If your business deals with inventory, this is a good time of the year to consider ways to contain those costs. Inventory that is not moving is dead weight and your goal should be to convert it to cash as quickly as possible, even if you have to mark it down dramatically to do so.
Here are five things to consider in dealing with inventory.
5 Ways to Minimize Inventory Costs
1. Do a better job of forecasting sales.
Know what drives the sales of your products and what you expect to sell each week or month. If you don’t know how to do this effectively, take a class or read a book. This is too important to guess at.
2. Focus on your top movers.
Your product sales probably fit the 80/20 rule, with the bulk of sales coming from a single product or products. Focus on pushing those key products and minimize your orders of slower selling products.
3. Consider shopping around or negotiating price and terms.
Be sure that the price and terms you’re paying are competitive. You may be able to obtain better pricing, terms or just-in-time ordering from another vendor, so don’t be afraid to research this.
4. Determine your economic order quantity for each product.
Don’t make the mistake of optimistically over-ordering inventory to save a bit on price. Only order what makes sense based on your sales forecasts.
5. Establish and implement an obsolete inventory policy.
Know how to determine when a product is dead and how to move it. Pennies on the dollar are worth more than unsalable inventory in hand.