5 Costs of Having Too Much Inventory

One of the biggest mistakes business owners make is carrying too much inventory in their warehouses. Overbuying is usually caused by manual inventory and warehouse management systems that are clunky, inaccurate, and costly. The costs associated with buying more inventory than you need, transporting those items, and storing them can take a huge bite out of your operating budget and eventually your profit.

reasons to stop buying too much inventory

Hidden Costs of Carrying Too Much Inventory

Business owners end up paying multiple costs when they buy too much inventory. Read on to see where these costs come from and how to avoid them.

1. The Item Cost

If your inventory isn’t being updated in real time, you are just guessing how much inventory you have in stock. You may then end up buying new items at a higher cost than usual because you think that you need to replenish your stock.

For example, if you’re getting ready for a busy sales season, like the holiday season, and your inventory cost isn’t accurate you may buy large quantities of items at a higher price to get them in your warehouse before holiday shopping begins. But, you may already have plenty of items in your warehouse and you just don’t realize it. Then you end up overpaying for additional items that you don’t really need. That cost cuts into your operational budget and can cause cuts in other areas.

2. Transportation Cost

Transportation costs tend to run high, especially during certain times of the year when fuel prices traditionally increase. You could end up paying a lot of money to transport new inventory items to your warehouse even though you actually don’t need those items to round out your inventory. Some shipping companies will charge a surcharge if your load of goods doesn’t meet certain requirements and that cost just gets added to the cost of transportation. Shipping costs that are higher than usual will cut into your profit when those items are sold.

3. Labor Cost

Once the items that you’ve purchased arrive, you will need to pay workers to unload them and get them safely into the warehouse. Those labor costs can add up quickly, especially if you have a large order of items or if the items are very heavy. The workers unloading the items will also have to spend time reorganizing the goods already inside the warehouse to make room for the new inventory items.

4. Storage Cost

If you add new items to the inventory that you didn’t actually need you will end up paying costs to carry those items in your warehouse. Increased costs for keeping the items in good condition and safely stored are not good for any business. If your business is still small, the extra storage cost on top of all the other costs associated with having too much inventory could really cause a financial problem.

5. Lost Profit Cost

When you have too much inventory you need to sell more. For most businesses that means running a sale to unload the excess items from the warehouse and eliminate all of those extra carrying costs. However, if you are forced to drop the price of the items in order to get them out the door fast, you’ll end up making less of a profit on each item. You may even need to sell at a loss to get the items out of your warehouse.

Inventory Management Solution: How to Prevent Buying Too Much Inventory

All of these extra costs that are caused by too much inventory could be eliminated. An automated inventory management system that is based in today’s smart technology can completely eliminate the cost associated with having too much inventory. Modern inventory management systems use real-time transactions and tracking so you have accurate inventory information at all times.

Warehouse Management Solutions for Macola and SAP Business One

Ready to get started with a modern Warehouse Management System? WiSys Agility solutions have been designed to achieve efficient Warehouse Management, Supply Chain Management and Inventory Management. Contact us to learn more.