-scale production, until you customers have shown significant interest. How do you detect interest? Well, you make a product, advertise it, put it up as a pre-order, and make it only if it generates enough interest to pay itself off. If you don’t do this and stock up on an item that nobody wants to buy, well, you’re clearly in for a financial loss.

But what happens if there are too few orders and the product can’t pay itself off? Well, you simply tell the customers that the product is sold-out.

Order directly from the manufacturer

There is a number of ways to get your hands on the product that you want to sell. You can find it at third-party retailers that generally tend to offer large-scale order bonuses. But make no mistake, this can never pay off.

Think about it. Wherever the retailer you’ve bought the product from has obtained the item(s) in question it was cheaper than what they are selling it for. Otherwise, they wouldn’t turn a profit and they wouldn’t sell it.

So, where did they buy their products from? Most likely, they’ve bought them directly from the manufacturer, as they tend to offer the lowest prices. Don’t be reluctant about contacting the manufacturer directly, as they’ll likely be more than willing to sell the products to you, as well. An additional bonus here is that you’ll open new communication channels and collaboration opportunities.

Always be on a lookout for wholesale deals

The most important thing about doing business is forming strong relationships with other businesses, especially when it comes to the suppliers. Online retail business is no exception here. Even if a supplier that you want to contact seems too pricey at the moment, the trick is to develop a strong relationship with them.

Stick with them for some time, endure the higher initial prices, and you’ll see them lowering their prices for you. All they really want to know is that you are with them to stay.

That being said, you should never limit yourself to a single supplier. Always be on a lookout for new ones that offer lower prices. Keep in mind, though, that you don’t necessarily have to switch suppliers. You can push your current supplier into lowering the price for you even more to keep you around. This is how the wholesale deal business works in a nutshell.

Hunt for free shipping

This is what marketplace research is all about – finding better offers. Free shipping is among the top things to look for when obtaining inventory. If your search for a free shipping offer was unsuccessful, try contacting the manufacturer directly. More often than not, they’ll be more than happy to make a free shipping deal with you. Have in mind that it will largely depend on how big your desired shipment is. The bigger the shipment the bigger your chance of scoring free shipment will be.

Deal with the warehouse space properly

Yes, everybody likes wiggle room, functionally and aesthetically. Wiggle room, however, costs money. It’s quite simple - the bigger your warehouse is the greater the expenses are. But how do you shrink a warehouse?

You shouldn’t go looking for a new one, as this might set you back functionally and financially. Instead, you should take the interior apart and pack your stock as tightly as possible.

Then, you rent out the rest of the warehouse. In this way, you’re not only looking at cut costs, but you’ll also get some cash influx on the side. If you happen to need more space at some point, simply raise the rent by 20% and the renter will definitely opt out.

Increase QC

Increase Quality Control? What does this have to do with reducing inventory management costs? Your goal, as a businessperson, should always be keeping the profit margins as big as possible.

With increased QC, you’re lowering the chance of your customers returning the products they bought. Also, you won’t have to deal with excess inventory, generated from the returned products.

Why is this so important? Well, not only that you’ll have to pay the customer full price of the returned product, but you’ll probably end up having to pay for the return shipping costs as well. To prevent this from happening, you should do everything in your power to ensure the highest possible quality of your products.

Extend the return time frame

Extending the return time frame may sound absolutely counter-intuitive. The more you extend the return time frame, the bigger the chances are that the customer will return the item, right?

As a matter of fact, no, this is not true. The more time a customer gets to keep an item and decide whether they want to return it or not, the more their attachment to the item will grow. It’s the way human beings are, we tend to get attached to objects over time and give them more meaning than there really is.

Get creative

While not exhaustive, this list of tips is a good place to start if you want to cut the inventory management costs. However, many business owners haven’t applied all of them or even considered some of them.

That being said, the best way of doing business is being creative. You can use these tips as an inspiration to come up with your own unique ways of saving up on inventory management costs. Dealing with this is a true art form and it takes time to master. So, be patient and learn as you go.

By interactivated • on July 13, 2019

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