Author: Helen Thomas

The concept of a retail warehousing comes from the continued decline of available warehouse space in the United States. According to the Wall Street Journal, retailers throughout the country are experiencing a shortage of available warehouse capacity. The effects of less warehouse capacity causes a lot of issues for retailers, from an inability to meet ecommerce demand to longer delays in order fulfillment. Your order fulfillment process is the foundation. Things are changing though, a new trend is occurring as developers across the country are focusing on retail-to-warehouse conversions, and supply chain leaders need to understand what a retail warehouse is and how it can impact profitability and productivity.

Less Warehouse Space Is A Major Problem

The fundamental problem associated with retail-to-warehouse conversions, also known as retail warehouses, stems from the massive growth of retail and the continued decline of warehousing. We’ve already seen how ecommerce has effected malls throughout the United States, the ecommerce evolution is responsible for tens of thousands of closed stores.  Big retail centers use to thrive and now, it’s difficult to not pass the remains of them on a trip to your local store. Today, retailers have to think outside the box as it pertains to their retail space. There’s a lot of benefits having retail warehousing in your supply chain.

Other retail structures that were left standing after the retailers closed up shop are also being repurposed for industrial uses, including a former Toys ‘R’ Us store (Wisconsin) that now remanufactures transmissions and Sam’s Club facilities are now distribution centers. With both commercial and industrial space available, there’s a lot of opportunities out there for companies to claim the space they need.

Retail Warehouses Converting To Meet Ecommerce Demand

Retail warehouses come with a lot of perks for companies that are planning to use them for growing ecommerce demand. Retail spaces naturally possess the power of being available, this is why conversion projects are currently underway in markets that have high vacancy rates.  Despite that, it won’t be easy getting these retail properties as the prices are fueling the demand.

Why target the retail space? There’s a number of different reasons why it makes sense to jump in. One of the biggest is the prime real estate space of these retail centers, such as busy intersections or highway interchanges. Every retail center is strategically placed in a specific area, some times it pays off, other times it doesn’t. Site access is another reason why retail centers are targeted. The giant big-box stores want backend docks and easy access for trucks, easy come, easy go. They also have what most retailers need, which are high ceilings and plenty of space. At the moment, there’s more retail space available versus industrial, that’s a weighing factor as well.

If you go back a decade or two, you’d find very few investing into retail centers. Today, it’s a growing trend and companies are making retail warehousing work.

Benefits Of A Retail Warehouse For E-Commerce Fulfillment

A retail warehouse is an excellent opportunity for companies looking to optimize their ecoomerce and expand their supply chain. There’s a wide range of benefits associated with retail warehousing, let’s have a look:

• These retail facilities give you a foundation to immediately build upon and leverage.
• Redevelopment of struggling urban areas, such as those where big retailers have left.
• More competitive advantages for omnichannel needs in your niche.
• Opportunity to obtain local and regional store distribution centers.
• Freestanding facilities offer dock doors, clear heights compatible with industrial use and lots of parking.
• Utilizing already established retail warehouses and retail centers.

Cons Of Converting Retail Space

• Malls have a lot of things you don’t need, hence escalators, individual space.
• May not be exactly what you need.
• May have higher costs than initially thought.
• It is a risk.

Retail warehouses are going to be the next way companies expand warehouse space. The industry will feel the effects as more companies look for warehousing space and turn to former retail spaces for utilization.

Now, being able to take advantage of retail warehouses are going to require expansions, from management platforms to integrations of existing platforms. If you’re planning on leveraging retail warehousing, it appears the time to act is now.

While there’s a number of different types of inventory management you can focus on, today is all about retail inventory management.

Retail inventory management is not “attractive” or “fun,” but you can bet your bottom dollar that it’s a key component to the success or failure of your business.

We still remember when Walmart lost $3 billion dollars in 2013 because they were always out of stock. 99 percent of the retail businesses out there could never do that and survive.

Long story short, if you can’t effectively manage your inventory, you’re sure to lose revenue and it may be just enough to put you out of business. You don’t want that, we don’t want it for you, so we’re going to cover several critical steps you can implement to ensure inventory management is never the downfall of your business. Let’s go!

(1) Reduce Product Range

If you’re carrying too many products that are not selling, it’s time to do something with them.

You already know that too much inventory is a bad thing, it increases the cost of inventory, you may have inventory holding costs to consider, it’s never a good idea to keep something that’s not selling.

Rather, we want to increase space for products that are selling. Full shelves don’t do you any favors if they haven’t moved in a year. You can cut and slash your inventory cost quickly by getting rid of products that don’t sell, so do it!

(2) Reducing Your Lead Time

You do have the ability to prevent stockouts by focusing some of your time implementing lead time reduction strategies.

When stock arrives fast, you don’t have to worry about your customers waiting long periods at a time to fulfill their orders. Customers are always priority one and they’re going to be a lot happier for it.

(3) Optimizing Inventory Receiving

Every part of the inventory management process is important, so why not start when stock first arrives?

Efficient inventory receiving begins with a clean, ordered staging area and products getting to where they need to be as quickly as possible.

From there, we leverage inventory receiving technology to automate the process and reduce errors. Warehouse managers and staff should never wonder where products need to go.

(4) Improve Inventory Turnover

A high inventory turnover rate makes retail inventory management so much more easier and efficient.

The more inventory leaving the warehouse, the less inventory needed to be managed, that’s what you want to aim for.

A high inventory turnover ratio also means product is coming off the shelves, which can ultimately reduce your inventory costs.

(5) Forecasting Demand

You need to have the tools and resources to forecast demand. This is one of many ways Accelerated Analytics can help you. Thanks to the POS data our reports can generate, you can see your sales numbers across all your stores to see what products are in demand and which are not.

Your past sales data and analytics is invaluable, so make sure you’re using them.

Our POS reporting gives you all the sales data you need to forecast as much as you want.

(6) Building The Right Team

The biggest assets your company has is your employees. You need to make sure you’re hiring a team that believes in your mission and goals.

Employee theft is a huge problem and while you can’t stop them all, you can do things to curb the likelihood of it happening to you.

• Do credit checks
• Do background checks
• Investigate past employers
• Security features

(7) Consistent Stocktaking Process

While you don’t hear a lot about stocktaking, you want a consistent stocktaking process that is effective, efficient and error free.

The big thing stocktaking helps with is identify problems before they get out of hand. It can also help inform your ordering and stocking decisions, as well as helping you forecast demand.

Unfortunately, we see a lot of retail companies using outdated inventory management systems, like Excel for example.

Technology can be a huge ally for your retail company, make sure you’re staying current on the technology front.

(8) Loss Prevention

It doesn’t matter how big or how small your retail business is, someone is going to steal from you.

You can utilize loss prevention tags to avoid this. Sure, it’s an investment now but it’s going to save you money. Once criminals know where they can steal from, they’ll come back again and again and again.

Prevention tags protects your business, don’t do without them.

(9) Use Inventory Management Software

A cloud-based inventory management system is the way to go. This tech is going to streamline everything in your inventory management.

With 2020 nearly here, you shouldn’t be doing anything by hand.

The right inventory management software can be a game changer, so make sure you’re investing in a solution that works for you.h

*Accelerated Analytics publishes resources like this to provide insights to different analytical metrics, data points and formulas. POS Analytics. Please be aware, this doesn’t mean that our product will this metric, data point or formula. To learn exactly what our reporting covers, please feel free to schedule a demo or give us a call. Thanks for understanding.

Multi-channel retailing is the practice of using multiple channels to sell your products. Multi-channel-retailing strategies force you to think outside the box, leaving the comfort of a website and exploring other channels that could drive potential customers to your brand.

There’s no question about it, consumers are using more avenues today to shop for the merchandise they want to buy. Many studies and research back that statement up.

• 74 percent of American shoppers bought from big retailers.
• 54 percent of American shoppers bought from an ecommerce marketplace.
• 44 percent of American shoppers bought from web stores online.
• 36 percent of American shoppers bought from a category specific retailer.

If you’re not using multi-channels to promote your products, you’re leaving a ton of money on the table. In fact, if you’re not using multiple channels in your marketing, it could lead to the downfall of your business, it’s vital to the success of your company.

Bazaar Voice did a great study on Amazon Prime that we want to share with you now.

In this study, they focused on Amazon Prime Day. Now, one would think that only Amazon sellers would benefit from a huge traffic boost. After all, the sale is for Amazon Prime members. To the surprise of many, that was not the case, they found that 76 percent of Prime Day shoppers plan to visit other channels before purchasing from Amazon. Why?

In short, Amazon shoppers wanted to compare prices and reviews on other sites. Who did they review?

• Walmart – 46%
• Consumer Electronic Websites – 45%
• Target – 40%
• Home Improvement Websites – 39%
• Brand Websites – 39%

Advantages Of Using Multi-Channel Retailing

Using multi-channel retailing has a host of specific benefits. Let’s check them out and see how they can impact your retail store.

The Power Of Search Engines And Marketplaces

When it comes to search engines and marketplaces, they drive a lot of traffic every single day. When we say a lot, we mean it, millions of users every single day.

Amazon, Walmart, Ebay, Google and Yahoo are all competing for ecommerce market share.

While many of these hold most of that market share, you can leverage all of these platforms for yourself. They already have millions of users on the platforms, you can immediately tap into that audience using Amazon, Ebay or by focusing on your SEO with Google or Yahoo.

Another thing we have to point out is the “trust” factor. Shoppers trust Amazon, Walmart and Ebay. Do you think trust is a big deal? Absolutely! More shoppers will buy from you if your brand has that trust factor and all of these brands have just that.

Let’s look at the full range of benefits using multi-channel retailing.

• Has Established Audiences
• High Level Of Trust
• Instant High Authority Status
• Access To Shoppers Ready To Buy

Disdvantages Of Using Multi-Channel Retailing

Now, multi-channel retailing can have a few drawbacks too, let’s discuss these now.

One of the biggest mistakes we see with multi-channel retailing is selling on the wrong channels.

If you’re not using channels that have your target audience, you can spend a lot of money without seeing a positive ROI.

• May Not Reach Your Target Audience
• Can Spread You Thin Selling On 2 Or More Channels
• Requires More Resources And Spending

What Types Of Sales Channels Are They?

When it comes to the specific channels you use to sell products, there’s a ton of options you can consider.

(1) Social Media

One of the most popular sales channels to use is social media. After all, some of the biggest brands in the world are social media giants.

• Facebook
• Instagram
• Twitter
• YouTube
• Snapchat

(2) Your Web Properties

Just because we’re exploring other channels doesn’t mean you should abandon yours.

Your websites will play a big role in hitting your sales goals.

This also allows you to use email marketing, which is essential for building brand loyalty and nurturing your audience.

(3) Marketplaces

While we touched on a few of these giant marketplaces, there’s many you can leverage to get in front of an audience immediately.

Amazon is the biggest marketplace in the world and it hasn’t shown signs of slowing down anytime soon.

Ebay is another huge marketplace you can invest resources in to immediately reach your audience.

The big benefits for using a marketplace are just what many retailers need; it immediately puts you in front of a huge audience.

Inventory Management Systems

No matter which sales channels and platforms you’re going to be using, you better have a system and software in place for your inventory management.

Multi-channel inventory looks similar to this;

• Orders
• Inventory
• Multi-Channel
• Analytics
• Forecasting
• Purchase Orders
• Orders

When you’re only operating on one channel, tracking inventory is not difficult. However, when that number increases to 3, 5 or 10, it can become difficult to keep order.

Now, if you have POS, we can help you easily track all of your sales data across multiple stores and channels. Our software allows us to connect with your tools so we can give you real-time POS data and EDI 852.

If you’re not correctly tracking your data, you can never improve it, so it’s essential to have the right tools and partners to stay efficiently lean in your company.

*Accelerated Analytics publishes resources like this to provide insights to different analytical metrics, data points and formulas. POS Analytics. Please be aware, this doesn’t mean that our product will this metric, data point or formula. To learn exactly what our reporting covers, please feel free to schedule a demo or give us a call. Thanks for understanding.

When it comes to warehouse management, one of the first steps of operations is receiving inventory. If the inventory coming in is messed up, everything else that follows is going to be messed up too. It doesn’t matter what industry you’re in, receiving inventory is what sets up the rest of your operations. It’s a critical key component in effective inventory management.

Your goal is to dial in your inventory receiving processes, it’s going to make it much easier to hit your inventory KPIs, helping you reduce the cost of inventory and streamline your stocktake.

That’s great but how can you make your company’s inventory receiving more efficient, reliable and quicker?

How To Master Efficiency Receiving Inventory

(1) Optimize Your Receiving Space

Inventory errors and miscounts always usually occur during receiving. One of your best options for reducing inventory receiving errors is by preparing your dock to be efficient.

Yes, that’s obvious but many docks are crowded and overwhelmed. If you don’t have the space to properly receiving inventory, that’s a problem that leads to errors.

Rather, you should have processes in place that demand accuracy when counting inventory. You need to make sure you’re using inventory receiving tools to streamline the process. The goal is to receive inventory fast but accurately.

Your dock should be designed for sorting received inventory and preparing them for storage in their designated warehouse location.

(2) Keep Your Receiving Space Clean and Organized

While this is another “obvious” answer, how many receiving areas have you seen unorganized and cramped?

Your dock space should be well organized to be efficient, you can’t be efficient with a crowded dock space. It should be easy to access all received goods.

Make sure your receiving process is streamlined. When inventory is received and accounted for, that inventory should go to storage to make room for new inventory.

(3) Real-Time Inventory Tracking Technology

One of the best things you can do for your inventory tracking is getting the right tools and software to track inventory in real-time.

The last thing you want is mistakes and errors causing you problems further down your supply chain.

There’s a number of different tools that will help you manage your inventory in real-time, make sure your company is using them. If you’re tracking them in real-time, you can make corrections on the spot.

(4) Unload Quickly and Safely

Your objective when receiving inventory is to unload received inventory safely while doing it quickly.

If you’re using forklifts or power pallet trucks, make sure the machines have plenty of room to operate. You also want to make sure your equipment is being regularly maintained.

If inventory is too heavy, don’t let your team lift it by hand. A lot of injuries occur receiving inventory but many of them can be avoided. You don’t want to risk employee injury, damaged goods or worse.

One idea that you may want to consider is conveyor belts, which can make the process of putting received goods away easier and efficient.

(5) Always Monitor Quality Control

Every company should have a quality control manager in place to be a protective layer against employees and technology.

Your quality control manager is going to;

• Watch for mistakes and errors
• Point out issues in the processes
• Control and prevent inventory damage
• Receiving and putaway accuracy

(6) Always Verify The Goods You Receive

The last thing any company wants is to ship the wrong items out. To avoid the costly mistake of shipping the wrong items or not having enough to satisfy customer demand, you should always check that the inventory received is exactly what you ordered. Never take it for granted, you want to make it a habit to count everything.

Depending on your cargo, these are the things you should verify:

• Quantity Received
• SKU Of Goods
• Description Of Goods
• Product Codes
• Condition Of Goods
• Weight Of Goods
• Temperature (When Appropriate)
• Batch Tracking Numbers
• Serial Codes

(7) Testing Processes To Become Efficient, Quick And Reliable

No process or system is perfect out of the gate, yours will not be either. However, through consistent testing, trial and error, your receiving process can be efficient, quick and reliable.

Ultimately, that’s the goal, to be 100 percent accurate receiving inventory and doing it in a safe but quick way.

Time, safety and accuracy is always the big pillars, but you can never cut corners to fix one or the other, you want all 3 to have the best effective receiving process you can have.

What is Dead Stock?

Inventory that doesn’t turn over, also referred to inventory that doesn’t sell, is often referred to as dead stock. If a business doesn’t have software for their inventory management, dead stock can remain on warehouse shelves for long periods at a time. If inventory is “dead” and sitting around gathering dust, it’s not doing you any good.

Dead stock can costs a company a lot of money. After all, you can’t reclaim the costs of unsold goods that are manufactured themselves or those that are purchased from another company. In addition, dead stock has storage costs and takes up premium warehouse space that could be used to house a company’s best selling products.

How To Avoid Dead Stock

To avoid dead stock and its associated expense, consider doing the following:

• Try ordering smaller quantities when you offer new products, at least until you know how it will sell.
• Use inventory management software that can alert you to issues so they can be addressed in a timely way.
• Use your resources to determine new product offers, you should be never guessing or using your personal interest.
• Feedback loops are super valuable, be sure to survey customers to learn what other products they want.

What To Do With Dead Stock

While some dead stock will need to leave storage in a garbage truck, there are ways to recoup some of the initial investment in some situations. Possibilities include:

• Consider donating it to a charity for a tax-write off
• Give it away as a gift with a purchase
• Give to brand new customers that open an account up
• Selling to close out and liquidation retailers
• Try bundling them with other products for a special price
• If you have apparel, sell your dead stock to a consignment store

Alternative Definition

In some cases, dead stock represents products that are no longer available for sale. When used in that manner, the phrase is usually spelled as one word: deadstock.

Sometimes, merchandise that is no longer available is coveted simply because it can’t be found in stores. In those situations, it can sometimes be sold for a premium price. Sneakers, which are often sold on brand imaging more than on shoe function, are popular “deadstock” items that can be found for sale online and identified in searches as “deadstock.” Vintage apparel is also a popular deadstock category. When a product is no longer available, the premium it can demand can be very high and that presents an opportunity for you.

In most product situations, however, dead stock refers to inventory that wasn’t sold and needs to be disposed of to make room for money-making counterparts.

Inventory holding costs refers to “costs” associated with storing inventory that remains unsold. These costs are one component of total inventory costs, along with ordering and shortage costs. A company’s holding costs can include a number of different elements;

• Prices on damaged goods
• Labor cost
• Storage cost
• Insurance cost
• Materials
• Supplies

Holding Costs Definition: Holding costs are the additional costs involved in storing and maintaining a piece of inventory over the course of a year. Holding costs are computed in the economic order quantity calculation that businesses use in order to decide the optimal time to order new inventory.

Holding costs is an important component of inventory management. To really understand it, we need to go one more level deeper and talk about why companies hold inventory.

It’s fair to ask, why would a company want to hold inventory? There’s really 5 main reasons;

• Seasonal Demand – The company needs the inventory for a particular period (summer, holiday, storm)
• Safety Inventory – The company keeps safety stock in place for a great selling product so they don’t run out.
• In-Transit Inventory – Companies may purchase inventory in bulk because it takes a long time to get to the company.
• Dead Inventory – This would include outdated inventory that few customers buy.
• Cycle Inventory – This can help a company save money and act like a buffer when the company needs to order more supplies.

Understanding Holding Costs

Reducing inventory costs is an important supply chain management strategy. Inventory is usually always a company’s biggest investment. It’s an asset account that requires a large amount of cash out and decisions about inventory spending are vital as it can reduce the amount of cash you have available for other purposes. For example, if you’re increasing the inventory balance by $30,000, this is going to mean there’s less cash available to operate the business each month. This scenario is considered an opportunity cost.

Reducing Holding Costs

One way a company can ensure it has sufficient cash to run operations is to sell inventory and collect payments quickly. The quicker you can sell your inventory and collect cash, the better. When you can collect cash from your customers quickly,  the less total cash your company will need to come up with to continue operations. Businesses measure the frequency of cash collections using what we call the inventory turnover ratio, which is calculated as the cost of goods sold (COGS) divided by average inventory.

Finding your turnover ratio isn’t complicated, its just basic math. For example, let’s say DEF Company has $2 million in cost of goods sold and an inventory balance of $200,000, this means their turnover ratio would be 10. Your company goal should be to increase sales and reduce the amount of inventory you have so that your turnover ratio increases.

Another important strategy to minimize holding costs and other inventory spending is to calculate a reorder point, or the level of inventory that alerts your company that more inventory is needed from a supplier. An accurate reorder point allows your company to fill customer orders without overspending on inventory storage. We’ve discussed inventory storage costs in prior articles. Using a recorder point helps your company avoid shortage costs, which runs the risk of losing a customer order due to low inventory levels. You don’t want that, the goal is to keep customers happy.

Now, the reorder point considers how long it takes to receive an order from your supplier, as well as the weekly or monthly level of product sales. A reorder point also helps the business compute the economic order quantity (EOQ), or the ideal amount of inventory that should be ordered from a supplier. Your EOQ can be calculated using some type of inventory software.

Holding Costs Examples

We’re going to assume that XYZ Manufacturing is producing green furniture that is stored in a warehouse locally and then shipped off to retailers later. Now, XYZ has two options from here, they’ll need to either lease or purchase warehouse space. They’ll also need to pay for utilities, insurance and security for the location. The company must also pay staff to move inventory into the warehouse and then load the sold merchandise onto trucks for shipping. The firm incurs some risk that the furniture may be damaged as it is moved into and out of the warehouse.

Supply Chain Management (SCM) requires proper management of many complex dependencies between teams, departments and partners across international boundaries. Due to this, data plays a key role in allowing us to run an efficient supply chain. Supply chain efficiency is vital to optimizing all levels of the supply chain.

Supply Chain Metrics

Supply chain metrics can include measurements for many different things, these could include but are not limited to:

• Production
• Transportation
• Procurement
• Warehousing
• Inventory
• Customer Service
• Packaging

There’s many metrics that can be used to rate your supply chain management performance. Today, we’re discussing 12 everyone should know.

1. Cash to Cash Cycle Time

Your cash to cash cycle time refers to the number of days between paying for materials and getting paid for the product.

• materials payment date – customer order payment date* **

* This is usually averaged for all orders for a specific time-frame (week, month, quarter, annually)
** When many materials are required, a weighted average materials payment date can be calculated

Cash to cash cycle time measures the amount of time your operating capital is tied up. During this time, cash is not available for other purposes. A fast cash to cash cycle would indicate a lean and profitable supply chain.

2. Customer Order Cycle Time

The customer order cycle time measures how long it takes to deliver a customer order after the purchase order (PO) is received.

• actual delivery date – purchase order creation date

A variant of this is the promised customer order cycle time: requested delivery date – purchase order creation date

3. Perfect Order Measurement

The percentage of your orders that are without errors.

• ((total orders – error orders) / total orders) * 100

This is usually broken down by stage:

• Procurement 99.99% perfect
• Production 99.12% perfect
• Transportation 99.02% perfect
• Warehousing 99.98% perfect

4. Fill Rate

Fill rate represents the percentage of a customer’s order that is filled on the first shipment. This can be represented as the percentage of items, SKUs or order value that is included with the first shipment.

• (1 – ((total items – shipped items) / total items)) * 100

There’s no question that fill rate is important to customer satisfaction and has implications for transportation efficiency.

5.Inventory Days of Supply

Inventory Days of Supply refer to the number of days it would take to run out of supply if it was not replenished.

• inventory on hand / average daily usage

SCM seeks to minimize inventory days of supply in order to reduce the risks of excess and obsolete inventory. There are other financial benefits to minimizing this metric — excess inventory tends to tie up operational cash flow.

6. Supply Chain Cycle Time

This supply chain metric represents the time it would take to fill a customer order if your inventory levels were at zero.

• Sum of the longest lead times for each stage of the cycle

Supply chain cycle time indicates the overall efficiency of the supply chain. Short cycles make for a more efficient and agile supply chain. Analysis of this critical metric can help recognize pain points or competitive advantages.

7. Freight Bill Accuracy

The percentage of freight bills that are error-free, which 100 percent is always the aim.

• (error-free freight bills / total freight bills) * 100

Keeping your customers happy is vital to the growth of every company. Billing accuracy is key to a company’s profitability and customer satisfaction.

8. Freight Cost Per Unit

Freight cost per unit is usually a measurement of the cost of freight on a per item or SKU basis.

• total freight cost / number of items

One of the goals of supply chain management is to minimize the freight cost per unit.

9. Inventory Turnover

Inventory turnover represents the number of times that a company’s inventory cycles on an annual basis.

• cost of goods sold / average inventory

This is another solid metric that shows how much inventory is sitting around. The higher your inventory turnover, the more likely your supply chain is efficient.

10.Days Sales Outstanding

This is used to measure how quickly revenue can be collected from your customers.

• (Receivables/Sales) * Days in Period

A low days sales outstanding would be an indicator of a more efficient company.

11. Average Payment Period for Production Materials

This represents the average time from receipt of materials and payment for those materials.

• (Materials Payables/Total Cost of Materials) * Days in Period

Most experts will recommend that you pay suppliers slowly as its a benefit to your company. The longer the average payment period, the more efficient the company is.

12. On Time Shipping Rate

The percentage of items, SKUs or order value that arrives on or before the requested ship date.

• (Number of On Time Items / Total Items) * 100

The on time shipping rate is key to customer satisfaction. A high rate indicates an efficient supply chain.

When it comes to storage cost, there’s a lot of different elements that could be labeled under that term. While some retail companies can rely on their own warehouses to store inventory, others must find an affordable solution for their inventory. There’s a number of different expenses a company can have as it pertains to storing inventory, we’ll be discussing these storage costs today.

What Are Storage Cost?

Storage cost refers to the amount of money spent over the storage or holding of inventory.

Storage cost would be a subset of inventory carrying costs, which includes cost that are not limited to;

• Equipment Maintenance
• Warehouse Utilities
• Material Handling
• Security Personnel
• Building Maintenance

Only companies with tightly linked components that do not generate any type of irregularities within the production do not need to maintain any kind of storage, hence no inventory cost analysis.

While some companies may only require a specific product or material to be stored, other companies need to store many different materials, this could include but is not limited to:

• Raw Materials
• Finished Products
• Equipment Parts
• Shipping Materials

To offset the storage costs of inventory, some companies will include their storage cost into the final price of a material or finished product. While most companies do not add their storage and transportation costs onto the price of the finished product, some products with very high storage costs do have hidden or indirect storage costs added to their price.

Examples Of Inventory That Could Be Stored

In order to give a good example of storage cost, we’re going to need to measure the warehouse by square feet and calculate the total cost of renting it, along with other charges we’ll be responsible for such as electric and water.

For the next step, we need to determine what finished items are going to be stored, this could be a piece of furniture like a chest or bed. Also, we need to include any raw materials we may be storing, such as wood, nuts, bolts, metal plates, gravel, sandstone, all of these can be a part of the inventory.

Machines parts are other items that can be stored as inventory. Sticking with the same theme as our furniture example, this could include parts for the wood cutters since there’s a number of different tools that are required when you’re working with wood for furniture.

If you’ll be placing a security system at your warehouse or security guards, these would also be included in the storage cost.

How Are Storage Cost Incurred?

Let’s go back to the basics. Inventory refers to materials and products that are in stock or stored goods that are maintained by a company or warehouse. Inventory management is always a big key to the success of any business. Companies usually like to store their inventory close to their customers but in other cases, some businesses may not have that luxury. Due to this, you’ll find production sites close to the main location for the business. The amount of finished products in storage are referred to as on-hand inventory.

There are various other types of inventories that are not related directly to the independent demand of the finished product, but consist of goods involved in maintaining the production line.

Inventories of raw materials, machine parts involved in the production, assemblies, and sub-assemblies processed or waiting to be processed in the next step are known as work-in-progress inventory. These are known as dependent demand and do not have any direct connection to the market demand of the finished item.

The cost of keeping inventory increases due to a lot of issues and need to be dealt with smartly to cut out unnecessary expenses.

How Is Storage Cost Distributed?

Storage costs can vary from one scenario to the next, there’s no “one answer fits all approach.” With that being said, there is a lot of storage costs that are shared among most companies, this would include;

• Total Square Feet
• Total Time Of Renting
• Total Amount Of Inventory Being Stored
• Climate Control Options
• Security Options

A high-level storage facility increases the cost of inventory on-hand, expenses that some companies may not want. However, you need somewhere to store inventory, whether you build a warehouse yourself, rent a warehouse or use some other type of storage strategy.

Self-storage is always an option. While it may cost you now to build a warehouse, you’ll be able to use that warehouse for decades to come, it could be an investment that’s worth the cost now.

But it is only for established companies with considerable amounts of inventory at every level. A conveniently placed facility is generally the smarter choice.

With climatically controlled storage units, you can expect to pay 10-15 percent more than the non-climatically controlled units. If you have stored goods that need climate control, you don’t have a choice but that doesn’t mean you shouldn’t look for the best deal for your company. These are essential in areas with high humidity, heat, or both.

Security is another major part of a contract. You want to know your products are protected, safe and secure. The last thing you want is to store your inventory at a location and take that risk of goods being stolen.

Although it might sound like a lot of effort to develop the perfect storage facility and manage the costs, once done it will safeguard your firm against unprecedented losses and probable raw material crises.

A lot of merchants commonly mix up operating expenses and capital expenses. While the two relate in some areas, these two represent totally different things. An operating expense (OPEX) is an expense required for the day-to-day functioning of a business. On the other hand, a capital expense (CAPEX) is an expense a business incurs to create a benefit in the future. OPEX and CAPEX are treated completely different as it pertains to your accounting and taxes. We all know how important those are, so knowing how to properly calculate the two and what each represents is very important.

Let’s cover operating expenses first.

Operating Expense

Operating expenses are going to be expenses that are incurred during the course of your daily business. Now, operating expenses can refer to both administration expenses, cost of goods sold, research and development (R&D) and general expenses. Since operating expenses are part of your day-to-day operation, they’re usually a lot easier to understand, conceptually speaking of course. All of your operating expenses should be recorded on your company’s income statement as expenses in the appropriate time frame they incurred.

OPEX cover a wide range of expense types, these can include;

• Property Insurance
• Property Taxes
• Utility Bills (Electric, Gas, Water, Sewer, Etc.)
• Office Supplies
• Travel Expenses
• Distribution Expenses
• Leased Equipment

Additional operating expenses could also include maintenance or general repairs of your existing fixed assets, which could be buildings or equipment. However, if the improvements are going to increase the useful life of the asset, it wouldn’t qualify as OPEX.

When it comes to operating the business, companies may have a choice if they wish to incur an operating expense or a capital expense. As a quick example, if a company would need more storage space for housing its data, it could invest in new data storage devices as a capital expense or it can lease space in a data center, which would be an operational expense.

Capital Expense

A capital expenditure is incurred when a business spends money, uses collateral or takes on debt to either buy a new asset or add to the value of an existing asset with the expectation of receiving benefits for longer than a single tax season. Essentially, a capital expenditure represents an investment in the business.

Capital expenses should be recorded as assets on the balance sheet rather than as expenses on the income statement. The asset is then depreciated over the total life of the asset with a period depreciation expense charged to the company’s income statement, normally on a monthly. Accumulated depreciation is recorded on the company’s balance sheet as the summation of all depreciation expenses and it reduces the value of the asset over the life of that asset.

There’s a number of examples where capital expenses can be used, such as purchasing fixed assets, such as brand new buildings, new business equipment, upgrades to your existing facilities, even the acquisition of intangible assets such as patents can be a capital expense.

The law of supply is known as a basic principle in economics, it assumes all else will be constant, an increase in the price of goods will have a corresponding direct increase in the supply thereof. The law works similarly for decreases in prices. There’s two key facts you should know about the law of supply.

• The law of supply states that a higher price leads to a higher quantity supplied and that a lower price leads to a lower quantity supplied.
• Supply curves and supply schedules are tools you can use to summarize the relationship between supply and price.

Now, the law of supply depicts the producer’s behavior that when the price of a good rises, the tendency is to increase supply because there is now more profit to be earned. On the other hand, when prices fall, the producer will decrease production due to a reduced economic opportunity.

Law Of Supply Formula

QxS = QxS = R (Px)

• QxS – Quantity supplied of commodity x by the producers
• R – Function of
• Px – Price of commodity x

What are the limitations and factors affecting the Law of Supply?

The overarching relationship is between price and quantity, and applies only if all other factors remain constant. There are other factors that can affect the price of a given item, and thus the quantity supplied. These are some of the more common factors:

• Cost of Production – When changes take place on the cost of raw materials and labor to produce a unit of supply, the volume will change too, this assuming that the selling price will remain the same. The variable cost affecting profit margins plays a key role in targeting the quantity to produce.
• Technological Changes – Advancement in technology can boost the efficiency by which units are produced, which can reduce the cost of production. This would have a similar effect as outlined under “Cost of Production.”
• Taxes – Imposition of taxes in the production of goods limits the profitability of a commodity. Similarly, if a producer is required to remit a portion of sales as tax, a producer will be less inclined to up supply.
• Legislations – Some regulatory laws may be put in place that limits the quantity of a specific product. Take the energy industry as an example, carbon offsets limit the amount certain companies can supply, so they’re limited by that law.
• Periods of Uncertainty – In situations that have higher risk, producers may be more open to lower supplies so they can offload their inventory. During war and civil unrest, producers are more than eager to sell at a lower price.