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 2023?
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 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, 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 2023? 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 2022
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
Inventory Cycle Count: A Detailed Guide Including Definition, Methods, Advantages and Processes in 2022
If you are an eCommerce seller, inventory becomes your biggest asset to invest in. Having inventory cycle counts is important because it can prevent losing out on sales and revenue. Inventory disparities are a problem that can be resolved relatively quickly. Every firm should strive to run accurate inventory cycle counts. For warehouse and returns management, general logistics and sales forecasting to be successful, accurate inventory counts are essential. Accurate cycle counting has an impact on almost every part of your company and its effects can last for years. It is a crucial component of inventory management procedures used by many firms since it ultimately ensures that consumers can obtain what they want when they want it while minimizing the costs associated with maintaining goods on hand. Today, we will learn about the method of controlling inventory through inventory cycle counts, what inventory cycle counting is, how it can improve your inventory accuracy to avoid stockouts and the best practices for implementing it. What is an Inventory Cycle Count? An inventory cycle count, also called cycle counting, is an inventory counting method that decreases the need for conventional audits by rotating product counts in a cyclical schedule. For large warehouses with a huge number of several distinct product types, inventory cycle counting is the preferred method. Cycle counting helps businesses operate effective cost-friendly and time-saving inventory counts. Inventory cycle counts are commonly referred for inventory cycle audits. [contactus_lilgoodness] Different Methods of Inventory Cycle Counting ABC Cycle Counting This approach is used for inventory counts that are based on the Pareto Principle when counting more expensive, faster-moving items. According to ABC cycle counting, 20% of the parts in a warehouse correspond to 80% of the sales. These are the "A" items (the "B" items make up 30% of the inventory and 15% of the sales and so on.). Your most valuable assets or fastest-moving SKUs might be "A" goods. Software for inventory control can classify the counts as A, B or C goods. Consider counting your "A" items more frequently while counting your "B" and "C" goods less frequently. You can use additional indicators like transactions and production figures to start ABC cycle counting. You can determine which products significantly affect your company's overall inventory cost using a variety of measures. Usage-Based Cycle Counting Any time an item is transferred (part of inventory transfer), whether it is through a manufacturer, distributor or eventually to the client, there is a chance that the inventory will vary. The most frequently accessed products are given priority in usage-based cycle counting to curtail that. Access could refer to being physically handled in any form, including being processed into or out of a warehouse. Hybrid Cycle Counting The usage-based and ABC counting techniques are combined in the hybrid cycle counting method to give the most frequently accessed, high-value items priority. When the ABC categories get too big, this approach is required. Managers can prioritize the A category products with the most traffic by further segmenting their ABC categories. These items' inventory volatility hurts the company's bottom line the most. As a result, it makes sense that leaders would want to concentrate on precise counts within this area. Control Group Cycle Counting Control group cycle counting is based on the idea of establishing a control group and then using the information to expand to bigger sets. Companies will count the same products repeatedly over a short period of time using this practice. This is done in order to identify counting problems, correct them and improve the counting procedure before applying it to a larger group of items. For companies that are new to inventory cycle counts, this strategy may be advantageous. It enables you to practice your cycle counting skills over time until they are suitable for usage on a broader scale. Random Sample Cycle Counting Random sample cycle counting works well for businesses that sell lots of similar goods. This method enables you to choose a random sample of objects for each cycle count. The advantage in this situation is that random sample cycle counting may be done during regular business hours and poses little inconvenience to your warehouse. As the item selection procedure is random in this configuration, certain items may be tallied frequently and others, infrequently. Diminished population, a subset of random sample cycle counting, is a different approach. Here, items are counted and then excluded from further inventory cycle counts until everything in the inventory has been counted. Geographic Cycle Counting The geographic counting approach emphasizes counting goods in a specific physical location. This approach, combined with random counts spaced at random intervals can assist in pinpointing issue areas like theft or damage. Advantages of an Inventory Cycle Count Enhances Productivity An inventory cycle count keeps track of your inventory by maintaining inventory accuracy and efficiency in a variety of areas which leads to better productivity and output. The following aspects of your business will benefit the most from conducting an inventory cycle count: Assists in Purchasing Purchase only what you need, to prevent jamming money on overstocked or unsold goods. Helps With Production Plan your production to meet your demand and produce the proper quantities at the appropriate time to prevent making products that will occupy storage space. Assists in Sales & Marketing Discuss with your sales team what is and is not selling. It will improve internal business relationships and generate more revenue as a result. Check on extra products and plan promotions to assist in generating sales. Helps in Financing An inventory cycle count is necessary for many accounting computations. Cycle counting makes it possible for you to run reports and calculate data with the assurance that there won't need to be any large recalculations throughout tax season. Saves Time and Effort Cycle counting is more efficient than lengthy annual inventory counts because it can break up the monotony of protracted inventory audits. Therefore, you generally won't need to close your business or ask your staff to skip work in order to count your inventory. Additionally, regular inventory cycle counts make it simpler to locate misplaced, harmed or stolen goods in a sizable warehouse inventory. Saves Monetary Resources An inventory cycle count will also help you save money. To fully count every item in your inventory, annual counts frequently necessitate overtime hours. Setting aside time in daily or weekly chunks to count groupings of goods works out to be more economical. Processes Involved in an Inventory Cycle Count Warehouses start inventory cycle counting to avoid the root causes of errors in tabulating inventory. After you complete a full physical inventory check o know and correct any discrepancies, you must use a regular counting program for maintenance. Steps during an inventory cycle count are listed below: Review Documents Starting with an accurate database is important. Review and correct all data entries for inventory transactions to start the inventory cycle count process. Upload the Inventory Cycle Count Report Make a report on the inventory cycle count. Upload the report to your database or software solution if you plan on conducting the count. Start the Inventory Cycle Count The report's inventory locations, summaries and numbers should be reviewed by a counting person, who should then contrast them with what is physically present on the shelves. Investigate and Correct Any Discrepancies Determine any differences discovered during the count and work with the stock manager to resolve them. Search for mistake patterns. Change Processes and Add Policies Whenever necessary, put any inventory counting policies or processes into action. For this, you may need to change some processes in your standard workflow. Update Records Update the inventory record database to reflect the items that are currently on the shelves. Calculate the Accuracy Percentage For this, first match your data with a standard inventory cycle count and other competitors. After getting the inventory cycle count, keep auditing the inventory regularly and get the accuracy percentage each time. Then compare them and identify the best practices. Conclusion: Automate Your Inventory Cycle Counts With WareIQ WareIQ automates your inventory counting process by utilizing advanced AI-based warehouse management system software to enable automated inventory counts and real-time inventory updates across multiple fulfillment centers and eCommerce platforms. The benefits of outsourcing inventory management to 3PL fulfillment experts like us are better accuracy and more efficiency. By storing your goods at WareIQ's nationwide network of fulfillment centers and entrusting the rest to our warehouse specialists, WareIQ enables you to completely outsource your entire inventory management process. As a result, you will not have to deal with the physical parts of your online store's inventory and can instead trust experts to precisely count and manage it. This greatly accelerates the process of inventory management while reducing any chance of errors occurring. You can benefit from a shorter order cycle time as a result, which might increase the number of days your inventory can be sold for. It also frees up your time so you can concentrate on the other operations of your eCommerce store. Inventory Cycle Count: FAQs How do you calculate the inventory cycle count?Divide the annual cost of sales by the average inventory level for the year to arrive at the cycle's calculation. As a result, if the company spent 100 days in total last year to produce its products and its average inventory time comprised of 20 days, its inventory cycle would be 5 days. How often should you count inventory?Once a year, a physical inventory count should be done. However, more frequent inspections can be fruitful. You may ensure that your inventory and your records match by periodically verifying your stock. Additionally, you will be able to see any issues with your record-keeping practices. What is the inventory cycle?The time it takes to generate and fulfill an order is known as the inventory cycle time and it is typically expressed in days. It basically gauges how quickly a business can finish the entire manufacturing or assembly process and transforming raw materials or components into a marketable product. Why is cycle count important?In cycle counting, fewer things are inventoried at once which involves inventory assessment with an automated system and maintains reliable data with a lower chance of error. Employees that are aware that inventory levels are appropriately updated frequently will not be tempted to steal. What is the 80/20 rule in inventory?According to the 80/20 rule, only 20% of effort, consumers or other units of the measurement result in 80% of the results. The rule says that businesses make about 80% of their revenue on 20% of their inventory.
July 27, 2022
How to Prepare Your eCommerce Inventory for Sales Season in 2023?
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 2023, 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 2023 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 2023 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 2023 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 2023, 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 2023 Inventory preparation during the sales season in 2023 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
Retail Replenishment: Why It Is Important? Strategies & Best Practices For Stock Replenishment In Retail Businesses
It has been observed that 88% of the businesses have experienced late shipping. In comparison, 34% of businesses ship orders late because the products are out of stock at the time of purchase, an essential element in the e-commerce supply chain that affects consumer loyalty and the entire brand experience. Ineffective stock replenishment significantly influences a retailer's gross margin return on investment (GMROI), resulting in lost sales due to out-of-stock or overstocking expenditures and markdowns. Although meeting customer demand has always been difficult, effective retail replenishment could reduce problems caused by inadequate planning and allocation. It is even more crucial for merchants to have a solid strategy for stock replenishment in retail businesses to live up to the modern customer expectations of inventory availability and quick order fulfilment. Let's identify the main aspects of stock replenishment before moving on to the methods and most acceptable practices of retail replenishment. What is Retail Replenishment for eCommerce Retailers? Retail replenishment, also known as inventory or stock replenishment, focuses on ensuring the business places new orders from suppliers in time to satisfy consumer demand. Retail replenishment may also refer to shifting inventory from reserve storage to primary locations so that it can be utilized to complete orders for retailers, distributors, and manufacturers with numerous inventory storage facilities. Businesses may benefit from effective retail replenishment, including preventing stockouts and overstocking, lowering shipping costs, and increasing consumer happiness. Unfortunately, the stock replenishment process in retail enterprises may be exceedingly complicated despite being crucially critical for firms holding hundreds or thousands of inventory items, partly because things may need refilling at various periods and rates. Companies that sell through many channels and need to manage inventories for each may find the issue particularly acute. In addition, retail replenishment is complicated and dynamic, making paper-based manual procedures quickly obsolete. Due to this, manufacturers, distributors, and retailers are increasingly utilizing technology to improve their organization's overall view of their inventory situation and to automate the replenishment process. [contactus_uth] Why is Stock Replenishment in Retail Important? Stock or retail replenishment is a crucial procedure that directly affects an online brand's capacity to satisfy consumer demand, complete orders, and generate revenue. The following three points explain why retail stock replenishment is crucial for shops. Prevent Stockouts A stockout, or having things that are out of stock at the moment of purchase, is possible if a retailer does not replace inventories properly. Backorders are another possibility, which indicates that an order has a set shipping date for the item. Unfortunately, backorders and stockouts may both make your consumers extremely angry. Having safety stock, a set quantity of backup or emergency inventory on hand at all times is the best approach to prevent typical stockout concerns. This is also a smart move in case of sudden supply chain problems. Eliminate Overstocking A clever retail replenishment procedure may also aid in preventing overstocking of items with expiry dates, such as food and drink or cosmetics, which may become unsellable if left on the shelf for an extended period. Overstocking can harm your bottom line, much like having insufficient inventory does. Dead stock can result from replenishing inventory too soon or without considering seasonality or variations in consumer demand, which raises carrying costs by allowing unsold merchandise to remain on the shelves for an extended period. The economic order quantity (EOQ) formula is an easy-to-use method for calculating the appropriate stock level to maintain and meet order demand, assisting in avoiding overstocking and high transportation costs for retail warehouses. You can more precisely predict how much inventory, including safety stock, you should have on hand by calculating EOQ, which will also help you keep the cost of your e-commerce warehouse to a minimum. Reduce Shipping Costs Consider the scenario where a customer places many orders with you simultaneously. If one item is out of stock at the closest warehouse location for the customer but is available at another location, you would need to send another shipment (sending different items from one order in separate packages, frequently from a different location or at a different time) to fulfil the customer's entire order. Multiple shipments of the same order's contents result in higher shipping costs, significant packaging waste, and perhaps confused consumers. By projecting demand, you may choose how much stock at the SKU level to keep in various warehouse sites based on previous data. 5 Steps for Retail Replenishment Planning Step 1- Have a Thorough Understanding of the Entire Business Retail companies sometimes divide their operations into several categories, with top business leaders only accountable for their particular category (such as allocation, selection, replenishment, and vendor relations) and nothing else. As a result, communication quickly breaks down since one category plan might not consider all other category plans. Bring your category heads together to map out all the critical corporate elements that affect your retail replenishment process to solve this. You'll then need to collaborate to create a unified process that considers the entire product life cycle, from the time an order is placed with a vendor to the time it is made available for sale to the customer, to resolve this issue correctly. Step 2- Compile a List of Distribution Factors Particular To a Given Product The demand must be taken into consideration while making your replenishment supply plans. Demand is merely one of the factors that must be taken into account, as was previously noted. You also need to be fully aware of the precise distribution path used by your goods. Will the seller restock the shop with your merchandise directly? Or will it move from the vendor to the warehouse, distribution centre, and loading docks? You also need to be aware of the demand in each place. While some of these facilities solely service certain retailers, others may directly complete client orders. Be aware that the market fluctuates depending on the type of business and the store's location and that each store may have different plan-o-gram minimums and capacity restrictions. Step 3- Recognize the Particular Distribution Procedure for Each Product Resupply is sometimes referred to as S&OP or sales and operational planning. This is because retail stock replenishment depends on many variables during a product's life cycle. As a result, to handle replenishment in a coordinated and comprehensive manner, you must have a thorough knowledge of every aspect of the distribution (as well as all the channels the product may be sold through). Some distribution-related parameters include: Production TimeTime For Shipment and PackagingLead TimeTime Spent Processing At The WarehouseFulfilment Of Customer OrdersOrder's Distributions Promotions These elements must be taken into account as part of replenishment, along with other activities that occur in a retail company, as well as emotional capabilities and operations. Step 4- Whenever Feasible, Use Advanced Analytics and AI The majority of merchants try to handle retail replenishment manually. To achieve this, they must examine items at the category level and ignore several crucial elements. As a result, this technique is unreliable, unworkable, and results in overstocks, lost sales, and high distribution costs. Leading merchants have realized they need to automate as much as they can. By taking a detailed look at a retailer's merchandise, advanced AI technologies and analytics models created for retail replenishment can produce a unified predictive analysis of every component described above. To maximize GMROI and ensure that consumers can obtain the items they came to your business, replenishment is optimized at an SKU and store level. Step 5- Prepare Yourself to Manage Risks When your system has been optimized for the vast majority of predicted product behaviour, it's time to concentrate on the remaining 20%. Some dangers may be anticipated since they are well known, such as factories stopping producing on specific holidays. Such occurrences are readily accounted for, and retail replenishment may be planned around these anticipated risks. However, some dangers, like unforeseen weather events, cannot be anticipated. A contingency plan is a crucial component of a solid retail replenishment strategy. Before creating a contingency plan, ask yourself the following questions- Can you bring inventory from a different facility or vendor?Can you swiftly purchase safety stock and distribute it?Is it possible to relocate your inventory to a new location? Strategies for Retail Replenishment Process Models and techniques for inventory replenishment assist companies in establishing inventory slotting best practices, managing replenishment frequency, monitoring product flow, calculating the quantity of items to order, and determining the ideal inventory level to be kept in warehouses for maximum supply chain effectiveness. In addition, these mathematical formulas aid warehouse managers decide how much inventory to order at preset times. Let's examine a few of the most well-known replenishment models. Minimal or Maximum Inventory Replenishment or Reorder Point Strategy The min/max replenishment model called the "routine" technique, initiates refilling operations when a particular product hits a specified minimum threshold. The most significant applications for this are SKUs with consistent throughput and seasonally predictable demand. Replenishment orders are placed in this arrangement when inventory levels reach a certain level (the reorder point). Although this replenishment model's ordering costs are minimal compared to other expenditures, carrying costs are frequently high, and more space may be required for upstream storage and downstream pickup areas. Demand Retail Replenishment Demand replenishment is a simple tactic that benefits many organizations. The only time suppliers restock is when customers ask for it. The store doesn't place another order for a product that isn't selling. This approach makes out-of-stocks frequent, but solely due to client demand. The demand inventory replenishment approach is appropriate for warehouses with constrained picking areas and floor space. It works well when it would be inefficient to devote a lot of space to a single object. The replenishment amount in a demand replenishment process should be enough to complete an upcoming order or collection of orders without leaving behind the extra stock. The inventory of a business should be checked often. The best system is an automated one. These systems provide real-time inventory tracking, keeping suppliers and merchants in the loop. Additionally, businesses must be prepared to satisfy shifting client needs. Keeping track of popular goods and maintaining back supply is essential. For the procedure to be effective for the business, meticulous planning is required. To implement this strategy, both a supply and a demand plan need to be established. Top-Off Restocking of Inventory The top-off replenishment approach often operates on a defined timetable or batch releases. It has similar min/max criteria to the min/max replenishment model (by area, line or product). In picking regions or forward pick sites, the inventory for a particular product is "topped-off" to acceptable levels based on the anticipated demand or a change in the number of available staff members. When huge waves or volumes of picking tasks are anticipated, this model performs effectively. It works best when there is a labour shortage or when picking operations are less busy. Interleaving possibilities in active regions are encouraged by a system that initiates top-off replenishment when differences in picking activity or volume are anticipated. Periodic Replenishment Strategy The quantity of inventory required for specific periods (based on demand estimate) is transferred to picking locations in warehouses using periodic replenishment models. Typically, review points are utilized after these periods to determine how much inventory is still on hand. Resupply orders are issued if stock levels drop below the required minimum. If not, they are not reviewed until the following review point. As a result, this model has longer lead times and ought to be employed when there is a sizable product storage area (because inventory is moved in large volumes to picking locations). Conversely, carrying costs are often insignificant compared to ordering costs, and ordering prices are typically unrelated to carrying costs. Best Practises for Stock Replenishment in Retail Businesses Every shop faces different demands, problems, and obstacles when stocking up on supplies. Standardizing something with so much inherent variability may be challenging. Your replenishment procedure should adhere to the following five recommended practices to control the volatility of inventory levels: Establish Precise Lead Times Lead time describes how fast the supplier can complete the order. This procedure aids companies in determining the ideal frequency of replenishment to avoid shortages. Lead time is of utmost importance, particularly for businesses that use last-minute replenishment tactics like Top-Off or Reorder Point Strategy. Within Business Retail Replenishment Internal replenishment of inventory can be transferred between stores, which can alter how inventory levels are balanced. Store-A may have strong demand, but store-B may not; by restocking store-A with items from store-B, you may match sales demand while clearing off shelves and spending less time and money. A single inventory platform that provides visibility into inventory across all sales channels and locations is necessary for effective inter-store balancing. ABC Evaluation Identify and rank the SKUs in your inventory mix according to how much they contribute to sales. The shop may maximize the width and depth of its selection mix after doing an ABC analysis. This analysis may be very simple for a smaller shop, but as the firm expands, it gets progressively more challenging. Omni-channel retailers use analytics-driven inventory management solutions to process the millions of data points and SKUs needed for an ABC analysis. Keep Track and Evaluate Vendor Performance Retailers should monitor vendor performance for the best vendor management, similar to how they would analyze product performance. There should be precise, measurable KPIs that can be measured and tracked, such as the total amount of damaged or missing goods or orders dispatched, lead times and delivery delays, stock shortages, and so on. Setting a deadline for reviewing vendor performance is advised. After that, actual deliveries are contrasted with the predetermined KPIs. Inventory Management Software For a smaller store, manually maintaining their inventory on spreadsheets is acceptable. However, to control replenishment, they can employ a systematic strategy. However, inventory management's complexity rapidly increases with every new channel, location, and SKU. A "divide and conquer" omnichannel merchants sometimes use strategy to control the expansion of their business. Visibility is limited by segregated channel operations, which causes merchants to be less adaptable and less able to make quick changes. Others have opted for an integrated strategy for managing inventories. For example, retailers can easily spot replenishment opportunities and demands using the warehouse management system(WMS). They can also benefit from inventory balancing and replenishing between stores. Conclusion Any inventory management system must include effective retail replenishment. It enables suppliers, distributors, and retailers to minimize excess inventory while ensuring they always have the appropriate quantity of stock to fulfil consumer demand. Automated inventory management solutions let businesses more easily handle the challenges of retail replenishment, which boosts profitability while cutting costs. Smooth Retail Replenishment with WareIQ WareIQ is an amazon-prime logistics platform for modern brands in India with a nationwide fulfilment network and best-in-class fulfilment solutions. WareIQ eCommerce fulfilment services include automated shipping and returns management, order fulfilment, and warehousing, so our customers can create an end-to-end eCommerce solution. The technology used by WareIQ comprises a sophisticated data and analytics reporting tool and integrated inventory management software. You can monitor inventory levels in real-time, establish automatic reorder points, and get critical inventory analytics from a single dashboard, such as inventory forecasting tools. WareIQ puts everything you need at your fingertips to manage inventory and precisely complete orders, allowing you to streamline your supply chain and save time. [signup] Retail Replenishment FAQs(Frequently Asked Questions) What does warehouse retail replenishment mean?Restocking a warehouse's shelves with fresh merchandise from vendors or manufacturing sources is known as retail replenishment. It can also be used to describe how items are moved from storage to choosing shelves. How to increase inventory levels through retail replenishment?To increase retail replenishment, firstly, you need to have a high retail inventory turnover rate, which indicates that you sell products rapidly and must restock frequently, and low days sales in inventory, which indicates that you swiftly sell through your whole inventory. Since they are dependent on consumer demand and market developments, retailers may not always have control over this.However, an e-commerce company may determine when and how frequently to restock their inventory with the use of demand forecasts and data-driven inventory management. Why is retail replenishment important?Retail replenishment (and a planned strategy for how to execute it) is a crucial ability since it enables firms to avoid the costly errors of overstocking, stockouts, and unnecessary shipping expenses. This is in addition to replenishing a business's picking shelves with fresh stock that can be sold. What are retail replenishment orders?Retail replenishment orders are requests made by a retailer to a manufacturer for more raw materials to be placed in reserve storage, allowing the retailer to keep moving merchandise onto picking shelves, through fulfilment, and along the supply chain.
July 20, 2022
What is Work in Process Inventory? Definition, Difference, Calculations, Importance and Optimization Techniques in 2022
Inventory distortion costs the global economy an estimated $1.1 trillion, including shrinkage, stockouts, and overstock. The quantity of waste created by system inefficiencies is simply mind-boggling. It is nearly equal to the gross domestic product (GDP) of the whole nation of Australia. It is crucial to account for raw materials and completed items, and each firm must account for the products used in the production process. Ensuring that no raw resources are idle is another benefit of calculating work in process inventory, which indirectly helps to reduce the waste produced, encountering the extra revenues lost during manufacturing. For most businesses and shops, recovering even a small portion of that loss may completely alter their course. From here on, this article will explain what work in process inventory is, its importance, and how to calculate work in process? What is Work in Process Inventory? Work in process or WIP inventory refers to items in the manufacturing stage and being prepared to become a finished good for sale. Work in process inventory comprises the cost of labour, raw materials, and any production-related overhead expenses. It does not include any raw materials that have yet to be used to manufacture commodities or things already prepared for market sale. As a business manager, overseeing and managing a company's warehouse and inventory is crucial to maintaining the stock at targeted levels through inventory management. WIP inventory is mainly concerned with businesses in the manufacturing, construction, consulting, etc. industries. In general, it is suggested that you compute your inventory periodically, such as every two weeks, at month's end, or every three months. It should be noted that work in process inventory is another name for work in progress inventory, both of which are shortened as WIP inventory. Is there a difference in meaning between these phrases, or are they synonymous? Let's see. Comparing Work In Progress and Work In Process Inventory Despite being used interchangeably, the meaning of these two phrases in the business language is different. The main distinctions between work in progress and work in progress are as follows: Raw materials quickly transformed into final commodities are referred to as work in process inventory. On the other hand, work-in-progress inventory, frequently used in the construction industry and other service-related industries, describes how a project is progressing overall and how much it costs concerning its progress. Additionally, both names have the same meaning when used by companies that sell actual goods. Work in process refers to unfinished items that will soon be transformed into finished goods. For instance, a bakery producing 50 packets of bread or a company that makes mobile phones assembling various components for an order will be considered to have work in process. While work in progress takes a long time to convert into a finished product. For example, a building whose five floors are to be constructed out of a planned twelve floors building is a WIP example. Renovation, tasks, and services can all be referred to as work in progress, which is more comprehensive than work in process. Work in process is often exclusively used for things that are currently being manufactured. [contactus_uth] Importance of Work in Process Inventory The what is explained in work in process inventory definition above, but then why is not. Why do businesses keep partially finished inventory? The fact that things are being created is the most evident. They can be fabricated on a conveyor belt, or they might be in line for additional processing. They are actively being produced in any case. Safety stock, buffer stock, or anticipation inventory are additional justifications for work-in-process inventory. Some businesses find it advantageous to keep products in stock throughout specific production phases as backup against supply shortages or surges in demand. Although classifying WIP material that is stored in a warehouse awaiting assembly may seem tiresome, it is essential for tracking and enhancing your supply chain and inventory control. Keeping too much work in process inventory is often inadequate for a company's financial line. This is due to a few factors: WIP inventory consumes room on a production floor or in a storage facility that could be utilized for merchandise that is ready to sell, raising carrying costs.Your capital is more heavily invested in inventory awaiting sale the more WIP you have on hand.The danger of items being misplaced, damaged, out-of-date, or lost before they can be assembled increases when there is excessive WIP inventory. Work in process inventory should also be classified because it significantly impacts your company's worth. In addition, even though work-in-process inventory is counted as an asset when you seek a loan, the lender might be wary of using it as collateral because it isn't very liquid. The Importance of Calculating Accurate Work in Process Accounting Every business pays close attention to its cash flow statement and overall financial stability. On the other hand, small to medium-sized companies frequently have little to no tolerance for the mistake, but more prominent corporations may tolerate a few more faults owing to scale and average. Three crucial factors make calculating WIP accounting essential. Taxes Nobody wants their country's tax office to audit them for filing incorrect taxes. WIP inventory is a taxed item since it is a current asset, and any understatement or incorrect accounting may incur significant penalties. Overestimating can result in producers paying huge taxes when they are not necessary, which is equally dangerous. Cash Flow and Financing Many businesses turn to short-term financings, such as work in the process of inventory financing, to solve short-term cash flow concerns. Accurate WIP accounting and valuation are a must for this kind of financing, and if either is done incorrectly, the short-term financing agreement may be terminated. Accurate values are also employed when evaluating a company's health for a longer-term loan. Impact On Production Production mistakes can also be caused by inaccurate WIP accounting. Upstream operations may be activated to make up a perceived loss or idled to enable a perceived overage to diminish if one segment of WIP is valued too highly or too lowly. If the WIP computation and value were incorrect, the plant may go out of balance, affecting delivery schedules and resulting in financial losses since fewer future sales would be made. Inaccurate accounting can also send the wrong demand signals when purchasing raw material, which results in overordering materials and decreased cash flow. This excess inventory or underordering materials and increasing costs due to equipment shutdown will pause to bring in the necessary material. This can be reduced only once the error is discovered. Terms & Formulas To Know Before Calculating WIP Inventory Calculating WIP inventory has several components, same as other computations. Calculating this becomes impossible without knowing these elements. So let's learn more about these parts so that you can rapidly calculate your inventory. Beginning Work in Process Inventory Cost The beginning work in process inventory cost represents your balance sheet's asset column for the preceding accounting period. You must identify the ending WIP inventory from the previous accounting period and carry it forward as the beginning inventory for the current fiscal year to compute the cost of your beginning WIP inventory. Your ending WIP inventory may be seen on your balance sheet under existing assets. Cost of Manufacturing The costs involved in creating a finished product that can be sold are all included in the manufacturing cost of your goods. It covers the price of labour, raw materials, and any other production-related expenses. The quantity of work in process inventory on hand causes the manufacturing cost to increase. The cost of production rises as inventory in the process increases. As a result, this raises the price of manufactured items. Calculate the cost of manufacturing using the work in process inventory formula given below: Manufacturing Costs = Raw Materials + Direct Labor Costs + Manufacturing Overhead Cost of Manufactured Goods (COGM) The overall expenses incurred to produce a finished good are referred to as the cost of manufactured goods (COGM). To determine the worth of your current in-process inventory, you must know the final COGM. The COGM is calculated by adding your starting work in process inventory to the production expenses. The ending result in process inventory is then subtracted, giving you the final cost of manufactured products. The equation is: COGM = Total Manufacturing Costs + Beginning WIP Inventory - Ending WIP Inventory How to Calculate Work In Process inventory? The work in process inventory formula combines the beginning work inventory for the subsequent period with the ending work inventory for that period. Once you have calculated your starting in-process inventory, manufacturing expenses, and cost of made items, you can quickly ascertain how much work in process inventory you have. WIP inventory is estimated using the following formula: Beginning WIP Inventory = Ending WIP Inventory - Manufacturing Costs + COGM How to Get Beginning Work in Process Inventory? There is no difference between starting and finishing work in process inventory; the only difference is the accounting period. Work in process inventory is always calculated by businesses after accounting periods, whether those periods be quarters, years, or other durations. Therefore, this total WIP value represents the beginning and the conclusion of the work-in-progress inventory for the relevant accounting period. The current balance sheet of your business includes this ending WIP inventory as a current asset. Therefore, you need the initial work in process inventory to understand how to discover work in process inventory. You will also need the finishing work in the process inventory to compute it. How to Calculate Ending Work In Process Inventory? Before calculating your inventory in-process, manufacturing cost, and COGM, you must first compute your beginning work in process inventory. Once they have been established, you may quickly add your WIP inventory using the method below. Ending WIP Inventory = Initial WIP Inventory + Manufacturing Cost - COGM Let's look at an example to comprehend better how to compute this. Imagine that your business's work in process inventory at the start of the new year is $125,000. You spend $100,000 on manufacturing expenses in the same year, and your cost of manufactured goods (COGM) is $1,75,000. Consequently, the ending in process inventory would be: Beginning WIP Inventory + Manufacturing Costs - COGM = Ending WIP Inventory $125,000 + $100,000 - $175,000 = $50,000 Your ending WIP inventory would be $50,000. How to Cut Down Your Work in Process Inventory Managing all sorts of inventory and supply chains are now well-established domains of specialization. And these occupations all concur that it's generally ideal for keeping the inventory of work in progress to a minimum. The greater your Work in Process inventory, The fewer storage options you have for your most lucrative goodsThe more money you have invested in products that won't sellThe greater the chance that unfinished items may expire or become outdated Associating a cost with a completion percentage makes determining WIP inventory complex. Not a simple task to do, so reducing WIP inventory before reporting is a standard procedure. The following practices mentioned below can reduce your work in process inventory. Just in Time Procurement A production technique is known as "just in time inventory" involves bringing in the materials as needed based on demand. It is a method many businesses use to cut down on resource and financial waste. The primary goal of this strategy is to eliminate excess inventory, waste of commodities, overproduction of items, and management of storage expenses, among other things. Great Coordination This advice may not be as technical, but it is just as crucial as any technological strategy. Coordination is the secret to managing a good, profitable, healthy business. Ensure your staff members share the same objective of creating as much as possible with the given resources if you want to maintain an ideal level of WIP inventory. To function effectively, they must know every step in the production process. In addition to assisting you in maintaining a perfect level of work in process inventory, this will also hasten the manufacturing and supply process. Upgrade to New Equipment It's crucial to provide qualified workers with the appropriate tools and equipment. To increase their output, they require the right equipment. The fastest and most affordable strategy to reduce WIP is to keep equipment in good condition. How to Improve Work in Process Inventory Flow? Most e-commerce businesses rely on a manufacturer or supplier for sellable items. Therefore, it is essential to comprehend the process and movement of in-process inventory since it might indicate how efficiently your supplier or manufacturer creates finished goods. Additionally, you may find ways to strengthen the supply chain by working closely with your supplier and other partners in your retail supply chain, such as a 3PL company. Source the Right Supplier You probably won't have much insight into the work in process inventory process unless you sell a highly customized product. Then, you influence the manufacturer you choose to engage with and the products you source. Still, it is up to your manufacturer to monitor WIP levels and look for methods to save costs while enhancing labour, workforce, and production procedures. First, however, you can query your provider about things like: From whence do the raw materials originate?Is it possible to reduce expenses and manufacturing lead times?Can your products be manufactured locally? Use a 3PL to Assist You With Inventory Management The main asset of an e-commerce company is frequently its inventory. Therefore, you will need a system to track inventory as it is sold after your work in process inventory transforms into sellable items. The technology used ultimately interacts with your store, allowing you to effortlessly manage all inventory and orders from a single dashboard while they handle order fulfilment on your behalf. Conclusion In a period of exceptional supply chain disruptions that cause a lack of raw materials and longer lead times, keeping an eye on supply chain efficiency is crucial. In addition, many retailers predict demand and order goods months in advance due to the longer lead times. Therefore, collaborating closely with suppliers to get the most precise lead time predictions possible to prevent a buildup of WIP inventory is crucial. Accurate inventory cycle counts made possible by an integrated warehouse management system (WMS) are another crucial aspect of maintaining low work in process inventory levels. In addition, accurate, real-time inventory counts allow for more precise forecasting, facilitating simpler, more effective communication with suppliers and freight forwarders. Small to mid-sized retailers may use enterprise-level inventory management tools to improve their WIP inventory flow by outsourcing fulfilment to a 3PL partner. How WareIQ Can Help You to Optimize Your Inventory Management With WIP Inventory Get A More Accurate Value For Your Business Work in process inventory is an inventory asset; thus, failing to account for it on your company's balance sheet might result in an undervaluation of your overall inventory. The price of your final items will be inflated as a result. WareIQ's eCommerce services help accurately determine the value of your inventory for tax purposes. Detect Red Flags Faster For managers, rising WIP inventory levels are a warning sign. A significant WIP inventory level may indicate bottlenecks in your manufacturing process and that the process isn't running correctly. With WareIQ, you can identify and fix these issues before they hurt your bottom line by tracking WIP. Avoid Counting Inventories By Hand WareIQ helps you to assess the value based on the present stage of each unit in the production process. As some businesses physically count their WIP inventory, this wastes a tonne of time and keeps your staff from working on more complicated tasks. You may estimate the worth of your inventory using the work in process formula without the hassle of manual counting. [signup] Frequently Asked Questions What distinguishes inventory from WIP?When an item of inventory has been combined with human labour but has not yet attained the state of completed products, it is categorised as a WIP. With it, some but not all of the required labour has been completed. There are several accounting techniques used by various firms to calculate WIP and other inventory accounts. How should a WIP be documented in accounting?Simply begin with the work-in-progress account's opening balance. The expenses of the resources added during the applicable time should then be included. Subtract the work-in-progress account's ending balance for that time period to finish. Why is an inventory of work in process a significant factor?Your balance sheet may be impacted by understanding how to calculate WIP inventory appropriately. It's critical to comprehend how WIP inventory functions, what factors affect its cost, and how to compute it at the conclusion of the accounting period if your company sells highly customised items. Based on how much it costs to create and manufacture completed items, this will give you an idea of COGS. What is included in the inventory of work in process?Costs for the manufacturing process, including labour and all raw materials, are included. Because it calls for an evaluation of the cost of labour and overhead related to the proportion of work completed, calculating WIP inventory is challenging. Most merchants attempt to have as much inventory as possible in the completed product's condition before the end of a reporting period since it is challenging and time-consuming to compute. Is WIP an asset?Since there is reasonable anticipation that such items will become marketable products that can potentially convert into cash within a year, accountants see works in progress (WIP), which are materials and partially produced goods that are awaiting completion.
July 16, 2022
10 Best Tips to Handle Out of Stock Situations for eCommerce Businesses in 2023
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 2023 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 2023: 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
What is Physical Inventory? Meaning, Types, Steps & Best Practices of Physical Inventory Counting Methods in 2022
The highest growth rate the sector has had since 2011 was $5.15 trillion in retail spending in physical locations in 2021. Retailers are retaining more inventory than ever before to meet demand. It's understandable why the number of warehouses in the US has been steadily rising since 2013. Despite the exponential rises in warehouse storage and inventory levels, evidence indicates that merchants aren't doing a great job controlling their goods. Only 8% of smaller companies keep track of their inventory. A pen and paper are used manually by another 14% of people. This article will explain the advantages of maintaining a physical inventory count for your retail shop as well as how to go about doing it. The tangible goods that retail establishments, manufacturing facilities, and warehouses stock are essential. Companies should do physical inventory counts of their products to maintain appropriate and correct inventory levels. Physical inventory counts can monitor stock levels, confirm current numbers, and spot internal problems or theft. In this article, we define physical inventory counts, list various inventory counting techniques, and outline the procedures for doing accurate inventory counts. What is Physical Inventory Count? Physical inventory counts are a method used in inventory management to track every physical item a company has. Cycle counting often referred to as periodic counting or yearly counting, are two ways to do physical inventory counts. A corporation can find out if there is any loss, or shrinkage, that they can account for in their financial records by performing a physical inventory. Physical inventory counts take place in a variety of companies, although they are most frequent at manufacturing plants, distribution centres, and retail outlets. 4 Major Purposes of Conducting Physical Inventory Count The physical inventory count serves a variety of functions, which includes- Ensuring Accurate Stock Levels Physical inventory levels frequently differ from what digital records indicate. For instance, inventory levels might change in a production setting if a worker takes a replacement item but fails to register it. Employees may unintentionally enter inaccurate inventory into the system when working in retail. Additionally, there have been incidents of stealing, theft, damage, or incorrectly recorded returns, giveaways, or ruined goods. The physical inventory levels go out of sync with the records when this occurs. The resolution of a physical count can explain these differences. Keeping Track of Theft, Damaged Goods, or Internal Problems A corporation can monitor for internal and external theft, damaged items, or internal problems by doing physical inventory counts. Theft, often known as shrinkage in the context of inventory, may make it difficult for firms to stay profitable. Employees must also take proper care of damaged inventory by reporting the damage to a manager or supervisor so that inventory levels may be adjusted and the product can be returned to the manufacturer for a warranty replacement or credit. The need for staff training on inventory protocol, shipping and receiving policies, or manufacturing best practices is just one internal issue that inventory counts might highlight. Reporting Wages and Income Accurate revenue statements and other financial papers may be produced by businesses with the use of adequate inventory levels for reporting. For instance, making actual earnings and precise balance sheet statements depend on maintaining an accurate inventory. The board of directors, top management, and investors of an organization utilize this data to make choices regarding the course of the business. The accuracy of revenue, wages, and inventories is so crucial. Creating a Precise Budget Inventory counts are also used by businesses to assess how much has been sold and how much stock is still available. When determining which things are the most popular, this might give helpful information regarding the inventory turnover rate or how frequently the item sells. As a result, this can assist businesses in developing a precise inventory budget. They may choose which items and how many of each to have on hand. To prepare for the upcoming year's purchases, a retail business can, for instance, do an inventory count on seasonal items. [contactus_lilgoodness] 6 Main Types of Physical Inventory Count Methods The main types of physical inventory counting procedures include- Point Of Sale or Electronic Counting Electronic counting scans and tracks goods digitally using specialized computer tracking software. For instance, many businesses utilize point-of-sale (POS) systems, which enable staff to scan things as consumers buy them. The application automatically subtracts the quantity from inventory as soon as the buyer purchases the item, and the team monitors it through the POS system. The warehouse receiver adds new products to the system when the shop gets them using the same technology to increase stock. POS systems frequently communicate with other types of software, such as enterprise resource planning, accounting, or merchandising software. The firm employees may, for instance, conduct a physical inventory count to ensure that the physical and digital numbers match. Although this technology helps to increase inventory accuracy, the associated fees might raise a company's costs. Employees have time to become familiar with the system and appropriately carry out the operations. Manually Counting Unlike automated counting, manual inventory counting involves staff members writing down the inventory results on paper. The management of a corporation can assign workers as necessary or have a dedicated employee or team perform physical inventory counts. To count, they can go about the shop, warehouse, or storage area to identify the things and add up the amounts, using a spreadsheet or printout of the products. By using this technique, a business might avoid paying for the initial expenditures of building an electronic system. It is also helpful in confirming POS system findings. It's crucial to remember that human inventory counting might produce a range of results based on the size of the business, the accuracy, and the care taken by the counters. Periodic Counting Periodic Counting or Cycle counting is a method of physical inventory counting in small increments over the course of a month or year. For instance, to assure accurate data, a retail shop would tally the most popular produce items each Monday morning. Fourth Tuesdays, the specialized section receives a similar treatment, and so on. The corporation will gain from this in a number of ways. First of all, it enables the business to continue operating rather than shutting down to finish an entire physical inventory count. Additionally, since inventory is constantly counted and faults can be found promptly, it enables any inconsistencies to be resolved sooner. This is advantageous for quickly transporting goods or products that the business wishes to monitor. Many companies choose to perform a complete inventory count once a year, and the regular cycle counts. Complete Physical Counting Companies frequently do a comprehensive physical inventory once a year. Organizations can utilize their own workers to count, engage temporary help, or pay an inventory counting agency to complete this task. Many organizations arrange shelves, storerooms, and warehouses before finishing a complete inventory to make sure that goods are located correctly and are simple to find. Depending on how things go at the firm, the business may temporarily close or stay open on inventory day. Counters can be given inventory lists or spreadsheets by managers, along with instructions on how to record the number of things sold accurately. At the conclusion of physical inventory counting, all counters give in their sheets to the supervisors, who then compile the findings. Spot Counting Spot Counting, Arbitrary Counting or Ad-hoc Counting is a type of physical inventory counting method which is frequently started by the user and is not planned, making it useful in unusual circumstances. Let's say you counted a zone, but a few days later, the system malfunctioned because of someone or some procedure. Instead of waiting for the next cycle count, you can construct a new, empty order and begin adding counted items to it. Of course, your system must be able to compare the quantity that was tallied to the data stored in the programme. Arbitrary counting is sometimes referred to as blind counting since it typically takes place in unplanned, tiny store/warehouse zones or locations. Tag Counting The personnel of the store or warehouse should physically tag each item prior to tag counting. The worker must complete the required slots on the tag with the item ID, counted amount, and other pertinent information during physical inventory counting. Some labels have two sides, allowing an additional worker to check the data and, if necessary, fill in the adjustment on the second side. These tags are gathered and added to the system as journals when the counting procedure is complete. The primary distinction between tag counting and all other counting techniques is that tag counting does not involve a direct comparison to system data. As opposed to just producing a counting order and comparing it to the tag counting list, it is more like creating a rough draught list of your goods and quantities, refining it (e.g., updating with sales that have occurred during the counting), and then comparing it to the final list. How to Take Physical Inventory Count in 12 Easy Steps? A successful retail business is built on effective inventory management. Customers will always find what they're looking for in a well-stocked backroom, and your workers will always have what they need to do their jobs. In the best-case scenario, organized stock supports your everyday operations so that personnel may concentrate on customers. At worst, you're left with a logistical nightmare of missing items and lost sales. Your staff will need to count meticulously, track, and process products on a regular basis to keep your inventory operating correctly. Are they driven to complete the assignment as inventory season approaches, or would they prefer to skulk off? The given steps for counting physical inventory can help you manage stress if you run a retail firm. Check the Date It can be a big deal if you have to manually count your physical inventory every month, every three months, or at the conclusion of a reporting period. It may be necessary to take stock outside of regular business hours because it is a laborious operation. Give your team plenty of warning so they can plan accordingly around their commitments, and be sure to schedule workers correctly, so nobody takes on an opening shift. Post a sign in your store or on your social media accounts informing clients if you need to close your store during regular business hours. The secret is to plan. Assign Your Counters Physical inventory counting needs expertise. Before you allocate your counters, make the position a learning opportunity for both inexperienced and experienced workers by letting them train one another and providing checks and balances along the way. Make a written protocol and include information on how you'll establish a precise cut-off point for stock movement for an accurate count. Count teams typically consist of two individuals: one who counts and the other who records. To make sure that everyone will be accessible at the specified day and time, provide your team with their schedules as far in advance as you can. Notify All Storage Facilities Make sure to inform relevant third parties that they should likewise undertake a physical count of inventory on the given date, whether your organization has merchandise in outside storage or on consignment. To ensure that they are not counted, make careful to separate any recently acquired products. Deliveries to the warehouse should be delayed if at all feasible to prevent variations from occurring during the count. Before starting the count, you'll want everything to be free of clutter. Examine Your Stock A few days ahead of time, check your inventory to make sure everything is in order. Search for objects with missing or partial component numbers and those that are in a state that might complicate the procedure. Adjust your inventory as needed to make it ready for the physical count. Make a Proper Warehouse Plan Make sure your staff has a map of your floor, backroom, and storage, so they know where to go when they need to. A map can let you allocate personnel to their stations more efficiently, whether you need to take photographs or sketch up a plan. Create a tracking sheet for each sector and assign a different number to each display, rack, and shelf. Visualizing your inventory area will reduce confusion and make it easier for your personnel to get started. Make Your Own Category You may count and group comparable objects together with the aid of categories. The categories for a retail setting may be footwear, tops, bottoms, outerwear, and accessories. Depending on your industry, these groups can be further divided based on colour or gender. The counting procedure will be more smoothly executed if a systematic system is created. You'll run into certain things that don't have a designated spot in your store when you're arranging your physical count. It would be best if you made a decision on how to handle objects without a clear home. They can be transferred or returned from other places. Start the Pre-Count Make sure everything is tagged correctly and labelled before the count starts. After all the things have been tallied, failure to deal with stray objects can lead to problems and anger. Start early by counting some of the items. Put the objects that were counted in sealed boxes when the pre-count is done. The goods will need to be recounted if, on the day of the physical count, you discover broken seals on packets that have already been counted. Frequent Reminders Give your staff a review of what they learnt in training before the big day. Walk your staff around the shop if you've relocated any stations or merchandise to prevent confusion. Distribute instructions that break down the counting procedure into simple stages. Despite the fact that there shouldn't be any things without labels or pricing, emphasize the significance of gathering such items in a specific location so they may be handled last. Explain the Procedure Lead by example and demonstrate to your staff the correct way to do a physical inventory count. Give them a sample of a completed form, then have them go over their initial try to ensure the form was filled out correctly. Assign the count teams to various areas of the shop using the map. To prevent double-counting, mark the regions on the map that have been counted. Get Set and Go Counting You may pair off your teams and start physical inventory counting now. The second person completes the count tag using the sample data below after the first person has finished counting: LocationItem informationportion numberQuantityMeasurement unit The team attaches the original count tag to the inventory item, keeps a copy, and turns the tags into the person in charge. The person in charge will verify that all titles have been completed entirely and none are missing. Recheck Your Possessions Perform spot checks in sections to see whether the items were appropriately counted. Take advantage of the chance to verify each section double if this stock audit finds a mistake. It will be worthwhile to double-check the counts that have previously been made. To assure the correctness of the inputs, a data entry team should additionally include two members. Complete the Reporting To add up your computations, record your physical inventory counts on a spreadsheet. Your inventory reports will enable you to find any discrepancies between the physical and book counts so that you can develop a strategy to eliminate them. To find potential patterns, compile physical count inventory records over a specified time period. Is there, for instance, a particular low count spot in your store? Are there any procedures you might strengthen to prevent the loss of goods? Your business should be impacted by your reports and results in all areas, from financing to visual merchandising. 5 Benefits of Physical Stock Counting To maintain accurate and up-to-date inventory records, physical inventory counts are a crucial component. Better sales and purchase estimates may be made thanks to correct inventory records, which also guarantee that you always have the proper quantity of stock on hand. Your consumers will benefit from having a physical inventory taken, and precise physical inventory counts are essential for the reasons listed below. Provides an Accurate Insight into Inventory Levels You will have a far better knowledge of how much merchandise you will need to have on hand to satisfy consumer needs when you effectively manage your inventory. You won't have to worry about running out of supplies all the time, thanks to this. By being aware of your inventory levels, you may prevent clients from making orders for items that are not currently in stock. Without having to worry about keeping too many goods on hand, shortages will be less of an issue. Improves Demand Predictions An essential component of inventory management is demand forecasting. It occurs when you foresee a product's level of demand, the rate at which it will sell out, and the time at which that SKU has to be restocked. A physical inventory check can enhance buying and forecasting of inventories. For example, retailers that see demand forecasting reports that suggest which products to replenish based on their profitability and restock rate can do so in a way that allows them to do so based on both the popularity and profitability of the items. Improves Sell-Through Rate of Slow-Moving Inventory An actual inventory count does more than avoid stockouts. Retailers also reduce the chance of keeping out-of-date stock at the total price for an extended period of time. Retailers should have access to inventory grading data that group items according to their cost per unit, selling price, number of sold units, and overall income over time. Merchants should proactively think about re-merchandising items in-store, advertising them to generate interest, or offering a special discount to encourage sales for those that aren't selling as intended. In order to recover your initial investment and create a place for more in-demand goods that either sell at a larger volume, better profit, or both, it is helpful to move through failing inventory. Reduces Inventory Shrinkage Inventory loss is a frequent and annoying issue for merchants. When your actual stock is less than the amount listed in your inventory management software, this occurs. Theft by employees and shoplifting are the two main reasons for stock shrinkage. A weekly partial inventory count, for instance, can assist retailers in identifying discrepancies between a store's actual inventory and the inventory levels recorded in its point-of-sale system with a smaller sample size of inventory that is easier to count (one particular product category, for example), giving them enough time to determine what caused the shrinkage and reconcile it. Prevents Overstocking and Understocking Lack of physical inventory tracking can lead to carrying too much (or not enough) goods, which could lead to budgetary concerns if not maintained under control. Overstocking, often known as the gap between available inventory and demand, has resulted in markdowns totalling more than $300 billion. Discounting at scale leads to lost income because of lower-than-expected margins on each transaction, despite the fact that it has valuable use cases. You can allocate enough money to inventory to satisfy demand without overstocking or understocking by maintaining an accurate inventory ledger and using the information from your POS system to understand better how well-liked the products you carry are with customers. 7 Best Practices to Implement for Counting Physical Stock Make a Map of Your Shop, Warehouse, or Stockroom Make a map of the locations where your inventory is kept, whether it be on your shop floor, in a stockroom, or in a warehouse, as part of your preparations. Label each product category's location and the person in charge of counting it on the map. This will aid store employees in getting their bearings and assist the manager you assigned to maintain track of who is in charge of what. Give each employee a list of the SKUs they will count in their assigned region as well. This may be a helpful tool when they scan product barcodes and enter their count into the POS system. Box and Shelf Labels Label shelves and boxes according to the things they hold and make sure the contents of each are located where they should be according to a map of your store. The shop map you made in the previous step should be reflected in these labels. Prior to the inventory count, it will be easier to stay organized and save time when it comes time to account for the miscellaneous things if boxes and shelves are proactively labelled and products are placed in their proper locations. Clean the Locations Where You are Counting Make sure there is enough space for employees to count large quantities of items in each location designated for stock-taking. Get rid of any boxes or inventory items that are unnecessary. Any freestanding furniture, such as mannequins or display cases, should be moved to one side. Use Barcode Readers While it is possible to hand count the objects, teams are more prone to make mistakes. For quicker and more accurate counting, choose barcode scanners. Store employees scan the barcode on the product's tag, and the inventory levels connected with that product's SKU are automatically entered into the POS system as opposed to each product having to be manually counted and recorded in a spreadsheet or on paper. Miscounts are unlikely unless the store employee scans the exact same item twice. Barcode scanners are necessary for teams charged with counting enormous volumes of merchandise. Setting a Time When Counting Will Be Handy Setting a deadline for your inventory count is worthwhile. Depending on how many things you carry, performing a physical count can take one business a whole day and another just a few. In either case, giving oneself too much time is preferable to not enough. Additionally, some retailers choose to conduct nighttime inventory counts, appointing a team of staff to enter the premises during off-hours. Just bear in mind that in many areas, paying employees more for midnight labour than for a shift during regular business hours is the norm. Train and Inform Staff Members Before beginning a comprehensive physical inventory count, take the time to teach and instruct your store personnel on how to perform it. To count inventory and record outcomes, every member of your team should be able to operate a barcode scanner and your POS system. Spend some time outlining the typical difficulties they may encounter. What happens if a tag is missing, a product is defective, or a label is mislabeled? To ensure that staff members know what to do in each instance, share the solution and the procedure you've put in place. Utilize Technology for Physical Inventory Count Pen and paper counting takes more time than electronic counting. It's simple to make a mistake when counting, leading to erroneous inventory data. Additionally, a physical stock count across many retail locations will generate more data that will require much more time to process and understand than if everything were recorded using inventory management software. Inventor management technology provides solutions to these issues. Inventory reconciliation is sped up, and merchants have a single source of truth for both their financials and inventory when they scan products since the point of sale system will automatically register inventory levels for that SKU. Suggested Read: Physical Distribution in Supply Chain Management Conclusion In conclusion, it is crucial to perform routine physical inventory counts even if you have an inventory management system in case-specific procedures are not operating as effectively as they should. Inventory counts assist you in reducing unexpected shortages and identifying which internal processes need to be changed to enhance your business operations as a whole. Improve Your Physical Inventory Counts With WareIQ One of the top providers of inventory and data collecting services is WareIQ. We offer physical inventory counting, merchandising, and space optimization services to the majority of large retailers across the nation using our warehouse management software and professional team. The integrated, one-handed inventory count terminal and eCommerce fulfilment services and warehouse management solutions are the technological advancements for which WareIQ continues to hold an excellent reputation in the market. This will not only handle your complete inventory but also make doing an inventory count simple by offering a section just for counting your inventory and notifying you right away if there are any shortages or overages. [signup] Physical Inventory FAQs (Frequently Asked Questions) Why is the physical inventory count performed?The Inventory account balance is updated to reflect the actual amount of accessible inventory using the physical count. To ascertain whether there have been any theft, loss, damage, or inaccuracies in inventory, a physical count is performed. How frequently should physical inventories take place?At the very least once a year, a physical inventory count should be done, however more regular inspections might be helpful. You may ensure that your inventory and your records match by frequently verifying your stock. Additionally, you'll be able to see any issues with your record-keeping practices. How are physical inventories managed?Wireless inventory scanners make it simple to scan a product wherever it is stored using barcodes to distinguish between each SKU type. You can simply monitor things by SKU, know how much is in stock, and identify every SKU in a warehouse by adding a barcode to your product tags or packaging.
July 07, 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
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