eCommerce Storage: The 5 Best Ways to Reduce Your Wholesaling Costs
In this guide, you’ll learn how to streamline your eCommerce storage needs, with a complete breakdown of everything you need to be successful.
As an eCommerce wholesaler, the better and more logical your inventory and storage, the greater your efficiency and cost savings. You’re probably already aware that multiple supply chain shocks have brought the importance of inventory and storage to the forefront in eCommerce.
Managing your inventory and storage needs is crucial to eCommerce wholesaling success. But deciding how to reduce your storage needs takes time and careful thought.
Even in an era of unsettled supply chains, there are many things that you can do to reduce your storage needs, save money, and make your operations more productive.
In this guide, you’ll learn how to improve and streamline your tech stack, and I’ll give you a complete breakdown of everything you need to know to be successful. Then I’ll dive into how you can outsource for faster scaling and how to reduce your spoilage and failure risks.
Finally, I’ll give you a few thought-provoking lessons I’ve learnt from the pandemic.
Let’s dive in.
eCommerce storage tip #1: Improve your tech stack
There is simply no way to run a successful eCommerce business without delivery software to help you manage it.
If you’re still tracking inventory on a spreadsheet, it’s time to upgrade to an app that will automate repetitive tasks and, even if you’re using inventory management software, improving your tech stack can help you cut costs.
So, upgrading your inventory management software is an excellent investment that will help you understand and optimize your eCommerce storage needs.
For example, apps that let you track your inventory and create reports in real-time will help you make better purchasing decisions.
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Some software even allows you to automate and generate purchase orders when your stock drops to the reorder level.
In addition, better inventory management tools will give you better outcomes because your count and your analysis will be more accurate.
And precise inventory data is crucial for creating accurate inventory forecasts: the closer your projections are to reality, the better you’ll be able to manage your inventory and eCommerce storage needs.
If your goal is to reduce your eCommerce storage needs and save money on wholesale warehousing, upgrading your tech stack is a terrific place to start.
Even small gains in forecasting accuracy can translate to significant operational enhancements for eCommerce businesses.
eCommerce storage tip #2: Streamline your product selections
You can use your new inventory management software to reduce your storage needs with evidence-based product analysis.
Take a hard look at which products are selling and which aren’t, and then narrow your range of products.
Streamlining your product selections could mean narrowing your size offerings on a clothing line to focus on the most common sizes.
Or you might focus on the colors that sell best and eliminate slow-moving choices.
In some cases, you might find that a whole product line doesn’t have the consumer appeal it once did and can be discontinued.
Production delays and manufacturing stockouts are also reasons to drop a product or a whole line.
If you can’t consistently sell an item because it’s out of stock, consider whether that helps or hurts your business. Either find a more reliable supplier or take the opportunity to focus on your best-selling items.
Of course, your product line isn’t purely a numbers game. For example, an expensive model that you only sell a few of may have value beyond sales volume.
Suppose you offer a $500 food processor and a $200 food processor. The option to buy a higher-priced item can make the less expensive one seem like a deal, leading to increased sales.
eCommerce storage tip #3: Consider multiple warehouse locations
There are pros and cons to shipping your products from multiple warehouses.
A single warehouse can make inventory management more straightforward and reduce the amount of stock you need on hand to fill orders.
On the flip side, splitting your merchandise among multiple warehouse locations can help you control costs in several ways:
Firstly, you need less space at each site, so you’ll have more options for warehousing your products. You can lease a smaller warehouse or lease space within a warehouse instead of a whole warehouse, reducing your costs by location.
Secondly, your order fulfillment costs will decrease as your products will be located closer to your customers.
The fewer shipping zones a package crosses, the less you’ll pay for shipping. That also has the benefit of getting orders to your customers more quickly.
eCommerce storage tip #4: Outsource for faster scaling
Outsourcing your fulfillment may sound like an extra expense. but, in reality, eCommerce companies can save money by using a third-party logistics service.
There are two different business models for outsourcing your warehousing and fulfillment. You can save money with each in different ways.
The model that suits you will depend on your business operations and goals. Let’s take a look at both options:
1. Move products directly from factory to customer
You’ve likely heard of dropshipping. If you haven’t, it is an eCommerce model where you don’t pre-purchase or store any inventory. Instead, the manufacturer warehouses the items, and you only make a purchase when you make a sale.
This eCommerce business model works well for startups and entrepreneurs bootstrapping their businesses. You have minimal investment upfront, no inventory to manage, and don’t run the risk of buying products that you can’t sell.
On the other hand, you’ll pay a higher wholesale price for your merchandise when you have the manufacturer handle your eCommerce storage. Which could mean you’ll make lower profit margins.
Plus, you’ll be on the manufacturers’ timetables for production and delivery.
So the direct from factory model gives you lower upfront costs and relieves you of the need for inventory forecasting and storage – in exchange for higher wholesale pricing and less control over your inventory.
2. Use a 3PL for flexible logistics services
The second option, which many eCommerce brands choose, is to store their products and fulfill their orders with a third-party logistics company (3PL).
When you work with a 3PL, you source the products and ship them to the fulfillment center for storage.
In this business model, you can keep your wholesale costs down. Still, you’ll pay fees for warehouse services such as storage, picking, and packing.
Heck, you may find that the costs of outsourcing your fulfillment are offset by benefits such as shipping discounts and lower return rates.
So what are the advantages to working with a 3PL? These are numerous.
As a start, your orders are fulfilled by professionals who can offer highly accurate fulfillment, saving you money on returns.
Expert inventory handling can reduce product loss (shrinkage) by minimizing the number of items damaged or misplaced in the warehouse.
Perhaps the most significant way a 3PL can help you keep storage costs low while you grow and scale your business is with flexible storage.
What is flexible storage? It means that the warehousing you use is no longer a fixed expense because you only pay for the space that you use. So your storage costs will reduce during your slow season when you have less inventory on the shelves and only go up when you add more SKUs.
That gives you the room to quickly expand if you see a sudden spike in sales or contract temporarily to save on overhead during a slump. And fulfillment companies can keep storage costs low through economies of scale by operating large warehouses shared by many clients.
eCommerce storage tip #5: Minimize spoilage and failure risks
Keeping your products safe from spoilage and damage is one of the best ways to reduce your storage needs.
An example of this is in eCommerce websites that sell products with expiration dates that have a system set up to track those dates.
Make sure that you use first in, first out (FIFO) inventory management, so the first items on the shelf are also the first picked to fill orders.
Inventory software should automate expiration date tracking and flag products about to pass their sell-by dates. You can stop outdated and unsaleable products piling high, taking up room, and costing you money by keeping the proper inventory flow.
If you really want to minimize spoilage, you need to check your warehouse for other practices that put your merchandise at risk of shrinkage.
So what is shrinkage?
Think of shrinkage as ghost inventory: items that sit on your shelves, increasing your storage needs without serving your business. When you improve your storage practices, you reduce your cost of goods sold and your storage costs.
Stacking some items can lead to compression and damage. Create a process for shelving each product to make sure that you’re storing your inventory safely.
A lesson from the pandemic
Just-in-time (JIT) inventory management works well for many companies – as it keeps storage and inventory costs low and turns stock over quickly.
But during the pandemic, many brands stuffed their warehouses with extra merchandise in case of supply disruption. This meant that they moved from a JIT inventory model that minimized stock on-hand to the just-in-case (JIC) model.
Unfortunately, JIC inventory management can have negative impacts on your business. For one thing, it ties up too much of your working capital in your inventory. It’s not uncommon for your products to turn over quickly if that’s what you want. However, it should be an intentional decision.
Pay attention to products sitting on the shelf for months and being overstocked. You can end up with multiple headaches, including:
- Getting stuck with products that are expired or out of style. You either need to sell them at a discount or throw them out and take a total loss on them.
- Holding more stock than you need and paying for more storage space.
- Third-party warehouses may impose long-term storage fees on items stored for more than six months or a year, raising your cost of inventory storage.
A better storage model is often somewhere in between JIT and JIC.
You can find your perfect balance by following the data about your business. Track manufacturing, transport, inventory, fulfillment, delivery, and sales data and leverage data analytics to help you understand trends in your supply and demand.
The key is to make evidence-based decisions.
eCommerce storage: conclusion
The volatility of the world today makes inventory and storage management more vital than ever. By improving your practices, you can minimize your storage needs, keep costs down, and stay one step ahead of your competitors.
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