- March 13, 2020
- Posted by: Archi Bhardwaj
- Category: Inventory Management
Nothing is more rewarding than seeing your business flourish and you being on top of all your sales and profit. Once you are up and running, stocking up and maintaining a smooth flow of inventory becomes your top task and to fulfil this you are required to invest in either raw material or finished goods.
Inventory in hand is your direct expense associated with it or in technical terms it is tied cash. Either raw material or finished goods, unsold inventory serves as an investment and it remains in the said state until it yields profit for you by being sold.
The requirement to manage and meet the demands of your inventory requires huge sums of investment and the cash flow is not only restricted to basics, but there are numerous hidden costs that may drain your total expenditure and leave you unprofitable if not taken into account and added to while making an investment.
Problems Encountered due to Hidden Costs
For any business, inventory is the utmost important facet to induce profit and maintain a healthy flow of operations.
Irrespective of how good your flow of inventory is and how much earnings you are making, the list of unidentified or hidden costs involved can cause huge expenses on your overall profitability by affecting the entire cycle of inventory management.
Various factor influencing concealed costs may include:
Cost of Capital
Inventory is simply the invested money that puts you in a spot of both motivation as well as stress for its own reasons. When you take up a certain defined amount of inventory, you have your expenses and future profits all tied up to it which can be pushy enough to make you try all the ways that there is to sell out and meet up the margins.
On the other hand, the same task to carry out can cause immense pressure as inventory, until all processed out can increase your investment due to various reasons. First of these can be the cost to store and handle the idle inventory in warehouses.
Overstocking or understocking, may result in loss of monetary funds if proper processes and management of operation are not followed to account for these.
Cost of Handling
The mare task of touching your goods comes with high costs, once your inventory is in place, it needs handling. Now a business term, each time your inventory is taken into account manually or via a machine, there is an expense involved. Holding goods in stock and managing the flow of inventory from storage to out and back comes at an expense and this is known as cost of handling.
An estimate of 2-5% of hidden charges are involved in your overall expenses of inventory value is what goes as the cost of handling.
Cost of Storage
Unsold inventory takes up space and this leads to additional costs of storage in a warehouse. The costs of storage include charges that are fixed as well as variable. Cost of space, storage of goods are enlisted as fixed charges while the cost of maintenance, manpower to handle goods are all that come under variable charges.
Depending on the goods, storage can also be of numerous kinds, delicate goods may require extra care, increasing your overall expenses.
Cost of Service
Maintenance of your inventory, security to avoid thefts or mishandling of stocks are all part of the service costs involved.
Apart from this, your inventory may require insurance based on its value. Training of staff to manage and keep track of the inventory also are a part of the service costs involved. Maintaining updated data of the flow of stocks, times of movement of the inventory known as turnover are additions to this cost of service.
Impact of Hidden Costs on Businesses
Hidden costs can be really degrading for your entire business if not accounted for. To start off, the very first thing will be a huge difference in your expected growth and profit scale to the real ones. Next will be how your expense plans may fail to provide good margins.
Not focusing on resolving concerns of any hidden costs or overlooking this fact will cut short your profit margins and may result in bad ROI.
To avoid this, it is highly necessary to first acknowledge the costs that may be well hidden in your overall expenses and then working through each of them to generate maximum gains.
3 Solutions to Manage and Reduce Hidden Costs
It might look like a huge challenge, but taking adequate measures to avoid and minimize the overall impact of hidden costs on inventory will definitely prove beneficial for businesses.
The 3 major solutions for you to manage and reduce hidden costs include:
Track what you sell: Be Data-Driven
An estimate of how much of your total inventory has been sold and tracking the pattern of what is more in demand and what does not work can really help you manage your total investments and cut back on the hidden costs involved.
Tracking will help you expose the total amount of stock-keeping required and how much you have actually been spending so far. With efficient reports and analysis of total inventory sold, you will be able to stock up only as much required and focus on the only products that bring in most of the profit.
The technologically advanced solutions and software of inventory management present in today’s day and age can efficiently provide you unified dashboards and reports with all the data or statistics required for making the right business decisions.
Automated steps and processes taken by these systems help you make precise future predictions. You have an in-depth knowledge of all the warehouse activities, how much profit your inventory is actually making, and based on these it provides you with solutions to optimize operations.
Do not Overstock: Balance Your Inventory
Overstocking means extra costs, as too much inventory, will require a lot of handling, storing and maintenance. Long term storage can increase your overall expenditure on the inventory and you’ll end up having more losses than gain.
Based on what your analytics suggest, stock up only on that much of inventory. The inventory you pile up in a warehouse should be accounted for and no excess shifting or management is required to adjust any extra stocks as that will create unnecessary expenses. Also, stocking up the same category of products in different locations adds up to the total expenses.
With an inventory management system in place, you can initiate collaborations with vendor panels, logistics partners, get warehouse management assistance and more. There partnerships and integrations can save up your costs and help you manage your business operations with more ease.
Amplify Order Management Processes
An important factor for managing hidden costs of inventory is to streamline your order management process. With balanced stock and well-tracked data, all you need to do is to organize your orders according to the trends of purchasing that your customers follow.
Once you have the data in place, you can go ahead with the inventory required to meet the order demand and not have a single overstocked item.
Focus on stocking up before the demand seasons begin, this will keep you on track during sales and maintain good customer relations by restricting out of stock items, delayed deliveries or painful returns.
Restrict Hidden Costs with Uniware
Although a big challenge for small to medium businesses, managing inventory and tackling hidden costs should not be that hard. All you need to do is find the right inventory management solution, customized according to your needs to provide the necessary support for you to have a smooth flow of business.
Understanding the flow of your inventory and having a good inventory management software onboard, like Uniware (Unicommerce) will not only help you cut back on these hidden costs but also guide you in making real profits all from a single platform.
Uniware provides solutions such as Reorder Reports that notify you when your inventory is on the low, to help you pile up on stocks and maintain a smooth flow of your business.
With Uniware, you will be able to avoid slow deliveries, get real-time updates on any damaged or returned goods, get reports on expenses by collaborating with accounting software such as Busy and have overall management of eCommerce operations enabling you on getting hold of the hidden expenses in your overall budget for the business.