You have a financially stable business right now, but your demand is declining. Do not be alarmed as there are many ways to help cut warehousing costs to prolong your positive cash flow. Here are 3 key ways:
1. Accurate Forecasting
The more accurate your forecasting, the easier it will be for yourselves or a 3PL to decide how much inventory to keep on hand. While this seems basic, there are other areas where accurate forecast can help save money in the future. For example, if you are using a 3PL and can say that your inventory levels will drop x amount each year, your footprint in their warehouse should drop as well allowing the 3PL to fill that space with other clients thus saving you money.
2. Inventory Analysis
In a business that’s losing demand, there’s a good chance that the are certain items that maintain the demand while most others are being phased out. It is very important to keep track of the demand for each individual SKU in the warehouse. An ideal situation would be to set up all the slow-moving SKUs as direct shipments from the manufacturer while keeping only the high moving SKUs in the warehouse. While the shipment costs directly from manufacturer to customer will likely be higher, the savings from not keeping the inventory in stock will outweigh the increased shipping costs. Another option to look into would be to separate slow-moving SKUs in one smaller and centralized warehouse. You can keep the inventory levels low allowing you to lower the footprint. Staffing needs will also be reduced since the handling of these SKUs is much less than in the faster moving warehouse.
3. Inventory and Staffing Management
Proper inventory management is important for all businesses, but it is especially important in declining ones. Start by looking into any trends that might be developing in the orders. It is important to think of outside the box methods for optimizing your warehouse strategy. Instead of looking at storing the SKUs by size or product line, look to see if there are certain items that are usually part of the same order. Group these items close together in your warehouse to save on the handling costs. Instead of storing 1 small SKU per bin, store 3 in each by adding in dividers to the bins. There is also a greater need for cross training of the staff in a slower moving warehouse. There will be much more down time and you cannot afford to have employees not being productive. There will be a slight learning curve at the beginning when the employees are learning the other job functions of the warehouse, so productivity might go down. This is fine as the returns once the cross training is complete will be much greater than the lost production early on.