The quantity of empty warehouse space in the United Kingdom has grown to a record 106 million sq ft as businesses are cutting costs and reducing inventory levels.
For manufacturers and distributors, inventory is often one of the largest assets that appears on their balance sheet.
Inventory affects both cash flow and profitability and there are significant costs associated with holding it. It is no surprise that so many are working at reducing inventory levels.
To help you to understand why reducing inventory can bring big benefit, here are some of the costs associated with holding inventory:
1. Cost of money – the ‘opportunity cost’ or return that the money could have earned somewhere else.
2. Risk of going obsolete – this is particularly true in consumer high technology industries.
3. Natural shrinkage – due to items being stolen, damaged or lost.
4. Insurance – directly related to the value of inventory you are holding.
5. Transportation – both around the warehouse and inter-company sites.
6. Utility bills - Lighting, air-conditioning for example. For chilled and frozen-food companies this is more significant.
7. Warehouse space –reducing inventory levels should bring benefit to tenants, who can negotiate to reduce their rent or rent out space to 3rd parties.
Author: Oliver Rhodes