Posts written by

Shraddha Thuwal

Shraddha Thuwal worked as a content writer at WareIQ. She actively contributes to the creation of blog posts centered on eCommerce operations, fulfillment, and shipping, in addition to providing insights on various strategies and techniques tailored for eCommerce sellers. With an impressive track record, Shraddha boasts over two years of content writing experience, spanning a spectrum of industries including logistics, supply chain, and media.

Shipping Strategies: A Closer Look at Order Consolidation

While some ecommerce businesses use split shipments to get a portion of an order out the door, this shipping method tends to add extra costs and waste. Furthermore, customers may become frustrated while waiting for their other products, which can harm your brand's reputation in the long run. Instead of using split shipments, order consolidation reduces shipping costs and provides a better experience for your customers. Let's look at the “what, why, and how” of order consolidation so you can decide if it's the right fulfilment strategy for your online store. Order consolidation is a retail practice in which multiple products are combined into a single shipment and multiple orders with the same destination are combined into a single shipment. Get Started with Order Consolidation Steps in Order ConsolidationDescriptionConsiderations1. Begin By Mapping Your Fulfillment ProcessIt follows the standard fulfilment process: picking items, packing, and shipping.Implement order consolidation by planning inventory reception and strategically bundling frequently bought items. Ensure sturdy packing material for secure packaging.Inventory storage in-house facilitates early adoption of order consolidation.Strategically store bundled products for easy picking.Use robust packing material for secure packaging.2. Select The Right PartnersIt involves collaboration with fulfilment centres or 3PL partners.Consider the functionalities of warehouses, fulfilment centres, and distribution centres.Warehouses focus on bulk storage, while fulfilment centres specialize in picking, packing, and direct shipping.Choose between warehouses and fulfilment centres based on your business needs.Fulfilment centres offer expertise in packing and shipping.Negotiate shipping rates and discounts with shipping companies.3. Devise A Strategy For Consolidating OrdersPlan for inventory management, picking-packing, and shipping. Identify conditions suitable for order consolidation, such as products commonly sold together, shipping small-sized products in bulk, and reducing shipping costs. Implement strategies like wave-picking or batch-picking for picking and optimising packaging space.Identify products suitable for consolidation (e.g., kits or complementary items).Utilize wave-picking or batch-picking methods for efficient picking.Strategically place products in packaging boxes for optimal space use.4. Implement The Set ProcessCreate agreements with partners, and establish roles and responsibilities, service levels, and costs. Test the consolidation process to identify and address risks, such as picking delays or delivery disruptions.Enact corrective measures and use accurate tracking services for customer communication.Develop contracts defining roles, responsibilities, and costs.Conduct testing to identify and mitigate risks.Use accurate tracking services for customer communication. Benefits of Order Consolidation Saves last-mile shipping costs Last-mile shipping costs are a major source of concern for many retailers. Multiple order deliveries in the same location at different time intervals are one of the reasons why companies accumulate high shipping costs. It reduces the number of transit trips to the same customer with multiple orders. The shipping company can deliver all of the items at once, lowering fuel surcharges and the base charge per package. Tracking made Easy The speed with which orders arrive at the customer's location is a major determinant of customer satisfaction. Individual orders are picked, packed, and shipped separately in the absence of It. Each item has a unique arrival time, tracking ID, and customer wait time. By combining all items into one box and shipping them with a single tracking ID, retailers can reduce customer wait time and fulfilment lead time. This not only makes it easier for customers to track all of their ordered items, but it also alleviates any concerns that one order may arrive later than the others. Sustainable It is one of the most popular green shipping strategies. First and foremost, it is an environmentally friendly option because it significantly reduces packaging waste. Second, it assists businesses in reducing their carbon footprint by removing unnecessary delivery trips. Accurate order Tracking It has the unintended consequence of making order tracking accuracy estimation easier. Because only one tracking ID is issued for the entire shipment, the customer can track them without having to juggle multiple tracking numbers. Efficiency Through Consolidation Order fulfilment is a time-consuming process, especially when a company has a high monthly shipping volume. Because it combines multiple products into one, order consolidation can alleviate system stress. Pickers can pick all of the items in one location, and packers can pack them all at once. This reduces the possibility of warehouse lead time. Conclusion Instead of using split shipments, order consolidation reduces shipping costs and provides a better experience for your customers. It is a retail practice in which multiple products are combined into a single shipment and multiple orders with the same destination are combined into a single shipment. Order consolidation reduces the number of transit trips to the same customer with multiple orders. By combining all items into one box and shipping them with a single tracking ID, retailers can reduce customer wait time and fulfilment lead time. It is one of the most popular green shipping strategies. It is an environmentally friendly option because it significantly reduces packaging waste. Because only one tracking ID is issued for the entire shipment, the customer can track them without having to juggle multiple tracking numbers. FAQs What is order consolidation in ecommerce? It is a retail practice where multiple products or orders with the same destination are combined into a single shipment for more efficient shipping. How does order consolidation benefit shipping costs? It reduces last-mile shipping costs by delivering multiple orders to the same customer in one shipment, minimizing transit trips and associated charges. What is the significance of tracking in order consolidation? Consolidated orders with a single tracking ID make tracking easier for customers, reducing wait time and providing accurate estimates for arrival. How does order consolidation contribute to sustainability? It is a green shipping strategy, reducing packaging waste and lowering a business's carbon footprint by minimizing unnecessary delivery trips. What role do fulfilment centres play in order consolidation? Fulfilment centres are essential partners in order consolidation, specializing in picking, packing, and direct shipping, contributing to efficient and cost-effective fulfilment. Why is early adoption of order consolidation facilitated by in-house inventory storage? In-house inventory storage allows businesses to plan order consolidation more effectively by strategically bundling frequently bought items and ensuring easy access for picking. How does order consolidation enhance order tracking accuracy? With only one tracking ID issued for the entire shipment, It simplifies order tracking for customers, eliminating the need to manage multiple tracking numbers. What are the benefits of order consolidation for customer satisfaction? It improves customer satisfaction by reducing wait time and fulfilment lead time, ensuring that all items arrive simultaneously. What strategies can be implemented for efficient order consolidation? Businesses can use strategies like wave-picking, batch-picking, and strategic product placement to optimize order consolidation for picking and packaging. How does order consolidation alleviate system stress in fulfilment processes? Combining multiple products into one shipment, It eases the workload in fulfilment processes, allowing for more efficient picking and packing and reducing warehouse lead time.

November 30, 2023

Managing Abnormal Spoilage in Logistics

Abnormal Spoilage can be a major issue in the logistics industry, especially when transporting perishable goods. Minimising spoilage is critical for maintaining product quality and reducing financial losses when dealing with food, pharmaceuticals, or other temperature-sensitive items. Spoilage is material waste or loss that occurs during the manufacturing process. It can also be used to classify badly damaged material used in the production of a product. Spoilage is most commonly used to refer to raw materials with a very short lifespan. Types of Spoilage There are two types of Spilage: Normal Spoilage: Normal spoilage is just that—normal—and is to be expected in the normal course of manufacturing or business operations, particularly for companies that manufacture or handle perishable products (such as food and beverages).Abnormal Spoilage: Abnormal spoilage is the amount of inventory waste or destruction that exceeds what is expected in normal business operations or production processes. Normal spoilage can be caused by broken machinery or inefficient operations, and it is thought to be at least partially avoidable. Difference between normal spoilage and abnormal spoilage? AspectAbnormal SpoilageNormal SpoilageNatureConsidered avoidable and controllable.Inevitable and occurs as part of normal business operations.Expense TreatmentCharged to a separate expense account.Often included as a portion of the cost of goods sold (COGS).Impact on Gross MarginNo impact on gross margin going forward.May impact gross margin as it is part of the cost of goods sold.Identification ImportanceImportant for quick identification by investors and users.Historical data and forecasting are used to account for losses.Capitalization into InventoryShould not be capitalized into inventory.Should be capitalized into inventory as an inventoriable cost.Expense TimingShould be expensed in the period incurred.Incurred in the normal course of business and capitalized.Determining AbnormalityUnlikely to occur again within the current year.Considered based on likelihood and historical data.Rule of ThumbSpoilage is abnormal if unlikely to recur in the current year.Spoilage can be considered abnormal if history supports it. Reasons for Abnormal Spoilage There are a variety of factors that could result in abnormal spoilage. Some of the main reasons include: Improper storage conditions When goods are stored in less-than-ideal conditions, abnormal spoilage can occur. Keeping goods in a damp environment or where there is some water leakage, for example, could result in mould or other types of water damage. Similarly, if perishables are not stored in temperature-controlled environments, they may spoil. Machine breakdown If your equipment fails unexpectedly, you may experience abnormal spoilage because you will be unprepared to seek alternative options. This could be in the middle of production or while inventory is being stored. For example, a sudden breakdown of your freezer could result in the abnormal spoilage of items that require colder storage. Accidents Accidents, ranging from minor to major ones involving serious injuries, can also result in abnormal spoilage. When an accident occurs, it is common for facilities to halt operations, which can delay the production process and lead to spoilage. Certain types of accidents may have a direct impact on the goods being produced or stored. For example, a worker may drop the package they're transporting, causing the contents to break. Faulty planning Another major factor that can lead to abnormal spoilage is poor planning. This could be due to improper storage of goods, as well as improper shipping and handling. It could also refer to how raw materials are used in the manufacturing process or how the facility as a whole operates. Regardless, when there is poor planning, the risk of abnormal spoilage increases significantly. How to Calculate Abnormal Spoilage The normal spoilage is calculated as the total number of spoiled units, divided by the total units produced, and multiplied by 100. Abnormal spoilage is simply any amount above the calculated normal spoilage. Normal Spoilage= Total no. of spoiled units/Total number of units produced*100 How to prevent abnormal Spoilage Abnormal spoilage is spoilage that exceeds the acceptable limit and can be caused by defective machines, low-quality materials, or incompetent machine operators. Abnormal spoilage is charged as incurred expenses or a separate cost that cannot be recovered. To reduce spoilage, you must examine your processes throughout the supply chain. The packaging and distribution aspect is an excellent place to focus because it is the most under immediate control and where changes can be made quickly. Damage in transit caused by poor packaging, poor handling, or insufficient shelf life can be kept to a minimum.Packaging has evolved from simply protecting to ensuring a longer shelf life for fresh produce as it travels from the farm to the wholesaler or processor. Reusable crates, for example, are now available with specially designed ventilation holes to ensure product longevity. Another tip is to look for retail-ready packaging, which reduces handling and allows products to last longer.Team members are invaluable, but they are also human and may make mistakes from time to time. These errors can result in costly replacement costs or the payment for spoiled or lost inventory.When you switch to an automated inventory management system, your processes will run faster, more efficiently, and with less human error, allowing you to keep your costs low and your inventory full of food and goods that are in their prime rather than on the verge of spoiling.When perishable goods shipments arrive, the clock starts ticking on these items. To ensure that your customers receive fresh items, you must get them unpacked, into the system, and ready to sell as soon as possible. You can scan and log new items as they arrive with an automated inventory management system. New inventory can be quickly processed, scanned, and stored so that it remains fresh for as long as possible. FAQs What is abnormal spoilage in logistics? - Abnormal spoilage in logistics refers to inventory waste or destruction that exceeds what is expected in normal business operations or production processes. Why is minimizing spoilage critical in logistics? - Minimizing spoilage is crucial for maintaining product quality and reducing financial losses, especially when transporting perishable goods. What is the difference between normal and abnormal spoilage? - Normal spoilage is expected in normal business operations, while abnormal spoilage exceeds what is considered normal and may be avoidable or controllable. What are the main reasons for abnormal spoilage in logistics? - Factors include improper storage conditions, machine breakdowns, accidents, and faulty planning throughout the supply chain. How is abnormal spoilage calculated? - Abnormal spoilage is calculated as any amount above the calculated normal spoilage. Normal spoilage is calculated as the total spoiled units divided by the total units produced, multiplied by 100. How can abnormal spoilage be prevented in logistics? - Prevention involves examining processes throughout the supply chain, focusing on packaging and distribution, using retail-ready packaging, and implementing automated inventory management systems. What role does packaging play in reducing spoilage? - Packaging with features like ventilation holes and retail-ready packaging can minimize damage in transit and ensure a longer shelf life for perishable goods. Why is an automated inventory management system beneficial for spoilage prevention? - Automated systems run faster, more efficiently, and with less human error, reducing the chances of costly replacement costs or payments for spoiled inventory.

November 29, 2023

How SKU Rationalization Helps in Inventory Management

SKU rationalization in Inventory Management is the process of looking over your current product line and getting rid of any SKUs that are not performing well enough or are not necessary for your catalogue. This process, which is also known as product rationalisation or SKU optimisation, basically establishes whether an item in your inventory should be kept or removed. An internal tracking and organising system for inventory items uses a unique alphanumeric code called a stock-keeping unit, or SKU for short. Details about a product's distinctive qualities, such as its cost, brand, style, and so forth, are provided by each SKU. Having said that, each variation of a product is given a unique SKU code; as a result, a single shirt, for instance, may have dozens of distinct barcodes indicating its range of colours and sizes. Why is SKU Rationalization Needed? SKU rationalization is needed for several reasons: Optimizing Inventory: SKU rationalization helps in managing inventory more efficiently. By eliminating underperforming or redundant SKUs, you can reduce carrying costs and free up warehouse space. Cost Reduction: It allows for cost reduction by minimizing expenses associated with storing and managing excess SKUs, such as storage space, labour, and handling costs. Improved Productivity: Rationalizing SKUs streamlines processes, making it easier to manage and fulfil orders. This can lead to improved operational efficiency and productivity. Enhanced Customer Experience: By focusing on SKUs that have higher demand and relevance, you can ensure that your customers have access to the products they want, leading to higher customer satisfaction. Better Decision-Making: Rationalization provides data-driven insights into SKU performance, which aids in making informed decisions about which products to retain, discontinue, or modify. Inventory Accuracy: This leads to more accurate inventory tracking, reducing the risk of overstocking or understocking, which can result in lost sales or carrying costs. Reduced Complexity: Managing a vast number of SKUs can be complex and time-consuming. Rationalization simplifies the product portfolio, making it more manageable. Resource Allocation: It allows you to allocate resources, including marketing and promotions, to the most promising and profitable products. Financial Performance: Rationalizing SKUs can have a positive impact on a company's financial performance by increasing profitability and reducing unnecessary expenditures. Sustainable Growth: For businesses looking to grow sustainably, SKU rationalization is essential to focus on the core products that contribute the most to the bottom line. Benefits of SKU Rationalization Reduce Overhead Costs Keeping an eye on inventory costs is critical to the health and longevity of your company. Fortunately, SKU rationalisation can lower overhead costs and enable you to make both immediate and long-term financial savings when carried out correctly (and consistently). Your total inventory costs can be reduced by actively trying to reduce the number of items you carry and getting rid of low-demand items (especially carrying or holding costs). Additionally, there won't be as much waste and spoiling at your warehouse since fewer products will be occupying costly shelf space. Increase in Profit Although it may seem paradoxical, selling fewer SKUs can significantly increase revenue. You can make decisions that improve your bottom line when you know which of your products are bestsellers and which ones are stored permanently at your warehouse. Additionally, consumers frequently react favourably to fewer product options, so it might be time to part with some SKUs if they aren't producing a significant profit. You'll also have more space to create new items or broaden the categories that are doing well. Operations Management As a product-based brand, time, space, and energy are some of your most valuable resources. However, if you're not effectively optimising your inventory, each of these will be wasted. Your brand may experience expensive, intricate, and ineffective operations if you fail to rationalise your SKUs. However, putting SKU rationalisation into practice can improve product availability, prevent stockouts, streamline production (as there are fewer items to manufacture), and even improve inventory tracking techniques. Lifecycle Management Product lifecycle management is the process of managing a product from the time it is first conceptualised to the time it is designed, manufactured, sold, and eventually retired. You can significantly improve this entire process by utilising SKU rationalisation. By breaking down the product lifecycle by type, brand, category, or family, SKU optimisation not only enables business owners to examine it from a much deeper, more detailed scope but also makes replenishment easier because there are fewer items to reorder. Targeted Marketing Strategies Because so much inventory data is examined during the process, SKU rationalisation unquestionably results in better, more targeted marketing strategies. Businesses can also work to develop their brand identity with this knowledge in hand and a more focused marketing approach. The best way to capitalise on your most well-liked product offerings and establish a reputation for carrying a varied product mix that consistently pleases your customers is to incorporate SKU rationalisation into your inventory management. Implementing a SKU Rationalization Process StepsDescriptionIdentify Customer DemandConduct market research to understand customer preferences.Gather direct feedback through surveys, focus groups, or post-purchase feedback.Align your products with customer needs.Analyze SKUs and Sales DataUse inventory management software for detailed SKU analysis.Gain insights into return rates, inventory turnover, and lead times.Understand the performance of each SKU.Organize Product Catalogue Based on FindingsGroup SKUs into categories (e.g., keep, remove, review).Gain clarity on which products to retain, discontinue, or revisit.Streamline the optimization process.Use Data to Drive Decision-MakingMake informed decisions based on categorized SKUs.Adjust prices or discontinue items with data-backed insights.Reduce carrying costs and optimize revenue. FAQs What is SKU rationalization? SKU rationalization is the process of evaluating and optimizing your product line by determining which items to keep or remove based on their performance and relevance. Why is SKU rationalization necessary? It is needed to optimize inventory, reduce costs, enhance efficiency, and improve the customer experience. How does SKU rationalization reduce costs? Eliminating low-demand or redundant SKUs reduces carrying costs, storage expenses, and waste. Can SKU rationalization increase profits? Yes, selling fewer SKUs that are high-performing can significantly increase revenue and profitability. What are the benefits of SKU rationalization for operations management? It streamlines production, improves product availability, and enhances inventory tracking techniques. How does SKU rationalization impact product lifecycle management? It allows for a more detailed examination of product lifecycles and makes replenishment easier due to fewer items to reorder. What role does SKU rationalization play in targeted marketing strategies? It results in more targeted marketing strategies by identifying best-selling products and improving brand identity. How can businesses implement an SKU rationalization process? By following steps like identifying customer demand, analyzing SKUs and sales data, organizing the product catalogue, and using data to make informed decisions. What's the impact of SKU rationalization on inventory tracking? It leads to more accurate inventory tracking, reducing the risk of overstocking or understocking. Is SKU rationalization essential for businesses looking to grow sustainably? Yes, it helps businesses focus on core products that contribute the most to their bottom line, supporting sustainable growth.

November 28, 2023

The Ins and Outs of COD Remittance in E-commerce

COD is straightforward from the buyer's standpoint. They receive the product and pay for it. For a COD delivery order, the customer pays the delivery partner with cash, a debit card, or a digital wallet. The funds are then transferred to your bank account by your logistics partner. The procedure is known as COD remittance. Unpaid COD remittance delivery orders are a major source of concern for businesses. Strategies for a fast COD Remittance Uniformity in Managing Orders Before you evaluate your shipping partner, make sure your house is in order. Small businesses are frequently disorganised. They lack order management software (OMS). Companies must manage orders consistently. First and foremost, you should have an OMS. The software should also be able to distinguish between COD Remittance and non-remitted COD delivery orders. This feature will assist you in following up on unremitted orders. Furthermore, sending non-remittance reports to your shipping partner becomes simple. Factors Typically ConsideredDetails to Discuss with Delivery PartnerDistance and PriceInquire about the specific timeframe for COD remittance.Areas of OperationUnderstand the threshold for transferring invoice payments.Variability in Remittance ProtocolsSome partners offer faster remittance for a fee.Duration of Fund RestrictionClearly discuss remittance protocols before the agreement.Cash on Delivery (COD) ImportanceAcknowledge the significance of COD for buyer preferenceMitigation of Fund Restriction ConcernsExplore options to expedite remittance and associated fees.Strategic Decision on COD OptionRecognize the potential impact of removing COD on buyer behaviour. Transparent System Integration Technology-driven logistics companies generate digital proofs for every step, whether it's geo-coordinates for delivery addresses, digital signatures, or cash collected by the courier partner. All metrics should be embedded in the digital run sheets of a good delivery partner. Seller’s RequestBenefits of System IntegrationRequest support for system integration with ERP or order managementTrack deliveries and payments with easeFeature for tracking deliveries and payments collected by partnerSeamless communication between seller and logistics partnerIntegration with ERP for post-delivery remittance follow-upEfficient handling of pending remittances Monitor late COD Remittance Real-time tracking and analysis of RTO order remarks can assist sellers in identifying and resolving issues as soon as possible. This data set can help you identify issues and make real-time decisions. Prompt action boosts the conversion rate of COD remittances. Possible Reasons: Delayed delivery of the shipmentHigh number of orders with RTO (return to origin) statusChanges in remittance protocolsLack of awareness about deposit deadlinesInefficient handling of RTO orders Relevant Consumer Information Following that, make sure the customer is available at the door during their time slot and notify your courier company. If the customer is unavailable, the likelihood of rejection remains higher for a COD remittance delivery order. Remember that timely COD remittance is dependent on successful deliveries. Challenges Leading to RTOsSeller's Action for PreventionIncomplete or incorrect delivery addressDouble-check the address, landmark, and contact detailsImpact on the delivery process, especially in tier 2 and 3 citiesEnsure accuracy for the seamless delivery process Cash On Delivery vs. Cash on Advance Cash on Delivery (COD)Cash in Advance (CIA)Buyer pays upon receiving the goods.Buyer pays for the goods or services before delivery.Goods are shipped before payment is made.Seller requires entire payment upfront before shipping.Benefits for both the buyer and the seller.Used to eliminate credit risk for the seller.Risk of delayed or damaged goods for the buyer.The seller is protected from shipping goods without payment.Common in various business scenarios.Most common in online marketplaces, e-commerce, and international trade.Provides flexibility but involves some risk.Reduces credit risk but may affect buyer satisfaction if goods are not as expected. Advantages of COD Immediate COD In-person COD facilitates the immediate payment of goods and services for many businesses. This is a significant accounting advantage because it can significantly reduce a company's days receivable. Shorter Delivery Time COD delivery times are typically shorter than standard invoicing. This is advantageous because an intermediary requires the customer to pay at the time of delivery. Customers who use COD shipping have more time to collect the funds needed to make a full payment. Increase Brand Recognition Offering a COD payment option to merchants may increase consumer confidence in a new company that has not yet established strong brand recognition. In general, established businesses are unwilling to take on the risks of COD shipping, instead opting for credit payment plans that charge interest and late fees. Disadvantages of COD Risk of Goods declination The disadvantages of COD for businesses are that there is a higher risk of goods being refused upon delivery, and there are costs associated with returning items. Buyers may find it more difficult to return items if they have already paid for them at the time of delivery. Even if the consumer is dissatisfied with the goods, the seller may be hesitant or under no obligation to accept returns. RTO leads to Loss COD exposes an eCommerce business to losses. This is due to the fact that when a customer orders via COD, they have the option to cancel the order or reject the shipment at the time of delivery. Such rejections, also known as return-to-origins (RTOs), result in losses for eCommerce brands. Expensive COD Cash on delivery is costly. When customers place orders, they are frequently unavailable at the delivery location to accept the shipment. This necessitates multiple trips by the logistics partner to deliver the parcel. During this time, the logistics partner incurs additional fuel costs and time loss, which they charge back to the seller. Such incidents eat away at the company's profits. Financial Loss Customers pay for the product after it is delivered, so businesses run out of cash. It's especially difficult for emerging or growing eCommerce businesses that rely on these sales to pay their monthly bills like electricity, labour salaries, and so on. Furthermore, when customers reject orders and cause RTOs, this adds to the cash crunch. FAQs What is COD remittance in e-commerce? COD remittance is the process where the customer pays for a product in cash, debit card, or digital wallet upon delivery, and the funds are then transferred to the seller's bank account by the logistics partner. How can businesses ensure fast COD remittance? Ensuring uniformity in managing orders, discussing remittance protocols with delivery partners, and exploring options for expedited remittance can contribute to faster COD remittance. Why is system integration important in COD transactions? System integration, especially with ERP or order management software, enables seamless tracking of deliveries and payments, efficient communication between sellers and logistics partners, and streamlined post-delivery remittance follow-up. What challenges can lead to late COD remittances? COD remittances challenges include delayed delivery, a high number of return-to-origin (RTO) orders, changes in remittance protocols, lack of awareness about deposit deadlines, and inefficient handling of RTO orders. How can sellers prevent incomplete or incorrect delivery addresses from causing RTOs? Sellers should double-check addresses, landmarks, and contact details to ensure accuracy, especially in tier 2 and 3 cities, to prevent loss caused by incomplete or incorrect delivery information. What are the advantages of Cash on Delivery (COD)? Immediate payment, shorter delivery times, and increased brand recognition, especially for new businesses, are advantages of COD in e-commerce. What are the disadvantages of COD for businesses? Disadvantages include a higher risk of goods refusal upon delivery, costs associated with returns, losses due to return-to-origins (RTOs), and additional expenses incurred by logistics partners. Why is COD considered expensive for e-commerce businesses? COD can be costly due to multiple delivery attempts, fuel costs, and time loss incurred by logistics partners when customers are unavailable at the delivery location. How does COD contribute to financial loss for businesses? Since customers pay after delivery, COD can lead to cash flow challenges for businesses, especially for emerging ones. Rejected orders causing RTO to further contribute to financial strain. Why might established businesses prefer cash in advance over COD? Established businesses may opt for cash in advance to reduce credit risk, as the buyer pays upfront before shipping. This method is common in online marketplaces, e-commerce, and international trade.

November 27, 2023

Value Chain vs. Supply Chain

Businesses that want to do more to delight customers and gain competitive advantage can use the time-tested "value chain" approach to evaluate and improve their entire operations from the standpoint of how they produce value for the customer. What is a Value chain? A value chain is a model that includes every step a company takes to create a good or service, from the initial idea to delivery to the customer. Initial design, material sourcing, manufacturing, marketing, sale, delivery, and after-sales service are all part of the value chain. That should sound a lot like a supply chain. Value chains encompass more business activities than supply chains, but the main distinction is their customer-centric approach. How do Value Chains Work? The value chain concept works by breaking down the process of creating and delivering a product or service in order to better assess the overall efficiency of the process. The value chain model provides businesses with a clearer picture of how expenses are allocated across the entire product delivery cycle. Businesses can then adjust their business strategy to reduce production and financial inefficiencies for greater cost savings and value creation. The Importance of a Value Chain Key Areas of Improved Value Chain Management (VCM)BenefitsBids and ProposalsEnhanced ability to capture, track, and manage customer and marketing requirements Improved estimation of design, planning, procurement, production, and service activitiesIncreased accuracy in cost estimates with complete traceability.Product Planning, Research, and DevelopmentDevelopment of a cross-functional team approach Focus on program performance, cost reduction, and product quality Efficient planning and implementation of simultaneous projects Effective resource allocation, cost management, scheduling, and deliverable tracking.Standardized ProcessesImplementation of repeatable and measurable business processes Management of product master data to meet customer expectations Efficient release and change processes from concept to implementation Reduction of overall operational inefficiencies and waste.Vendor ManagementSynchronization of design and sourcing teams with vendors Ensured management of outsourced components and subsystems Compliance with performance, quality, schedule, and cost requirements Prevention of design flaws, excess inventory, and waste.Post-Sales Service and SupportBetter management and tracking of in-service product configuration changes Coordination among field service, customer support, and engineering resources.Reduced CostsOptimization of value chain components Streamlined processes Reduced inefficiencies and wasteImproved inventory control Enhanced product quality.Improved ProfitabilityA comprehensive and robust VCM program contributes to enhanced revenues Better profit margins Overall greater business success. What is a Supply Chain? A supply chain is a network of individuals and businesses involved in the creation and delivery of a product to the consumer. The chain starts with the raw material producers and ends when the van delivers the finished product to the end user. Supply chain management is critical because a well-managed supply chain leads to lower costs and a more efficient production cycle. Companies strive to improve their supply chains to lower costs and remain competitive. How does the Supply Chain work? Supply chain management is a continuous effort by businesses to make their supply chains as efficient and cost-effective as possible. Typically, SCM attempts to centrally control or link a product's production, shipment, and distribution. Companies can reduce excess costs and unnecessary steps in the supply chain, allowing them to deliver products to customers faster. This is accomplished by maintaining tighter control over internal inventories, internal production, distribution, sales, and vendor inventories. SCM is based on the premise that nearly every product that enters the market is the result of the efforts of multiple organisations that comprise a supply chain. Importance of Supply Chain Correct Product Assortment and QuantityAccurate delivery of product assortment and quantityInfluences customer satisfaction.Availability at the Right LocationProducts available at the right locationDiminished satisfaction if products are not in stock.Right Delivery TimeTimely delivery of productsLate deliveries decrease satisfaction.Right After Sale SupportPrompt product servicingSatisfaction declines if support is delayed, especially in critical situations.Decreases Purchasing CostRetailers rely on quick supply chains to avoid costly inventories. Fast delivery of expensive products reduces inventory costs.Decreases Production CostManufacturers depend on reliable supply chains to prevent material shortages. Delays in parts shipments can incur substantial costs.Decreases Total Supply Chain CostEfficient supply chain design meeting customer service goals at the least total cost. Value Chain vs. Supply Chain Distinguishing FactorsValue ChainSupply ChainScopeEncompasses all business activities from idea generation to after-sale service.Focuses on the network of individuals and companies involved in creating and delivering a product.ViewpointCustomer-focusedProduction and delivery-focusedComponentsInitial design, materials sourcing, manufacturing, marketing, sale, delivery, after-sale serviceProducers of raw materials, production, shipment, distribution, and delivery to the end userPurposeEvaluating and improving operations to create value for the customer.Optimizing efficiency, lowering costs, and ensuring a more efficient production cycle.Operational EmphasisBreaks down the process of creating and delivering a product.Ongoing effort to centrally control or link the production, shipment, and distribution of a product.Efficiency AssessmentAssesses the efficiency of the entire process to create a clearer picture of expenses.Seeks to make the supply chain as efficient and economical as possible.Focus on CostsSeeks greater cost advantages and value creation by altering business strategy.Aims for lower costs and a more efficient production cycle.Key Areas of ImprovementEnhancing the ability to capture, track, and manage customer requirements.Improving correct product assortment, timely delivery, and after-sale support.Overall GoalContributes to enhanced revenues, better profit margins, and overall business success.Resulting in lower costs, a more efficient production cycle, and increased competitiveness. FAQs What is the main focus of a Value Chain? The main focus of a Value Chain is to evaluate and improve operations from the standpoint of creating value for the customer. How does a Value Chain differ from a Supply Chain? While both involve creating and delivering a product, a Value Chain encompasses more business activities and has a customer-centric approach. What are the components of a Value Chain? Components include initial design, material sourcing, manufacturing, marketing, sale, delivery, and after-sales service. How does a Value Chain work to improve efficiency? The Value Chain concept breaks down the process of creating and delivering a product to assess overall efficiency and identify areas for improvement. What are the key areas of improvement in Value Chain Management (VCM)? Key areas include enhanced ability to capture, track, and manage customer requirements, and improved estimation of design, planning, procurement, production, and service activities. What is the primary goal of Value Chain Management? The primary goal is to contribute to enhanced revenues, better profit margins, and overall business success. What is the fundamental concept behind a Supply Chain? A Supply Chain is a network of individuals and businesses involved in creating and delivering a product to the consumer. Why is Supply Chain Management crucial for businesses? Well-managed supply chains lead to lower costs and a more efficient production cycle, helping companies remain competitive. What areas does Supply Chain Management typically attempt to control or link? SCM attempts to centrally control or link a product's production, shipment, and distribution. What is the primary goal of a Supply Chain? The primary goal is to optimize efficiency, lower costs, and ensure a more efficient production cycle.

November 25, 2023

How to Find the Best Suppliers for Your Business through Strategic Sourcing

Strategic sourcing is a method of sourcing that entails employing various strategies when sourcing products or services. Strategies are chosen based on the real-time circumstances of each acquisition and are influenced by factors such as spend value, category risk, and supply market character. Pillars of Strategic Sourcing Procurement Process StageKey BenefitsData Collection and Spend AnalysisCentralizes supplier data for clear spending visibility.Opportunities to streamline vendors and costs.Supplier Discovery and RFxAccess to supplier data via digital business networks.Request RFPs and have suppliers compete for business.Negotiations and ContractingAutomated tools for faster workflows and digital signatures.Creates an electronic contract repository.Implementation and OptimizationAccelerates processes, and builds feedback loops for optimization.Constant evaluation of suppliers for best agreements. Process of Strategic Sourcing Identification The first step is to identify the sourcing category or commodity, which includes product and service volumes (quantity, types, and sizes), current prices and suppliers, and specification details. Don't forget to examine your users - who they are and where they are - as well as the departments involved in the supply chain. Market Analysis Perform market analysis to critically understand your buyer power and category in order to position the sourcing strategy. Then you decide which strategy approach is best suited to the type of service you're sourcing. Once you've identified a product's and service's segmentation, you'll have a clear vision of how the product and service impact the overall business, and you'll be more confident in the strategy and partner relationship you should implement. Minimize Risk and Cost It is an important step in determining where and how to purchase while minimising risk and cost. You should consider both existing and potential suppliers to get the most out of our supplier pool. Establish your company's goal and minimum supplier requirements, then list the selection criteria that are best suited to your needs, capabilities, and resources. A cross-functional team comprised of key stakeholders is strongly advised. Communication Strategic sourcing requires communication with suppliers. Following negotiations, you may be able to choose which suppliers to work with. Make certain that you notify the successful suppliers who will be involved in the implementation stage. The tighter your cooperation and partnership should be, the more complex your product. It is critical to include suppliers in meetings or discussions during the implementation stage, ensuring they are up to date on the most recent changes and updates. Tracking performance Many people overlook this step, but skipping it is a huge mistake. It is critical to track the supplier's performance over time, beginning with benchmarking the current state of the product and continuing to monitor the results to ensure the goal is met. As a result, you can quickly identify a problem during implementation and notify your supplier to address it with the least amount of business impact. Strategic Sourcing Vs. Procurement AspectProcurementStrategic SourcingPrimary FocusEnd-to-end process of obtaining goods and services for the business.Focused on finding and vetting suppliers to purchase goods and services.ScopeCovers the entire procurement process, including order placement, delivery tracking, payment, and inventory management.Primarily concerned with identifying and evaluating potential vendors.Direct vs. IndirectDeals directly with materials and involves vendor connections.Indirectly related to materials, dealing with aspects like payment management and inventory handling.Supply ChainFocuses on managing already existing supply chains smoothly.Manages the supply chain setup, alternative arrangements in case of issues, and performance analysis of vendor relationships.Post-Contract PhaseTypically, it ends at the start of the contract and doesn't extend into the post-contractual phase.Extends into post-contractual logistics, supplier management, and Tier 1 to Tier 3 supplier issues.Relationship BuildingWhile important, it doesn't primarily focus on building deep buyer-supplier relationships.Aims to enhance the buyer-supplier relationship for better understanding of a supplier's capabilities and mutual value.ObjectiveThe objective is to efficiently obtain goods and services at a desired margin.Aims to create a competitive advantage through optimized supply chain management and enhanced buyer-supplier relationships. Importance of Strategic Sourcing 1. Cost Reduction: It helps organizations reduce procurement costs by identifying cost-effective suppliers, negotiating favorable terms, and optimizing the procurement process. 2. Supplier Performance: Strategic sourcing evaluates supplier performance to ensure consistent quality, timely delivery, and reliability, leading to better product or service quality. 3. Risk Management: It enables organizations to assess and mitigate risks in the supply chain, ensuring a more resilient and stable procurement process. 4. Supplier Diversity: It promotes supplier diversity, allowing organizations to work with a range of suppliers and support a more inclusive business environment. 5. Efficiency and Productivity: Strategic sourcing streamlines procurement processes, leading to increased efficiency, reduced lead times, and improved productivity. 6. Competitive Advantage: It can give organizations a competitive edge by finding unique suppliers, negotiating favorable terms, and ensuring a reliable supply chain. 7. Cost Transparency: It provides a clearer view of procurement costs, enabling better budgeting and financial planning. 8. Market Insights: It offers insights into market trends and supplier capabilities, helping organizations make informed decisions. 9. Sustainability: Strategic sourcing allows for the selection of environmentally responsible suppliers, contributing to sustainability goals. 10. Strategic Focus: It aligns procurement with the organization's strategic goals and objectives, making it a critical part of the overall business strategy. FAQs What is strategic sourcing? Strategic sourcing is a method of sourcing products or services using various strategies based on factors like spend value, category risk, and supply market conditions. What are the key pillars of strategic sourcing? The key pillars of strategic sourcing are data collection and spend analysis, supplier discovery and RFx, negotiations and contracting, and implementation and optimization. What is the first step in the strategic sourcing process? The first step is to identify the sourcing category, including product and service details, suppliers, and user and department involvement. How does market analysis fit into strategic sourcing? Market analysis helps understand buyer power, category positioning, and the choice of the best sourcing strategy approach. Why is minimizing risk and cost essential in strategic sourcing? It's crucial to determine where and how to purchase while minimizing risk and cost to optimize supplier pool and meet business goals. Why is communication with suppliers important in strategic sourcing? Effective communication with suppliers ensures successful implementation and a strong partnership, especially for complex products or services. What role does tracking supplier performance play in strategic sourcing? Tracking supplier performance helps identify issues early and ensures goals are met with minimal business impact. What's the primary focus of procurement compared to strategic sourcing? Procurement focuses on the end-to-end process of obtaining goods and services, while strategic sourcing is primarily about finding and vetting suppliers. How does strategic sourcing promote supplier diversity? By evaluating and selecting a range of suppliers, strategic sourcing supports a more inclusive business environment. How does strategic sourcing contribute to competitive advantage? It creates a competitive advantage by optimizing the supply chain, building strong buyer-supplier relationships, and ensuring a reliable procurement process.

November 24, 2023

Buffer Pricing and Its Importance in Logistics Efficiency

Logistics Efficiency is the name of the game. What makes or breaks a business is the ability to move goods from point A to point B quickly and cost-effectively. One such strategy that has been gaining attention is Buffer Pricing. In this Blog, we will learn more about the concept of Buffer Pricing, its benefits, and how it can help in Logistics efficiency. Understanding Buffer Pricing It is a dynamic pricing strategy that relies on the principles of supply and demand . Different price points are set for logistics services based on real-time data and market conditions. This approach allows companies to adapt to changing circumstances, optimizing costs, and ensuring timely deliveries. The Power of Real-Time Data In logistics, it uses real-time data to determine pricing. Factors such as fuel prices, traffic conditions, and weather are monitored by companies to make adjustments that reflect the current situation. If the level is adapted, it can help companies to avoid costly delays and inefficiencies. Tailoring Services to Demand One of the primary benefits of Buffer Pricing is its ability to tailor services to meet the exact demands of the market. During peak seasons, when demand is high, prices can be adjusted accordingly. Conversely, during slower periods, companies can offer discounts to incentivize business. This level of flexibility allows logistics companies to maintain a steady stream of business throughout the year. Cost Optimization It isn't just about increasing prices during high-demand periods. It's also about strategically lowering prices when conditions allow. By doing so, companies can attract more business during off-peak times, keeping their fleets and resources fully utilized. This can significantly reduce costs associated with idle assets. Enhancing Customer Satisfaction Efficiency and reliability are two cornerstones of logistics. With Buffer Pricing, logistics companies can provide a more reliable service. By adapting to the changing conditions, they can minimize the risk of delays and disruptions. This leads to improved customer satisfaction, as clients can count on their deliveries being made as scheduled. Reducing Environmental Impact Efficiency in logistics goes hand in hand with sustainability. Buffer Pricing can also contribute to reducing the environmental impact of logistics operations. By optimizing routes and schedules, companies can minimize fuel consumption and reduce emissions. This aligns with the growing trend of eco-friendly logistics and can be a selling point for environmentally conscious clients. Challenges of Buffer Pricing While it offers numerous advantages, it's not without its challenges. One of the primary difficulties is the need for advanced technology and data analytics. Without accurate and up-to-date information, it's challenging to implement this strategy effectively. Additionally, there is the risk of alienating clients with rapidly changing prices. Striking the right balance between price adjustments and consistency is crucial. Implementing Buffer Pricing ProcessDescriptionData CollectionEstablish a robust data collection system that gathers information on all relevant variables, including fuel prices, traffic data, and weather conditions.Data AnalysisEmploy data analysts who can interpret the information and provide insights into pricing adjustments.Pricing ModelsDevelop pricing models that consider all variables and market dynamics. Ensure that these models are flexible and can adapt to real-time changes.CommunicationCommunicate pricing changes transparently to clients. Inform them about the reasons behind the adjustments and how they benefit them.Feedback LoopsContinuously gather feedback from clients to fine-tune the pricing strategy. Conclusion It is a revolutionary approach in the logistics industry, where adaptability and efficiency are essential for success. By harnessing real-time data, tailoring services to meet demand, optimizing costs, enhancing customer satisfaction, and reducing the environmental impact, Buffer Pricing has the potential to reshape the way logistics companies operate. As technology and data analytics continue to evolve, more logistics providers are likely to adopt this dynamic pricing strategy, paving the way for a more efficient and sustainable future in the logistics world. FAQs What is Buffer Pricing in logistics, and how does it work? It is a dynamic pricing strategy that sets different price points for logistics services based on real-time data and market conditions, allowing companies to adapt to changing circumstances and optimize costs. Why is real-time data crucial for implementing Buffer Pricing effectively? Real-time data is essential for it because it helps companies make pricing adjustments based on factors like fuel prices, traffic conditions, and weather, ensuring that prices reflect the current situation. How does Buffer Pricing help in adapting to changing market conditions? It enables companies to adjust prices quickly in response to market changes, ensuring they can meet demand and maintain profitability. What are the key benefits of Buffer Pricing for logistics companies? Benefits include cost optimization, better customer satisfaction, and reduced environmental impact through efficiency. How does Buffer Pricing tailor services to match market demand? It adjusts prices to meet the exact demands of the market, increasing prices during high demand and offering discounts during slower periods. What role does cost optimization play in Buffer Pricing, and how does it reduce costs for logistics companies? Cost optimization involves strategically lowering prices during off-peak times to attract more business, reducing costs associated with idle assets. How does Buffer Pricing enhance customer satisfaction and reliability in logistics services? It minimizes the risk of delays and disruptions by adapting to changing conditions, leading to improved customer satisfaction. In what ways can Buffer Pricing contribute to reducing the environmental impact of logistics operations? Optimizing routes and schedules minimizes fuel consumption and reduces emissions, aligning with eco-friendly logistics trends. What are the challenges associated with implementing Buffer Pricing in logistics? Challenges include the need for advanced technology and data analytics and the risk of alienating clients with rapidly changing prices. Can you describe the steps involved in establishing a successful Buffer Pricing strategy for a logistics company, including data collection and pricing model development? Steps include robust data collection, employing data analysts, developing flexible pricing models, transparently communicating price changes, and continuously gathering client feedback.

November 22, 2023

All about the Average Cost Meaning in Logistics

Logistics expenses comprise all costs connected with transporting items, including those spent during raw material sourcing, customer order fulfilment, and all processes in between. They are concerned about the expenses of transporting, transferring, and storing goods. However, inadequate decision-making preparation leads to high pricing. A logistics cost is the entire amount of money spent by an organisation while moving a product. It would pay for the transportation of raw materials from the supplier. It stores them in a warehouse until they are ready for distribution. It also includes the cost of conveying finished items to the client. Types of Logistics Costs Inventory Management Costs Whether you make your own items in-house or utilise a third-party manufacturer, you'll need a location to keep your inventory. And the more merchandise you have, the more room you'll require. Unfortunately, rising warehouse costs and restricted availability make it more difficult than ever to secure a leasing space. Rental renewals in the United States climbed by an average of 25% this year, owing to a scarcity of accessible warehouse space caused by the expanding number of ecommerce enterprises. You could prevent this by purchasing your own warehouse space altogether, but it won't be cheap. Transportation and Logistics Transportation and distribution are the most expensive logistics charges for any firm, whether you utilise third-party logistics service providers (3PL) like a reverse logistics company or an in-house team. Inbound logistics, such as carrying items from the manufacturer to your warehouse, are low-cost transportation jobs that entail consolidating big shipments in a single place. Outbound logistics, such as last-mile deliveries, are significantly more expensive. Delivery The term "last-mile delivery" refers to the act of delivering things straight to your clients. It is usually the last stage of distribution. Because carriers must make several trips to deliver tiny quantities of merchandise to consumers, these deliveries consume the greatest time and resources. Drivers may encounter security gates or reception desks, each with its own protocol for reception, which can further impede delivery. As a result, last-mile delivery is the most expensive part of your supply chain, accounting for half of the overall cost of shipping. Labour The personnel who manufacture, manage, and deliver your items is a variable logistics cost. However, the amount you'll spend is determined by where your employees are located and the average wage in that area. Difference between Logistics Types Logistics Cost TypesDifferencesCost of Inventory ManagementImpact on cash flow: Excess inventory ties up capital. If there's too much stock, cash that could be used elsewhere is consumed. If too little inventory is held, sales can be lost.Faulty forecasts: Inaccurate demand forecasts can lead to surplus or inadequate inventory levels.Shipping delays: Inefficient inventory management can result in delayed shipments and dissatisfied customers.Rising production costs: Poor inventory control can lead to higher production costs and reduced profitability.Unused or outdated stock: Failure to manage inventory properly may lead to obsolete or unused items that incur costs.Low inventory turnover rate: Low turnover rates mean items sit too long, tying up capital and increasing costs.Variable and erratic overhead expense: Inefficient inventory management can result in unpredictable overhead costs.Data entry mistakes (for tracking): Manual errors in tracking inventory can lead to mismanagement and costly issues.Lost clients: Inventory issues may lead to unsatisfied customers and lost sales.Cost of WarehousingPerformance data evaluation: Evaluating warehouse performance is critical for efficiency and cost control.Picking accuracy: Ensuring high accuracy in picking orders reduces errors and associated costs.Inventory shrinkage rate: Monitoring and managing shrinkage to minimize losses and expenses.Customer growth tracking: Tracking the growth of the customer base affects warehouse needs and costs.Cost of Switching Modes of TransportationAssociated with mode-shifting and fulfilment: Switching transportation modes may introduce complexities and costs.Impacted by online purchasing trends: E-commerce trends require efficient mode-shifting to meet customer expectations.Lack of visibility across transportation and distribution touchpoints: Poor visibility increases indirect costs.Added pressure on supply chain transportation links: Inefficient inventory management stresses transportation links, resulting in additional costs.Costs of DistributionInfluenced by throughput times: Efficient throughput times impact distribution costs positively.Scheduling: Timely scheduling reduces wait times and associated expenses.Vehicle use: Optimal vehicle use minimizes transportation costs and improves efficiency.Vendor efficiency: Efficient vendor collaboration affects distribution costs.Greater variability in supply chain optimization: Greater variability increases tracking and data management challenges.Cost of Customer ServiceVital for customer satisfaction: High-quality customer service is essential for customer retention.Impacts customer retention: Poor customer service can lead to customer churn and increased acquisition costs.Includes resolving problems efficiently: Efficient problem resolution minimizes the cost of addressing customer issues.Investing in excellent customer service: Allocating resources to customer service affects overall expenses and customer satisfaction. FAQs What are logistics Costs? Logistics Costs encompass all costs related to transporting goods, including raw material sourcing and customer order fulfilment. How does inadequate decision-making affect logistics costs? Poor decision-making can lead to higher logistics costs due to inefficient planning and resource allocation. What is the total amount of money spent by an organization while moving a product? This is referred to as a logistics cost, covering transportation, storage, and distribution expenses. What is the impact of rising warehouse costs on logistics expenses? Rising warehouse costs, along with limited availability, can significantly increase logistics expenses for storing inventory. Which component of logistics typically incurs the most significant expenses for a company? Transportation and distribution are the most expensive components of logistics costs for most companies. What are inbound logistics in terms of transportation costs? Inbound logistics involve the transportation of goods from the manufacturer to the company's warehouse, usually at a lower cost. Why is last-mile delivery considered the most expensive part of the supply chain? Last-mile delivery is the costliest because it involves multiple trips to deliver small quantities of goods to consumers, often facing various obstacles and delays. How does labour contribute to variable logistics costs? Labour costs vary based on employee location and local wage rates, impacting overall logistics costs. What is the impact of excess inventory on cash flow? Excess inventory ties up capital, reducing cash flow available for other purposes. How does poor inventory management affect customer satisfaction? Inefficient inventory management can lead to shipping delays, unsatisfied customers, and potential loss of sales, affecting customer satisfaction.

November 21, 2023

All about Inventory Shrinkage Prevention

Inventory shrinkage is a crucial KPI for inventory management that quantifies the amount of products that a brand should have but is unable to physically account for. This results in a brand being unable to sell a product that it does not have in stock, which may cause orders to be delayed and customers to be dissatisfied. Inventory shrinkage Prevention can be caused by discounts, damage, fraud, or theft. Inventory shrinkage formula: To find the inventory shrinkage rate, divide your inventory losses by the amount of inventory you should have. Multiply your inventory shrinkage rate by 100 to convert it into a percentage. Importance of Inventory Shrinkage Prevention Lost revenue is represented by each item of inventory that is listed on a brand's book but is not physically located. When a customer purchases the missing stock online or through a marketplace, the inventory loss situation deteriorates. Customers may become extremely dissatisfied if the warehouse is unable to fulfil an order, even though the storefront may be able to sell the product. How lean a business can be with inventory levels can also be impacted by significant inventory shrinkage. Accurate inventory item visibility enables brands to reorder at the right moment, preventing stockouts and saving money on excess storage. The loss of raw materials can be thought of as a different kind of it. Think about this inventory shrinkage example: when baking food, the baker will encounter it because of ingredients that are left behind with the utensils and because of evaporation. Causes of Inventory Shrinkage Employee theft, shoplifting, cashier error, supplier fraud, and administrative errors are the causes of it. Over 75% of inventory shrinkage in retail is attributed to employee theft and shoplifting, whereas vendor fraud and administrative errors account for approximately 20% of the total, according to SheerID. All of a brand's products are readily accessible to employees, and employee theft may arise from inadequate inventory counts, warehouse management, and security measures. For e-commerce companies without a physical store, employee theft may be a greater worry because it discourages shoplifting. Causes of Inventory ShrinkageDescriptionContribution to ShrinkageShopliftingMost retailers associate shrinkage with shoplifting, including straightforward theft. Price tag swapping, where a shoplifter pays less due to SKU manipulation, is also common. Organized retail crime, involving multiple people stealing for resale, falls under this category.The biggest source of shrink according to NRF's 2022 Retail Security Survey.Employee TheftInternal theft, encompassing theft, fraudulent returns, and employees neglecting to scan items for friends or family, is a significant contributor to it.Accounts for 28.5% of inventory shrinkage in retail, the second-highest after shoplifting (external theft).Human Entry ErrorPoor inventory management, misclassification, typos, double scanning, or incorrect data entry after a cycle count can result in it. Corrections may lead to lost profit.Administrative errors impact inventory records, potentially causing forecasting and revenue miscalculations.Vendor Error and TheftVendors, like retailers, can make administrative errors that contribute to it. Some dishonest vendors may steal by not delivering a complete order.While vendor theft is not very common, it can contribute to it. Utilizing online B2B platforms can mitigate the risk of human entry error. How to Prevent Inventory Shrinkage Here are some ways that provide information about how to reduce inventory shrinkage: Keep a Track Keeping track of things is simple and can assist you in determining whether an item of inventory vanished from the store or the warehouse. For instance, inkblot tag systems have proven to be very successful for fashion retailers. Even if they leave the area around their parking lot, grocery stores can lock their carts. To cut down on the time required, you can do this in cycles, but inventory management and tracking are crucial. Using technology that can update inventory counts in real-time is preferable to using Excel, which is static and not synchronised with anything. Identify discrepancies Employees who are stealing from you have time to get ready if they are aware that audits are imminent. When wondering about how to reduce inventory shrinkage, you can identify discrepancies in your inventory counts faster and without having to ask employees if you conduct a surprise inventory audit. Increase Security It could be beneficial to install security cameras and other equipment in your shop or inventory storage system if you operate a single brick-and-mortar store. To make sure nobody is putting trash in a bag they take for themselves while pretending it's trash, you can also use clear garbage bags. Using Stock management techniques However, frequent cycle counting procedures will help you stay ahead of inventory shrinkage. Use good stock management techniques instead. The process of continuously counting a small portion of your inventory is known as cycle counting. For example, you could count 10 different SKUs every week, or you could count 20 specific SKUs every week for a month to track changes in the stock levels of those products. Anti-shoplifting measures Investing in anti-shoplifting measures is worthwhile because shoplifting is a significant cause of it. A key deterrent against shoplifting is your sales staff. While they should never put themselves in danger, welcoming each customer and demonstrating that staff members are on guard can deter would-be shoplifters. Automation Eliminating the human entry component is one of the best strategies to reduce human entry errors. You won't have to worry as much about inconsistent numbers if your inventory management and point-of-sale systems are integrated. Making decisions about it is also made easier with an integrated system because you have easy access to a wealth of information. Task assignment One worker might be inclined to fabricate the reports if they have access to the recording and processing of receipts. To mitigate this, assign different staff members to record and process receipts, if only for quality control. Communicate the effects with staff members Staff members may be unaware of the effects of inventory shrinkage. Take this as a chance to explain to them the direct and indirect effects of it, such as how it lowers employee profit shares, salaries, promotions, and other benefits. FAQs How to prevent inventory shrinkage? It can be prevented by various practices such as open communication, automation, anti-shoplifting implementation, stock management, and inventory. What increases as a result of inventory shrinkage? It increases the cost of goods sold. How is inventory shrinkage recorded? It is recorded as an expense in the financial year in which it occurred. How inventory shrinkage is tracked? It can be tracked through regular audits of the inventory. What is an acceptable inventory shrinkage? The acceptable rate is 1-2%.

November 20, 2023

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