How to reduce the cost of maintaining an online store warehouse

The topic of reducing costs in business is now particularly relevant. One of the optimization points that you should pay attention to in offline trading and e-commerce is the warehouse. The organization of its work often takes an impressive part of the budget. In this article, we will talk about effective methods by which you can optimize warehouse costs and reduce the cost of storing goods.

The main types of expenses in the warehouse

90% of all costs for the maintenance of warehouse space are the costs of:

• rent and maintenance (heating, water supply, air conditioning, lighting);
• equipment depreciation;
• carrying out inventories;
• preventive maintenance and insurance;
• maintenance and storage of inventory;
• payment of taxes and wages to staff;
• inventory risks – lost profit due to shortage and damage to goods, loss of value due to long-term storage, theft or fire, formation of illiquid assets.

Any warehouse operation has a certain cost, including transportation, acceptance, and unloading of goods, picking orders, organizing storage, labeling, and monitoring the current state of products. In the process of reducing costs, it is necessary to analyze in detail each component, ensure competent cost management and systematically adjust the actions of the unit.

Common Mistakes in Cost Reduction

Going to extremes and cutting absolutely all-cost items is far from the best solution. In everything, balance, and a correct and deliberate approach is important. Otherwise, optimization will not lead to an increase in profits but will provoke even greater losses and undermine the company’s reputation.

What definitely not to do:

1. Save on qualified staff. This negatively affects the efficiency of the warehouse. An inexperienced accountant can make critical mistakes in accounting, a loader can pick up orders slowly, and a storekeeper can not control the loading well enough.
2. Focus solely on the obvious costs, losing sight of the more significant costs. Usually, they are hidden in the item “Other expenses”.
3. Introduce too many large fines. Such a measure significantly worsens the atmosphere in the team, often causing mass layoffs.
4. Increase labor standards excessively and reduce rest time. Even if this increases turnover, profits will be offset by losses from a growing number of errors in work.
5. Dramatically reduce costs for critical work areas. You can not thoughtlessly reduce the cost of everything. Excessively reduced inventory is a loss of potential profit due to lost sales. Too low salary – the risk of losing key employees, which will disrupt the productivity of the warehouse.
6. Do not take into account the relationship of costs. An increase in costs for one of the items can be balanced by a decrease in costs for another. For example, if you spend money on the purchase of video surveillance equipment, you can reduce losses from the likely theft of products.

Effective ways to reduce costs

There are three main areas for optimizing warehouse costs:

1. Improving the efficiency of using free space.
2. Introduction of limits.
3. Automation of routine processes.

Consider the most productive schemes that are recommended for use in the practice of online stores.

Rent and the right choice of space

Buying premises for your own warehouse is not rational in every case. In most situations, renting is the best option. Especially when it comes to small and medium businesses. The leased area must be selected according to the needs of the company, taking into account the specifics of the niche. Sometimes the reason for high costs lies in the content of more storage space than is actually necessary.

Key Rules for Cost Reduction:

1. Choose an area that will meet customer demand. Online stores with goods with a pronounced seasonality should focus not on-peak periods, but on months with a stable turnover. For example, 9 months of the year demand is kept at approximately the same level, and the rest of the time it rises by 60%. So, we choose a warehouse, focusing on a standard 9-month turnover. Additional space can be rented during peak months.
2. Look for options with a favorable rental rate. At the moment, there are more than enough offers for the lease of warehouse space. Since there is no single open source of information on rates, you need to analyze the market and compare and choose the most profitable options.
3. Negotiate a rent reduction. Those who already rent a warehouse can ask the landlord for a discount. The warehouse vacancy rate is 35-50% depending on the region. This is an excellent occasion for constructive negotiations on a possible rate cut. If you cannot reach an agreement, try to find another warehouse.
4. Take advantage of rental holidays. Vacation is a grace period during which no payment is taken from the tenant. The main condition is the conclusion of a lease for a long term: from a year or more. For example, an entrepreneur rents a room for 3 years and gets the opportunity not to pay rent for the first 6 months. During this time, deliveries and work of the warehouse are being adjusted, sales are growing. Having started to receive a stable profit, the company can pay for the services of the landlord without any problems and special financial difficulties.
5. Set up direct deliveries if possible. In the case of ordering large quantities, it is worth negotiating direct deliveries with manufacturers or official distributors of goods. The less product is kept in stock, the lower the costs.

If it is not possible to organize the work of the warehouse, it makes sense to think about transferring the storage of goods to professional logistics companies. This will eliminate the downtime of usable area, the appearance of excess stocks, and inaccurate shipments. Warehousing costs in this format are proportional to the actual turnover. Outsourcing can be partial or complete. If necessary, you can always return to your own warehouse and staff.

Dropshipping can also be a good option to start a business. Working under this scheme, entrepreneurs do not use a warehouse. The online store acts as an intermediary: it collects orders and transfers them to the supplier, who sends the goods to customers directly.

Modernization for rational use of space

Proper storage of cargo, which maintains efficient use of free space and high speed of work, is one of the prerequisites for optimizing costs. Competent modernization helps to save the most money. To organize it, certain financial investments are needed. However, they pay off pretty quickly.

To begin with, you should calculate the space efficiency ratio: divide the warehouse capacity by the actual weight of the cargo. The indicator should tend to unity. Upgrading is necessary even at normal values, just not as massive.

As part of space optimization, they provide:

• zone planning. The room is divided into separate zones: acceptance, shipment, control, and packaging. Due to the correct division of the flow of goods, the processing of orders is accelerated;
• thoughtful storage. In almost every case, it is possible to compact the cargo in the warehouse by 20-70%. Specific figures depend on the characteristics of the product: the density of food placement is easy to optimize by about 20%, footwear and clothing – by 25-30%, and auto parts – by 45%. This affects the capacity of the warehouse and the cost of storing products;
• purchase of additional equipment. To organize the most productive work of zones and dense storage, special equipment will be required. First of all, these are multi-level warehouse racks, conveyor systems, and high-performance loading equipment.

Modern shelving systems allow you to use the amount of usable space by 100%. In standard situations, it is used only by 50-70%. Racks are frontal and stuffed and can consist of a different number of tiers.

You need to choose them based on the characteristics of the premises and the characteristics of the product. To save money, it is worth exploring offers for used shelving. Many firms that for one reason or another leave the market sell high-quality equipment at very low prices (15-40% of the purchase price).

It is recommended to store products according to the ABC method:

1. A – products that are used most often. Placed near the place of loading;
2. B – products used less often. Stored in the center of the room;
3. C – positions that are in the least demand. located in remote areas.

Reduced stock levels

In addition to thoughtful storage of cargo, take care of the optimal filling of the warehouse space. Determine this level by taking into account the seasonality of sales, and current and projected customer demand.

Overstocking the warehouse is fraught with a non-linear increase in costs, which creates a lot of unnecessary costs. In crowded premises, the flow of goods is greatly hindered, and it is difficult to move around. In addition, excess inventory means additional storage costs and high risks of loss.

What to do to optimize inventory:

• analyze the structure of the warehouse and calculate the actual volume of goods needed;
• exclude from the assortment products that do not generate income;
• do not create an excess, especially of seasonal goods;
• look for suppliers nearby with a warehouse for quick deliveries of missing units;
• track current balances, study the dynamics of increase/decrease in stocks;
• calculate the volume of purchases in accordance with the turnover.

It is desirable that the volume of sales be approximately equal to the volume of stocks. When an excessive amount of balances is formed, it is better to sell them at a reduced price than to suffer losses.

Sale of illiquid positions

Additional costs for the company create:

• products with expiration dates;
• damaged and technically obsolete goods;
• illiquid positions;
• marriage.

It is not worth storing such items in the warehouse, since they take up free usable space. To identify them in time, take inventory. For the sale of unnecessary balances and illiquid assets, you can arrange promotions and discounts. Sometimes it makes sense to sell illiquid assets at a price below cost. Goods that cannot be sold must be written off.

Setting limits

Limiting certain items of expenses for maintaining a warehouse in some cases helps to reduce costs by up to 15%. It is also a great tool for improving internal discipline.

Try setting limits on:

• economic needs;
• inventory;
• overalls;
• expendable materials.

Periodically review limited articles and adjust the list to current needs. One of the effective examples of cost optimization is the reduction of energy consumption norms. This article takes a lot of money. To reduce energy costs, you can purchase LED lamps, motion sensors, and energy-saving gate systems.

The system of collective liability

In almost every warehouse, online stores lose up to 2% in turnover due to errors in cargo handling, theft, and improper storage. These numbers are a big part of lost profits.

The best way to deal with this is to develop a liability system. It should provide for fair penalties for financially responsible persons, which will be charged from the salary in case of critical errors, non-compliance with established requirements or non-fulfillment of official duties. In order to identify violations, it is necessary to organize regular inventories (at least once every six months).

Warehouse accounting automation

The most effective way to reduce the cost of maintaining a warehouse is to automate routine processes using specialized inventory systems.

Connecting the system to the website of an online store gives entrepreneurs access to many useful business features:

• inventory management;
• tracking of current balances in warehouses in real-time: actual and reserve;
• procurement planning and formation of orders to suppliers;
• processing customer requests in a single interface.

An online cash desk is connected to the program, which allows you to send and print receipts. Several convenient tariff packages have been developed for online stores.

An effective action plan to reduce the cost of maintaining a warehouse can be drawn up and implemented by any online store. This is a real opportunity to reduce costs by at least 10-15%. In some cases, savings reach 60-70%, which significantly increases the profitability of the business. Bet on an integrated approach. Using all the proposed methods, including the automation of warehouse processes, you will get a noticeable result.