Originally published on April 9, 2021
Last updated on March 6, 2026
5 Ways to Reduce Inventory Costs | Finale Inventory
You have two main options if you want to boost your company’s bottom line. You can increase your earnings, or you can reduce your costs. In some cases, doing both can be the best option. If you want to reduce costs, one place to look is at your inventory. The products your company sells allow […]
You have two main options if you want to boost your company’s bottom line. You can increase your earnings, or you can reduce your costs. In some cases, doing both can be the best option. If you want to reduce costs, one place to look is at your inventory. The products your company sells allow it to earn revenue, but the cost of storing those products and shipping them from one place to another can eat into the profit. Knowing what sells and when it sells can help you get your inventory costs under control, as can keeping tabs on every product and only ordering new products when necessary.
Why Reduce Excess Inventory Costs
How do companies reduce inventory costs? And why should your company focus on it instead of increasing earnings or other methods of improving your bottom line? Inventory incurs multiple costs. You need to pay to store the inventory in a warehouse or multiple warehouses. Having an excess of a particular product can mean that you don’t have the space available to store newer items or seasonal products. Depending on the type of products you sell, there is a chance that the items will spoil or expire before you can sell them.
Having high inventory costs can also disrupt your company’s growth goals. If you pay a lot to store excess inventory, your company might not have the funds it needs to move into a new market or introduce a new product line.
How to Lower Inventory Costs
Your company might try one method of lowering inventory costs, or it might try several, as there’s no one-size-fits-all solution. The key to getting your costs under control is being strategic. Try one method first and gauge the results, then try something else to reduce your costs further or if you aren’t happy with the results of the first option. Using inventory management software can help you with inventory cost control without requiring a lot of time and effort from you or your employees.
5 Ways to Make Inventory Costs Cheaper
Lowering your inventory costs can require a single or multi-pronged approach. Here are five things to try if you want to lower your inventory expenses.
1. Keep Track of All Costs
Ignorance isn’t bliss when it comes to the total cost of your inventory. How much is your business spending on purchasing products to sell? What does it spend on storage for its inventory? Ideally, you should have a clear idea of the exact amount you’re spending each month, so you can figure out where to make cuts. In addition to the cost of the goods you’re selling and storage costs, some other expenses to track include:
Insurance costs
Taxes
Obsolescence or expiration costs
Shrinkage costs
Bookkeeping and data entry costs
Staffing costs
The cost of keeping inventory on hand is usually called inventory carrying cost. The average inventory carrying cost is 20% to 30% of the inventory’s value, and the higher the carrying cost is, the more it eats into your bottom line and affects your cash flow.
2. Reduce Shipping Costs
No one likes to pay for shipping, which explains the demand for free shipping when people shop online. If the customer isn’t paying for shipping, though, someone else is. That someone might be your company. Along with the cost of shipping your product to your customers, you also want to account for the cost of having items shipped to your warehouses or your stores.
You have several options if you want to lower the cost of shipping. It can be worthwhile to negotiate with the shipping companies your work with to see if they will give you a lower rate or offer a discount for bulk shipments. You can also reduce the cost of the packaging you use to ship products. A shipper might offer packaging for free, or you can look for cheaper alternatives. Pay attention to the size and weight of the packages you use, too. The smaller the package, the less it will cost to ship. Packing inventory in oversized boxes wastes packaging and costs your business more.
If you pay to ship products to your warehouse, see if the manufacturer offers shipping discounts. Depending on the products you sell, the companies that produce them and the overall cost of shipping, it might be worthwhile to change vendors or manufacturers to lower your overall costs.
3. Learn How to Reduce Overstock Inventory
How much inventory do you keep on hand “just in case,” and how much is that inventory costing your business? Keeping excess inventory on hand costs your company in several ways. There’s the cost of storing that inventory, the cost of purchasing products that might not sell and the cost of spoilage if those products expire or go bad before you sell them.
If you have too much inventory taking up space in your warehouse, you can reduce it in a few ways. One option might be to return it to the supplier or manufacturer, getting a refund or credit for the excess product. You can also deeply discount the products to clear them from your storage shelves, making room for new inventory. Discounting overstock inventory can affect your profit but might be the best option if items are languishing and won’t sell otherwise.
Moving forward, consider ways to keep your excess inventory to a minimum. You might try just-in-time inventory management, which eliminates safety stock completely. Another option is to find suppliers that have shorter lead times. If your company is running low on an item, you know that you won’t have to wait as long for the supplier to send it to you, so you can feel more comfortable ordering fewer units of each item at a time.
4. Optimize Your Order Management Process
When’s the best time to place orders to reduce the chance of stock-outs and minimize the need to store too much product on warehouse shelves? Optimizing your order management process helps reduce inventory costs associated with canceled orders and with keeping excess products on hand.
One way to optimize order management is by using a software platform that automates purchasing and replenishment. When stock levels drop below a certain amount, the software automatically creates a purchase order. The software can also give you a clear idea of the cost of the products you sell, which can help you choose the inventory you carry in the future.
5. Use Data to Inform Your Decisions
Data, such as sales figures, can help you decide what types of products to continue to sell and which ones not to order again. Your data can also help you see if you should order more of a specific product or if you can get a better price for it if you order it at a particular time of year.
Although you can’t guarantee that sales will be the same one year to the next, the data from an inventory management system can help you make better decisions that keep your overall inventory costs down.
How Finale Inventory Can Help With Inventory Cost Control
The first step toward getting inventory costs under control is to use an inventory management system. Finale Inventory is a cloud-based inventory software platform that lets you see what past sales have been and what your current stock levels are. You can use the software to manage stock at one or more warehouses and streamline reordering products when necessary. The platform integrates with multiple sales platforms and marketplaces, letting you track inventory and sales at multiple locations, reducing the risk of overselling and stock-outs.
Start a Free 14-Day Trial Today
The best way to see how Finale Inventory can help control and reduce inventory costs is to try it yourself. Schedule a demo to see how the platform works and sign up for a free 14-day trial.
“The core of maturity, that I see, is starting with a unified view of inventory. I’ve got to be able to accurately represent what do I have, make sure that I know where it’s located so I can get it to my customers quickly.”
— Troy Graham, Descartes
What is the first thing I should fix if I want to scale operations?
Start with a unified view of inventory. The core of maturity starts with being able to accurately represent what you do have and make sure that you know where it’s located to get it to customers quickly. Without a unified view across your warehouses, 3PLs, and vendors, you cannot make the best decisions because you don’t have the best information at hand.
With Inventory Visibility, Businesses Can Make Smarter Allocation Decisions
Once inventory is centralized, businesses can move from reactive updates to intentional allocation. They can decide how much inventory to expose to each channel, when to use buffers, which marketplaces need extra protection, and how seasonality or campaign performance influence availability.
Once I know what inventory I have, how should I decide where to make it available?
Inventory allocation should reflect where orders are coming from, where marketing is working, and which channels carry the most risk. Once you know what you have and where it is located, you can think more strategically using centralized inventory to make prioritization happen automatically. One fertilizer company lost a little over 5,000 orders in one weekend because someone manually uploaded the wrong available inventory to Amazon.
Better Inventory Data Improves Planning, Purchasing, and Growth Bets
Better visibility turns inventory data into a planning tool. With insight into sales velocity, inventory levels, vendors, and channel performance, businesses can make more informed replenishment decisions, avoid overbuying, and test new product lines or vendor-supplied inventory without taking on unnecessary risk.
“You have to have unified inventory to know how to price your products just at that basic level. I can’t price my products if I don’t know the true cost to get it.”
— Mike Bernico, Flxpoint
How does better inventory data help me make smarter buying decisions?
It lets you measure whether your plan is working before you commit more capital. A key question becomes: “Did my plan work? Am I overleveraged in one place or another?” Centralized systems can also help businesses test new product lines or vendor relationships by looking at sales velocity by channel, allowing them to take risks in a calculated and measured way.
Intelligent Order Routing Turns Inventory Complexity Into Automation
Once inventory and supplier data are reliable, businesses can automate fulfillment decisions. Orders can be routed based on cost, speed, margin, location, warehouse priority, vendor fallback, split-shipment rules, or customer expectations. This helps hybrid fulfillment scale because every order does not need a manual review.
How do I decide the best way to fulfill each order?
There is no single answer, which is why order routing needs to account for the context of each order. Intelligent order routing is not just sending an order to someone who has stock; it is taking each and every order and treating it like its own unique use case. Depending on the order, the business may prioritize speed, margin, an internal warehouse, vendor fallback, or preventing split shipments.
Supplier Inventory Sync Extends Inventory Beyond the Four Walls
For hybrid fulfillment to work, supplier inventory needs to become part of the operating model. Supplier sync does not always require advanced technology; it can happen through automated files, FTP, email, APIs, EDI, or ecommerce storefront integrations. The key is replacing manual updates with automated, reliable supplier data.
Can supplier inventory really be treated like part of my own inventory?
Yes, but the goal is not necessarily to force every supplier into a complex integration. Real-time supplier sync can be defined as any way to get an automated update from a supplier, such as Google Sheets, email, FTP, API, EDI, or ecommerce storefront connections. The key is that accurate supplier stock is foundational. If you don’t have an accurate view of what is in stock with your suppliers, you cannot tell your sales channel accurately what’s available.
Exception-Based Workflows Keep Humans Focused Where They Matter
Automation does not remove people from the process. Mature operations let technology handle the routine majority while humans focus on exceptions, such as high-value orders, fraud risk, compliance requirements, restricted products, export rules, or unusual fulfillment scenarios.
If my business has special cases, can automation still work?
Yes. The point is not to automate every possible decision; it is to automate the routine work and surface the exceptions. Businesses should not have to look at every single order. Instead, technology can highlight high-value orders, risky locations, or compliance requirements. The goal is to take care of the 80% of workflows that are obvious while still allowing human review when specific exceptions arise.
The Right Inventory Technology Should Fit the Business, Not Overwhelm It
Software decisions should be based on business fit, not popularity, feature volume, or broad “all-in-one” promises. Growing ecommerce businesses should identify their highest-impact bottleneck, prioritize what matters now, and choose technology that is right-sized but flexible enough to support future phases of growth.
How should I choose software without overbuying or picking the wrong system?
Start with your priorities, not the biggest feature list. Avoid an all-in-one system that claims to “do everything under the sun” and look for a “best of breed approach” with systems that can scale as you add channels or vendors. The practical advice is to stack rank what matters now, make sure the system can support future phases, and choose technology that fits your business rather than overwhelming it.
How to Scale Ecommerce Operations Beyond Spreadsheets
For many growing ecommerce businesses, Finale and Flxpoint work together as a practical answer to these challenges. Finale helps centralize and manage internal inventory, purchasing, warehouse operations, and stock visibility, while Flxpoint helps connect vendor inventory, automate supplier sync, and route orders across hybrid fulfillment networks. Together, they give businesses a best-of-breed way to improve inventory accuracy, reduce spreadsheet work, and scale fulfillment without forcing every process into a one-size-fits-all system.
Ecommerce Fulfillment Operations FAQ
What Is Ecommerce Fulfillment Operations?
Ecommerce fulfillment operations are the processes that move an online order from purchase to delivery. This includes managing inventory, syncing product availability across channels, routing orders to the right warehouse, 3PL, supplier, or vendor, and making sure the customer receives the right product on time. As discussed in the webinar, fulfillment is no longer limited to “what’s in my warehouse these days”; growing businesses may rely on internal warehouses, 3PLs, marketplace fulfillment services, and supplier inventory at the same time.
What Are Ecommerce Fulfillment Operation Examples?
Examples of ecommerce fulfillment operations include updating inventory across Shopify, Amazon, Walmart, and other sales channels; allocating inventory to specific marketplaces; sending orders to an internal warehouse, 3PL, or vendor; syncing supplier inventory through files, APIs, EDI, email, or FTP; replenishing warehouse stock based on sales velocity; and flagging exceptions such as high-value orders, compliance requirements, or restricted products. In the webinar, the speakers also discussed hybrid fulfillment examples where a business may fulfill some products from its own warehouse and use vendors as a fallback or extension of available inventory.
How Can I Track My Inventory at an Ecommerce Fulfillment Center?
The best way to track inventory at an ecommerce fulfillment center is to create a unified inventory view that shows what is available, where it is located, and how that inventory connects to each sales channel. That means tracking inventory across internal warehouses, fulfillment centers, 3PLs, marketplace fulfillment programs, and supplier locations instead of relying on disconnected spreadsheets. The webinar emphasized that businesses need to “accurately represent” what they have and know where it is located so they can get products to customers quickly.
How Can I Connect My Inventory to My Supplier?
You can connect supplier inventory through several methods, depending on what the supplier supports. The webinar discussed low-tech and advanced options, including automated Excel or CSV files, Google Sheets, email updates, FTP servers, APIs, EDI, and direct connections to ecommerce storefronts such as Shopify, BigCommerce, or Magento. The key is to ask suppliers how they share inventory today, then use a system that can automate that data flow instead of manually copying supplier inventory into spreadsheets.
What Is Ecommerce Order Routing?
Ecommerce order routing is the process of deciding where an order is fulfilled from after a customer buys. In a simple operation, every order may go to one warehouse. In a more complex or hybrid fulfillment model, the best fulfillment source may depend on inventory availability, shipping speed, cost, margin, customer location, warehouse priority, vendor fallback rules, or whether the order should be split. The webinar described intelligent order routing as treating each order like its own use case, so businesses can automate the best fulfillment decision without manually reviewing every order.
