Your Holding Costs Could be Lower

holding costs

One issue all supply chain businesses deal with is maintaining an optimized inventory. One way that many supply chains determine if their inventory levels are optimized is by analyzing and adjusting the holding costs.

Holding costs are those that are linked to the management or storage of inventory that is not sold or is not actively used in production. The costs combine multiple areas including the cost of the physical inventory, the storage space, labor, insurance, and cost of labor to maintain that inventory.

Overall, holding costs are quite robust and can significantly impact a business's bottom-line profitability. Finding creative ways of reducing your holding costs is something that all logistics businesses should strive to achieve.

Below are a few tips for implementing your own programs to reduce holding costs. All without significantly impacting your daily operations or compromising quality!


Understanding the Basics of Holding Costs

The task of reducing inventory costs is one that is time consuming, daunting, and challenging for many. However, it is no less a role that must be carried out, in some cases, around the clock.

Inventory is required to maintain the manufacturing and shipping of supplies and commodities to consumers. However, holding inventory is not cheap. 

This is the root definition of holding costs, the financial impact of keeping inventory in supply to ensure a business does not have an out of stock situation. There are several individual areas that contribute to holding costs including:

  • The cost of purchase
  • The cost of shipping and movement
  • Labor and payroll 
  • Insurance for inventory
  • Security and Inventory controls 

Several of these items are uncontrollable expenses. In most cases, businesses look to more controllable areas to fine-tune and improve the efficiency of maintaining or securing inventories. 


Tips for Reducing Inventory Costs

Regardless of the type of business, there are a few basic tips that any business can follow to reduce its holding costs...


Stay Away from MOQ’s

Minimum Order Quantities (MOQ’s) are common in supply chain management. It’s basically the smallest amounts of products that a company will supply to another organization or business. It’s based on a strategic basis by manufacturers who are looking to off-load inventory levels onto wholesalers, other manufacturers, or retailers. 

While it helps them reduce their inventory holding costs, it creates a burden on the purchaser. One strategy that many like-minded supply chain businesses are implementing is pooling resources and sharing ‘MOQ’ orders. This ensures they receive quantities they need without having a ‘dead inventory’ that goes to waste and drives costs to maintain. 


Be Proactive with Reordering

Another area of improvement for inventory control is to have a solid understanding as to when you need to reorder. Accuracy with ordering helps reduce wasted inventory expenses, saves space, and thus reduces holding costs across the board. 

Here are a few ways to accomplish this task:

  • Update Inventory Control Software: Today’s warehouse management or inventory control software solutions are much more accurate with inventory counts and forecasting order entry. This helps to expedite the order entry process, reduce out of stock situations, and better streamline the reordering tasks.
  • Improve Warehouse Organization: Sometimes inventory can be lost or misplaced simply due to poor warehouse organization. Ensure your warehouse and inventory storage areas remain organized. Inventory organization allows for better counts, improved rotation of perishable products, and reduced shrink or waste. 


Work with a 3PL

For many supply chain operations, managing inventory is a frustrating and time-consuming task that is simply not conducive to efficiency. It’s at times like this when working with a professional 3PL to help with warehousing, order fulfillment, and storage can remove the frustration associated with internal holding costs. 

Many expert 3PL’s like Redwood Logistics customize warehousing and fulfillment services for each customer based on their needs, scalability, and future growth potential. They can grow or reduce their services based on peak seasons, or they operate regional centers for companies looking to expand in geographic areas. 

Regardless of your type of business, Redwood Logistics can help you reduce holding costs. If you’re looking to improve your inventory management or have questions about holding costs, contact Redwood Logistics today.