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Inventory Management

What Are Backorders In Supply Chain? Why Are Backorders Generated In The Supply Chain and How To Cut Back On or Avoid Backorders?

What Are Backorders In Supply Chain? Why Are Backorders Generated In The Supply Chain and How To Cut Back On or Avoid Backorders?

Global retail eCommerce sales were estimated at 5.2 trillion dollars in 2021. By 2026, this amount is expected to have increased by 56%, totalling roughly 8.1 trillion dollars. There has been increased interest in eCommerce backorders to protect revenue in light of the supply chain problems we have encountered on a global scale over the past few years. Business owners have been forced to decide between displaying their products as completely unavailable or as backordered for the time being because product availability still needs to be determined for numerous online stores and big marketplaces. Backorders are orders placed for items not currently in stock in eCommerce. A product is on backorder if it isn't in stock but is still accessible to customers for purchase. Customers who backordered items will have to wait longer to obtain them. The length of the customer's delay depends on where the supply chain shortfall occurs. Suppose the manufacturer is to blame for the supply shortfall. In that case, the consumer may have to wait an extended period, which would be detrimental to their satisfaction. Backorders in supply chain can be avoided, and customer loyalty can be increased with effective inventory management and communication throughout your supply chain. What Are Backorders in the Supply Chain? Backorders in the supply chain are requests that sellers guarantee to fulfill despite not having the requested item in stock. Your consumer agrees to hold off until the shipping date specified in the guarantee. As an illustration, suppose you are selling a product and have received orders from three clients. They want four products each, but you only have seven in stock. In this circumstance, you must complete more than one order while letting the other three go unfulfilled and losing them to the competitors. A better solution would be to send one item to each of them and tell them that the rest of their order will be fulfilled soon. Back-ordering is a process that is widely used in the eCommerce sector. What Differentiates a Backorder from an Out-of-Stock Item? The topic of "what's the difference between something being on backorder vs it being out of stock" is one that many novice eCommerce business owners (and their consumers) face. Although there is a clear difference between the two expressions, they both refer to an inventory deficit of some sort. Backordered items only experience a brief shortage because the manufacturer or supplier produces or brings extra inventory. A commodity out of stock might never be produced, meaning it might never be sold directly to the public again. Backorders in supply chain essentially makes the item temporarily unavailable, but an out-of-stock item can be lost forever (barring hypothetical returns, refurbishments, or future reissues of that item) How Does Backorder Affect The Supply Chain In eCommerce? Backorders might cause more damage to a supply chain that is longer than usual. For example, imagine an online retailer with a well-liked product currently on backorder. When the retailer orders from their supplier again, the latter must fulfil the steady demand and the additional backorder stock. The distributor or manufacturer bears the additional burden if the supplier has yet to have the product available to fulfill the reorder. As more and more stock is bought and produced to satisfy the need, the additional demand from those backorders is amplified at each checkpoint in the supply chain, from supplier to distributor to manufacturer. It's common to refer to this extra stock as buffer stock. The bullwhip effect, a severe overcorrection in the supply chain that can emerge from unanticipated demand variations, can result in excess inventory and increased costs. Why Are Backorders Generated In The Supply Chain? Backordering puts pressure on the supply chain and puts its responsiveness to the test for any firm. It could happen due to a need for more control over the factors governing the production process. As a result, the issue could occur at any point in the supply/production cycle. However, for your convenience, we've included the top three explanations below: Unprecedented Demand Growth Despite advanced sales forecasting, it is frequently challenging to predict spikes in demand. Online retailers rely on predetermined techniques to best capitalize on them because they are unavoidable. However, your marketing may also be a likely cause of demand spikes. Maintaining appropriate inventory levels is equally important to keep your marketing initiatives in sync with the supply chain. In addition, endorsements like affiliate marketing or influencer marketing might lead to unexpected demands for your items. Inappropriate Vendor Management Backordering can occur for various reasons, such as inadequate vendor management systems or insufficient sourcing options. For instance, if your vendor doesn't deliver the goods on time, you'll have to deal with backorders in supply chain chaotically even though demand patterns have stayed the same. In addition, due to the goods being sold by your rivals, your clients may also be looking for other suppliers.  Improper Inventory Management Errors are sure to occur if a company doesn't have the proper stock levels or cannot track its inventory movement. Each online store has more SKUs than ever, and trends are shifting more quickly than before. Backorders in inventory management must be used to maximize eCommerce operations in such situations. It ensures you can see your inventory clearly and won't accidentally commit any items only to discover differences afterward. Production Constraints Your supply chain may have problems, which could lead to a backorder. Your supply chain may need to prepare for an unexpected demand increase for its raw materials. This might make it challenging to supply vendors, which would reduce output. Supply chain issues, however, frequently arise from improper communication between the various parts. If someone further down the chain makes a mistake, the ripple effect will reach you and get stronger. For example, consider a scenario where you, the retailer, asked your wholesaler for a specific inventory quantity. As a result, the wholesaler may order less than you recommended if they are especially cautious about being safe. From the distributors to the manufacturers, there will be a continual "ripple effect." As a result, you'll ultimately receive a small portion of what you ordered when you place your order. Lower stock levels and possible backorders are the results of this. Human Error Even if the item is in stock, a staff member may enter an order as a backorder. Even worse, a shop could approve a backorder for an item even though it's not in stock. This could result from a mistake or a delay in inventory updates. Inadequate Safety Stock Most businesses have insurance policies to prevent out-of-stock problems, even if the supply chain malfunctions. An excess stock used as a backup in emergencies is a safety stock. Safety stocks help you stay afloat in the event of rising demand or low supply. Backordered goods may occur if you pay more attention to the quantity of safety stock you need. How To Cut Back On or Avoid Backorders in 2023? Backordering can occur accidentally or as a result of poor preparation. For example, suppose your business is experiencing backorders in supply chain issues that negatively hurt your sales and inventory turnover ratio. In that case, there are a few strategies to prevent the problem. Demand Forecasting Utilizing previous data and trends, demand forecasting projects future sales and demand. With enough information on sales and inventory trends, a company can identify patterns that will help them order goods at the right amounts. Handling backorders in inventory management with help of software makes this simple. Additionally, consider how many days of inventory you anticipate having and whether your supplier has a minimum order amount (minimum order quantity) Lead Time Management Source Your supplier's lead time in supply chain is the period it takes for you to receive a product from them. This period may be influenced by several variables, including how long it takes your supplier to obtain the raw materials, how long it takes them to produce the product, and how long it takes to examine the finished good. Find strategies to shorten the lead time by coordinating with your suppliers. Start discussions about developing improved turnaround times if you've discovered that they frequently deliver their products later than anticipated. There are more effective ways for both parties to work together and meet needs. Appropriate Safety Stock Stock intentionally purchased as a reserve in case demand spikes is known as a safety stock. When the regular inventory runs out, access to this stock from storage is made. Doing this guarantees that your consumers will never have to wait to buy the goods you have for sale. A fantastic strategy to guarantee that stock levels are consistently tracked has a dedicated order management specialist who can perform a regular inventory audit. Diversify Your Suppliers To maintain high inventory levels, having several manufacturers and suppliers on your team can be helpful. Since you'll have an alternative to working with, this helps to ensure that supply chain problems at one manufacturer don't leave you stranded. Additionally, having access to two inventory sources allows for quicker fulfilment of backorders when demand is very high. Engage With Your Customer  Be sure to inform your customers immediately if a problem results in a popular product going on backorder in the supply chain. People are less likely to experience surprises from delays if there is an alert posted on the product's page along with an estimated return date. Additionally, it would be beneficial to mention the cause of the backorder to assist in managing client expectations (manufacturer supply issue, unexpected high demand, etc.). Finally, customers may choose to be notified when a backordered item becomes available again, allowing them to purchase it. So, it is important to provide a good customer service experience. Collaborate With a 3PL A third-party logistics provider (3PL) can enhance the backorder customer experience by speeding up the fulfilment of backorders. They can offer fulfilment services to keep your backordered goods moving smoothly through the supply chain. A backorder product's delivery is accelerated by the warehouse management team of a 3PL fulfilment centre when it arrives there. Cross-docking is moving a product directly from the warehouse to the shipping dock instead of other products going to the shelves like other products. Before making unavailable items available, consider looking for a 3PL to handle and expedite backorders. Conclusion Backordering may be seen adversely by management, but it shows how valuable your brand is. Furthermore, it communicates your market dominance and the idea that customers would rather wait for your product than purchase a similar one from a rival. As a result, every eCommerce business must carefully balance the excitement of their clients to wait for them with their frustration at having to wait too long. You may handle such scenarios and effectively satisfy market expectations with appropriate tools and best practices. Get Assistance From WareIQ's AI-Based Inventory Optimization Tool - InventoryLogIQ and Bid Farewell To Backorders With the help of WareIQ's B2B fulfillment services and Inventory LogIQ, an inventory optimization tool, you can track stock levels in real-time, set reorder points and safety stock, and analyze historical data to learn more about your top-selling SKUs, inventory velocity, ideal distribution, and other topics while also expediting orders to provide the best possible customer service. Bottom line: Should you encounter backordered products, we'll work with you to fulfill them as soon as your inventory arrives. With WareIQ, you can accept backorders, create purchase orders for them, and get real-time visibility. Recognize Products That Are Appropriate For Backordering Retailers now have the much-needed insight they require regarding each supply chain step thanks to WareIQ's inventory management and fulfilment platform. However, WareIQ also helps with inventory tracking, minimum order amounts, and production lead times across every supplier or distributor, in addition to integrating your eCommerce operations within one complete dashboard. As a result, you will have better insight to decide which products are suited for backorder and which should be maintained in stock for your company. Automation Can Enhance Backordering and Other Inventory Operations Numerous automation is built into WareIQ's sophisticated and cutting-edge inventory management system to boost company intelligence, boost productivity, and reduce operating expenses. As a result, backorder efficiency in supply chain management can easily increase by automating your inventory procedures. For instance, to guarantee that backorders go as smoothly as possible, WareIQ's comprehensive automation provide notifications on your inventory levels, watch your order status, and source real-time inventory data. Determine The Root Of The Problem To Promote Brand Growth There is no denying that every eCommerce business aspires to expand and develop its brand. Fortunately, WareIQ's inventory management programme includes all you require to grow your company for a very long time. With WareIQ's forecasting tools, you may get pertinent information to inform your choices and identify the root of backorders across your warehouses and distribution networks. Additionally, merchants may monitor savings to serve their consumers better, resulting in longer-term customer loyalty and retention. [signup] Backorders in Inventory Management: FAQs What exactly are partial backorders in the supply chain?When only a portion of an order is out of stock, it is known as a partial backorder. When partial backorders occur, a firm has two options: split the shipment (i.e., ship the in-stock items right away, and ship the backordered items later) or wait until all of the things are available before shipping the order. Why do backorders take place?A backorder in supply chain is created when an order cannot be filled immediately after it is placed because it is not currently in stock with the seller. However, the product is still being produced or accessible from the distributor. How do backorders work?Backordering permits orders from consumers even when you don't have enough inventory on hand. When sales suddenly spike and inventory cannot keep up with demand, businesses use backorder in supply chain to prevent stock from running out. How should backorders be handled?There are several approaches you may take if you're dealing with backorders to serve your consumers better. The best advice for dealing with backordered products is to postpone payment processing until the order can be filled, provide partial shipping of a more significant order, update your product page to reflect the backorder status, and review your status of backorder in inventory management.

January 14, 2023

Warehouse Management Vs Inventory Management: Which Software Solution Suits Your Business Operations The Best in 2024?

Warehouse Management Vs Inventory Management: Which Software Solution Suits Your Business Operations The Best in 2024?

According to Statista, the market for supply chain management was estimated to be worth 15.85 billion US dollars in 2020, and by 2026, it is anticipated to be close to 31 billion. The mainstay of manufacturing and distribution companies has been and will always revolve around warehouse and inventory management. Effective inventory management is essential because it impacts everything from warehouse operations and shelf availability to loss prevention, financial audits, and customer happiness. Inventory management can also become challenging when you add more product SKUs and warehouse locations. Many individuals believe that warehouse and inventory management are interchangeable terms. And in a sense, they're correct. Both involve delivering your clients' ideal orders—the right goods, in the correct quantity, in the ideal condition, and at the accurate location. Both require the merchandise to be stored, sent, and reordered. Inventory management software and barcoding are occasionally necessary for warehouse management, and both can provide a snapshot of goods for one warehouse or the entire organisation. However, you must be aware of essential distinctions between smart warehouse management and inventory management to optimize your inventory and make your operations profitable, especially in light of supply chain disruptions and the rapidly expanding eCommerce market. Here we will be discussing warehouse management vs inventory management. Also, which of these software solutions suits your business operations best? Warehouse Management Vs Inventory Management System Despite their overlap, warehouse management and inventory management differ. A minimal set of stock-related procedures make up inventory management. However, warehouse management includes a variety of warehouse tasks, warehouse capacity, including inventory management. What Is Inventory Management System? Source Any procedure that aids in improving the management of the product flow into your fulfilment facilities is known as inventory management. Inventory management aims to maximise your stock levels so you have enough goods to fulfil every request without sapping your cash flow with items that remain on the shelf for an extended period. Management of inventories includes: Predicting InventoryDemand ForecastingDetermining the quantities of safety stock and reordering inventoryTracking inventory via spot-check inventories, manual inventory counts, and other techniquesEstablishing a procedure for handling backorders. One of the most important operational tasks for a corporation is inventory management. During this procedure, businesses keep track of the number of goods and commodities they have in stock. Managing finished and in-progress products and collecting updates on potential new stock that might be arriving from factories are sub-tasks of this activity. Businesses reach the progress of raw resources through a sequential method. That would then be transformed into finished goods sent to retailers. What Does Warehouse Management System Include? Source All of the fulfilling warehouse's operations are included in warehouse management. A warehouse management system, or WMS, is typically used in warehouses. The WMS, or warehouse management system, provides a dashboard for overseeing warehouse operations. Managing a warehouse includes: Receiving inventory - Scheduling dock time for incoming orders, product unloading, and shelf placement are all part of warehouse management. How quickly your inventory is accessible to meet customer orders depends on how fast your shipments get from the dock to the stock.Tracking Inventory - Warehouses frequently employ barcoding or RFIDs to track each SKU while monitoring inventory. To improve order picking, a warehouse manager will occasionally move inventory. To calculate appropriate storage fees, the WMS will also frequently track the number of goods according to the cubic foot.Picking and packaging: The act of picking items from the shelves to fill orders and packing them for transportation is known as pick and pack fulfilment. The pick and pack process can be sped up with excellent warehouse management techniques, sometimes cutting your order lead time by days.Shipping: Warehouse management for shipping might involve putting bulky commodities or larger shipments onto pallets to be shipped by LTL freight and getting packages out for delivery through third-party shipping aggregators.Returns processing: For customers to receive reimbursements, your warehouse will require a procedure for logging returns. Warehouse management encompasses several inventory management duties. Along with data to support demand forecasts and inventory planning, this also involves manual counts and spot checks of inventories. Information from the WMS can help you manage your inventory and supply chain more effectively. For instance, ageing and turnover data are crucial for determining the ideal stock levels. Warehouse Management Vs Inventory Management: Do They Have Any Similarities? As you can see, both management techniques describe the procedures and practices used to regulate stock levels, stock flow, and present and upcoming inventory needs. In contrast, controlling an inventory is merely a tiny aspect of managing a warehouse or several warehouses. In other words, monitoring warehouses in a retail organisation is a specific warehouse and inventory management responsibility. The data consistency and synchronisation between your warehouse and inventory management systems will guarantee your business run smoothly and profitably, regardless of how many warehouses or product SKUs you have. Warehouse and inventory management aid the inventory flow from the supplier to the customer/buyer.Stock ordering, storage, shipping, and restocking are all things they handle.Both increase accuracy and efficiency using barcoding and Radio Frequency Identification (RFID).Both offer information about goods in a warehouse or the entire corporate ecosystem. What Are The Primary Distinctions Between WMS and IMS? Now that you are aware of what these two management ideas mean. Let's drill down into the defining characteristics that set them apart. Features The complexity of each inventory system is one of the main distinctions between warehouse and inventory management. Inventory management systems are more accessible because they tell you how many goods you have at one storage site. On the other hand, warehouse management systems give a business the power to control whole storage systems inside a building like a warehouse. As a result, whereas an inventory management system can only provide information on how many of a particular product you have, warehouse management solutions can assist you in managing many storage bins of the same product. Storage and Management The management and storage of inventory are also affected by the contrast between simplicity and complexity. You can only fully know that you have the actual product in stock and how much of it is available with an inventory management system. Therefore, warehouse management, which enables you to locate the exact locations to place the inventory or even retrieve it later, is essential for managing the inventory within the warehouse. In short, while inventory management only provides the number, warehouse management provides the intricacies of inventory control. Integration The degree to which one system can be incorporated into the overall logistics of a company's management of its supply and inventory is another important distinction between inventory and warehouse management. According to SAP, inventory management is typically the initial step in other warehouse management activities. However, production supply, sales and distribution, and quality control are all strongly related to different facets of business management. Therefore, in contrast to inventory management, warehouse management is essential to the continued operations of other departments. Management Solutions  Comparing warehouse management software to inventory management software typically allows a business to evaluate and change its inventory and storage as necessary. Inventory management software normally does not. The use of various communications tools in warehouse management often enables analysis and required adjustments, leading to a more streamlined and effective operation. Estimating Profitability As we all know, a product-based business is all about selling products. Inventory is the only source of income in such a business. Additionally, many companies calculate their finances and profitability using their inventories. Inventory aids in tracking expenses as well as assisting in the analysis of sales and earnings. Warehouse and inventory management are used in various financial computations and sales trend analyses. As all of the product is tracked in inventory management throughout the distribution cycle, this benefits the business in numerous ways. Enterprises can stay current on trends by using inventory management, such as those in sales and production. Retailers and wholesalers inform companies that their inventories or items are selling out quickly, indicating a market requirement for the particular product. Businesses can keep track of their inventory-related expenditures with the aid of inventory management. By knowing the amount spent on the purchase of raw materials, expense tracking can be completed effectively. Additionally, understanding the financial burden of turning raw material into a finished product. Businesses can identify their economic waste points and cut costs by tracking spending through inventory management. A financial calculation cannot be aided by warehouse management but can be used to assess current consumption patterns. For instance, warehouses frequently hold inventory that will be delivered to wholesalers or retailers. When these returns arrive in large amounts, this demonstrates a problem with manufacturing and production. However, it is possible to trace this back and ensure it won't happen again.  Businesses can also benefit from warehouse management by understanding seasonal trends, such as which quarter of the year sees the most sales or shipments of their product. WMS Vs IMS (Warehouse Management Software Vs Inventory Management Software): Critical Differences in Software Solutions The main distinction between an inventory management system (IMS) and a warehouse management system (WMS) is that the latter tracks space units, such as compartments and bins, while the former counts individual products or SKUs. Inventory Management Software An inventory management system or software manages supply chains and delivery systems. The software keeps track of raw materials, items in production (WIP), finished goods, and stores and shops. Using effective inventory management software, businesses can reduce inventory expenses by spending less on poorly performing products. Automation and error-free stock monitoring and management are two main advantages of purchasing inventory management software. In addition, the software will produce a list of the products that need to be restocked or automatically ordered. Warehouse Management Software A warehouse management system or software handles the daily tracking of warehouse stocks and inventory. The software makes it easier to acquire, store, audit, monitor, and manage goods within the warehouse to fill orders. The enterprise resource planning (ERP) suite or a stand-alone system can include the warehouse management system. Warning businesses in advance about stock shortages also contributes to improving the consumer experience. A warehouse management system offers precise and effective inventory tracking and replenishment lists, in contrast to inventory spreadsheets. The software uses customizable barcoding to add products as "inflows" and crucial information, such as instructions and warnings, into the database. [table id=63 /] Warehouse Management Vs Inventory Management: Which Solution Should You Focus On in 2024? The size and complexity of your company, the number of SKUs, the volume of current sales, and the projected growth all significantly impact your decision whether to get inventory management software or warehouse management software. In addition, you must weigh the savings, boost in profit, and Return on Investment (ROI) that the product will provide with the overall costs over its life cycle (cost of the development, implementation, maintenance, upgrades, and phase-out). Systems for inventory management are more basic. On the other side, warehouse management systems are frequently complicated. An inventory management system can be set up in one to four weeks, with moderate monthly costs. The setup fee is the most expensive aspect of a WMS, as opposed to the product price or SaaS subscription fees. A WMS can be implemented in 2 to 8 months, and costs for monthly operations can range from a few thousand to a million per year. You are an excellent candidate for an IMS if your business is smaller, has fewer than 1,000 SKUs, averages less than a million in annual billing, and is primarily concerned with knowing how much of each item it has on hand and when to restock it. However, consider a WMS if you manage hundreds of orders daily and have many SKUs. Many businesses begin with an IMS before upgrading to a WMS as their operations expand. Conclusion When choosing a warehouse or inventory management system that can scale and grow with your organisation, it is crucial to make the proper decisions. It will be easier for you and your staff to run your business long-term if you take the time to modify and enhance your warehouse and inventory management procedures, increasing your company's efficiency and profitability. To avoid the process of selecting the right warehouse for your requirements and setting it up and operating, you could engage with a 3PL to manage your inventory and warehouse needs. How Does WareIQ Assists Online Retailers In Streamlining Their Inventory and Warehouse Management? WareIQ performs the labour-intensive setup and maintenance of inventory control and warehouse management systems daily. We constantly innovate, aiming to enhance everything from the warehouse floor to the software that supports our inventory management systems, and our warehouse staff works hard to deliver orders perfectly. As demonstrated, excellent fulfilment can aid online enterprises' expansion and scalability. Once you begin working with an outsourced logistics company like WareIQ, you will undoubtedly question why you waited so long. Using a 3PL like WareIQ will benefit your online store in several ways, some of which are listed below. Reduced Inventory Shrinkage Your profit margins may be eroded by shrinkage, resulting in unexpected stockouts. At WareIQ, careful product handling is a crucial component of our expert fulfilment service.  Same-day Shipping Due to fulfilment delays, customers' time to receive their goods can increase by several days. Short delivery timeframes are something that online customers expect, and same-day fulfilment makes that possible. We offer same-day or next-day shipping at WareIQ through our well-established and extensive eCommerce fulfilment network across India. Accurate Order Fulfilment Order fulfilment errors can be expensive. The cost of replacement and return freight is a significant consideration here. Additionally, the harm to customer loyalty and retention is difficult to measure, but a bad or annoying experience with an order might drive away customers. Because of our dedication to quality, order accuracy is guaranteed at WareIQ, and we have one of the lowest error rates of any 3PL. [signup] Warehouse Management Vs Inventory Management FAQs (Frequently Asked Questions) What distinguishes a warehouse from inventory? Warehouse management comprises overseeing staff and shipping or freight professionals working within the warehouse environment, as opposed to inventory management, which exclusively concentrates on products or stock. Does a warehouse include inventory?The items that are or will be for sale by a corporation are included in the warehouse inventory, including raw materials, commodities that are still being manufactured, and finished goods. What distinguishes inventory management from warehouse management?Inventory management and other associated responsibilities are handled through warehouse management. Inventory management involves managing stock across the board and predicting market changes.

December 08, 2022
What is Demand Forecasting? Definition, Types, Benefits of Forecasting Customer Demands for Ecommerce in 2024

What is Demand Forecasting? Definition, Types, Benefits of Forecasting Customer Demands for Ecommerce in 2024

Running an eCommerce logistics business is filled with challenges. These challenges are aggravated when businesses operate in a cutthroat environment where new competitions emerge daily. Organizations, therefore, try to forecast the upcoming market conditions, trends and requirement patterns to achieve sustainable growth.  As a business owner, you might have pondered on some or all of the questions below: What are the products you should produce to mitigate market demand?How many products do you need to store in distribution centres?What should be the exact closing inventory level to run the business successfully?What strategies do you need to adapt to deliver products in the shortest time? The best way to get the answers to these questions is to understand demand forecasting.  This is the technique to understand future requirements and utilize them to improve your customer deliveries without compromising profit margins. Demand forecasting uses different factors to analyze customer behaviours, current and future trends, product acceptance, etc., to provide the best possible visibility for the future.  This article will walk you through the in-depth definition of demand planning & forecasting, the different types of demand forecasting and the reasons you should use it. What is Demand Forecasting? Demand forecasting is the process of making close-to-perfect predictions of the future requirements of all customers. This could be related to existing products you have been selling for years or any new item you plan to launch. Businesses usually deal with stock-keeping units (SKUs), which may vary from hundreds to lakhs, depending on the type of business. The number of customers can also vary at a similar level.  Combining all the SKUs and customer demand for any short or long-term period creates a massive combination. Moreover, many more variables like the geographic location, specific time period and even specific projects make it more complicated. Demand forecasting combines all these variables and projects the best possible understanding of the demand pattern in the supply chain. Demand forecasting, also known as sales forecasting, has different factors such as quarterly forecasts, monthly demand planning, weekly sales forecasts and even daily demand plans. In the case of highly perishable goods like food items, you can even see hourly supply and demand planning. The more accurate your demand planning & analysis is, the more it helps to boost your supply chain efficiency. This is because your overall supply-chain planning depends on the accuracy of your demand analysis.  Based on the demand pattern, the supply team plans the inventory strategy and estimates the in-house capacity, materials, ordering pattern, stocking policy, etc. These are the critical factors of an efficient supply chain. [contactus_uth] 6 Types of Demand Forecasting Based on different business models, experts have created different demand forecasting techniques: Passive Demand Forecasting The passive demand forecast model is one of the simplest forms of demand analysis in the supply chain. Here, the historical data is analyzed and used to predict the future requirements of customers.  In the case of seasonal demand, this forecasting method is useful. For instance, an umbrella manufacturing company can assume whether the same quantity of products will be required in the next year as the previous year.  In this scenario, some thumb rules are used along with the past sales data. For example, simply assuming a 10% increase from last year's sales will be the forecast for the following year.  It is that simple. But in this planning methodology, you need to have in-depth historical data for a more extended period to reach a higher level of forecast accuracy.  Active Demand Forecasting The active model is more scientific and data-driven. It not only relies on historical data but also considers external factors to conduct demand forecasting.  For example, deep market research, marketing campaigns, economic growth, government notifications, budget plans and local and global political conditions all are considered during the demand analysis.  In most cases, startups and organizations entering a new market perform this type of demand analysis. However, there is very little historical data available in these cases and demand planners rely on market surveys and research to generate sales forecasting in the supply chain.  Therefore, this type of demand planning needs more analysis to avoid any assumptions. Nowadays, organizations use advanced software to perform qualitative and quantitative analyses to get accurate information about every product.  Short-Term Demand Forecasting Demand forecasting is also done based on the time horizon. Short-term demand analysis usually considers a time frame of the next three to twelve months. This enables a more accurate percentage.  Usually, the demand analysis is made based on short-term predictions of future demand. This benefits the organization by reducing the required inventory, improving turn-around time, lessening lead time and enhancing flexibility in response to any fluctuations.  Even during the in-house capacity planning, considering the short-term requirement forecast is the smartest method. It helps avoid unnecessary change over time and provides better visibility on your short-term decision making.  Long-Term Demand Forecasting Long-term demand forecasting is more like a strategic plan for business growth and development. Usually, organizations consider a five-year horizon for this type of planning.  When the marketing team considers penetrating new geographical areas to expand the business, they need to try to capture new customers, frame plans to launch new products, etc., the long-term demand analysis captures all the reports and data to populate the forecast. Using this technique, you can plan your future roadmap and budget for different verticals. For example, based on the five-year plan, you can consider a significant capital investment, increase your marketing budget, create a robust plan to enhance your supply chain performance, etc. This long-term demand forecasting allows you to prepare your business for the future.  External Macro Level Forecasting In this type of forecasting, the broader economic aspects are considered. For example, future economic trends may affect your business growth or give you a new opportunity.  Your organization may think of leveraging low commodity prices and rethink developing with a new supplier. In any case, you need a forecast on which you can rely and make decisions. This is the importance of external macro-level forecasting.  Internal Business Level Forecasting Your internal demand forecast is used to identify the operation's bottleneck and for you to take necessary action to remove it. Do you have enough in-house capacity to mitigate the high demand? Or do you need to enhance your production capacity?  Do you have a robust upstream (supplier side) that can meet timely requirements? You will get the answers to all these questions once you perform the internal business level forecasting. Suggested Read: How to handle stock-outs? Suggested Read: What is Inventory replenishment? What are the Benefits of Sales/Demand Forecasting for eCommerce? Sales forecasting has much broader advantages than just managing optimum inventory or how much to order. Though the advantages are diverse, we have mentioned the most significant ones below: Reduces Financial Risks If robust data backs up financial decision-making, there is little chance of slippage. Demand forecasting provides evidence to craft an accurate budget. When you get a better idea of the demand of your customer base, it helps you improve your financial budgeting decisions. For instance, when demand analysis tells you that the demand curve of any specific product is in a declining trend, you can decide to reduce the inventory levels of that SKU and its components.  This helps to reduce the risk of high amounts of obsolete and ending inventory. Similarly, if the forecast of a new product shows that its sales figures will take some time to shoot up, you can better manage your resource allocation.  Improves On-Time Delivery Modern customers are highly demanding. They know their choices, and there are a wide array of options available. Oftentimes, buyers want the product right away. And if you fail to deliver, there are dozens of competitors who will do the same.  With the increase in customers' expectations, businesses face a massive challenge in delivering products on time. Sales forecasting offers you the opportunity to reduce the lead time.  If you know the market demand of the specific product well ahead of time, you get the time to prepare your supply chain and thus, increase the shipping speed.  Increasing inventory levels, allocating in-house production capacity and keeping your distribution centres (DCs) ready with products, are key strategic actions to improve on-time delivery. This is not possible without smart demand planning & demand analysis. Reduces Inventory Expenses Inventory is the function of variation and is often called a necessary evil. An optimum inventory level helps the business capture competitive advantages by offering quick deliveries.  On the other hand, excess and obsolete inventory can drastically consume your profit. Accurate demand forecasting supports your inventory reduction approach. Your warehouse only has the required materials, which means less money is blocked.  Moreover, do not forget the inventory carrying cost. It comprises almost 25-30% of your total inventory. In-depth demand analysis helps the warehouse and fulfillment centers run efficiently by optimizing the space, resources, and utility charges.  Helps to Create a Pricing Strategy Demand planning greatly supports you in strategically framing the pricing of your products. For instance, customers are ready to pay a reasonable price for products that are in high demand. Then, following the trends, you can tweak the pricing strategy of in-demand products.  Enables Better Negotiation A demand pattern allows you to save a lot of money by helping in negotiation with suppliers and service providers. For example, you can manage to get a good discount on bulk purchases if you know that the demand will rise.  Moreover, for commodities that have fluctuating price trends and high forecasts, you can negotiate with the vendor to keep safety stock with them. This will help you get a better price and avoid inventory carrying costs.  Examples of Demand Forecasting Projecting Trends Imagine that there is a business operated by 2 partners that sell toys, clothes and other items for kids and they have been operating for around 10 years. They have reached their goals in terms of revenue and profitability and are comfortable with operating at this pace instead of expanding. To project trends for next year, they take the average of the last 3 years of historical sales data. This data shows them that they are the most successful in July and October and that they perform at their lowest levels in January and February. They can utilize these analytics to project future trends so that they can accurately place orders, hire temporary staff in seasons of high demand and create plans for promotions during slower months to generate more hype. Conducting Market Research Suppose that a new company has researched and developed advanced wireless headphones and the brand was launched through the crowdfunding platform Kickstarter. While they were able to get decent exposure, they have the objective of expanding their target audience in order to meet their targets. They encourage customers to take part in a survey and using the responses and details such as age, income, location, etc. they identify the current customer base of the company and realise that their product is most popular amongst people who commute via public transport. Based on this information, they create a marketing plan that focuses on ad campaigns targeting at people who ride on buses and trains. They highlight how their product would be helpful in these situations and are able to forecast the upcoming future demand. Using Sales Force Composite Imagine that a brand sells high-quality office chairs targeted at both B2B and B2C customers. In the past, they have primarily had high demand from the B2B sector and have received huge orders from other organizations but for the past quarter, business has been slow. The members of the sales team share the feedback that they have received from customers which helps them identify a market trend. Because more people are working from home and businesses no longer require large office spaces, they have no requirement for office furnishings. The company then forecasted demand for the next quarter with reduced sales and also decreased its production capacity. This gave them time to restructure its marketing strategies to meet the change in demand. How Does Demand Forecasting Affect Your Supply Chain and Fulfillment? In this modern era, eCommerce fulfillment businesses can only sustain themselves if they have an agile and resilient supply chain. If they don't have visibility on customer requirements, all the business processes will run on assumptions.  You may have products that are not required, a pile of stationery inventory that will become obsolete soon, a production line with frequent changes and much more. All these activities trigger inefficiency in fulfillment centers.  Poor demand forecasting will affect the internal business operations and your upstream (vendors and service providers) will also face colossal disruption. Due to the bullwhip effect, suppliers will face high volatility in ordering patterns, inventory planning, stocking policy and other SLA items in the supply chain. These unwanted disruptions will hamper your long-term business relationship. There will be overstocking at every stage, even at the supplier's end.  The most impacted area will be your downstream (the customers' side). The disruption in the supply chain will increase the lead time. As a result, customers will need to wait longer for deliveries which will make them move to competitors and never recommend your products to others. This is definitely not good for your brand reputation. Suggested Read: Why is Supply Chain Agility Crucial to eCommerce in 2023? Latest Trends of Demand Planning & Forecasting in 2022 Seasonality of Demand Seasonality is a factor where the demand and supply increase or decrease due to a particular event or time of the year. For instance, during holidays like Christmas or New Year, the sale of household products and gift items increases. Similarly, you can observe increased sales of umbrellas or raincoats during the rainy season.  Dependency on Global Phenomenons The global economy is more interconnected than ever before. This has been made more apparent by the onset of the global pandemic and the ongoing war in Ukraine, which have had a severe impact on manufacturing, transportation of products and materials and the supply chain as a whole. You may think that events that happen in distant countries have no effect on you receiving your orders on time, if at all, but alas, they definitely do because most manufacturers import at least some of their materials from countries like China. This is why demand planning is important because it can preemptively determine whether these global events will have any impact on your business or not and can easily ascertain what those impacts could be. Requirements to Increase Sustainability Companies the world over are succumbing to growing awareness about the environmental impact that certain manufacturing and supply chain processes have on the planet. Companies are under increased pressure to use sustainable materials in their packaging and to reduce their carbon footprint as much as possible. However, these factors can have a drastic increase in logistics costs so companies need to find the right balance between being environmentally friendly and maintaining their bottom line and this is where demand forecasting can help them get to that balance. Multi-Functioning of Demand Forecasting In the past, demand forecasting, while still an important business process, was usually contained within certain departments. However, this is becoming the exception because most companies now understand the value of sales forecasting and how it can have a positive effect on the entire business. Teams are now striving to find ways to integrate the process of demand analysis with every sector of the business to achieve the best results. Diminishing Importance of Spreadsheets While spreadsheets will always have their importance for maintaining data and an easy-to-understand way, many companies are adopting more advanced methods to demand planning by relying on automation, software solutions and AI to be able to predict varying demand levels for different products in various markets for a specified time period in the future. This helps in mitigating any manual errors or confusion that could occur due to maintaining hundreds of different spreadsheets Conclusion Businesses need to understand their customers and the best way is to use demand forecasting. It helps make smart decisions based on future visibility. Many organizations have realized its benefits and have already implemented this process.  Demand analysis cannot always be 100% accurate but a proper demand analysis and market research can come close. It considers historical data, sales data, market research and economic factors to perform permutation combinations to keep your business strong, agile and prepared for the future. WareIQ is an eCommerce fulfillment company that effectively predicts demand beforehand for its eCommerce partners using its superior WMS (Warehouse Management Software) platform & enables efficient inventory planning & placement. How WareIQ Helps in Forecasting Demand For Its Partners Supply Chain Management Systems (SCMS) is used by WareIQ to forecast supply chains. Our supply chain managers are also educated to predict demand using various approaches. A variety of things can have an impact on a firm and no two sectors are alike. While some of these demand forecasting methods do not require SCMS, the majority of them work well with it to provide an effective supply chain from top to bottom. You can also Read : Inventory Forecasting in Supply Chain Buyer Trend Analysis Everything goes out of style and it frequently happens without warning. Buyer trends are tough to follow but doing so may be quite profitable. To fulfill consumers' fluctuating wants, your supply chain must be adaptable enough to add large quantities of an item in a short period of time. At the same time, being aware of buyer trends may save you from having static inventory and keep your supply chain's operating expenses low. Fortunately, logistics allows for achieving the required amount of inventory. Demand Forecasting Management Demand forecasting wouldn't be necessary if trends were similar year after year. All demand fluctuations, like any other metric, include exceptions. When a projected shift in demand does not occur, having an effective demand exception management strategy could help you manage inventory more effectively. WareIQ identifies and tracks any deviations in projected demand in this sales forecasting model. If it seems that an exception may arise, the supply chain will be prepared to respond immediately, avoiding hidden costs or missed opportunities. Intuitive Planning When you suspect that anything is threatening your supply chain, the best solution is to rely on your D2C fulfillment partner's statistics and instincts. Trust WareIQ as your retail fulfillment partner since we forecast based on our own experiences. By sensing prospective fluctuations in customer demand, our seasoned supply chain specialists can identify them. This is known as intuitive planning. Intuitive planning considers everything you cannot comprehend manually. For example, an eCommerce business may intend to acquire a competitor in the future. Of course, you were unaware of this news at the beginning. However, our popular wisdom suggests that this will result in more consumers, implying increased buyer demand. Intuitive planning is not as sophisticated as the other demand forecasting approaches, yet it is still effective. [signup] Demand Forecasting & Planning FAQs What are the goals of demand forecasting in supply chain?In a nutshell, the goal of demand forecasting is to create better projections. However, in a larger sense, the goal is to improve organisational performance - more revenue, profit, and customer pleasure. What are the three demand forecasting methods?Qualitative approaches, time series analysis and projection and causal models are the three fundamental categories. What are the forecasted levels of demand?Demand forecasting may be done at three different levels: macro, industry, and company. Forecasts for broad economic circumstances, such as industrial production and national income allocation, are made at the macro level. Can partnering with a 3PL company like WareIQ help with demand forecasting?Yes. 3PL companies like WareIQ have advanced software solutions and techniques that can effectively forecast demand and help you plan ahead to mitigate any discrepancies in storage and inventory.

August 04, 2022
How to Prepare Your eCommerce Inventory for Sales Season in 2024?

How to Prepare Your eCommerce Inventory for Sales Season in 2024?

The sales season occurs at different times throughout the year depending on multiple factors such as holidays, festivals or eCommerce selling platforms feeling generous and rewarding their patrons with discounted products. In India, a country with a vast and diverse population consisting of various festivities celebrated throughout the year by different cultural groups, eCommerce retailers have a good opportunity to participate in these celebrations by attempting to boost sales and fulfill the requirements of customers during the festive season. While many segments of the year can be considered the de-facto sales season, it is a lot more complicated than that in reality due to the sheer number of festivals celebrated in the country compared to other nations such as Diwali, Dussehra, Christmas, Ramzan, Eid and Independence Day, just to name a few. Because of this, it would be prudent for eCommerce sellers to partake in inventory preparation in advance, to take full advantage of customers’ skyrocketing demand for various holiday-specific commodities. In this blog, we will go into detail about inventory preparation for sales season in 2024, the benefits associated with it and 10 tactics to follow to make the most of it. What is Inventory Preparation?  Inventory preparation is an aspect of inventory management that involves making changes in a retailer’s inventory based on various factors such as demand, seasonality, festivals, sales and supply chain adaptability. Preparing inventory is usually done after prior inventory forecasting and assessment to ascertain the demand for various products and the quantity of those products that need to be stored to fulfill that demand.  Preparing inventory for sales season in 2024 such as during a major holiday or festival involves determining which products customers would generally require during that time period. This varies as per the type of festival. For example, during Diwali season, the most highly-demanded commodities would be sweets, gift hampers, flowers, diyas and much more. Thus, for retailers who sell these items or ones who want a slice of the market share, these products would have to be stocked in large quantities and be readily available to fulfill orders whenever they come in. [contactus_uth] Benefits of Preparing Inventory for Holiday Sales Season in 2024 Prevents Stockouts By preparing inventory for the sales season by efficiently forecasting demand levels and analysing the historical metrics of prior seasons, retailers can effectively identify which products will have heightened demand and ensure that they are ordered in sufficient quantities. This helps prevent stockout situations from occurring and helps businesses fulfill every order that is placed.  Avoids Over-Stocking By performing pro-active forecasting and analysis prior to major festive seasons, retailers can safeguard their investments by preventing over-stocking of products due to inaccurate estimations of demand levels. Similarly to preventing stockouts, retailers can identify which products will have the highest demand and focus on stocking those, rather than other products, which may not sell as well during the season. Additionally, they can also have sales to get rid of products that have low demand or are close to expiry. Boosts Sales By successfully preparing their inventory, retailers can ensure that the best-selling products are always in-stock, leading to every order being fulfilled. Seasonal demand entails that only the specific products and gifts that are required for the festival will be purchased by customers. If retailers are opportunistic, they can focus on selling the products that have a high chance of generating sales and thus, will gain a competitive advantage over their rivals by being able to fulfill the festival-specific requirements of every customer. Increases Profit Margins Sales and profit margins are usually co-related and when there is an increase in one, the other also benefits. By preparing inventory for festive seasons in advance, retailers can focus on cutting costs in logistics and operational procedures, and also streamline their ordering and replenishment processes to optimise storage, transportation and manufacturing costs. The minimising of all these expenses in combination with increased sales will have a profound impact on the profit margins of a company. Enhances Customer Satisfaction Customers have very specific requirements during festive seasons, whether they are purchasing items for themselves or sending gifts to their loved ones. Retailers who are able to fulfill these requirements at a reasonable price can instantly create a highly demanded niche and out-compete their rivals. If customers are satisfied with the overall order and delivery experience, they are likely to make this satisfaction known online through positive reviews and ratings, and are bound to highlight the brand to friends and family that also have similar requirements. This enhances the overall image of the brand in the eyes of both existing and potential customers. 10 Tactics to Help Your Inventory Preparation for the Festive Season in 2024 Prioritize Value Over Speed Rather than simply focusing on fulfilling as many orders as possible in the shortest timeframe, retailers need to optimize their fulfillment and optimize or reduce shipping costs in order to provide better rates to their customers. This can help be a differentiating factor if there are many other competitors trying to take advantage of the festive season. Various promotional offers and discounts can be given to customers to enhance their satisfaction and help them save money while at the same time, enabling them to buy more products due to their perception that they are getting a better deal. You can also read about Peak Season Shipping here. Plan in Advance Retailers need to plan for the sales season at least 6 months in advance in order to ensure that everything is implemented smoothly and there are no hiccups. They need to discern what their CM targets need to be, what their budget cap would be for the festive season in question, what type of offers they want to run, what products they are going to launch, and what their overall business objectives are to make the most of the increased demand. Suggested Read: How to prepare for Pre-Order for eCommerce Stores? Increase Your Business Capacity During the festive season, retailers need to provide an expanded range of products and services over their regular operations so that they can capitalize on fulfilling the specific requirements that customers have. This includes increasing the available storage space to make room for larger amounts of inventory that need to be stocked and also making sure that suppliers are up to speed on the escalated targets so that there will not be any delays in replenishing inventory levels, especially for high demand products. Implement Product Bundling In order to make use of the increased demand levels during the sales season in 2024, retailers can provide optional product bundles by combining SKUs with high sell-through rates with ones that have lower sell-through rates. This enables businesses to encourage customers to spend more on what they perceive as value-for-money offerings while simultaneously being able to get rid of low-demand or close-to-expiry products.  Utilize Staggered Product Releases By releasing new products in various phases, businesses can maintain the interest of customers for longer periods of time, as opposed to just releasing them at once. For example, Apple generally has 2 to 3 keynotes a year - one for the new iPhones and software features, one for the new macs and if needed, one for tertiary products such as new AirPods or a new apple watch. By having these events spread throughout the year, consumers will always have something to talk about and can consider purchasing one of the many refreshed product iterations. Offer Product Previews and Cheat Sheets Product previews and cheat sheets, which are promotional pages that consist of a summary of vital product information, can be useful when trying to generate traction for a specific product or event. By providing users with a sneak-peak of a new product instead of unveiling it in its entirety, retailers can achieve high levels of excitement and anticipation in their customers. This generally helps spread the word by customers informing their family and friends, who in turn inform more and more people. Employ Discount Thresholds It is critical to employ appetizing discounts for high-demand products to generate interest in the minds of customers. However, retailers should also not offer high discounts from day 1. For example, they can start with 10% and if they are not satisfied with the performance of the discounted SKUs, they can add another 5% to see if it performs better. Retailers need to maintain a fine line between getting sales and maintaining their profit margins. Sell Festival-Specific SKUs Retailers should produce, market and sell festival-specific merchandise, not only to take advantage of the high demand for those products but also to protect their general flagship products. It is key not to include these products in the sale or offer discounts on them as that can diminish their perceived value in the future. By segmenting inventory specifically for an event or season, retailers can instantly continue to sell their regular items once it is over and normal service resumes. Avail of Additional Services With a 3PL Extra services that can entice customers to return to a brand can be offering discounts or offer coupons, providing free shipping and discounts on minimum cart values, just to name a few. These value-addition services can easily be provided by a competent 3PL fulfillment provider so it is key for eCommerce businesses to take advantage of them to keep their customers engaged for longer periods of time. Prevent Stockouts of Best-Selling Products By planning, forecasting and strategizing in advance, retailers are able to ascertain how much inventory they require for specific SKUs according to their demand levels during the relevant season and SKUs. It is also important to prevent stockouts of flagship products from occurring as these products will have continuous demand before, during and after the festive season is over. Conclusion: Partner With WareIQ to Organise Your Inventory for the Festive Season in 2024 Inventory preparation during the sales season in 2024 is crucial for an eCommerce business to sustain itself during the periods of the highest demand rates in the industry. By capitalising on this demand and being ready and able to fulfill every order, retailers can instantly boost sales and increase their profit margins. However, small and medium-sized businesses may struggle to cope with the added pressure and increased fulfillment requirements. To compete with the bigger companies in the market, these businesses can level the playing field by partnering with a 3PL company like WareIQ. If you are an eCommerce retailer that wants to prepare your inventory for the festive season or any other eCommerce-related assistance, we would be happy to help. WareIQ is a specialist in eCommerce fulfillment and has amassed a vast amount of experience and knowledge in the industry, making it one of the fastest-growing 3PL fulfillment companies in India. Through its use of technology like a custom WMS, a nationwide network of fulfillment centers and unique features such as an app store and RTO support, WareIQ can enhance the user experience of every retailer that chooses to partner with us, in addition to ensuring that your customers receive the best service. Some of the features that make WareIQ one of the best options in regard to inventory preparation for the festive season are listed below: Product Segmentation We can intelligently segment your SKUs based on their performance, demand and other factors to increase your sell-through rates. Exceptional Forecasting Methods We help in forecasting your demand using historical data so that you can optimize your inventory preparation. Automated Inventory Replenishment We provide automated inventory replenishment triggers that can be set as per your preference to ensure that your best-selling products are always in stock. Sales Season: FAQs Should sellers keep the rates of their SKUs the same on different selling platforms and on their own websites?Brands that generally deal in standardised products should keep their prices the same. However, eCommerce marketplaces like Amazon and Flipkart can negotiate better rates with banks which results in price disparities on these platforms. For new brands with no historical data, what is a good metric to start tracking?The best metrics to track are listed below:- Opt for a supply-based approach- Analyze BAU data- Monitor industry trends- Take pre-orders (but you may lose out on festive buzz) Can seasonal demand spikes also lead to increased RTOs?This is not always the case. If your products are good and prices are competitive, you may not face an increased number of returns. You will need to still have flexible return/replacement policies in order to gain a customer’s trust to place an online order in the first place. Why is inventory preparation for festive seasons important?Festive seasons often have increased demand for specialised items so it is necessary for retailers to adapt themselves to suit the occasion. How can a 3PL company like WareIQ assist in preparing for the holiday season?WareIQ offers advanced WMS software that can track various aspects of your inventory across multiple fulfillment centers and can integrate with multiple selling platforms. We also provide ultra-fast delivery, RTO insurance and much more.

July 25, 2022
10 Best Tips to Handle Out of Stock Situations for eCommerce Businesses in 2024

10 Best Tips to Handle Out of Stock Situations for eCommerce Businesses in 2024

Stockouts frequently appear on retailers’ lists of worst nightmares and for good reason. Out-of-stocks not only result in lost sales but also in poorer levels of consumer satisfaction and loyalty. When you don't have what a customer wants, they frequently feel let down, and that can have a negative impact on your business. Although you can take many precautions to avoid out of stock situations, stockouts are unavoidable in a few circumstances. This article will give you a few tips to handle out of stock situations as & when they occur. What are Stockouts? Stockouts are the absence of specific items or products at the point of sale when the customer is ready to buy. Stockouts cost retailers an estimated $1 trillion annually; in some industries, stockouts occur as frequently as every third shopping trip. A stockout can occur for a variety of reasons, including: Undercounting inventory and ending up with less than you expectedIncreasing demand for a specific itemSupplying delays caused by manufacturersLacking the necessary funding to purchase fresh stock In a physical store, this usually leaves prominent gaps in the shelves. Stockouts are even more aggravating for online customers because there is often no way to tell whether the stockout is due to a temporary technical issue or a major disruption in the retailer's supply chain. Out-of-stocks and generalized product unavailability are distinct but important to avoid. [contactus_gynoveda] -> With gynoveda Why is it Important to Handle Out of Stock Situations Before They Occur? Customers May Get a Negative Impression of Your Business While running an eCommerce business, if an out-of-stock situation is not handled properly, customers may get a bad impression. Additionally, if you consistently ignore customer complaints and negative feedback, it can negatively impact your business in the following ways: Lost profitsLack of repeat customersExisting customer dissatisfaction Negative feedback and reviewsDamage to the company’s reputation Backorder Costs Can Increase When your company accepts orders for out-of-stock products, there will be an increase in the frequency and amount of backorders. This can increase the costs and the duration of the supply of products and by the time the order reaches the customer, they may be dissatisfied with the duration and service. The biggest problem is handling out-of-stock in all companies. Revenue Will be Lost When your company receives orders for out-of-stock items and doesn’t make an effort to prevent stockouts, potential sales and revenue generation can be lost perpetually. This can have a drastic impact on all businesses, especially smaller and medium-sized companies that rely on every sale they can get. Your Business May Get Negative Reviews When a company provides a poor customer experience, it risks receiving negative feedback on selling platforms and other online websites. Customers get a bad taste in their mouths when they run out of stock and some may end up writing negative reviews online, which can prevent other customers from giving your business a chance. Causes of Products Going Out of Stock Although there are only a few likely outcomes of stockouts, such as customer frustration and lost sales, there are numerous scenarios that can lead to stockouts in the first place. Disparities in Product Counts A discrepancy between item counts and the record of how many units of a particular item a retailer has in stock is a common cause of stockouts (also known as phantom inventory). There are four major causes of discrepancies in item counts: Errors caused by humansTechnical difficultiesShrinkage as a result of damage or theft.Inaccurate Forecasting Although it is difficult to quantify, human error is frequently to blame for inventory management errors. During busy shopping periods, especially in retail stores, it is all too easy to miscount items. Disparities in item counts can also be caused by technical issues. Computerized inventory management systems are used in the majority of warehouses and distribution centers. However, when these systems experience technical issues, such as data center downtime or when synchronization between two computerized systems is delayed, discrepancies in item counts can occur. Inventory mismatches are sometimes caused by a combination of these two factors. It's all too easy for busy warehouse workers to miscount items by hand and it's just as simple to enter incorrect data into an inventory management system. Transportation Issues While many inventory management issues are well within retailers' control, logistical issues are not always. Retailers have recently faced numerous supply chain challenges, including hundreds of thousands of unloaded containers with merchandise on ships waiting to dock at ports around the world. Beyond shipping, the Covid-19 pandemic has disrupted the global supply chain, from manufacturing to transportation and logistics. It is just as easy for goods to be misplaced by warehouse staff as it is for the wrong shipment to be delivered to the correct location. Similarly, a logistics provider's shipping tracker may indicate that a shipment is on its way for delivery when, in fact, the shipment is still being processed in a distribution center. When you multiply these issues by the millions of products that must be shipped to thousands of retailers, it becomes clear how critical accurate logistics information is. Inadequate Management of Cash Flow Stockouts can also be caused by cash flow issues. You may know how much inventory is required but without sufficient funds, you cannot purchase it. If a lack of cash flow is causing stockouts, better planning and funding can help handle out of stock situations better.  Cash is one of the most important aspects of a business as it is responsible for paying for all of the services and machinery that is used in the manufacturing and fulfillment process so if there is not an adequate amount available to pay for essential services like ordering enough goods to prevent stockouts, it can have a negative impact on the supply chain processes of the business. Poor Inventory Replenishment Stock replenishment entails ensuring that you always have enough products to sell at the appropriate time. According to research, poor shelf replenishment practices account for 70 to 90% of stockouts, with supplier shortages accounting for only 10 to 30%. Stock replenishment is becoming increasingly important in the omnichannel retail environment, where you must provide the best product selection possible, whether online or in-store. Today, many automated stock management systems are available to track inventory and order items based on your specifications. It is critical not only to keep items in stock but also to forecast future demand, reduce markdowns and keep customers happy. Read further about the stock discrepancy. 10 Tips to Handle Out of Stock Situations and Prevent Them From Occurring in 2024 Stockouts occur when a retailer runs out of inventory as a result of increased customer demand or a breakdown in the supply chain, affecting retailers' shelves and overall profits. It could be the most frustrating shopping experience for both online and in-store customers. Here are a few ways to prevent stockouts in 2024: Specify if a Product is Currently Unavailable Out-of-stock products should be divided into two categories - those that are not currently available and those that have been permanently discontinued. It should be clearly stated which category applies to the product in question. It also ensures that customers know whether or not they can expect it to return. Some websites allow customers to out-of-stock items in wishlists or receive notifications when the item becomes available later. A weekly stock audit is essential to prevent stockouts. Choosing a strategy that encourages greater user engagement can work wonders for retailers. Provide Similar Product Recommendations It is the retailers' responsibility to use product pages to provide alternatives to users based on their preferences and customer behaviours. It is possible when retailers understand the categories in which their customers are interested, segment them and display relevant products in an appealing manner. When a product is unavailable, it aids in the recommendation of alternative product groups. These groups can assist retailers in avoiding a sale and keeping users interested in the brand. It aids in redirecting users from the product page to the home page. Mention the Restock Date If a product is out of stock, it is the duty of the retailer to mention if and when the product will be restocked to prevent further dissatisfaction from customers and give them reliable and transparent information, instead of accepting their order, only to disappoint them later. The restocking date can either be mentioned on the product listing page directly or you can encourage the user to fill out their contact information and send them a reminder when it is back in stock. Remove the Out-of-Stock Product Listing One solution to handle out of stock items is to move the product listing to the bottom of the search results or remove it together. If you reduce its visibility, fewer people will click on the listing, resulting in fewer unhappy customers. It's a straightforward "out of sight, out of mind" strategy. It can be difficult to keep track of your inventory in order to make these changes automatically. Inventory tracking and management software, which allows retailers to forecast product shortages, is commonly used by businesses with multiple product lines. If you have the funds and infrastructure to do so, this is a great way to get ahead of the game when a product appears to be running low on stock. Encourage Customers to Pre-Order You as a retailer can accept pre-orders for products that aren't currently available but will be soon. It can be resolved by offering a longer shipping time or a pre-order option to secure the sale immediately. Customers value the retailer's honesty and willingness to serve; as a result, customers may have to wait a little longer than usual for their preferred products. Encouraging customers to pre-order will help to anticipate the demand for particular products and prevent stockout situations. Use an Inventory Management System Out-of-stock items are more than just a nuisance. It may have long-term consequences for your Amazon FBA business as well as other sales channels. Algorithms can push your competitors ahead of you in the seller rankings. This can have a disastrous effect on your revenue. Because of too many stockouts, some companies have lost their coveted position in the buy box.  This is yet another reason why inventory must be synced across all warehouses and sales channels. This is where using inventory management software can help to handle out of stock situations. You must have a consistent - and accurate - inventory count regardless of where your inventory is physically located or where you are selling it. Forecast Demand for Various Products Inadequate or inaccurate inventory forecasting is another common cause of out-of-stock situations. Retailers face a significant challenge in forecasting demand for specific products. According to recent data, 73% of retailers struggle with inventory demand forecasting. Performing an ABC analysis makes it easier for some retailers than others to predict how much inventory will be needed and when. Businesses that primarily sell seasonal items, such as winter sports equipment or beachwear, may find it much easier to forecast demand for specific products. However, there are ways for all types of retailers to anticipate demand and avoid stockouts. When preparing inventory forecasts, retailers should consider lead time—the time between placing an order for new products and receiving them from a supplier. Examining previous purchase orders from specific suppliers is one way to estimate lead time. This is unlikely to be sufficient on its own, but it can be used as a starting point for calculating lead time from individual suppliers. Have Constant Inventory Counts Some retailers still physically count their inventory. While this may be an age-old technique, it's probably time to upgrade to modern standards. Using good inventory management software will allow for automated inventory counts at predetermined intervals so that you can always be aware of your inventory levels and have any changes updated in real-time. Use Automatic Low-Stock Alerts Low inventory alerts can be set for your entire store or customized per SKU. The frequency of alerts and the information you receive are also customizable. Some of the useful features of an inventory management system that will help prevent stockouts are: Default Alert ConfigurationSet a Safety StockSet Location or Warehouse AlertsSet Individual Variant Alerts Have Alternative Vendors To handle out of stock situations or prevent stockouts from occurring, you need to partner with alternative vendors to recover yourself from a critical situation by not being entirely dependent on one vendor. By using multiple vendors, you can always place orders with the relevant one for different product types and can rely on another one in case an issue or delay arises. This way, customers will not be inconvenienced and you can make sure that all products are available in stock. Conclusion: How Can WareIQ Help eCommerce Businesses Handle Out of Stock Occurrences? Being able to handle out of stock situations is vital for every eCommerce business, not only to prevent lost sales and revenue but also to ensure that customers are satisfied and that costs are kept in check. While there are multiple ways to prevent stockouts from occurring, paying little attention to your inventory levels can be the most effective. If you need assistance to prevent or minimise out of stock occurrences, you can consider partnering with WareIQ. WareIQ is one of India’s leading eCommerce fulfillment companies. Through our use of advanced technology such as our in-house WMS, we can help prevent stockouts from occurring by monitoring changes to your inventory levels in real-time and syncing order details and inventory management across fulfillment centers and more than 20 eCommerce selling platforms. Users can also set low-stock warnings to trigger an automatic order of the relevant products from the supplier. Handle Out of Stock Situations: FAQs What is the impact of out-of-stock situations?Revenue loss is the most visible impact of stockouts. You lose the profit from that sale if a customer attempts to place an order but the item is out of stock. Consumers might choose less expensive goods. Or, even worse, you can permanently lose a customer, which would result in less recurring sales in the future. Why do stockouts occur?When things are out of stock, customers who wish to buy them cannot. Both physical retailers and internet stores experience stock shortages. Stockouts are frequently brought on by inadequate inventory management and supply limitations. What is an OOS scan?To update products with no on-shelf inventory, retailers should implement inventory audits, often known as OOS scans. Associates can visually scan planograms during scheduled store tours, check system inventories for backroom stock, and initiate new orders. What is NOOS?NOOS is a category/segment of Apparel that, as the name suggests, never goes out of stock, since the demand for this is constant. For e.g. white shirt, blue jeans etc. What value-add does WareIQ provide for handling NOOS products?WareIQ can provide:1) Faster, same-day delivery2) Attribute-based smarter recommendations to push products with similar attributes in order tofulfil demand at an adequate pace, keeping sales momentum high3) Leverage robust data analytics to cater to size-set variations based on parameters such asgeography, age-group etc4) Analyze the discount sensitivity of the target audience, set the right discount, and improve sales

July 11, 2022
How Does Decentralized Inventory System Help in Adapting to Changing Buyer Behavior & in Growing eCommerce Businesses in 2022? Benefits And Challenges Of Having A Decentralized Inventory Management

How Does Decentralized Inventory System Help in Adapting to Changing Buyer Behavior & in Growing eCommerce Businesses in 2022? Benefits And Challenges Of Having A Decentralized Inventory Management

Ordering merchandise, shipping, storing, and selling become critical decisions that must be made as firms expand. Increased industrial storage is required to expand the range of items offered and enable products to reach a greater geographic area. A critical choice during this expansion phase is whether to transport goods from a single central site or smaller warehouses dispersed around the country. Both centralised and decentralized inventory has benefits and drawbacks, and their use depends on the organisational structure, individual objectives, and management methods. According to the U.S. Census Bureau, manufacturers, retailers, and merchant wholesalers in the United States had inventory worth more than $1.9 trillion in June 2018. Believe it or not, according to experts, roughly 90% of a company's inventory is stationary. It is kept in storage, whether on racks in a warehouse or on shelves in a store. A company's merchandise is only genuinely in transit 10% of the time.  So it becomes essential for the organization to think about managing their inventories. In this article, you will learn about centralized and decentralized inventory systems with how to maintain a decentralized inventory system, which helps expand the reach of your business. What is a Decentralized Inventory Management System? Decentralized inventory refers to an inventory management system in which the items are moved from a central location to other warehouses, further decentralising the process. This technique is appropriate for businesses whose clients are dispersed across the country. Quick delivery also contributes to enhancing client happiness and service. Decentralized inventory aids in more effective and quick emergency response. The risk of fire and other natural disasters is reduced since all the commodities are kept in various warehouses. Products are more vulnerable to dangers if kept in a single location. For example- As an illustration, imagine that you own a Delhi-based online business with regular consumers from Maharashtra, Rajasthan, and Karnataka. You only have one warehouse in Gurugram from which you transport goods to particular regions of the nation. A centralized inventory system is what this is. Due to the proximity of your location to your consumers in Rajasthan, their orders will arrive swiftly. Customers from Maharashtra and Karnataka, on the other hand, are dissatisfied with the extended shipment delays. As a result, in addition to the current facility in Gurugram, you plan to establish regional warehouses in Mumbai and Karnataka. When you receive an order, you can determine which facility is nearby to the customer's delivery location and send the product there. If the item is out of stock at that location, you ship from the nearest warehouse. A decentralized inventory management system is what this is. Although it may seem enticing, implementing and maintaining a decentralized inventory management system successfully calls for strategic planning and a top-notch management system. 4 Challenges Of Having a Decentralized Inventory and Multiple Warehouses  A large body of management theory supports decentralized warehouses, but ignoring the difficulties they provide would be naive. Instead, we need to consider a few things, including administration, inventory visibility, and employee-related problems across various warehouses. Inventory Control Supply chain management becomes more challenging when inventory is dispersed among several distribution sites. However, when everything is in one place, management is focused there, reducing processes and lowering expenses. Retailers can feel as though they have to give up inventory management due to a lack of clarity when there are products in numerous locations. Although ERP systems should in theory support these tasks, they're not always reliable and can occasionally lead to inventory shortages or errors. Management Of Decentralized Inventory Naturally, managing numerous sites is more difficult than managing just one. More staff, inventory, and administration are necessary when there are many warehouses involved. Warehouse operations may easily become complicated and disorganised if warehouses are shared, serve as distribution centres, or serve as drop shipping destinations. Even if everything could run perfectly in one place, increasing inventory locations might make procedures more difficult and even endanger regular business operations. Coordinating Warehouse Shipment Costs Calculating a rate or lead time for shipping from a single location is almost always constant. Shipping from the same location each time implies predictable cut rates and transit times, giving clients the transparency they expect in their purchase. The number of considerations increases significantly when locations are included in the equation. Which warehouse will handle shipping for the order? Does the customer's closest warehouse have the variety of goods they need? Have you got a lot of stock in one place but a dangerously low quantity in another? Of course, making decisions in several locations is more difficult than doing it at a single location. But how will this impact the choices you make about your inventory? Prior to adding more sites, it's critical to build a plan for these factors. Having the proper tools in place is essential for controlling shipping costs between warehouses. Utilizing Decentralized Inventory Management to Address Challenges A multi-location distribution system or decentralized inventory offers several advantages over other approaches, despite its difficulties. Businesses that struggle with long lead times, dissatisfied consumers due to transit periods, or a lack of distribution flexibility should carefully consider multi-warehouse management and how it might address these issues. The option of having smaller or fewer facilities is another benefit of a decentralised supply chain for e-commerce firms. These warehouses can be handled quickly and adaptably, providing retailers with greater insights into the levels, demands, and shortfalls of inventory replenishment. In the end, merchants almost always benefit from the flexibility that comes with decentralized inventory management. [contactus_lilgoodness] How Can a Decentralized Inventory Aid in the Development of Your Online Business? Decentralized inventory could be a wise investment for growing e-commerce companies. With smaller, local facilities, businesses can deliver goods to clients more quickly. In addition, warehouses may be able to act as client pickup places depending on their location, a service that is becoming more and more popular every day. Lower Shipping Expenses Your distribution options are immediately doubled when you add even a single warehouse location for your goods. You may be able to significantly reduce transit times and shipping costs owing to greater proximity to more consumers, depending on the strategic position of your facilities. Shipping costs decrease when warehouses are positioned closer to delivery sites. Expand Your Consumer Base Similar to the advantages of lower transportation costs, expanding your network of sites can help you reach clients who live farther away. If their order will be delivered in just a few days, a consumer interested in a pair of shoes from our go-to shoe shop is far more likely to order. Shipping may take a few weeks if the business just had one location, providing customers with an incentive to purchase somewhere else. Your prospective consumer base will grow as a result of expanding your footprint, which will increase your revenue. Quicker Local Delivery Times Having numerous warehouses boosts a local customer's ability to pick up purchases directly or provides them access to same-day delivery, especially in the age of curbside pickup and same-day delivery. With these choices available, shoppers might be able to purchase and get goods on the same day. You can only provide immediate pickup to consumers in one location if you have one warehouse. However, distributed warehousing brings your items and additional consumers together. 6 Factors to Consider Before Implementing Decentralized Inventory Control system A decentralized inventory system can appear to be the magic solution for a failing eCommerce warehousing company in the continuously changing eCommerce fulfilment industry. It may not be the best method for everyone due to a few factors that may alter its effectiveness. Before implementing decentralized inventory control, take into account a few variables that may have an impact on how it functions for your company. What is the Weight of my Goods? It might not be beneficial to have inventory in many locations if you sell heavy goods, such as furniture or exercise equipment. It might not be a wise investment to transport merchandise first to a warehouse before sending it from the production or import site because shipping prices for things like this are already rather high. To What Location Do I Deliver Orders? It might not be a good idea to distribute merchandise outside of the general area of your consumer base if your business is largely reliant on local clients. A seller of umbrellas, for instance, definitely doesn't need to move their business from Seattle to Arizona and may even lose financially if they did. What Are The Running Expenses For Several Warehouses? Spreading your items over many locations can not be advantageous if they need specific attention, such as refrigeration or routine quality inspections. Given how expensive it already is to store this kind of merchandise, increasing the expense of keeping them might not be a wise investment. What is the Amount of Orders Each Month? Using numerous warehouses is generally not essential if you just transport a few high-value items each month. It could be best to keep things straightforward and centred with only one site while eCommerce companies are still in the beginning or growth phases. It can be required once you've ramped up and are getting a bigger stream of orders. Do Businesses Really Need Additional Warehouses? The eCommerce logistics industry is now buzzing about decentralised inventories. Given all the talk about it, it could appear essential to expanding your company. However, now might not be the best moment to consider decentralising your inventory if your shipping issues do not include inventory location. Is the Current Technological Setup Ready for Several Warehouses? Do You Require a Solution for Managing Many Warehouses? Do you currently use an ERP? a management system for warehouses? What software do you currently use to manage your business? Make sure your systems are strong enough and prepared to manage the shift before making the jump to distributing your products. The single most important action to do before starting the shift will be to be well-prepared. 7 Best Practices For Maintaining A Decentralized Inventory System Researching and implementing an Enterprise Resource Planning(ERP), or a Warehouse Management System(WMS) will be one of your initial stages. Your work will be a lot easier and business operations will run much more smoothly if a software solution is in place to handle things. Are you prepared to explore dispersed inventory? It's a wise choice that will benefit you. To fully profit from the distribution, you'll need to set it up properly in the meantime. Here are a few of our pointers for successfully managing Decentralized Inventory Balance Your Stock Levels In order to maximise storage space and prevent fulfilment delays, your data should be used to establish stock levels. To effectively manage your inventory across all warehouses, you must determine your maximum, minimum, average, and order levels by taking a look at your product sales, inventory turnover, and lead time rates. To keep expenses low, it's crucial to maintain strict control over your stock levels and make sure they are balanced. Why? Because it reduces waste and guarantees you are not putting too much strain on your finances with high stock expenses. In order to select which warehouse to stock which goods and maximise product levels, you need also pay attention to the following KPIs: Your per-order processing feeYour lead Time Statistics (or order fulfilment latency)Your Ideal Order Rate Watch Your Bestsellers Closely The most crucial goods to maintain will be your most well-liked offerings. Setting up minimum inventory levels of these items at each site is a smart move to make sure you can send them out from each warehouse swiftly. It's crucial to anticipate these trends and have extra stock of these items because they will frequently sell out. Count Product Stock In Decentralized Inventory System It's crucial to make sure you do stock counts at each facility. Ecommerce retailers frequently make the error of believing they simply need to track the overall quantity of items without taking into account the product levels at each warehouse when transitioning to a decentralized inventory system. To guarantee that the stock levels we indicated are balanced at each warehouse, you must be aware of all of your items there. If you aren't utilising decentralized inventory management software, you'll need to work hard to keep an eye on product counts at each warehouse since running out of a product at one warehouse can cost you time and money. When you have a lot of items, divide your inventory counts into focus lists so that you don't have to count every item all the time. The most effective approach to achieve this is to separate your items into high-risk (those with the poorest history of inventory counts) and high-value categories (products with the highest revenue potential.) Utilize Both Movable and Fixed tracking Long-term headaches may be avoided by making an investment in your inventory management. To build a reliable inventory management system, fixed and mobile tracking are required. Why? Since you can precisely assign warehouse destinations by combining fixed and movable tracking options, you can be sure that you always know whether the hardware needed to process the order is up to par, where each product is placed, what its status is, and which products are ready for fulfilment and shipping. Simply said, it streamlines and expedites your fulfilment services. Here is a brief explanation of each for those who are unfamiliar with warehouse management jargon- Fixed Tracking Fixed tracking, sometimes referred to as asset tracking, is the continuous observation of your production-related machinery as well as any equipment that supports your warehousing and fulfilment centre operations. To track the location and status of equipment, utilise RFID tags or barcodes. Movable Tracking Movable tracking, sometimes referred to as inventory management, is the process of keeping track of each product and how many you have on hand, as well as which items need to be refilled and which ones are in excess. In a nutshell, it's the administration of your inventory and figures in real-time. Not Every Product Needs to be Stored in Every Warehouse The number of goods you sell will increase along with the size of your eCommerce logistics business. It makes no sense to keep all of your goods in every warehouse. As we mentioned above, one of the greatest strategies is to divide your inventory into best- and worst-sellers, and then stock your warehouse appropriately. To enable speedier, more affordable delivery, you may, for instance, make sure that your bestsellers are present at each warehouse site while keeping all of your slow sellers in one warehouse and your medium sellers in another. Remember that clients may request many products at once that may be stocked at different locations. Due to the possibility of having to fulfil items from several locations, this may result in additional shipping and packaging expenses. It would be beneficial if you compared these expenses to the warehouse layout you choose and, where it is practical, matched goods that are frequently stored together. If you aren't arranging warehouses with decentralized inventory management software, label your items as out of stock once they have been transferred to the new location. Real-Time Data Update The most important decentralized inventory management advice is to make sure that your ordering systems and warehouses' data are in sync to avoid delays. You can get away with this manually if you operate a tiny business from your home with just one warehouse. However, if your company is expanding and adding more than one warehouse site, a robust decentralized inventory management system, like the new Multi-Warehouse Management feature, is the only method to handle data in real-time. This feature enables you to: Build decentralized inventory warehousesControl inventory levels and move it across warehousesManagement of warehouse inventory allocation depending on channelsImplement connectors with 3PL and Amazon FBAManage dropship ordersImplement automatic order routing by the supplierMake invoices, shipping labels, and packing slips.Receiving order notificationsIntegrate with shipping software and carriersAccess order status in real-time across all markets Utilize Cross Docking and Wave Picking  Make sure you are preparing for a lean operation when organising your decentralized inventory management. In other words, you aim to minimise expenses. You may accomplish this with the use of two warehouse management systems: wave picking and cross-docking. In the latter, a product is dispatched out as soon as it is received. Alternatively, if you make your goods, consider it a method that allows for considerably less storage space, lowering warehouse expenses. However, it becomes difficult to retain this storage option as your organisation expands without creating fulfilment issues. Wave picking entails greater storage capacity so that orders may be completed in sequence throughout the day, making it preferable for larger, expanding businesses. Utilizing these strategies can ensure a distinct, lean system in your intricate shipping system if you have adequate inventory management software. Centralized vs Decentralized Inventory Management System The primary difference between centralized inventory and decentralized inventory is that the former refers to an inventory management system in which the goods are moved from the primary warehouse to various warehouses that are close to the consumer's residence. The latter refers to an inventory supervision mechanism in which all necessary operations are carried out in a central setup. Centralized Inventory This inventory management system conducts all activities in a single place. Despite the possibility of separate product-based storage areas, storage is frequently done in one big warehouse. The same crew handles all inventory, and the same transportation techniques are used. The majority of e-commerce businesses, including Amazon.com, use it. Utilizing centralized inventory has several benefits, such as: It makes it simpler to promote and uphold the corporate culture.Operating expenditures like rent and other utilities have decreased significantly.The lowering of expenses results in higher profits.Better customer service is delivered by emphasising the use of trained personnel, improved methods for responding to questions and requests, and improved tools.Management responds quickly to any issues with goods or procedures. Despite the many benefits, a decentralised inventory has a number of drawbacks, such as: Rush delivery and high transportation expenses, particularly in the long term, may be passed on to the client.Result in competition for resources like human resources Decentralized Inventory Decentralized inventory entails distributing your stock among several sites. Large retailers like Amazon frequently use these multi-channel distribution techniques. This method offers a wide range of advantages as well. When items are kept in warehouses close to clients, merchants may reach them in more places in less time. Additionally, it reduces the danger of keeping all goods in one location in the unlikely case of tragedy or poor management. The following are the main benefits of decentralized inventory: When compared to a centralized inventory management system, the system's distribution flexibility is substantially greater.There is a bigger decrease in the cost of transportation.Additionally, the shipping time is drastically cut down. The following are the main drawbacks of decentralised inventory: Significantly greater operating and investment expenditures.Inventory management calls for additional physical labour and personnel.Additionally, the control expense is somewhat greater.The likelihood of incorrectly allocating products is higher. Tabular Representation: Centralized Inventory VS Decentralized Inventory System [table id=33 /] Centralized vs Decentralized Inventory Management: Which is Right for Your Business? Decentralized inventory is defined as inventory that is held in many locations and warehouses, as opposed to centralised inventory, which is defined as inventory that is stored at a single location.In the case of centralised inventory, top management makes the decisions, but in the case of decentralised inventory, lower and middle management make the decisions.Less labour is needed for centralized inventory control. On the other hand, the latter situation necessitates more personnel.In contrast to a decentralized inventory management system, which may not guarantee price consistency, a centralised inventory system guarantees price uniformity.The likelihood of theft from consolidated inventories is quite low. On the other hand, there is absolutely no chance of theft with the latter. Conclusion The two main warehouse distribution types are, broadly speaking, centralised and decentralised. Between the two, there is a third choice, but all models are vital and relevant. Understanding your clients, regional presence optimization, fulfilment capabilities, and other factors are necessary when selecting one for your company. Because there is just one site rather than several, inventory management is simpler and more cost-effective with a central warehouse. Transport costs, however, can be rather high depending on how far shipments must go. Not all clients or consumers will be in close proximity to the core hub. A decentralised strategy keeps the warehouses dispersed and much closer to the final consumer. Over the centralised paradigm, order fulfilment, shipping times, and customer service frequently increase significantly. With a shorter distance between nodes, transportation expenses are also significantly reduced. However, operating costs are substantially greater and rise as more sites are opened. Both models provide options for outsourcing and cutting-edge automation to build a more streamlined and effective company. It frequently boils down to the demands of the typical consumer. Which model will best serve their needs, and how can the organisation help? WareIQ As an Inventory Management and Fulfillment Partner It is feasible to create a hybrid system using both methodologies, with WareIQ. The hub of operations, where all the inventory or product is normally kept, is a central warehouse. They are known as branch warehouses or decentralised warehouses and support several nodes that are located closer to the end-user. Only high-demand items are stored and managed in the branch warehouses, with real-time analytics and efficient distribution based on market demand. In other words, the smaller warehouses provide clients with faster delivery of the most popular items together with superior customer support. All of the inventory that the company controls, including more specialised items, is kept at the central warehouse. Additionally, it restocks the branch warehouses as needed. The combination of centralized and decentralized inventory is made possible and more effective than it would be without WareIQ's cutting-edge technologies, such as advanced computing, machine learning, AI, and big data. With WareIQ, What Does Having Such a Decentralized Inventory Mean to Your Brand and Service? Benefits to business and consumers for having a decentralized inventory with WareIQ are as follows:  Faster Pan-India delivery with better shipping timeline/tracking. Data-driven optimization of your business. Efficient and smart inventory placement powered by the philosophy of "supply where there is demand". Helping meet the customers' expectations of an Amazon-level service.Reducing cancellations due to delays in delivery.  Managing a central warehouse is cheaper but it comes at the cost of the cons we have discussed earlier. Outsourcing the decentralization of your inventory to a platform like WareIQ can actually bring down the overall costs as it improves business and customer retention. It also helps in achieving better operational efficiency- i.e providing superior services to the customers at the same cost. Also, managing local demand surges and scaling your business in new cities becomes easier. For a customer, it means faster delivery (within 1 day) and options like same-day pickups. They may no longer be bound to Amazon when they expect the same. It also increases their reliability and trust in the brand.  [signup] Centralized Vs Decentralized Inventory Management FAQS What distinguishes a centralized from a decentralized inventory system? A centralised inventory management system is one in which all activities are performed in one location. A decentralised inventory, on the other hand, is a method of inventory control in which goods are moved from a central office to various places that are close to the client. What impact does decentralized inventory have on the inventory control system?A decentralized inventory setup enables quicker customer delivery times if you have many clients dispersed across a big area. Because local consumers might prefer picking up their item to having it transported, it can also enhance customer service. Which is better Centralized or decentralized inventory?Decentralized inventory systems function well if a company has a sufficient number of competent employees who can act promptly. On the other side, centralization of power is favoured if management staff are followers and lack initiative. What's a good illustration of decentralized inventory businesses?Hotels, supermarkets, apparel showrooms, and other businesses are good examples of decentralized inventory businesses. because it is impossible for one individual to concentrate on several places that can be located all over the planet. Why do businesses decide to decentralize their inventory?As their businesses grow, organisations frequently decide to decentralise their inventories. With more items being sold, it may become impossible for one manager, or a small group of managers, to supervise the entire business.

June 29, 2022
How to Improve Regional Utilization and Optimise Demand-Based Inventory Distribution in 2024 for Faster eCommerce Fulfillment with Accuracy & Lower Inventory Holding Costs?

How to Improve Regional Utilization and Optimise Demand-Based Inventory Distribution in 2024 for Faster eCommerce Fulfillment with Accuracy & Lower Inventory Holding Costs?

Brands must provide faster deliveries and effective order fulfillment as competition in the eCommerce sector heats up. It is essential to be able to predict demand effectively and keep inventory levels in line with consumer demands. The amount of time it takes an eCommerce business to deliver an item to a customer's door has a significant impact on how customers perceive a brand. It is essential for both small and large businesses to fulfill orders quickly and accurately if they want to grow their eCommerce consumer base. Smaller brands must increase their consumer base through flawless order fulfillment while larger companies and international brands must preserve their brand reputation and existing customer base. To make delivery quicker and more cost-effective, eCommerce businesses are practising regional utilization. Optimizing regional utilization can help ecommerce businesses reduce shipping costs, improve delivery times, and increase customer satisfaction. It can also help businesses better manage their inventory and reduce the risk of stock-outs or overstocking. Let us get a better understanding through this article. What is Regional Utilization? Regional utilization (RU) is an eCommerce calculation term which reflects the percentage of local and zonal order fulfillments out of the overall order fulfilment. It is a measure of how well the fulfillment center is able to meet the demand for orders within a specific geographic area. Giant eCommerce players consider regional utilization (RU) as a significant factor in determining the seller account status. Electronic brands and sellers often prepare their stock for some of the most awaited eCommerce season sales like Amazon’s Great Indian Festival or Flipkart’s Big Billion Day. Regional utilization (RU) ensures faster delivery and reduces additional logistic costs. [contactus_lilgoodness] How to Calculate Regional Utilization? To calculate regional utilization, you will need to gather data on the volume of orders being placed in a specific region and the efficiency of your fulfillment center in servicing those orders. Here is an example of how you could calculate regional utilization: Gather data on the volume of orders being placed in the region. This might include the number of orders placed per day, week, or month and the average order size.Gather data on the efficiency of your fulfillment center in servicing those orders. This might include the number of orders being fulfilled per day, week, or month, as well as the average time it takes to fulfill an order.Calculate the regional utilization rate by dividing the number of orders fulfilled by the fulfillment center by the total volume of orders placed in the region. For example, if your fulfillment center is fulfilling 1,000 orders per month in a specific region, and the total volume of orders placed in that region is 2,000 per month, your regional utilization rate would be 50%. This means that your fulfillment center is fulfilling half of the orders placed in the region. The following illustration shows the regional utilization (RU) formula: Let's see, with the help of an example, how regional utilization (RU) is calculated. Suppose you have 10 fulfillment centers across India and the following factors are at play: You received 25 total orders in the month of July, 5 from New Delhi, 5 from Mumbai, 5 from Bangalore, 5 from Pune and 5 from Chennai. Out of 25, you managed to fulfill 15 orders locally. Therefore, your regional utilization (RU) = 10/25 X 100 = 60% Why Should an eCommerce Business Figure Out Their Regional Utilization? Businesses calculate regional utilization (RU) for a variety of reasons, including: To Get Faster Order Fulfillment When inventory is stored in close proximity to your customers, their orders can be fulfilled at a faster rate due to the less amount of distance that needs to be traversed and less time needed to travel that shorter distance. For instance, if your company has fulfillment centers located in Mumbai and Pune and you get the majority of your orders from those 2 cities, fulfilling orders will be much faster than if your fulfillment center was located in Nashik.‍ To Achieve a Lower Amount of Returns If there is an unforeseen delay in the fulfillment of an order or delivery timelines are generally longer due to the physical distance between the fulfillment center and the customer, there is a higher chance of customers initiating a return. When businesses take advantage of regional utilization, they reduce the wait time that customers have to endure and thus, reduce the number of returns that are initiated. ‍‍To Save on Shipping Expenses By making use of regional utilization, you can save immensely on your shipping costs because prices increase along with distance and if the distance is shortened due to goods being located to the customers that order them, shipping expenses automatically decrease. To Increase Profit Margins Regional utilization not only reduces shipping and logistical expenses, it also increases the efficiency of fulfillment operations, including saving money on returns management. All these elements when put together lead to an overall increase in your company’s profit margins. Some more important uses of regional utilization are listed below: Finding the inventory allocation across the country according to demandCreating a successful strategy for effective deliveriesChanging to a low-cost shipping moduleIncreasing product visibility better helps your seller account on online marketplaces to perform better Reducing RTOsIncreasing customer satisfaction by meeting their expectationsOffering same-day deliveryStoring different inventory items at different locations as per their order volumes 7 Ways to Improve Regional Utilization & Optimise Demand-Based Inventory Distribution in 2024 To improve regional utilization (RU), eCommerce businesses can adhere to 6 methods mentioned below:  Keep Warehouses at Multiple Locations A centralized warehouse is easy to manage, but it increases the cost and delivery time, affecting your revenue and customer satisfaction. It is always better to have decentralized inventory at multiple warehouses across the country to reach customers faster, that are located in any nook and corner of the country. Use a Demand-Based Inventory Model Source Instead of keeping all of your inventory in a single warehouse, consider using a demand-based inventory model that allows you to store inventory closer to your customers. This can help reduce shipping times and costs, and improve regional utilization. Have a Trained Resource Pool of Warehouse Operations & Delivery Personnel Trained human resources in warehouse management & last-mile delivery can make regional utilization easy, as they will ease operations and smooth your delivery processes. They can personally handle any task with great effectiveness. Opt to Partner with 3PL Partnering with a trusted 3rd party logistics company helps you to take more and more orders and then easily fulfill them. A few fulfillment partners come with the feature of same-day and next-day delivery and have micro fulfillment centers scattered across the country, which increases regional utilization. Never Risk Stock-Out of Inventory Always keep a minimum amount of inventory with you to deliver orders swiftly instead of risking stock-outs. MOQs, reorder quantity and reorder level can help you to avoid stock shortage and purchase it as per your demand, in addition to improving regional utilization. Optimize Data and Forecast Demand Data is the equivalent of gold in the digital market. In today’s world, every business is collecting leads. Data will help your company to forecast its demand and improve regional utilization to offer better order fulfillment. You will not be overloaded with inventory or face shortages during seasonal sales. (You can learn more about this here, seasonal demand) Look at data on where your orders are coming from, what products are selling the most, and when orders are being placed. This will help you understand your demand patterns and identify opportunities to optimize your inventory distribution. Use a Warehouse Management System A Warehouse Management System (WMS) is a high-tech software mainly used for warehouse management. It automates multiple warehouse processes which makes fulfilling orders faster and less prone to errors and mistakes. Inventory across multiple fulfillment centers and sales channels can be managed from a single dashboard. Suggested Read: 6 Steps for Effective Physical Distribution Conclusion: How to Optimise Inventory Distribution and Regional Utilization with WareIQ for Faster Order Fulfillment? Regional utilization (RU) is now the standard industry indicator for measuring the effectiveness of eCommerce companies, whereby shipping orders from the same area might greatly raise the market's profit margin. An increase in regional utilization (RU) can address the unbalanced dynamics of supply and demand, enabling quick fulfillment, significantly reducing shipping costs and enhancing the customer experience. By focusing on regional utilization, businesses can reduce shipping costs, improve delivery times, and increase customer satisfaction, which can all contribute to long-term success. We at WareIQ personalize your deliveries according to their demand, priority, locations, etc. We offer branded shipping and micro fulfillment centers across the country to enable regional utilization in most cities and towns. WareIQ is an eCommerce fulfillment platform that offers Prime-like logistics to online brands for same/next day delivery. You can split your inventory in-house or you can use a tech-enabled 3rd party fulfillment company like WareIQ to get access to fulfillment facilities that are strategically placed all over India. We combine a nationwide fulfillment & shipping network, a highly-skilled warehouse operations team and our vertically integrated tech platform & inventory planning product to drive: Over 30% accelerated sales with same/next day delivery options across 20+ marketplaces/D2C platforms80%+ regional utilization & 40% lower holding costs100% compliance with marketplace SLAs with 0% leakage claims in processing returns Regional Utilization: FAQs What is multi-warehousing?Multi warehousing is a means of having different warehouses in prime locations handled from a single platform. It is unlike conventional centralized warehouses where all the inventory is kept and then distributed from there. This strategy is often used by ecommerce businesses that have a large number of orders coming from different regions or that sell a wide variety of products. What is the role of WMS in Regional Utilization (RU)?One role of a WMS in regional utilization is to help businesses optimize their inventory distribution. A WMS can provide real-time visibility into inventory levels across multiple warehouses, allowing businesses to better understand where their inventory is located and how it is being used. This can help businesses make more informed decisions about where to store their inventory and how much to keep on hand.A WMS can also help businesses optimize their fulfillment processes by providing tools for managing orders, tracking shipments, and managing returns. For example, a WMS might provide features like order routing, which can help businesses route orders to the most appropriate warehouse based on factors like inventory levels, shipping costs, and delivery times. This can help businesses improve their regional utilization by ensuring that orders are being fulfilled as efficiently as possible. How can Regional Utilization help eCommerce companies?Order fulfillment from a local warehouse, results in improved regional utilization to smart inventory allocation across different warehouses which,i) Saves 25% in additional logistical expenses per pieceii) Leads to faster deliveries, increased conversions and visibility in marketplaces.iii) Decreases return rates as a result of quicker delivery Does WareIQ help in demand-based inventory distribution?Yes, WareIQ provides a fulfillment platform with a multi-layered solution providing inventory & network planning excellence. With WareIQ’s vertically integrated tech platform & inventory planning product, online and D2C brands & marketplaces like TCNS, Blissclub, Flipkart fashion etc, have experienced more than 80% regional utilization with 40% lower inventory carrying costs.

June 29, 2022
Reorder Quantity Formula: Complete Guide Including Definition, Importance, and 3 Easy Steps to Calculate Reorder Quantity in 2024

Reorder Quantity Formula: Complete Guide Including Definition, Importance, and 3 Easy Steps to Calculate Reorder Quantity in 2024

The inventory of an eCommerce business is its most important asset and one of the most complex and crucial facets of operating an online store is inventory management. Additionally, it gets harder to keep track of stock levels with the more SKUs you have. Without effective inventory control, you can face situations such as overstocking products, which might expire or become outdated before you sell them and running out of stock, and losing clients and sales opportunities. It takes the right balance to have the proper quantities of a product. The reorder quantity formula is used by eCommerce companies to calculate this. Generally, they use the economic order quantity (EOQ) formula to reduce the cost of transportation, warehousing space, stockouts, and overstocks so that they can determine the ideal order amount. One of the best techniques to calculate the number of goods you need to purchase to maintain the proper stock levels is using the reorder quantity formula. Let us go into detail to understand what it entails. What is Reorder Quantity? Reorder quantity is the total amount of units of a product that you seek from a manufacturer or supplier for an inventory replenishment purchase order. The precise number shouldn't be too high so that you have too much capital invested in inventory and subsequent increased storage costs but it also shouldn't be too low so that there isn't enough safety stock and you have the danger of running out of inventory before you can order the next batch. The ordered amount or number of units must be optimal while taking into account a variety of elements, including the cost of the order, the cost of transportation, the cost of transporting the order, etc. The reorder quantity strikes the best balance between a number of variables, including quantity discounts, freight, storage expenses, and the need for working capital. [contactus_gynoveda] 3 Easy Steps to Calculate Reorder Quantity Using the Reorder Quantity Formula Determine Average Daily Usage Average daily use refers to the number of your product's units that are sold each day. Usually, thirty days is a common timeframe but it changes during different seasons or festivals. For instance, if you need to place an order for a product before a festival, your ADU should be determined using that festival’s ADU from the previous year. Calculate Average Lead Time Average lead time refers to the time span between when a supplier receives a purchase order and when they deliver it to the seller's warehouse or fulfillment center. The average lead time is calculated in days. If you reordered inventory on 1st January, your average lead time is 30 days if it is available to be used to fulfill customer orders by 30th January. Calculate the Reorder Quantity You can determine how much inventory you need to reorder by multiplying average daily use (ADU) and average lead time (ALT). Let's have a look at how to determine the reorder amount for a specific product: -ADU is 25 -ALT is 30 days Your reorder quantity using the reorder quantity formula will be: =ADU X ALT =25 X 30 =750 Recalculating your reorder quantity frequently is advised, especially as your order volume rises and if you sell seasonal items. When the reorder level is determined properly, replenishment stock should arrive immediately before the number of units of the existing stock drops to zero. Why is the Reorder Quantity Formula Important for 2023? Helps to Avoid Stockouts Lost sales result from low inventory. Backorders and split shipments are always an option, but they don't provide a seamless consumer experience. Reorder quantity allows you to order just enough to fulfill orders until your next purchase, while reorder level allows you to secure a recovery in time before your inventory runs out and helps handle stockout. Assists in Minimizing Expenses Additionally, you should avoid overstocking your inventory which will ultimately block your capital. You will need to expand your warehousing storage capacity or opt for storing items in multiple warehouses if your stock levels are too high. By estimating reorder quantity, you will be able to maintain just the right amount of inventory which will result in lower storage costs, less wastage, and fewer operational costs. Helps in Managing Inventory You can set up notifications in your inventory management system, allow live inventory tracking, and manage changes in demand over time when you know precisely how much to reorder and when you need to replenish by using the reorder quantity formula to calculate the reorder quantity you need. Example of Calculating Reorder Quantity You don't require reorder quantity calculator always, just using the 3-steps mentioned before we can calculate reorder quantity in a minute. To calculate your reorder level, multiply your average usage rate by the lead time for an inventory item. Be diligent while entering the time values you are using. If you are calculating average daily usage then put the lead time value in days. Suppose, Rajesh experiences an average daily sale of his items as 2500 units and the lead time for producing new units is 7 days, the re-order level will be: 2500 units x 7 days = 1,75,000 units.  When the inventory level of items is left at 1,75,000 units in stock, Rajesh needs to reorder and stock more units. By the lead time the additional units arrive in 7 days, the on-hand inventory balance may have reduced to zero. Reorder Quantity vs Reorder Points Reorder Quantity and Reorder Point are two essential concepts in inventory management. They help businesses maintain an optimal level of stock and avoid stockouts or excess inventory. Reorder Quantity (ROQ) refers to the amount of inventory that should be ordered each time a replenishment order is placed. It is typically calculated by considering factors such as demand rate, lead time, and desired safety stock level. The goal of determining the reorder quantity is to balance the costs associated with ordering and holding inventory. On the other hand, the Reorder Point (ROP) is the level of inventory at which a replenishment order should be placed to avoid stockouts. When the inventory level reaches the reorder point, a new order should be placed to ensure that stock arrives before running out of inventory. While the Reorder Quantity determines the amount to order, the Reorder Point indicates when to place the order. These two concepts work together to ensure a smooth and efficient inventory management process. Reorder Quantity VS Reorder Level: 4 Key Differences Differences Between Reorder Quantity and Reorder Level are listed down here; Comparison Chart [table id=32 /] We Hope, this table of reorder quantity vs reorder level made the concept clear. Helps to Avoid Stockouts Lost sales result from low inventory. Backorders and split shipments are always an option, but they don’t provide a seamless consumer experience. Reorder quantity allows you to order just enough to fulfil orders until your next purchase, while reorder level allows you to secure a recovery in time before your inventory runs out and helps handle stockout. The latter is calculated using the reorder point formula.  Conclusion: How Does WareIQ Help eCommerce Firms to determine their Reorder Quantity Accurately? For an eCommerce business to be managed successfully, knowing how much inventory to repurchase is the most important question to answer. With the help of the reorder quantity formula, you know that your incoming and outbound logistical workflows are being improved by ordering the proper quantity of goods. With the help of WareIQ, eCommerce businesses can manage inventory, forecast demand, pack orders, lower shipping costs, and fulfill customer expectations. We will optimize your data in real-time, automate your reordering quantity and move your inventory to relevant warehouses that are nearest to high-demand locations and transportation hubs if you choose us to store goods in our fulfillment centers. WareIQ helps brands improve their shipping strategy with a nationwide network of fulfillment facilities and technology that is integrated with the leading eCommerce platforms. Reorder Quantity Formula: FAQs (Frequently Asked Questions) How do you calculate optimal reorder quantity?The formula to calculate your optimal reorder quantity is:[{2 X (Annual Usage in Units X Setup Cost) / Annual Carrying Cost per Unit}^(1/2)] How do you calculate inventory to be reordered?The formula to calculate the reorder level of stock is:Reorder Level = Minimum Stock + Average Consumption During Normal Delivery Time What is the reorder level in inventory?The inventory level at which a company should place a buying order to top off its stock is determined by the reorder level formula. When the reorder level is determined properly, replenishment stock should arrive immediately when the amount of existing stock drops to zero. What is the reorder quantity?Reorder quantity, also known as the reorder point, is the quantity of an order to be placed for purchasing a specific item that needs to be restocked. It is based on the supplier's average replenishment period, the item's maximum usage during the replenishment interval and the need for safety stock. What is the reorder point formula?While reorder quantity refers to the number of products ordered from a supplier, reorder point refers to the minimum stock level at which new orders should be placed. The reorder point formula is:Reorder Point (ROP) = Demand During Lead Time + Safety Stock What is FAQ?Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat.

June 27, 2022
How to Calculate Reorder Level? Definition, Advantages, and Easy 5-Step Calculations for the Reorder Point Formula in 2024

How to Calculate Reorder Level? Definition, Advantages, and Easy 5-Step Calculations for the Reorder Point Formula in 2024

By being able to execute proper business calculations, eCommerce retailers can advance in their goals. In the eCommerce industry, knowing when and how many products you require to fulfill orders is crucial. One method to show your aptitude for forecasting inventory and assisting your business in maximizing profits is by performing these calculations precisely and efficiently. Timing and the amount of inventory ordered should be accurate. If you have all the data, you can automate the re-ordering process. Today we will go into detail about the reorder level and how to calculate it using the reorder level formula, examples in different scenarios to maintain your inventory needs, and much more. What is a Reorder Level? Reorder level, also known as reorder point in management accounting, is the inventory level at which a business would place a new order or begin a new production run. Reorder level is influenced by a company's lead time for work orders, demand during that period, and whether or not it should keep a safety stock. The time it takes the company's suppliers to manufacture and deliver the ordered units is known as the work-order lead time. It is critical to determine the appropriate reorder level. A company may receive the ordered units faster than anticipated if it places a fresh order too soon and this could result in increased carrying expenses such as storage rent, opportunity costs, etc. Conversely, if an order is placed too late, the company would incur stock-out expenses, such as missed sales and customer dissatisfaction. [contactus_uth] Advantages of Reorder Level A conventional advantage of reorder level is to avoid stock shortage. Reorder levels are important since they enable a company to increase productivity and perhaps even revenues and profits. This is due to the fact that acquiring the right quantity of inventory can help the company run effectively while avoiding uncertainties like product waste.  Reorder levels that are precise also aid in lowering carrying costs and other costs related to storing inventory. Rent, insurance, and potential spoilage are some carrying expenses that can be avoided or decreased with prudent ordering levels. Reorder level calculations are another useful tool for ensuring uniformity among team members when several people are in charge of issuing orders. The stock requirements are automatically activated at the order point. You may optimize your inventory list and reduce administrative time by using the reorder level model, which is a helpful decision-making tool. This reality enables you to concentrate on bringing value to your company while letting the system function on its own. Using this system has a number of benefits, including: Providing better service to both internal and external customersPreventing delays throughout the supply chainLowering the inventory costMaximizing the space in your inventoryStaff members focus on value-added tasks while saving timePutting facts and evidence in front of speculationForming a communication bridge between seller and manufacturerAvoiding overstockingAvoiding getting the items too earlyPreventing your capital from getting held upMaking inbound and outbound logistics more efficient Reorder Level Formula: Calculation in 5 Simple Steps in 2024 Reorder Level or Reorder Points can be calculated in 5 Easy Steps explained below; Determine Your Average Demand The very first step is determining the average demand for a product or material. This refers to how many units of a specific commodity you sell or utilize over a certain period of time. There could be several retail items you require each day, week, or month, such as dishes, shoes, laptops, etc. You might also need a specific quantity of manufacturing material over time. Because demand may change from one period of time to the next, try estimating your inventory utilization over several of your chosen time periods and calculate the average of those results. This might be especially true for businesses or products that depend on outside factors. Calculate Your Lead Time The lead time is the period of time between when you place an order till the time you receive the shipment of goods. Use the same time unit (days, weeks, months, etc.) that you used to establish your average demand to calculate your lead time. You should calculate your lead time in days if your average daily demand is 100 goods. The wait time would be measured in weeks if your demand was 100 products per week. If deliveries are regular, you can generally automatically establish your lead time by looking up your order and delivery history. If delivery times are unpredictable, get the average lead times of a large number of orders. If outside circumstances affect how long it takes to get a delivery, use alternative lead times. Decide if You Should Keep a Safety Stock Determining whether you maintain a safety stock or not, depends on your preference. You will have to use a different formula for your reorder level for different situations. A business may retain some goods or materials on hand as safety stock in case certain circumstances arise, such as an unexpected spike in demand or a delivery problem. If you want to know if your inventory needs a safety buffer, compare the amount of stock you maintain on hand versus the amount you sell or use. You can also work with a business executive to determine whether your organization has a policy of maintaining a safety stock on hand and whether you should factor this into your reorder level. Any adjustments you might make or recommend making to your inventory levels should be communicated clearly. Use the Reorder Level Formula Calculate reorder levels with the proper formula using your average demand, lead time, and safety stock. The formula is as follows: Reorder Level Formula = (Average Demand × Lead Time) The formula in case safety stock is kept by the company: Reorder level = [(Average Demand × Lead Time) + Safety Stock] Your average demand and lead time should be calculated in the same unit of time. Your lead time should be calculated in days if your demand is calculated in units of products per day. Your lead time should also be measured in weeks if your demand is too. To ensure accuracy, think about working on your calculations simultaneously or asking a teammate to do so. You can also read this detailed article on Reorder Quantity Formula. Assess and Adjust as Required Finally, review your reorder level calculations and make any necessary adjustments. You might need to adjust your reorder level to account for the increased demand if, for instance, you find you are running low on the item before your next purchase comes in. You might need to modify your reorder level if orders start showing up with time changes. Determining a Fixed Reorder Level Stock While determining a fixed Reorder Level Stock the following factors are involved: Rate of Material Consumption It is the amount of material or number of items you sell in a lead time period. The material and items are averaged as per the duration of the time frame taken. Safety Margin Before you calculate the reorder level, you should keep a safety margin of stocks with you in case of higher demand than the average demand level.  Delivery Period or Lead Time The average delivery period or average lead time is the time taken to get the stock after placing an order to your merchant or directly to the manufacturer. Maintaining a Minimum Stock Level Minimum stock level maintenance specifically helps small and medium-sized sellers and sellers who have limited storage space in different locations. This keeps your business supplied with stock and helps avoid uncertainty in inventory. Storage Fees and Interest on Materials-Related Capital Investments This is the crucial part to think about. You may calculate and order inventory as per your demand and your capacity to fulfill orders. This is not applicable if you have your own storage facilities but if you partner with a 3PL fulfillment company and use their fulfillment centers to store inventory, you will have to pay monthly subscription fees or for the amount of storage you are utilizing. Having an Emergency Fund Keep aside an excess amount of capital in liquid form to tackle uncertainties like machine breakdowns, supply-chain failures, increases in rates, etc. Many times, work is on hold in the logistics chain because of payment dues for certain processes. Read how should you plan your logistics in eCommerce. The Reorder Level of Stock Calculation in Different Circumstances Case 1 – Without Safety Stock Mr. Sanjay’s bookstore sells 200 books on average in a week. The maximum demand in a week is 217 laptops. If the lead time is 3 weeks then the reorder level calculation using the reorder level formula would be: Reorder level = Maximum usage(weekly) × Lead time (in weeks) = 217 units × 3 weeks = 651 units It means that every time the number of books decreases to 651, Mr. Sanjay’s bookstore must place a new order. Case 2 – With Safety Stock Suppose you are a bike seller with the following figures: Demand Minimum Demand: 40 bikes per month Average Demand: 50 bikes per month Maximum Demand: 60 bikes per month Safety Stock: 15 bikes Lead Time Minimum Lead Time: 1 month Average Lead Time: 1.25 months Maximum Lead Time: 1.5 months The reorder level of your outlet using the reorder point formula would be: Reorder Level = (Maximum Demand × Maximum Lead Time) + Safety Stock = (60 units × 1.5 weeks) + 15 units = 90 units + 15 units = 105 units Note: Both demand and lead time must be expressed in the same time unit, i.e., in days, weeks, etc. Modified Reorder Level Formula The amount of reordering presumes a constant pace of inventory consumption, which is usually false. For instance, if usage levels fluctuate often, the reorder level will be too low, resulting in a lack of inventory when it is required for production. On the other hand, this reorder procedure will result in having too much inventory on hand if actual usage decreases. It might be helpful to account for extra stock on hand and replace the average daily usage rate with the maximum daily usage rate in the reorder point formula in order to prevent stock-out situations. The revised reorder level formula is as follows: | [(Maximum Daily Usage Rate x Lead Time) + Safety Stock] | Conclusion: Choosing WareIQ for Faster and More Accurate Reorder Levels After understanding the importance of reorder level, it is understood that establishing reorder points is beneficial so that you can reduce your capital investments and make sure that your company is running as efficiently as possible in terms of both inbound and outbound logistics. The requirement for accurate data for supply chain planning and presenting a precise picture of customer demand is the most crucial and occasionally, most difficult aspect of effectively calculating reorder levels. You could wind up with too much or too little stock if the data is incorrect and the calculation is wrong. WareIQ can help eCommerce firms to manage inventory, anticipate demand, pack orders, cut shipping costs, and meet consumer expectations. In case you seek to store inventory in multiple WareIQ fulfillment centers, we will automate your reordering levels, optimize your data and reshuffle your inventory to relevant warehouses that are close to high-demand locations and transport hubs. WareIQ assists brands in enhancing their shipping strategies with a network of fulfillment centers spread out across the country and technology that is integrated with the top eCommerce platforms. Reorder Level Formula FAQs How do you calculate reorder level?The reorder point formula is used to calculate reorder levels which is as follows:Reorder Level = [(Average Demand × Lead Time) + Safety Stock] Why is the reordering point important?Effective inventory management requires a reorder point. Ensuring that there is always enough stock in your inventory reduces holding costs and avoids stockouts, overstocking and lost sales. What is the Safety Stock Formula?The safety stock is calculated by multiplying your desired service factor, which represents the amount and frequency by which the average lead time deviates from the actual lead time. What is the EOQ Reorder Level?The Economic Order Quantity or EOQ reorder point is a formula used to calculate the number of units of inventory to order by which the lowest possible total order cost occurs.

June 24, 2022
Definition, Importance and 5 Step-By-Step Processes of Stock Reconciliation In 2022

Definition, Importance and 5 Step-By-Step Processes of Stock Reconciliation In 2022

It is sometimes likely that the inventory counts in your records and the actual amount of products on your shelves don't always match. This mismatch, while frequent, can have a significant impact on your organization. To avoid stockouts and guarantee that your consumers get what they need when they need it, you need to know how many goods you have in stock and how much stock you need for the future. You can employ stock reconciliation to determine the stock discrepancy between what's in your records and your warehouse and then make modifications to bring your figures into line. This is a critical step in ensuring that inventory is ordered as needed and that things are readily available for sale. In this blog, we will take a detailed look at the meaning of stock reconciliation, its importance, the processes involved in doing and the challenges faced while doing it. What is Stock Reconciliation? Stock reconciliation refers to matching inventory data to real-world inventory items in is stored in your business’s warehouse or fulfillment center. To do so, prepare a stock reconciliation report that accurately displays your current inventory and includes or disposes of stock items from the database. This is an essential step since it aids in the reduction of stock disparities and helps in understanding why they exist in the first place.Inventory reconciliation should be done regularly to guarantee that all inventory is accounted for.An inventory reconciliation report compares the business's written inventory records to the physical goods in storage. If this data doesn’t match, the report can assist in determining the cause of the issue.If you cannot find the cause of the difference, you should update the written inventory records to reflect the actual inventory level and the necessary accounting entries that need to be made. [contactus_gynoveda] Importance of Inventory Reconciliation There can be dire consequences for the business when the records do not match the physical inventory. Even with the best inventory management and control technology, inventory shrinkage to some extent is inevitable. There's no denying that human error and blunders are to blame for part of this shrinkage.  The quality of the data recorded and handled in the inventory control system determines the accuracy of the information. Inventory reconciliation allows you to keep track of shrinkage and search for symptoms of greater problems such as dwindling customer demand or employee theft. Performing an inventory reconciliation helps your business to keep inventory organized and is important for the following reasons: It ensures your written records for inventory figures are accurate by aligning these records to those obtained via a physical check.It ensures that all kinds of stock are separately recorded and included in the written records.It helps in tracking your inventory more seamlessly to prevent incidents such as theft and manual errors.It provides a starting point for investigating the differences between inventory-in-hand and inventory purchased from suppliers by identifying the source of these differences through the use of item characteristics.Businesses find it helpful in judging their stock-loss percentage compared to prevalent industry rates. 5 Step-by-Step Processes Involved in Stock Reconciliation  Inventory reconciliation is more complicated than just changing the numbers in your books to reflect the amount of inventory in your warehouse. There are a variety of explanations for the discrepancy in the figures and you must figure out what's going on, which can be done in the following ways: Step 1: Make a Note of Your Actual Inventory Count The number of items a business has on hand is known as physical inventory. The number of actual objects on your shelf is the one definitive thing that cannot be disputed.Businesses should arrange a time for qualified management to do physical inventory counts and double-check their data.Check your physical inventory count before browsing through your records. This may be accomplished by devoting a day or two to calculating the number of items in your inventory.This is crucial since it becomes conceivable whether the inventory was originally miscounted or recorded incorrectly. Furthermore, if you're distributing goods between different sites, the physical inventory count may be lower than the figures in your books. Step 2: Perform a Side-by-Side Comparison of Physical Inventory and Inventory Records Compare your real inventory numbers to existing inventory records once you've recorded them. You should double-check that these numbers match the physical location of each item on your shelves.You'll find out whether there are any inconsistencies during this procedure. Several factors might cause a discrepancy between your physical inventory count and your inventory management count, some of which are listed below:Paperwork that has gone missingHuman errorsMathematical miscalculationsUnlisted items Scrap itemsFraud by suppliersItems that belong to a consumer or a supplierItems that have expired and thrown away You have to look into all options to determine the root of the problem, note what's causing the disparity, and make the necessary changes to your processes and records to prevent the same problem from occurring again. Step 3: Analyse Purchases and Sales of Inventory Since the Previous Reconciliation If you've done a stock reconciliation before, go back and check if any inconsistencies were discovered that might explain the discrepancy in figures during the current reconciliation.Compare your inventory reconciliation findings to previous ones. This can help in identifying trends and patterns, as well as the identification of areas that need more research. This is especially useful if any difficulties need to be addressed. Being aware of these problems and issues allows you to concentrate more attentively on those specific items, either averting future difficulties or supporting you in finding the cause of the issue. Step 4: Remove Any Disparities That May Exist It's up to you to decide how much shrinkage is acceptable in your company. It may be more time-consuming and costly to identify the reason for the loss rather than move on if the quantity or value of lost items is low enough to make an exception.If you need to identify the cause of it, start with your systems and personnel.If you're using a contemporary inventory or retail management platform, you may simply update the products in your system to reconcile your records.While this causes an abrupt pause in your inventory statement, it does allow you to build a general ledger that will serve as the formal beginning point for future inventory.Steps in the recording process are frequently overlooked at the warehouse, on the store floor, and while updating it on the inventory management software used by the company.It is a good idea to interview the people who are in charge of each phase to see if there's a reason for the disparity that can be rectified.If you can't figure out what's causing the disparity, consult with your team and identify each metric that could have caused it. Step 5: Repeat the Process of Reconciling Inventory Consistently  The advantages are lost if inventory reconciliation is not performed regularly.Regular stock reconciliation improves data accuracy and lowers inventory costs.Inventory reconciliation is only effective if you verify your stock regularly. As a result, you'll get more accurate data over time and can reduce inventory loss, saving you money in the long run.Inventory reconciliations should be done regularly and the frequency should be based on what is best for your company. They can be time-consuming, so factor in any delays, sales halts, and labour expenses. Challenges to Stock Reconciliation Can be Time Consuming Inventory reconciliation is time-consuming for every business, and no matter how frequently you count, you'll have to tolerate certain amounts of unforeseen shrinkage due to factors such as damage, expiry, goods lost in transit, and many others. Frequent stock reconciliation can result in delays in delivering orders to customers and purchasing fresh stock that is needed to fulfill those orders. Disruption in Operations The place where you count your stock should be kept separate. This entails having access to a large warehouse or operational space to prevent the suspension of all inbound and outbound product movement is suspended for long periods of time. However, since it is already a struggle for many retailers to find enough storage space to fit in their existing inventory, this can be a challenge, as they often use third-party warehouses which don’t facilitate large sections that can be separated specifically for counting purposes.  Use of Incorrect Weightage Factors The usage of incorrect weightage factors is a widespread issue that causes multiple monetary issues. When dealing internationally, for example, measuring a liquid in litres rather than in gallons or the other way around is often overlooked. This can cause confusion when noting down the dimensions of the product, especially if employees are not well versed in units of measurement and if the company deals in importing or exporting goods to other countries that use different metrics of measurement such as the US and Canada. Difficult to do Without Advanced Software If an order management system isn’t implemented, tracking replacements, refunds, and backorders make stock reconciliation problematic. In today's world, using excel or similar basic spreadsheets introduces unneeded difficulties due to a lack of relevant features that are needed. Even though these solutions have worked quite effectively for a long time, a more comprehensive package is required in the current market. They aren't responsive enough to manage a wide distribution network and other peripheral aspects of the firm. They provide many opportunities for human mistakes and there is no base structure for spreadsheet reconciliation reports. Additionally, if a business stores inventory in multiple warehouses and sell products on different platforms, the only way to manage the movement of inventory accurately is to use inventory management software. Manual Errors and Mismanagement of Inventory Many of the common causes of the disparity between inventory records and physical inventory counts are due to manual errors while entering the data or mismanagement of resources which leads to inventory shrinkage, stockout situations, overstocking, wastage, and much more. These factors have an adverse effect on business operations and are difficult to mitigate unless a major management and staff overhaul is done if the problem occurs frequently because it can be difficult to ensure that every item is being counted and added correctly. Conclusion Managing inventory should be a key priority when a firm starts to grow. Taking the effort to reconcile inventory acts as a quality check for existing stock systems and alerts the management team to any data inconsistencies. Managers may use this information to determine which inventory control systems to adopt to improve functionality and expand their business. The amount of money spent on stock mismanagement is reduced when an effective stock control system is implemented. While every organization's ability to raise selling prices is restricted, focusing on the bottom line is a good strategy. Inventory reconciliation is a valuable tool for reducing losses and streamlining procedures. The key to reducing inventory shrinkage is for all departments to participate in simplifying and optimizing their particular tasks effectively. You'll need to do inventory reconciliations regularly to keep track of your inventory statistics. Inventory checks provide several advantages, including saving money, reducing theft, and ensuring that your consumers get the desired items. If you need assistance with inventory reconciliation, you can check out WareIQ. WareIQ is one of India’s leading eCommerce fulfillment companies that utilize a strong technology infrastructure to provide a range of eCommerce fulfillment solutions, including inventory management and stock reconciliation. We give customers access to our advanced WMS that automatically tracks inventory across multiple fulfillment centers and selling channels, and automates multiple processes of inventory management to increase the speed and cost-effectiveness while reducing errors and issues. Stock Reconciliation: FAQs What is the goal of stock reconciliation?Stock reconciliation seeks to remove any disparities between inventory records and the physical inventory that is present in the warehouse.  What is a stock reconciliation report?A stock reconciliation report is a report that summarizes the findings of an inventory reconciliation and the results of it, which enables businesses to identify any disparities and ways to mitigate them. How can inventory discrepancies be prevented?Some of the best ways to prevent inventory discrepancies are:- Check for computation errors- Re-count stock- Check for expired or damaged products- Verify outstanding orders- Employ consistent units of measurement- Check for similar inventory in other locations- Verify that the SKU or product identification numbers are correct How can WareIQ help you with stock reconciliation?WareIQ grants customers access to our custom WMS that is able to track inventory across multiple warehouse locations and online marketplaces and automates multiple processes to ensure that physical errors are mitigated.

June 22, 2022