How to Cut Warehouse and Fulfillment Costs: A Case Study

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For ecommerce businesses, controlling warehouse and fulfillment costs is crucial for maintaining a competitive edge.  At 3PL Center, we understand that every penny saved is a penny earned. Today, we want to share a practical example of how we helped a client significantly reduce their warehousing expenses through effective inventory management.

The Challenge: Excessive Days on Hand

Our client, like many businesses, struggled with high inventory carrying costs. The “days on hand” report—a critical tool in inventory management—highlighted a concerning trend: products were remaining in the warehouse far longer than the ideal 1 to 3 months. This report reveals the duration that products stay in a warehouse, and ideally, a “good turn” would be inventory that turns over every month, equating to 12 turns a year.

However, our analysis uncovered items sitting idle for 300 to 400 days. This not only tied up capital but also increased storage costs unnecessarily. The presence of such old inventory, some of which was one to two years old, suggested a severe inefficiency in the inventory management process.

Strategic Solutions: Liquidation and Improved Turnover

Our first recommendation was straightforward—liquidate. By selling off old inventory, whether through discounts, special promotions, or bulk sales to liquidators, our client could recoup some of their investment. This strategy not only frees up valuable warehouse space but also converts aging stock into cash, which is far more useful for a business.

We advised on several key actions:

  • Regular Review of Inventory Reports: Continuously monitor days on hand and product turns to identify and address slow-moving items promptly.
  • Dynamic Pricing Strategies: Implement pricing strategies that encourage faster clearance of older stock.
  • Enhanced Forecasting Techniques: Use historical sales data to improve forecasting accuracy, thereby reducing the likelihood of overstocking.
  • Optimization of Storage Practices: Reassess the layout and utilization of warehouse space to ensure optimal storage conditions that may reduce costs and improve accessibility.

The Outcome: Increased Efficiency and Cost Savings

Following our recommendations, our client began to see a noticeable decrease in storage costs. By focusing on turning over inventory more quickly and eliminating aged stock, they could reduce the financial burden associated with high days on hand. This adjustment not only improved their financial standing but also enhanced operational efficiency across the board.

Conclusion: A Leaner, More Profitable Operation with Advanced WMS

Cutting warehouse and fulfillment costs isn’t just about reducing expenses—it’s about strategic decision-making that enhances overall business health. At 3PL Center, we back our strategies with an advanced Warehouse Management System (WMS) that offers robust reporting, tracking, rate shopping, and many more inventory management tools. This technology empowers our clients to make informed decisions quickly, ensuring they remain competitive in today’s fast-paced market. By understanding and optimizing inventory management with our advanced WMS, businesses can enjoy reduced costs, improved cash flow, and better profitability.

Stay tuned for more insights and practical tips from 3PL Center, and remember, effective logistics management is key to staying competitive in today’s fast-paced market. For more information on how we can help your business thrive through optimized logistics solutions, visit our website or contact us today!

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