Reduce Inventory Costs With These 7 Tips

Inventory is one of the largest investments and most substantial assets you’ll deal with as a retail business. That’s why it’s so important to have smart inventory management strategies in place to help you reduce costs and maximize your profits.

As All Business points out, carrying excess inventory (which can be as high as 29% of the inventory’s value when you take into account interest, storage, damage, obsolescence, etc.) leads to costs that affect your bottom line. On the other hand, if you don’t carry enough of the right items, you could end up with empty shelves and run the risk of not being able to meet customer demands.

Here are 7 ways you can cut inventory costs and boost profits:

1. Employ “just-in-time” inventory management methods

Just-in-time (JIT) inventory management is the practice of having the right materials, in the right quantities, at the right time and place. Instead of ordering items weeks or months in advance, JIT aims to order raw materials just when needed, which helps to reduce in-process inventory costs.

2. Get rid of excess inventory items

Gone are the days when keeping thousands of SKUs on hand was considered a competitive advantage. Today, overstocking will lead you down an unprofitable path.

Rather than paying the costs associated with keeping slow-moving or obsolete item on hand, find creative ways to get rid of them, like offering customers a special promotional sale on those items, bundling unwanted merchandise with hot sellers on the sales floor, or donating excess stock to charity (in addition to feeling good about helping others, you’ll get a tax write-off).

3. Thoroughly train your employees

In general, untrained employees are less productive, make more mistakes, and fail to meet minimum standards. You can’t afford to have this happen when it comes to inventory management. Make sure that any employee who orders or receives stock—whether it’s floor merchandise, raw materials, or just post-its and paper towels—receives thorough training to ensure that inventory management practices are properly executed.

4. Take advantage of technology

We live in an age when inventory management software programs are readily available. But make sure you do your research so that you choose the right platform for your business so you can use it for years to come.

An integrated, cloud-based POS system that tracks sales of popular items vs. slow-moving products will keep you informed on when and how much stock you need to order so you can maintain a balanced inventory and avoid losing sales or retaining excess items.

Having an inventory management system that automatically tracks items for you will save you time and help you make wise inventory management decisions.

5. Monitor inventory turnover and set goals accordingly

Traditionallymost industries turn stock about four times a year. But with today’s sophisticated inventory management software—along with savvy inventory practices—businesses can potentially increase inventory turns for better profits and improved cash flow. If you’re already familiar with the standard turns in your industry, see what you can do to exceed them!

6. View inventory as cash

According to a LinkedIn article by JIT Solutions Group, business owners often treat their inventory as if it’s only “stuff” taking up space on their shelves or in their warehouse. “You need to think of and treat your inventory as cash,” says JIT Solutions, “because that is exactly what it is, CASH.”

Just as you wouldn’t leave piles of cash lying around on a shelf unattended, you need to keep a watchful eye on your inventory to make sure it’s not tying up space, sales opportunities, and cash flow needed to operate your business.

7. Do physical inventory counts

If it’s been a while since you conducted a thorough count of your existing inventory, then you probably don’t have a good idea of what is on your shelves and which items are just sitting around your store tying up cash and gathering dust.

Whether you do a physical inventory count at the end of the year, or more frequent cycle counts throughout the year, conducting regular counts will provide you with accurate inventory data that will help you make more informed merchandise decisions in the future.


Regardless of whether you’re a small retailer or large one, good inventory management strategies can have a huge impact on your cash flow.

By keeping a watchful eye on your inventory, using the 7 strategies outlined above, you’ll be better prepared to reduce costs and make informed merchandise decisions for a more profitable business.

Sherene Funk is the author of the contemporary romance Autumn in Your Arms and two small business e-books. She is a voracious reader who owns more books than she can ever read in this lifetime. A graduate of Brigham Young University, she worked in advertising for many years before moving to her current writing position at Rain Retail Software. She researches non-stop to see what successful retailers do and loves to share what she learns with small business owners.