Inventory is expensive and makes up the bulk of your costs. On top of purchasing the products, you still have to pay for custom fees, rent for your storage facility, and even expedited shipping from your suppliers if you’re running out of stock.
The good news is that there are many ways to cut down on your inventory holding costs. You could calculate your reorder point and stick to it, get rid of your dead stock, or switch to a vendor managed inventory.
Or you could try to reduce your lead time.
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Your lead time plays a huge role in inventory management. Basically it’s the amount of time it takes for you to receive your products from the time you place a purchase order with your supplier. That means if you’re able to reduce your lead time, you’ll need to carry less stock, allowing you to spend less on carrying costs.
When it comes to reducing your lead time, we have three tips for you.
Increasing order frequencyOrdering more frequently in small quantities can help reduce your lead time and carrying costs. This is particularly true if you’re ordering from domestic suppliers that comes with the assurance of shorter and more predictable lead times.
By ordering smaller quantities more frequently, you won’t feel the pressure of minimum order quantities and risk ordering more than you need. Also, by ordering less, there’s a chance that your products will reach you more quickly, as your manufacturers won’t have to embark on a new production run just for you.
While it’s true that ordering more frequently in smaller quantities could be more expensive as you won’t enjoy the perks of bulk shipping, you should be able to reduce your carrying costs. So it’s up to you to decide which option is best for your business. With new shipments constantly coming in, you’ll be able to cut down the amount of inventory in your facility, freeing up space for other products.
Automating the transmission of information
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As your business grows, you may find yourself managing different departments. In this case, a purchase order may need to go through a few different stages of approval before it’s sent off to your supplier. Even if you’re working alone, keeping tabs on all your products and writing individual purchase orders for all of them is a time consuming process.
It’s also likely that your suppliers have structured their businesses in similar ways with multiple stages in the supply chain. As a result, you’re suffering longer lead times.
A great way to start on automating processes would be to use inventory management software. You won’t need to write out every purchase order manually any longer, as inventory management software can generate purchase orders once inventory levels hit the reorder point.So why not automate as much of the process as possible? With inventory management software, you’ll be able to generate purchase orders when inventory levels hit the reorder point.
Bonus tip: If you’re running a wholesale business, why not offer your retailers the chance to reduce their lead times as well? You can create a B2B online portal and let your customers add their orders to their cart, and once you receive their purchase order, you can start on the fulfillment process.
Provide forecasts to your supplierHave you ever had to ask your supplier to expedite shipping on a pending order because you’re running out of stock?
When you’re dealing with hundreds of SKUs, it can be difficult to keep close tabs on every one of them. If watching over so many SKUs is leaving you exhausted, why not share the burden?
You can share sales data with your suppliers, allowing them to anticipate an incoming order by referring to past sales data. If they’re expecting a new order, they can speed up the fulfillment process by setting aside your usual order, ready to be packed and shipped upon receiving the purchase order.
With business intelligence, you’ll be able to download the latest sales reports and share these with your suppliers regularly. By sharing information with your suppliers and working with them, it becomes a mutually beneficial relationship. On your part, you’ll enjoy shorter lead times, while they’ll be able to adjust their output to better match customer demand.
Unlike a vendor managed inventory, they won’t be involved in the intimate workings of your business. Instead of leaving your suppliers to manage their own products within your inventory, you’ll still send them a purchase order when it’s time to place a new order.
Reducing your lead time will let you save on costs while improving your business efficiency. In order to do so successfully, a great way to start is by getting an inventory management software solution. You’ll be able to enjoy real-time updates on stock movements from all sales channels, and you’ll know the moment your inventory levels hit the reorder point.
As the saying goes, time is money, and inventory management software will save you time. You won’t need to spend hours collating monthly reports on sales and stocks for your suppliers, because business intelligence can summarize these in an easily understandable format.
If you’re interested to see what inventory management software can do for your business, put it to the test and sign up for a trial account.