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How do you optimize storage costs? In the logistics industry, what are the best strategies? 

When we talk about Storage Cost Optimization we are referring to the optimization of logistics costs, which include all expenses incurred by a company in the complete management of goods (labor, storage, procurement, packaging and transportation). 

Whether outbound, inbound, or warehoused, the management of goods has significant costs. Being able to optimize them means laying the foundation for a sound business growth strategy. 

ISS Palumbo has more than 20 years of experience as a provider of integrated logistics in several prestigious industrial realities, carrying out the activities both at Clients’ premises and within our own facilities. This is why we can offer you the best advice on how to best optimize storage costs. 

Logistics costs: characteristics and types 

We can divide logistics costs into 3 categories. 

Procurement costs

They include all the work that is done by the purchasing department, which is in charge of selecting and issuing orders to suppliers.

Transportation-related costs

This type of cost is particularly costly for companies. Moreover, reducing them is not so easy, especially since they are subject to changing and uncontrollable variables (think of fuel prices, for example).

Storage costs

Maintaining a warehouse involves expenses of a different nature. These costs can be optimized through efficient management of operations, maintaining an optimal level of stock, and through good integration with transportation.

What are storage costs?

Warehousing costs include both expenses incurred for lighting, heating, maintenance, and rental of the warehouse, as well as expenses related to the operation of the warehouse itself (e.g., expenses involving the handling of goods, equipment, management programs, and human resources). 

One of the items that have the greatest impact on storage costs concerns the cost related to space. Warehouse space brings with it expenses. 

Of course, the staff employed in warehouse operations also has a cost (purchase of work clothes, any bonuses or incentives for productivity, salary, administrative management).

Then there are the expenses associated with maintenance, repairs, and all those interventions aimed at making improvements to the property.

Finally, unoptimized stock management can lead to operational inefficiencies that inevitably go into business costs. 

You may also be interested in the article Third-party warehousing: a complete guide. 

How to calculate storage costs?

Let us now see what factors affect the calculation of storage costs: 

• Warehouse space: cost of renting a room;
• Warehouse services: such as applications used for warehouse management, IT hardware, taxes and levies on unsold goods at the end of the year, insurance;
• Capital: amount invested in unsold goods, also considering the interest paid on the purchase;
• Inventory risks: risk due to unmoved goods stored for long periods. 

4 strategies to reduce storage costs 

As we have seen, running a warehouse incurs significant costs. Below we have selected 4 strategies for a Store Cost Optimization. 

Analyze management costs

It is critical to understand the reasons behind store management costs, which can result from:

• Excessive inventories: in hopes of covering peaks in demand, companies often stockpile more merchandise than necessary. This only greatly increases the costs to be incurred; 
• Seasonal demand: Seasonal products require strategic stocks that, if not managed properly, can generate surpluses; 
• Goods in transit: products not yet received that affect costs;
• Obsolete goods: unsaleable items that only tend to take up space;
• Contingencies: force majeure events that block sales.

Automate the warehouse 

Automating the warehouse is another strategy for efficient management. By automating the handling of goods, there is an increase in productivity and a significant reduction in the risk of errors. As a result, warehousing costs also tend to be reduced.  

Continuously monitor market trends

Analyzing emerging trends allows you to make more accurate demand forecasts, reducing the risk of overstocking.

Rely on specialized logistics partners

Relying on external logistics centers allows companies to reduce warehouse costs, freeing up resources and simplifying inventory management. ISS Palumbo is a leading player in third-party logistics. We carry out warehousing services for third parties. 

Contact us for more information!

Or email us at info@iss-palumbo.com