The pet supplies industry is in a unique position to witness outstanding growth in the coming year. Businesses with a considerable product portfolio, optimized supply chain, and online presence can leverage this forthcoming wave of growth. However, to translate this growth into healthy margins, optimizing the cost of inventory will be essential.
What is the Cost of Inventory, and How to Measure It?
If you use a pet supplies industry order management software, this should be easy to figure out for you. Most of the leading systems have in-built features that can estimate the approximate value of inventory you have on hand and help you bifurcate the costs of procuring it. In case you do not have one such system, here is a list of costs businesses generally incur to procure their pet supplies inventory:
- Selling price of the pet supplies offered by the supplier/manufacturer: This is the price your supplier or manufacturer provides you. It does not include the cost of transportation or quality control.
- Wastage, quality control, and obsolescence: It would be pragmatic to assume that some percentage of your pet supplies inventory will get wasted during transportation. Also, some portion of it might not meet your quality standards after transferring the risk of ownership to your name. A sound pet supplies industry inventory management system will also give you visibility into the inventory cost that has gone obsolete or is about to go obsolete.
- Labour Costs: All the hourly wages, union-negotiated costs, and salaries you have to pay to each individual in the process of transporting, offloading & on-loading, and storing your inventory comes under this category.
- Packaging, logistics, and storage costs: If you are branding the products or storing them on-location, these are additional costs you will incur.
- Insurance costs: Like all seasoned operators, you must be running insurance costs to mitigate the risk of losses, accidents, and damages to your pet supplies industry. The premium and processing fee for the insurance should ideally be included in the pet supplies inventory costs.
As per industry estimates, you might have anywhere between 20%-30% of your overheads allocated to inventory costs. But that does not give you much context. Is your cost too high, too low, or just right? To get that insight, compare your cost of inventory with the following:
- Industry Averages: The average cost of inventory throughout your industry. You can use industry estimates for this purpose.
- Peer Group Comparison: Narrow the list of comparisons to your competitors who have a similar size, market share, and target audience.
- Geographic Averages: Finally, get the list of inventory costs for the businesses in your geographic location. Some locations are just difficult to reach and hence might have systemically higher inventory costs.
A sound pet industry order management system will make this exercise easier for you since you can plug in the real-time data and run deeper analytics. Now that you know whether your inventory cost is higher or lower than it should be, go through the list of ideas you can use to control the costs.
8 Approaches for lowering inventory costs for your Pet Supplies business
- Filter the slowest moving suppliers, get the cost of safety stock holding, and decide.
Begin with using your pet supplies order management system to filter the slowest suppliers on your list. For whatever reasons, these suppliers must have systemically slower deliveries than the other suppliers on your list. The only reasons you might be working with them are that you have a good relationship with them, offer good quality, or compensate for the delay with a lower price. Each of these reasons is plausible if it can absorb the cost of holding safety stock you have to store all the time to cushion their slower deliveries. If the holding costs are higher, you should stop ordering from such suppliers as soon as possible.
- Make a program for liquidating obsolete inventory.
Yes. You might have incurred costs in procuring the inventory. But, after a threshold, the cost of holding on to this inventory increases than the potential profit you can make on this stock. A good pet supplies industry inventory management solution will send you proactive alerts to avoid such situations.
Once you have discovered the obsolete inventory, here is how you can deal with it:
- Bundle It: Bundle it with fresher inventory and make it available as an offer.
- Auction It: Talk to industry suppliers or make an online auction for the lot.
- Return It: Negotiate a price with your supplier and see if they can take it off your hands.
- Donate It: If nothing works, donate it to a pet care center and post it on your social media handles.
- Recycle It: Worst of all, if all the doors are shut, talk to the local recycling center and see if you can get the inventory recycled.
- Choose an integrated order, inventory, payments, and shipping management platform.
Sophisticated pet supplies industry order management systems can provide you increased visibility in your overheads, give you proactive alerts, and track the inventory across the upstream. All of these data points can help you make more high-quality decisions around your inventory. An integrated pet supplies business order management system will add to the efficiencies by providing correlation analysis, automated workflows, and more detailed insights for allocating losses.
- Use automation to your advantage.
Sometimes, human fallacies can turn into significant overheads. Another advantage of using a sound pet supplies order management system is that you can get custom features that help you get alerts as you are about to run out of essential inventory. This way, you can create a workflow for automated fulfillment or manually place an order as soon as you get the alert. In both instances, you can take advantage of early ordering and save costs with the leverage for negotiation and time for market research.
- Streamline your SKUs (Stock Keeping Units).
Executing this idea without an intelligent pet supplies business order management platform is next to impossible. You will need granular data on how your products, categories, and SKUs. After aggregating all the data in your order management system, run a simple analysis to see how your SKUs have performed across a timeline and compare them. Narrow the SKUs by color, material, size, and source of procuring. The leaner SKUs you have, the more efficiently you can forecast demand and reorder early in the financial year.
- Negotiate Minimum Order Quantities.
Sellers, suppliers, and manufacturers use Minimum Order Quantities (MOQ) to move the inventories faster. You might be getting incentives such as free shipping, added warranty, or discounted pricing for the MOQ. However, you must remember that each MOQ is designed to help the supplier, not the buyer.
Hence, do this exercise:
- Establish your optimal inventory level with a margin of safety with your pet supplies inventory management system.
- Determine the cost of holding excess inventory.
- Compare the advantage of buying at the MOQ and the cost of holding excess inventory above the point ‘a’.
If you see a loss while ordering at the MOQ, avoid doing so. If you plan to order the same products frequently, you can leverage the frequency to avoid the MOQ with the supplier.
- Trade upfront payments against inventory-holding for downstream deals.
Pull the customer data from your pet supplies order management system. Now, match this with your optimal inventory levels. If you want to have a higher contribution downstream, you offer a different payment structure to your buyers. Instead of taking upfront payments on the inventory, you can ship it and get the payments based on the sales they make in a given period. This will increase the credit risk on your balance sheet, but with an established relationship in a growing vertical, this can reduce inventory costs.
- Cultivate vendor relationships and make room for Vendor-Led Inventory Management.
This idea will require some suspension of disbelief but can help you dramatically lower your inventory management costs while increasing your downstream supply chain’s fulfillment efficiencies. Vendor-Led Inventory Management requires years of an established relationship and a pet supplies inventory management platform centrally used by your team and the vendor. The idea is to outsource the fulfillment and reordering processes using Vendor-Managed Inventory and Vendor-Stocking Programs.
The vendor has visibility into her fulfillment levels and your required quantities. By running basic analytics, she can determine the inventory replenishment needs for your pet supplies business.
There are several ways to reduce or control the cost of inventories in the pet supplies industry. However, doing so without an updated, integrated, and comprehensive pet supplies order management system is nearly impossible. That is one of the key reasons why several leading brands in the pet supplies industry prefer OrderCircle, which gives you enterprise inventory management, wholesale order management, shipment tracking, payment processing, and staff accounts – all on one platform. Click here to get a free trial and see the platform in action!