management | 5 mins read

The Pros and Cons of Common Inventory Storage Methods

the pros and cons of common inventory storage methods
Jin Hyun

By Jin Hyun

Discover the pros and cons of commonly-used inventory storage methods including self-storage, warehouse, and third-party options.

Proper inventory storage can optimize efficiency, minimize costs, and save time spent scouring through warehouses. The optimal inventory storage method for a company will depend on its product selection, industry, and whether the stock is moving through a first-in-first-out (FIFO), or a last-in-first-out (LIFO) system.

Choosing the appropriate inventory storage method, whether its self-storage, warehouse storage, or third-party storage, will prevent inventory loss and spoilage, simplifying the process of inventory tracking.

3 Common Inventory Storage Options

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Generally, businesses rely on 3 main stock storage methods, each with a unique set of pros and cons. Inventory storage is a necessary part of almost every business model, and choosing the right storage solution can help the business run smoothly by increasing efficiency and visibility in the product lifecycle.

1. Self-Storage
Many small businesses often opt for self-storage options and use existing spaces to store their stock.

Pros

  • Self-storage is cost-effective, as it utilizes a small storage facility or a converted garage to store products.
  • The inventory is always on hand and easy to access.
  • Works well for small businesses, or businesses that don't move a lot of inventory.
Cons
  • Self-storage can be frustrating and may lack a clear organizational strategy.
  • It can lead to miscalculations or damaged inventory if it is not tracked frequently.
  • It cannot expand to match business growth.

2. Warehouse Storage
Warehouse storage is the most traditional of all inventory storage methods. A central warehouse handles all inventory, receives shipments, and sends products to store locations or customers.

Pros
  • Warehouse inventory is organized and managed by trained warehouse staff.
  • It's cost-effective when moving large amounts of inventory.
  • At a warehouse, inventory management systems can easily be implemented to minimize inventory errors.
Cons
  • Warehouse staff are needed to handle shipping and receiving.
  • It may not be in the best location to quickly fulfill orders.
  • The space may be too large or too small for the business demands.

3. Outsourcing to Third-Party Providers
Outsourcing inventory storage can be a great way to manage stock volumes and relieve the stress of hands-on inventory storage. These third-party providers will handle receiving, packing, and shipping, freeing up time and resources for businesses to focus on growing their operations.

Pros
  • Handles all inventory storage and shipments to maximize efficiency and shipment speed.
  • Uses a network of storage centers to optimize delivery times.
  • Added inventory security at the warehouse.
Cons
  • With third-party providers, the business isn't managing their own inventory.
  • If something goes wrong, it may take longer to find a solution.
  • Third-party providers are more costly than handling inventory storage in-house.

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Types of Inventory Storage Methods

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Whether a business is using self-storage, warehouse storage, or outsourcing to a third-party, there are several types of storage methods to consider. In this situation, the type of inventory and how fast it moves will determine the optimal storage technique.

  • Central Storage - Using a central storage location is an easy way to access and track inventory all in one place. From the central storage location, inventory can be shipped to all locations when needed.
  • Point-of-Use Storage - A point-of-use storage system delivers inventory directly to store locations or point-of-use locations. If the business orders inventory on an as-needed basis, storing inventory at the point-of-use will lower operational costs, and reduce inventory error.
  • Block-Stacking Storage - Block-stacking is an inventory storage method where products are stacked on the floor or on pallets. Using this method will keep costs low, but it's only efficient if inventory is moving quickly. Block-stacking can be a very successful method when the same type of inventory is placed in the same stack to stay organized.
  • Rack Storage - Rack storage allows for more organization and ease of access. Last-in-first-out inventory management systems can use racks that are filled from one end and emptied from the other. First-in-first-out systems have wider racks that can be accessed from various points.
  • Shelf Storage - Using shelf storage with bins is a great way to store small items or items of several sizes. Placing inventory in bins allows for clear organization, and bins can be stationary or mobile to suit inventory storage needs. Some shelf and bin storage processes even have automated systems to retrieve bins.
  • Dry Storage - Grocery stores, restaurants, and food businesses use dry storage to store shelf-stable items such as pasta, bread, canned foods, and rice. Food requires cool temperatures, proper ventilation, and additional cleaning measures. The ideal temperatures for dry storage techniques range from 50 to 70 degrees, and humidity levels should not exceed 60%.
  • Cold Storage - Another type of inventory storage used by food businesses is cold storage. This includes using refrigerators and freezers to preserve food quality and prevent spoilage.

Tips for Optimizing Inventory Storage

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When choosing inventory solutions that will match the business needs, keep the following tips in mind for efficient stock storage.

1. Use a Robust Inventory Management System to Track Inventory
This software will show all inventory at a glance, provide accurate inventory reports, and even analyze trends for inventory forecasts. With a click of a button, reorder points can be set, and new stock can be ordered.

2. Determine Reorder Points For Each Inventory Item and Set Automatic Notifications For Low Stock
Avoid over or underordering by setting these thresholds, and ensure great inventory management. For example, items that sell quickly should be restocked more frequently, and have higher reordering points.

3. Perform Inventory Checks On a Daily or Weekly Basis
Inventory checks are essential to monitor product volumes, reduce loss, and prevent spoilage. Depending on the type of inventory, check volumes daily or weekly and perform inventory reconciliation.

4. Think About Upgrading the Inventory Storage System
If the current solution isn't able to keep up with consumer demands, or inhibiting business growth, its time to upgrade the inventory storage model. This will make it easier for staff to access stock information, and improve management and tracking processes.

When deciding what type of inventory storage method to use, think about the current and future needs of the business, and decide if self-storage, warehouse storage, or third-party options match the business goals. The chosen method should allow room for growth as the business scales its operations.

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