7 measures to reduce your warehouse costs

As a manufacturing company, a great deal of time goes into managing your warehouse. Keeping track of stock levels, recording material usage, or monitoring expiration dates – the effort is high, and on top of that, your warehouse takes up valuable space. All this ties up liquidity – resources that could be better invested elsewhere.

The solution: reduce warehouse costs and carrying costs, and your liquidity will increase. In this article, we reveal why efficient warehouse management matters, which measures help reduce costs, and how an ERP system supports you along the way.

Warehouse costs include all expenses incurred by storing goods. Examples are:

• Warehouse space costs such as rent, equipment, energy, cleaning, and maintenance
• Inventory-related costs such as spoiled goods or items damaged through improper storage
• Labor costs for employees managing warehouse operations
• Material costs within the warehouse, e.g. packaging and office supplies

When calculating warehouse costs, a distinction is made between fixed and variable costs:

• Fixed warehouse costs occur continuously, regardless of whether the warehouse is currently in use – for example rent, property tax, and insurance
• Variable warehouse costs arise only when the warehouse is actively used – such as maintenance and cleaning, damaged goods, or personnel expenses

For many companies, warehouse costs make up a significant share of total expenses. The larger the warehouse, the more capital is tied up. At first glance, this seems unfavorable – but it actually creates great potential for savings. With a well-structured warehouse strategy, you can cut costs effectively. The liquidity you free up can then be invested elsewhere in a meaningful way.

However, reducing warehouse costs requires careful balance. There are important challenges to consider:

• If you reduce goods and materials too much, you risk production bottlenecks, long waiting times, or even downtime.
• Many warehouses are technologically outdated, which impacts transparency, oversight, and planning. Cutting stock and processes on top of that can quickly lead to chaos.
• If warehouse operations rely solely on people, dependency becomes high. When a single warehouse employee holds all the knowledge and becomes unavailable, the company faces major uncertainty.

So the key question is: Which measures can you take to overcome these challenges while successfully reducing your warehouse costs?

1. Carry out an inventory check

Which goods are in stock? In what quantities? Is the quality intact, or have storage issues caused damage? Are there slow-moving items that take up space without adding value? An inventory check examines and documents your entire stock in detail. This makes warehouse costs measurable and reveals carrying costs – the capital tied up in stored goods. The result: transparency and a solid basis for reassessing and optimizing stock levels. Especially vital for industries with perishable goods, such as food and chemicals.

2. Reduce capital commitment costs

Another way to lower warehouse expenses is to reduce capital tied up in stock. Based on your inventory check, remove goods that are not profitable. This saves space, energy, and restocking costs. Extending payment terms can also help – shorter terms for customers and longer ones for suppliers improve liquidity. Be sure, however, to handle this carefully and in alignment with your business partners.

3. Minimize storage risks

Large warehouses carry the risk of holding too much stock, which may spoil or expire – a common issue in the food industry. By defining and monitoring maximum storage durations, you can keep losses to a minimum.

4. Adjust ordering and delivery processes

Unplanned reorders without real demand drive warehouse costs up unnecessarily. Instead, aim for precise, demand-driven deliveries. With a just-in-time concept, you prevent overstocking while avoiding shortages – the ideal balance for optimized warehouse costs.

5. Define a minimum stock level

Orders usually fluctuate within a certain range, but unexpected spikes can quickly become a problem if stock is too low. Defining a reasonable minimum stock ensures you can respond flexibly to sudden demand.

6. Define a maximum stock level

The opposite can also be true: orders may unexpectedly decrease. To avoid overstocking – particularly of perishable goods – define a maximum stock level. Balancing minimum and maximum levels takes finesse but pays off in efficiency and reduced costs.

7. Eliminate manual processes

Manual warehouse management is not only labor-intensive but also error-prone. Miscounted stock, missed orders, or absent staff can disrupt operations and waste time. The long-term solution: move away from manual processes and implement digital systems. The right software provides visibility, reduces effort, and minimizes errors – ensuring flexibility and security. Enterprise Resource Planning (ERP) creates the optimal foundation for efficient, cost-effective warehouse management.

An ERP system unlocks the potential to digitalize and automate all business processes – including warehouse operations. By increasing efficiency in the warehouse, ERP reduces manual effort and lowers costs. Typically, ERP systems support cost reduction in the following ways:

• Goods and their movements are recorded via handheld scanners – speeding up processes and keeping information up to date.
• Every step in the warehouse process is fully captured and documented within the ERP system.
• Inventory management by quantity and packaging units is handled digitally, rather than manually.
• With real-time listings of all items and transactions, stocktaking becomes simpler and faster.
• Automatic generation of labels and barcodes reduces manual workload, similar to scanner-based processes.
• The system provides direct suggestions for deliveries and reorders.
• All information – from quantities and expiration dates to replenishment needs – is available in real time.
• Reports are created digitally, faster, and more accurately, helping you align processes with your company’s overall strategy.

A strong ERP system for start-ups, small, and medium-sized businesses is Microsoft Dynamics 365 Business Central. On this solid foundation, even more is possible: our ERP industry solution Yaveon 365 is fully integrated into Business Central and extends it with key functions that transform a good standard into a targeted specialist solution – for example, for efficient warehouse management.

With Yaveon 365 you benefit from:

• Direct management of load carriers within the system
• Automated location search for item storage
• Goods receipt: load delivered items onto carriers and assign storage locations using a defined put-away strategy
• Goods issue: control center with integrated traffic-light functionality and order picking planning
• Replenishment orders to keep the picking area supplied from other storage zones
• Configurable picking sequence with inventory reservation
• Extensive options for production supply

These features simplify and fine-tune your warehouse strategy. They help you strike the right balance between stock availability and reduced inventory levels. The result: a reliable, production-ready warehouse that frees up liquidity to use where it matters most.

Pharma, biotechnology, chemicals, medical technology, food, and cosmetics – in all these Life Sciences sectors, ERP systems unlock major potential to cut warehouse costs. Here’s how:

Pharmaceuticals and biotechnology

An ERP system helps reduce warehouse costs by:

• Avoiding overstocks and stockouts that lead to high storage and opportunity costs
• Integrating with other systems such as quality management, batch tracking, and sales – ensuring end-to-end traceability and fast response to customer needs
• Optimizing warehouse space and routes to improve efficiency and utilization in complex facilities

Chemicals

For the chemical industry, ERP supports cost reduction by:

• Enabling better planning and control of production processes, optimizing raw material requirements and stock levels
• Providing full transparency of all warehouse movements and inventories, allowing efficient stocktaking and timely deliveries
• Ensuring compliance with legal regulations and standards for chemical storage – reducing risks of fines, accidents, or environmental damage

Food industry

ERP helps food businesses lower warehouse costs by:

• Guaranteeing traceability of all food items and ingredients from sourcing to distribution – enabling quick response to quality issues or recalls
• Minimizing downtime and waste through precise demand planning and production scheduling aligned with customer orders
• Automating processes and reducing manual errors by integrating departments, suppliers, and customers seamlessly

Cosmetics industry 

ERP reduces warehouse costs in cosmetics by:

• Optimizing inventory management with real-time visibility of stock levels, expiration dates, and demand; avoiding overstocking with minimum stock levels, automated reordering, and optimized lead times
• Improving product quality and safety through complete traceability of raw materials, ingredients, and finished goods – ensuring compliance and effective quality control, while reducing risks of contamination or counterfeiting
• Boosting customer satisfaction and loyalty with personalized, fast deliveries and improved communication, feedback, and service

Medical technology

For medtech companies, ERP lowers warehouse costs by:

• Optimizing warehouse processes and workflows through automation and integrated data, leading to better planning, monitoring, and control of stock levels
• Increasing warehouse turnover, reducing storage requirements, and shortening delivery times