How to Reduce Inventory Holding Costs

If we buy inventory for production or sale, we have to pay three types cost. One is the price of material. Second is its carrying cost and third is its holding cost. But holding cost is important all of these costs. Holding cost means the cost which we pay for storing our inventory. If we will buy unnecessary inventory, we need more big store and more supervisors. So, holding cost will be big. For example, we have 10 branches in which we deal gold jewellery. We know the price of gold is increasing fastly. If we keep unnecessary stock of Gold, we have to store it safely. So, we have to pay more holding cost. Today, we are writing some tips which will be useful for you to reduce inventory holding cost.

1. Inter-branch Transfer

When purchaser gives us the order for buying goods from us. We have to supply without any delay. Suppose, A branch has zero inventory for supplying to customer. At that time, it has to buy new for supplying. But inter-branch transfer will be helpful for reducing over stock cost. For example B branch has excess stock. If A branch will transfer his obtained order to B branch, at that time, B branch will send goods directly to the customer. For this, we have to use advance accounting software techniques. Today, I am seeing Acme infinity video which is in hindi language and which provides full information of purchase order and quantity in stock at a  same time relating to all branches.

There are two benefits of inter-branch transfer:

a. If we transfer stock from one branch to other branch for supplying to customer without any new buying, we  will need less working capital.

b. We will save the cost of store rent and supervisor's cost.

2. Minimum Stock Level

Minimum stock level can be calculated with easy formula. With this, we can send new order for buying more stock.

3. Layout Modifications

Good architecture can save your space for keeping your stock. Just modify your layout will be helpful for effective use of your space for holding your stock.

4. Good Estimation of Demand

Good estimation of demand is also important for taking the decision how much will we buy new stock and will   keep in our store. 


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Accounting Education: How to Reduce Inventory Holding Costs
How to Reduce Inventory Holding Costs
Accounting Education
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