7 measures, how to reduce your storage costs

As a manufacturing company, you spend a lot of time managing your own warehouse. Keeping an eye on stock levels, recording used materials and observing best-before dates: It's a lot of work, and your warehouse takes up a lot of space. All of this ties up liquidity - which you could put to better use elsewhere. The trick is to reduce your own storage costs and storage interest rates, resulting in increased liquidity. Our article reveals the importance of an efficient warehouse, what measures can be taken to reduce costs and how an ERP system can help.

Storage costs are all costs arising from the storage of goods. Examples of storage costs are

• Costs for storage space such as rent, equipment, energy, cleaning and maintenance
• Costs arising from stock such as spoiled goods or goods that have been destroyed due to improper storage
• Wage costs for employees who look after the warehouse
• Costs for materials in the warehouse such as packaging and office supplies

When calculating storage costs, a distinction is also made between two types: there are fixed and variable storage costs.

• Fixed storage costs are incurred on an ongoing basis, regardless of whether you are currently using your warehouse or not. These are, for example, rent, property tax and insurance
• Variable storage costs, on the other hand, are only incurred when your warehouse is in active use. These include costs for maintenance and cleaning, damaged goods and personnel costs.

Storage costs are a huge cost item for many companies. Is your warehouse large? That's when a lot of capital is tied up. What sounds unfavorable at first glance actually brings huge benefits: it generates potential savings, because your expenses can be sensibly reduced with a sensible warehouse. The newly generated liquidity can then be put to good use elsewhere. But be careful! A sure instinct is required when reducing storage costs. You should take a few challenges into account:

• If you reduce goods and materials in stock too much, this can lead to production bottlenecks, long waiting times or even production downtime.
• Many warehouses are technologically completely outdated. Transparency, overview and good planning ability suffer as a result. If quantities and processes are also reduced, chaos can quickly ensue.
• If responsibility for a warehouse lies exclusively in human hands, the dependency is high. If a single warehouse employee has all the information in their head and fails, companies are faced with a big question mark.

The question now arises: what measures should you take to meet these challenges and reduce your warehouse costs at the same time?

1. Make an inventory

Which goods are in stock? In what quantity are they available? Is the quality flawless or have defects occurred due to incorrect storage conditions, for example? Are there any slow-moving items that are not needed but are taking up capacity in the warehouse? During stocktaking, the entire stock on hand is examined in detail and documented. This allows you to calculate storage costs efficiently, resulting in storage interest. These include the costs of the capital tied up in stored goods. This creates transparency and the basis for rethinking and optimizing inventory. This is particularly helpful for companies in industries that work with perishable goods, such as food and chemicals.

2. Reduce your capital commitment costs

Another measure to reduce financial expenditure in the warehouse is to reduce capital commitment costs. Based on the inventory carried out, you can reduce your stock of goods that are not profitable. This saves space and energy and eliminates the need for purchase orders. In addition, payment terms can be extended. If customers are given a shorter period and suppliers a longer period, the company's available liquidity increases. However, this step should be approached sensitively and coordinated with the partners concerned.

3. Minimize storage risks

Large warehouses harbor the risk of too many goods being in stock and, in the worst case, spoiling. This is a situation that companies in the food industry are particularly familiar with. By setting a storage period in advance and keeping an eye on it, you can minimize shrinkage.

4. Adapt purchase order and delivery processes

Carelessly reordering goods without needing them unnecessarily increases storage costs. It is better if you receive goods on time and in the required quantity. Thanks to the just-in-time concept, you avoid overdeliveries and prevent bottlenecks at the same time - the best basis for optimizing your storage costs.

5. Set a minimum stock level

As a rule, your orders are within a rough range. However, unforeseen fluctuations can quickly become a problem if your stock is too low. Therefore, define a sensible minimum stock level with which you can react to an unexpected order situation.

6. Set a maximum stock level

But beware, the situation can also be exactly the opposite: Your orders reduce unexpectedly. In this case, it is important not to have too many perishable goods on hand. Just like setting a minimum stock level, you should also think about a maximum stock level. What is the maximum quantity your warehouse can hold? Working out minimum and maximum quantities is a balancing act, but it's worth it.

7. Abolish manual processes

Manual warehouse work is not only tedious, but also prone to errors. The stock is quickly noted down incorrectly, a purchase order is overlooked or the urgently needed colleague is prevented at short notice. Not to mention the time involved. To reduce your warehouse costs in the long term, you should say goodbye to manual processes and opt for a digital solution. The right software with the necessary functions provides an overview and less effort at the touch of a button. This also creates security, as fewer errors occur and you are able to react at any time. Enterprise Resource Planning (ERP) is the ideal basis for a sensible warehouse with reduced costs.

An ERP system creates the potential to digitize and automate all company processes - including warehouse processes. To reduce warehouse costs, ERP focuses on efficiency in the warehouse. If you manage to increase this, the workload is reduced automatically and costs fall. Typically, ERP systems help to reduce warehouse costs in the following ways:

• Goods and their movements in the warehouse are recorded using hand scanners. This increases the speed of the process and the timeliness of the information.
• An ERP system not only records and documents the steps noted, but also all steps in the entire warehouse process.
• Instead of having to process administrative tasks manually, your ERP handles inventory management digitally according to quantity and packages.
• Because you can see all processes and stock levels in an up-to-date list, stocktaking is easier.
  Similar to working with scanners in the warehouse, the automatic creation of labels and barcodes reduces your workload.
• Delivery and purchase order suggestions are displayed directly.
  Whether quantity, best-before date or order requirement: the ERP shows you all the information in real time.
• Reports are not only easier to create digitally, but also faster and more accurate. This allows you to optimally align your processes with your company's overall strategy.

Microsoft Dynamics 365 Business Central is an ERP system that is ideal for start-ups, small and medium-sized companies. A good basis - from which much more can be gained. Our industry-specific ERP solution Yaveon 365 is fully integrated into Business Central and adds essential functions that turn a good standard into a targeted special solution, for example for efficient warehouse management. These highlights await you with the solution:

• Management of load carriers directly in the system
• Storage location search for the storage of articles
• Warehouse receiving: load delivered goods onto load carriers and find a suitable storage location thanks to a set putaway strategy
• Outgoing goods: control panel with integrated traffic light functionality and planning of order picking
• By using replenishment orders, your picking area is always supplied with goods from other areas
• Pick order for stock reservation
• Options relating to production provision

A wide range of options that simplify and optimally adapt your warehouse strategy. This makes it easier for you to find the balance between stock in the warehouse and reducing the stock quantity. The result: a secure, production-ready warehouse that frees up as much liquidity as possible.