Every business needs to reach and sustain long-term profitability to succeed. However, profitability is affected by the cost of inventory. Inventory is sometimes called the lifeblood of retail, e-commerce, or wholesale businesses, and inventory holding costs can significantly impact a company’s financial condition because they can account for up to one-quarter of inventory expenditures.
What Are Inventory Holding Costs
Inventory holding costs are the costs associated with unsold inventory. They include the costs of the inventory and ordering costs, plus the costs of depreciation, transportation, storage space, storage labor, insurance, obsolescence, and the costs of damaged or spoiled goods.
The Top Reasons for High Inventory Holding Costs
High inventory holding costs are caused by purchasing products with fluctuating demand levels based on seasonality, ordering too much safety stock, poor inventory forecasting, problems with obsolescence, and supply chain disruptions.
8 Tips for Minimizing Inventory Holding Costs
- Utilize demand forecasting to determine the right order points.
- Avoid or minimize minimum order quantities from suppliers. Alternatively, see if your suppliers will accept longer-term purchase guarantees in exchange for smaller interim purchase quantities.
- Avoid overstocking. Don’t accept discounts and deals to get a better price if the quantities don’t fit your forecasted demand needs.
- Get rid of any deadstock—inventory that just will not sell. You can bundle it as a bonus when customers purchase other items, return it to your suppliers if their return policies allow it, or donate it to charities and receive an appropriate tax deduction.
- Decrease supplier lead time. This will allow you to get shipments more quickly, thus reducing carrying and storage costs because you will need less storage space.
- Utilize inventory management software to provide real-time updates on sales performance and stock movements.
- Organize warehouse space so staff labor is utilized more efficiently and stock isn’t misplaced. This will optimize your pick, pack, and shipping processes.
- Utilize CNC machining for an efficient production process.
How CNC Machining Can Help Minimize Inventory Holding Costs
CNC machines are highly automated, so they can operate without downtime and produce just the right amount of products at the right time. They are accurate and highly precise, so they can consistently produce parts that meet the required specifications, thus eliminating expensive rework and waste. They offer significant production flexibility, so a wide range of parts can be produced efficiently. They offer cost savings because they can operate continuously without constant human intervention. They also offer significant time savings.
Choose a Highly Regarded CNC Machining Company
Contact Components By Design, based in Charlotte, NC. Components By Design, Inc. has over 15 years of experience with CNC routers and CAD / CAM software and exists to help your complex projects become simple. We offer a complete range of CNC routing services. From simple parts to complicated 3D machining, we can take on any project to add value to your product.
We are experienced in machining parts from panel material and solid wood, PVC extruded sheets, acrylics, aluminum, and solid surfaces. Our CNC solutions are well-suited for cabinet makers, architectural woodworkers, building suppliers, sign makers, plastic fabricators, and more. If you can think of it, we can make it.