March 20, 2014
How Does On Demand Packaging® Cut Your Inventory Costs?
When potential customers first hear about our packaging solutions, they like to immediately start thinking about all the ways that On Demand Packaging® will save them money. There are a bunch that immediately come to mind (and that we’ve written about extensively in the past)—less corrugated spend, smaller dimensional charges, less waste from damaged products, reduced void fill, etc.
But one of the less obvious ways Packsize saves you money is the tremendous effect on your inventory costs.
There are three major costs that come with carrying inventory:
- Cost to physically store inventory
- Cost to finance inventory
- Cost of inventory obsolescence
We’ll talk about how Packsize helps reduce all three of these costs briefly, but if you’re interested in getting the nitty-gritty details on how this works, contact us and talk to one of our representatives. You can send us an email by clicking the link below:
Now, let’s start off by looking at the cost of physically storing inventory:
1. The Cost to Physically Store Inventory
Without On Demand Packaging®, warehouses have to carry pallets for every SKU of box that they use. If you carry a lot of different box sizes, this can add up to a lot of pallets pretty quickly—which leads to a lot of space being taken up in your warehouse. In fact, your average pallet is 40″ x 48″—or about 13 ft2.
Now, how much do you lease your warehouse for? Obviously this will vary wildly for readers, but if the annual rate per square foot is $3 (which is probably the minimum payment once utilities and other overhead costs are factored in), you’re already spending at least $39 per pallet to store boxes.
Of course, most warehouses store things in stacks or on racks, but the point still stands—you are paying to store anything that takes up space in your warehouse.
With On Demand Packaging®, you house corrugated instead of boxes. This will often cut the number of pallets a customer has by 80 percent. Let me say that again: we usually cut the number of pallets needed by 80 percent.
2. The Cost to Finance Inventory
Getting into the gritty financial details of how On Demand Packaging reduces the cost of financing inventory is a little bit beyond the scope of this blog, so I’ll keep this simple: you pay interest on the current value of your inventory. If you are carrying significantly less inventory, then the value—and therefore the interest payment—of that inventory is going to be smaller.
So, if you’re carrying 80 percent less inventory than you used to have, then your interest payments are probably going to drop down 80 percent as well.
3. The Cost of Inventory Obsolescence
GAAP requires companies to write off inventory that is obsolete. Inventory becomes obsolete when more inventory is on hand than was used in the past year, or if a company no longer has plans to sell a product that would use that inventory. This can cause a large loss for a company and is a bad sign for investors.
Warehouses can see this happen when a company stops selling a product that uses a certain type of box. The inventory of that box would then become obsolete and would have to be written off.
In industries that have lots of unusual sizes—such as print marketing, cabinetry, and fulfillment—box obsolescence is a very common problem. But it can become a thing of the past.
When your main inventory is corrugated cardboard instead of boxes, you rarely have to worry about inventory obsolescence. Our machines can turn corrugated into boxes of any shape or size, and even into many completely different styles of boxes.