Inventory Position: Definition, Importance and 3 Ways To Position Your Inventory In 2022
To be a successful eCommerce company, you need to ensure that your inventory is optimized in every way be it in management, tracking, or storage. Inventory is the key sellable component of your business so it needs to be taken care of. The way inventory is stored and organized can have a huge impact on the speed of fulfilling orders. It is key for businesses to focus on attaining a productive inventory position. We will take a closer look at the meaning of inventory position, its importance, and the methods used to do it. What is Inventory Position? The word inventory position refers to where and how inventory is housed on storage racks, as well as where inventory units are stored throughout the supply chain such as in stores, warehouses, and production lines. When inventory placement is optimized, SLAs for order fulfillment are satisfied while logistics and inventory costs are kept low. Whether it is in-plant, regional, or field warehouses, inventory positioning refers to the strategic placement of distinct commodities in the product line. Because inventory positioning affects facility decisions, it must be taken into account in the logistics plan. eCommerce organizations can enhance warehouse efficiency and fulfillment speed by utilizing the correct inventory placement strategy to know where to put their goods so that orders are delivered on time and without errors. Inventory position in operations management may also be used to determine the overall amount of inventory possessed by a store in the context of inventory accounting. To calculate inventory position, use the following formula: Inventory position = (on-order inventory + on-hand inventory) – backorders The Goal of Inventory Positioning The need for inventory arises for sellers who want to sell and deliver products to customers within the stipulated time. Companies must understand that they need inventory to sell. Businesses cannot request finished products from a manufacturer after a customer has already placed an order. Keeping inventory enables retailers to instantly fulfill orders. So let us understand what is the goal of inventory positioning before venturing into the details of the positioning of the same. [contactus_gynoveda] Importance of Inventory Position in Operations Management Your operational efficiency, operating expenses, and capacity to please consumers are all affected by where and how you store your goods, both in terms of storage and in your supply chain. Physically situating your products to be easy to discover and easily accessible at the warehouse level makes selecting easier, which increases the overall fulfillment speed. It also reduces the chances of current goods being misplaced or forgotten, resulting in less wastage and reduced average inventory holding costs. On a supply chain level, having an inventory position in operations management that reduces lead times allows you to better fulfill consumer demand. You can prevent stockouts that anger clients and instead, enhance their overall experience by making sure that your product is available in the locations and channels you need it to be. Some of the major ways in which Inventory position is important are as follows: Inventory positioning provides safety stocks that are retained to offset any changes in demand and supply, thus preventing stock-outs.Inventory positioning improves customer service standards by supporting the marketing department's function, i.e., if demand is generated, inventory must be available and accessible to meet it.Unit costs are at their lowest when production is done in extended runs with consistent volumes that are provided by inventory positioning.Inventory positioning provides for purchase and transportation economies based on the inference that lot sizes lower purchase and transportation expenses.Inventory positioning helps in hedging against price fluctuations. This aspect reduces the impact of supplier price increases during times of high inflation.Inventory position in operations management mitigates demand and lead time uncertainty. Logistical problems are unpredictable and proper planning should be done to counter it.Proper inventory positioning leads to effective planning against unplanned contingencies that might disrupt operations, such as labour disputes, fires, floods, and other natural disasters. 3 Ways to Position Your Inventory Ensure Easy Reachability of High-Volume Products Having a proper inventory position entails that the products which are utilized the most and are likely to be in demand should be stored in a way that is easily accessible so that they can quickly be identified, picked, packaged, and shipped. This allows firms to speed up order fulfillment for products that have the best chance of being sold. This method can be followed for other products in order of their demand and sales volumes during prior seasons, with the highest selling items kept in a more accessible location and lower selling items stored in more hard-to-reach places, to make the best use of the available storage space. Doing this infers that goods are organized in a specific way and on the rare occasions that lower demand products are ordered, employees will instantly know where they are by aligning the demand of that product with a specific placement in the warehouse. Forecast Demand for Proper Inventory Planning Estimation of demand based on historical patterns or particular events is quite imperative to stock positioning. If an incorrect estimation of upcoming demand occurs, then even with high stock availability, there can be shortages and delays in delivery, which can cause an inadequate customer experience. On the other hand, inaccurate estimation of demand can also cause an inventory surplus, leading to significantly higher storage and operational costs, which can have a negative impact on the profit margins of a business. Many businesses often tend to base their stock replenishment strategy on forecasting done historically, hoping the pattern would repeat. Ideally, it should be taken with a grain of salt as markets are dynamic and forecasting should be done keeping the current factors in mind. Demands go through cyclical trends and various unforeseen events also affect demand so every factor should be thoroughly analyzed in order to achieve the required level of inventory. Store Larger SKUs on Lower Shelves for Easy Accessibility Having your heaviest or least-movable SKUs at the top or rear of your warehouse racks makes no sense for various reasons. They should not be placed on shelves where they are difficult to gain access to. The sheer weight of them can also cause the shelves to lose their structural integrity and succumb to the pressure caused by large objects that they were not designed for. Ideally, they should be kept as near to the ground as possible so that getting to them isn't a safety issue or an overtly challenging task. Simultaneously, modify positioning for bulky SKUs based on their popularity. Make sure they're stored in a convenient position if they are frequently ordered. However, the general rule for large items is that they are stored in a convenient location and as close to a transit bay as possible so that they can be dispatched with minimal effort. Conclusion: How Can WareIQ Help to Position Your Inventory? Although inventory position is difficult to perfect, it is crucial to provide a positive customer experience. 3PL companies like WareIQ help a company's warehousing practices and are professionals in safely and securely storing and positioning products in the warehouse. We can coordinate the delivery of your items and inventory to our facilities where our team will store your items and handle all of the technical aspects of managing and organizing them. WareIQ can intelligently suggest the placement of products across our vast network of fulfillment centers, based on areas of high customer demand or proximity to transit facilities. Depending on the product, each SKU will have its own storage location, such as on a shelf, in a container, or on a pallet, based on the demand and nature of the product. Our warehouses are equipped with advanced facilities such as a custom WMS to monitor your inventory, automating warehouse processes such as picking products when an order is confirmed, placing inventory based on the type of product, and much more. The features offered by WareIQ make inventory management and placement a breeze, some of which are mentioned below: Custom WMS that tracks Inventory levels across multiple warehouses in real-time.Automatic reorder point alerts to help you keep track of when you need to restock.Enhanced demand forecasting capabilities to help you determine the appropriate stock you need for each product type.Intelligent inventory placement that suggests which fulfillment center would be the best option to fulfill orders based on customer demand, geographical locations, etc.We offer a range of shipping services and will smartly assign the one that can deliver the order in the shortest amount of time and at the lowest price. Using all these processes can optimize your inventory position and can drastically improve efficiency and cost-effectiveness in all your warehousing and order fulfillment processes. Inventory Position: FAQs How can you determine the position of your inventory?Your inventory can be positioned based on a variety of factors such as the nature of the product, demand, availability, weight, dimensions, and much more. What is the goal of the inventory position? Inventory position is done in order to methodically organize inventory and make the best use of space so that higher-demand inventory can be easily accessed for faster order fulfillment. Is inventory position a part of inventory management?Yes, inventory position is one of the multiple processes that is encompassed by inventory management in order to make the entire process of ordering, storing, counting, and delivering inventory to be as seamless as possible. How can WareIQ help to position your inventory?WareIQ uses an advanced WMS that consists of features that provide data, analytics, and suggestions to efficiently place your inventory in the most strategic way, both in terms of which warehouses they are stored in and their position in that warehouse.
June 21, 2022
What is Stock Replenishment? Importance, Factors That Affect Inventory Replenishment and Best Practices in 2022
Every person involved in eCommerce retail understands how important it is to have the proper amount of merchandise on hand at the right moment. When a business has too much inventory, it runs the danger of items with a short shelf life becoming obsolete or being trapped with unmoving merchandise for an extended period of time. Conversely, when a business has too little inventory, it runs the risk of stock shortages and not being able to fulfill customer orders. Customers may be lost or dissatisfied as a result of either of these situations. In this blog, we will delve into the meaning of stock replenishment, its importance of it, the factors that affect it, the different methods, and the best practices of inventory replenishment. What is Stock Replenishment? The rate at which inventory moves from the manufacturer to the supplier for the activities of storage, picking, packing, and order fulfillment, is referred to as stock replenishment, also called inventory replenishment or replenishment planning. By maintaining efficient order and line-item fill rates, stock replenishment aims to keep inventory moving through the supply chain at an optimum pace. This method prevents inventory overstocking, which can be expensive.The objective of a business should always be to keep goods flowing through the supply chain at a cost that is as low as feasible without compromising the customer experience, with raw materials and finished items reordered at the precise moment to ensure optimal flow.Stock replenishment is the method through which businesses attempt to attain that objective, which is frequently aided by inventory management software that automates inventory replenishment procedures.Managing the rate of stock replenishment has typically been difficult since it previously required manually tracking each item of inventory as it travelled through the supply chain, using spreadsheets. Sophisticated inventory management systems that monitor and update stock movements without the need for user intervention make automated stock replenishment feasible today. This saves time and eliminates the possibility of human errors. How it Works Stock replenishment works in the following way: A team or set of teams will be assembled to supervise the movement of inventory, depending on the structure of the firm. These teams are often made up of warehouse managers and planners who ensure that the firm always has adequate stock to fulfill orders.These groups can be divided into a range of specializations, with some focused-on inventory ordering methods as the firm develops and changes, and others dealing with the short-term goal of tracking inventory counts.When the counts reach the pre-determined re-order mark, the selected team will contact the necessary supply chain parties to restock the products. This happens with both ready-to-sell inventory and raw materials. [contactus_gynoveda] Importance of Inventory Replenishment Businesses need a robust inventory replenishment plan because it may help them avoid costly supply chain issues like inventory stockouts and overstocks. Stockouts not only result in lost revenue but may also have a significant impact on consumer loyalty and trust in a company. They can also compromise your brand security by allowing competing brands to intrude on any available disillusionment of consumers. Helps Prevent Understocking Understocking occurs when a merchant fails to restock inventory at the appropriate moment, resulting in a shortage of items at the time of purchase. It may also result in backorders, which indicates that an order has a set date for when the item will be ready for delivery. Dealing with understocking and backorders can be quite aggravating for your consumers. The easiest strategy to minimize frequent understocking difficulties is to keep safety stock, backup inventory, or emergency inventory on hand at all times. This is also a good idea in case a supply chain issue arises unexpectedly (which was experienced by many merchants during the COVID-19 pandemic). Helps Prevent Overstocking Overstocking occurs when there is a surplus of inventory in relation to the demand for it. Overstocking can have consequences such as increased storage costs, increased operational costs, and the risk of inventory becoming obsolete. Proper replenishment planning can be done to forecast the demand for future time periods and how much supply would be needed to satisfy it. This will enable firms to keep just the right amount of inventory on hand at all times and avoid overstocking situations. Helps Reduce Operational and Logistical Costs Suppose a consumer places a large order with you. If one item is out of stock at the customer's nearest warehouse but is available at another, you'll need to send a split shipment (sending multiple goods from one order in separate shipments, frequently from a different location or at a later date) to complete the customer's order. Sending products from a single purchase in many shipments raises shipping costs, increases packaging waste, and may mislead customers. Based on past data and forecasting techniques, you can estimate demand and determine how much inventory to hold at the SKU level at each warehouse site. This will help you in decreasing the operational and logistical costs involved in shipping from different locations and the need to do it in the first place. 3 Factors That Affect Stock Replenishment Fluctuating Forecasts As all forecasts are based on unverified demand, the figures are certain to change significantly depending on the changing demand of clients. In a different instance, if one of your suppliers went out of business and your organization couldn't get equivalent raw materials in time to keep manufacturing running, prior forecasting could’ve helped you to prepare for the situation and have a backup, but since it is related to an external manufacturer, it may not have shown up in the forecast anyway. Thus, forecasting needs to be done as accurately as possible, covering as many variables as you can in order to offset unpredictable circumstances. Lack of Optimization Warehouse managers and planners frequently disagree over how to best utilize warehouse space. A planner, for example, would want to set aside a certain amount of space for the storage of excess inventory or raw materials. The agreed-upon inventory replenishment strategy cannot be effectively used if the warehouse manager is unable to supply the requested space. This back and forth in different departments can lead to a lack of optimization of multiple processes, which has a direct impact on a company’s ability to replenish planning and manage inventory. Poor End-to-End Visibility When it comes to supply chain efficiency, end-to-end visibility is the name of the game. When you don't supply your manufacturers with reliable, real-time information about your current stock levels, the replenishment process might get delayed. Employing solutions especially built for inventory management and retail execution to encourage better communication between the field and the back office is one strategy to improve overall visibility. Utilizing technology to streamline the process of tracking your data in real-time provides your brand with an invaluable advantage over competitors who are still using generic tools to get things done. 3 Methods of Stock Replenishment Depending on their company strategy, monthly order volume, and nature of items for sale, different eCommerce merchants use various replenishment planning techniques. If your current replenishment plan isn't working, try one of these three successful inventory replenishment approaches: Reorder Point Method To automate activities, most inventory management systems follow replenishment principles.When inventory levels reach the reorder point, replenishment is usually initiated.The reorder point is when stock has to be reordered, taking into consideration current and future demand as well as the time it will take your supplier to give you the new order.There are three stages to manually calculating your reorder point:Calculate the number of days you'll need to meet your lead time requirements.Calculate the number of days in your safety supply.Add your lead time demand and your safety stock to establish your reorder point.You may also use a reorder point calculator to make your life easier. It'll alert you when it's time to order a fresh batch of merchandise. Top-Off Method When you have a lot of fast-moving SKUs in your inventory, the top-off approach is usually the best option.Under this method, inventory levels for a certain product are "topped off" in their corresponding storage facilities during periods of slower demand or downtime, allowing you to have a high inventory turnover rate without running into stockouts situations.During sluggish demand periods, the goods are always replenished at the forward pickup sites, which enhances efficiency during peak periods. Periodic Method Inventory is refilled at regular periods using the periodic inventory replenishment technique. Inventory levels are only evaluated at certain periods or dates, regardless of how low stock levels may have fallen before that. This strategy is primarily employed in warehouses with a lot of storage space.Inventory is refilled at pre-determined periods through the use of the periodic inventory replenishment method. This strategy is perfect for replenishing warehouse inventory. Warehouses can keep products that will last between 3 to 6 months because it has a large storage capacity. As a result, for products held in warehouses, a periodic check/review is adequate and the inventory levels of these items are examined to determine whether they require restocking. There is no need to replenish products if inventory levels are sufficient. Best Practices of Inventory Replenishment There are a few things you should consider doing on a daily basis to ensure that you have the necessary inventory/stock on hand whenever you need it. Follow these best practices to ensure that your organization can always refill its inventory as needed: Evaluate Your Forecasts on a Regular Basis Involve everyone in this discussion, from your planners to your salespeople, warehouse managers, suppliers, long-term clientele, and others. Ask your colleagues to have their own estimates ready before the meeting, and compare them to the factors that influence your company's replenishment plan. In the meeting, devise a reasonable plan to implement if and when your current replenishment technique and prediction are not up to the mark. Accurate forecasting is one of the pillars of strong replenishment planning. Create Stocking Level Techniques that are Successful and Efficient Planning of stocking levels differ based on the size and specialization of the company. Therefore, your plan should be tailored to your business' inventory and supply chain demands. If you are starting afresh with your strategy, make sure that everyone involved, especially your long-term clients and suppliers, is aware of your most stringent goals. After that, you can discuss your stocking-level tactics in terms of hard data. Make the Necessary Technological Changes Your supply chain will be optimized if you have the correct eCommerce software system in place. Installing inventory management software, for example, is a simple approach to gaining real-time visibility into inventory levels across several locations, allowing you to make smarter inventory replenishment decisions. You can simply keep track of inventory control, track inventory trends and avoid frequent stock difficulties by employing inventory automation solutions for inventory optimization. Make Effective Use of Replenishment Data It is not surprising to learn that leveraging data helps you make better, more educated decisions and is one of the most effective strategies to optimize your stock replenishment strategy. Data from your retail outlets' point of sale may be a good predictor of how your replenishment process will go. Each of your accounts is unique and efficiently managing the data from each will assist you in keeping them all filled to the adequate level. Improve End-to-End Visibility Make sure your whole supply chain is aware of your shifting stock levels. Make room in the system for extra information about your fleet's shipment schedules. As you can see, many of the issues in replenishing are centred around lack of communication, ineffective management, and inaccurate forecasting. Keep your numbers flexible and realistic so that your organization never needs to cope with a shortage or surplus of inventory and make sure that every team has access to all the information that they need. Improve Inventory Management Techniques The role of stock replenishment is only one part of the overall inventory management process. It will be difficult to decide when it is time to restock inventory without a suitable inventory management plan in place. Inventory audits on a regular basis, standard warehouse receiving processes and efficient ecommerce warehousing practices may all help you keep track of inventory more efficiently. To avoid large decreases in profit margins, warehouse expenses such as personnel, storage, shrinkage, and depreciation, inventory should be continuously monitored and demand levels should be estimated. Conclusion The stock replenishment process is vital to every company that sells items to clients, whether it is done on a regular basis or on demand. Stock replenishment is more than just a procedure; it may also assist merchants in forecasting demand and supply more accurately by providing a comprehensive view of a company’s worldwide inventory and demand levels. Performance at the SKU/site level is automatically assessed and optimal stock levels may be increased or lowered as needed, allowing for more full-price goods to be sold. Prior to a certain action such as a promotional event, changes in future stock levels can also be forecasted and structurally described. From manufacturing to marketing, stock replenishment has the power to impact every part of an organization. As a result, it's critical to always look for methods to improve your replenishment planning procedures. One way to do this is to partner with a 3PL company like WareIQ. WareIQ is one of India’s fastest expanding eCommerce fulfillment companies. With an emphasis on using advanced technology, WareIQ enables customers to make use of our advanced WMS which can track inventory levels across multiple selling platforms and fulfillment centers and enables the automation of multiple inventory management processes, including stock replenishment. Users can take advantage of features such as automatic low-stock warning alerts, inventory replenishment notifications, and much more. Stock Replenishment: FAQs Why is stock replenishment important?Stock or inventory replenishment is a key component of inventory management because it assists businesses in always storing the right amount of products in order to meet demand levels. This helps companies reduce operational and storage costs and limits wastage. What are important aspects of stock replenishment?Some important aspects of stock replenishment are lead time, order capacity, and replenishment intermissions. What is a replenishment period?The term replenishment period is used to refer to the process of replenishing inventory levels of products that are running low on stock in a warehouse and the frequency with which it is needed. What stock replenishment facilities does WareIQ offer?WareIQ has a custom WMS where users can set replenishment points to trigger automatic replenishment, get low stock warnings for goods, forecast demand using past statistics, and much more.
June 21, 2022
6 Easy Steps to Start to Sell on Snapdeal & Open a Snapdeal Seller Account￼
Snapdeal was originally pioneered as a daily deals platform in 2010 but has since grown to become an eCommerce marketplace that encompasses various services such as multilingual support, a customizable interface and the use of advanced technology to enable retailers to sell their products on its platform. Currently based in New Delhi, the company has become a major player in the Indian eCommerce selling space which is reflected by more than 500,000 sellers that utilize it to sell a variety of commodities that span across industries and price ranges, giving customers a variety of options. The majority of the company’s customers are located in smaller towns and villages, rather than conventional metropolitan areas, which has lead it to provide coverage to more than 96% of India’s pin codes. In this blog, we will go into detail about why you should sell on Snapdeal, how to become a Snapdeal top seller, the challenges associated with it and how you can employ WareIQ’s assistance. Why Should You Sell on Snapdeal? Mitigates the Need to Set Up a Store A huge advantage of opting to sell on Snapdeal and most other eCommerce platforms is that the entire retail process from generating interest in a product and converting it to a sale, can be done online without the need of ever setting up a physical store and all the expenses and challenges that are associated with it such as rental costs, interior decorating costs, electricity costs and maintenance costs. This enables retailers to save a ton of money and removes any hassle of needing to run a whole store which makes the entire process more pleasurable and efficient for both the seller and their customers. Provides Access to More Customers When retailers opt to sell on Snapdeal and offer their services digitally, they instantly convert their potential customer base from just their local operational area to the entire country. As more of the country’s population gains access to the internet, they will discover the benefits and conveniences of shopping online instead of commuting to a physical store. In addition, Snapdeal provides services to more than 3000 cities and towns in India which means that retailers can receive orders from the opposite end of the country. This increased customer reachability will have a profound impact on sales and will assist retailers in expanding their operations further. Operates Round the Clock Companies who sell on Snapdeal are not bound by the restraints that a physical store has to abide by and this includes operational timings. Businesses are always in the position of attaining new customers, even when their staff is asleep or on holiday. Whether a customer is browsing through your online listings on their 9 am commute to work or during a 2 am shopping spree because they can’t get any sleep, your business will stay open to welcome their business, which simply cannot be done through a conventional brick and mortar store. This helps in converting even the slightest bit of interest into a potential sale. Assists in Running the Business On the Go Due to the digital nature of eCommerce retail, businesses that sell on Snapdeal can take advantage of their staff not needing to be physically present in an office to be productive and keep an eye on ongoing operations, which can be seamlessly done through Snapdeal’s Seller Zone App or Seller Panel. This provides a lot more flexibility by enabling employees to be up to speed on important matters relating to operations, sales or issues faced by customers. This also leads to more time being spent with family or engaging in other personal activities such as physical fitness and being out in nature, which can stimulate personnel to work harder and more efficiently. Diversifies Your Product Range Retailers who put their Snapdeal seller accounts to good use can be reassured by the fact that Snapdeal is taking care of important logistical processes such as confirming orders and tackling delivery issues. This enables companies to put more focus on core business activities such as studying the market, enhancing their business strategy, refining existing products and developing new ones which will ultimately lead to more satisfied customers and higher profit margins. By having the freedom to diversify their product portfolio, businesses can tap into new segments of the market and expand their overall reach. [contactus_uth] 6 Simple Steps to Start to Sell on Snapdeal Creating a Snapdeal Seller Account The first thing you need to do is go to https://sellers.snapdeal.com/ where you can create a Snapdeal Seller Account. You will need the following documents to complete the registration: Owner’s nameCompany’s nameCopy of your PAN cardCancelled cheque from the seller’s payment accountCopy of your Aadhaar cardPhone numberEmail IDBank account informationGST numberAddress proof such as bank statement, electricity bill, passport, etc. Entering Your Business Information You have to enter your business-related information such as your office address, pick-up pin code, digital signature, name of the business, etc. Verifying Your Email and Phone Number You need to verify your registered email and phone number by entering the verification code that will be sent to both. This will be used to notify you about orders, tracking information and other important notifications. Submitting Your KYC Documents KYC documents such as GSTIN, PAN card and Aadhar card will be used to verify your ownership or identity of the company. They need to be uploaded to the website. Entering Your Bank Details You need to enter the relevant bank details as this account will be used to credit payments after a sale is made and also for relevant deductions and expenses. Creating a Product Listing Once you are done with the registration process, you can list a product using your Snapdeal Seller Account. You should have an idea of what products you want to sell and which category they belong to. There are 2 ways you can list products to sell on Snapdeal. Manual Product ListingBulk Product Listing You can either click on “Create a Single Listing” to list products individually or you can bulk upload by uploading your content. Once your products are successfully listed, you can start to receive orders. You will get a notification every time an order is placed and you can choose to accept or reject it. You can now begin to sell on Snapdeal and utilise all the benefits that come with it. Challenges Faced by Retailers Who Sell on Snapdeal Incurring of Returns Expenses Sales returns are a major challenge for every seller, regardless of the eCommerce platform. However, some handle it better than others. Retailers who sell on Snapdeal have to deal with 2 types of sales returns - courier returns and buyer returns. Courier returns are when the courier company could not deliver the order due to various circumstances and buyer returns are when the buyer returns the product, which could be due to a variety of reasons, many of which aren’t the sellers' fault. Sellers do not incur any expenses for courier returns but for buyer returns, they have to pay for the transport fee for delivery and return as well as the marketing and selling fees. For retailers struggling to maintain their profit margins, this could have dire consequences. Lower Profit Margins Compared to Other Platforms This problem is more pronounced on Snapdeal compared to other eCommerce selling platforms due to the large amounts of local vendors who prefer to use it as opposed to an international platform. This creates severe levels of competition and if businesses do not own a trademark, any and every other company can sell similar products at similar prices. The sheer volume of retailers trying to get into the eCommerce space in India means that by the time operational and logistical expenses, and Snapdeals commission are cut, retailers barely have any profit left over. Quality Control Issues Snapdeal is one of the worst offenders in this regard. Retailers who sell on Snapdeal constantly face issues such as incorrect titles that are difficult to change, random transferring of shipping plans to Snapdeal Plus with no option to change it back and retailers using the images and descriptions of other vendors. Dealing with these issues can cause severe time delays and unnecessary hassles for sellers when they could be focusing on other, more important tasks. Constant Changing of Account Managers A consistent theme of online selling platforms is the assignment of account managers to sellers who will assist them in tackling any issue or doubt that arises. On most other platforms, a fixed account manager is present, which is beneficial because they will have a deep relationship with the seller and will also have knowledge about prior mishaps that may have occurred. However, retailers who sell on Snapdeal can have their account managers suddenly change, without any prior notification. This means that when an existing problem isn’t solved or a new problem arises, there will be a new account manager that has no relationship with the seller or prior knowledge about the case which can lead to severe delays in solving it. Highest Expenses and Commissions Out of all the major eCommerce marketplaces operating in the country, Snapdeal is one of the most expensive. Retailers who sell on Snapdeal constantly have to pay the most expensive shipping fees, which contain many hidden costs and keep fluctuating. Snapdeal’s payable amount to retailers, known as seller net payable, is also one of the lowest and leaves sellers with some of the lowest profit margins of any online selling platform. This combined with the fact that there are many features omitted from the platform means that sellers are getting a much lower value compared to similar services. Conclusion Snapdeal is one of the emerging eCommerce marketplaces in India. Since it is a homegrown company, it inspires many retailers to sell on Snapdeal, in addition to offering a vast amount of coverage to every part of the country. While the platform does have its benefits and drawbacks, it is still a useful platform to sell on as gives retailers more exposure to customers who do not live in big cities but rather, in smaller towns and cities. Retailers who sell on Snapdeal in conjunction with other platforms are best suited to have the maximum amount of visibility possible. It is always a smart option for sellers to sell on multiple platforms so that they can extend their reach and are not monopolised by a single marketplace. If you need to fulfill orders on Snapdeal or any other eCommerce platform, you can take advantage of WareIQ’s offerings. WareIQ’s custom WMS offers seamless integrations with more than 20 online selling platforms including Snapdeal, Amazon, Flipkart and much more. This enables retailers to access all their order information across multiple platforms and inventory details across multiple fulfillment centers, to be easily accessed in one centralised virtual location. In addition, we also track important metrics about every order to enable companies to forecast future demand and the amount of inventory that they will need. We also provide fulfillment services for retailers who sell on every platform at faster speeds and discounted rates. Sell on Snapdeal: FAQs Are there any fees to sell on Snapdeal?Snapdeal doesn’t charge any fees to register and list products on their website. A commission is charged on every item that is sold. How do sellers get paid on Snapdeal?Payments are transferred to the registered bank account of the seller through NEFT transactions. There are 4 payment cycles per month. The payment cycle can become more frequent based on a seller’s performance. Does Snapdeal operate outside of India?No, Snapdeal currently does not offer services outside of India. Can you integrate a Snapdeal Seller Account with WareIQ’s WMS?Yes, users can integrate a Snapdeal Seller Account with WareIQ’s WMS to take advantage of all the benefits that it entails. What services does WareIQ offer to retailers who sell on Snapdeal?WareIQ offers multiple services to users such as order fulfillment, packaging and shipping at cost-effective rates. Additionally, WareIQ’s WMS offers integrations with most eCommerce marketplaces and can collate data relating to inventory levels and order management from all of them in a single virtual location.
June 20, 2022
8 Best Strategies to Become a Snapdeal Top Seller
Retailers opt to sell their products on eCommerce selling platforms due to the various advantages that it offers compared to conventional brick and mortar stores such as little to no setup costs, visibility to a vast customer base and the convenience of not having to operate a physical store and all the challenges that come along with it. In order to get customers interested in their products, out-perform their competitors and generate as many sales as possible, retailers need to employ a wide range of tactics. Becoming the top seller in any given business, especially eCommerce, comes with a fair set of challenges. However, any business that has put the time and effort into doing the research, selling quality products and targeting the right audience, is bound to succeed. Read this blog to understand more about Snapdeal, find out the best strategies to become a Snapdeal top seller and the pros and cons of choosing to sell on Snapdeal. About Snapdeal Initially founded in 2010 as a daily deals platform, Snapdeal has since expanded its services to become a widely used online selling platform that offers a wide array of features such as the use of advanced technology to help retailers and their customers get a seamless eCommerce shopping experience, a highly customizable user interface and multilingual support that includes most major languages in India. The company is currently headquartered in New Delhi and has upwards of 500,000 retailers that use its platform on a daily basis to sell their products. Unlike other eCommerce marketplaces, Snapdeal’s customer base is primarily located in smaller towns and cities rather than large urban conglomerates which has enforced it to offer services to more than 96% of pin codes in the nation, including more than 2,500 cities and towns. Snapdeal allows a wide range of products, across industries and with varying prices, to be sold on its platform and has garnered a reputation for being more affordable than other channels. [contactus_lilgoodness] 8 Strategies to Become a Snapdeal Top Seller Target the Appropriate Audience You can have the best product in the world at the cheapest price available but if you target the wrong audience, it won’t make any difference to your sales and will limit your chances of becoming a Snapdeal top seller. Retailers need to conduct market research using analytical tools to determine what kind of customers they want to target, who will use their products, what price competitors are charging for similar products and what customers respond well to. Customer feedback is also a valuable asset as you are getting suggestions directly from them directly as to what works and what doesn’t, which can be used to optimise your operations to attract future customers. Identify Your Unique Selling Point Your unique selling point or USP, can help your product and business stand out from a sea of competitors. Whether it lies in certain core features of the product, the pricing, the delivery or any other aspect, a USP can help attract the attention of customers and help to boost sales. Once you have identified your USP, you need to market the daylights out of it to ensure that customers can discern the benefits as opposed to your competitors. This will give you a competitive advantage in the segment and can have a positive impact on your profit margins, in addition to helping you to become a Snapdeal top seller. Provide Exceptional Customer Service To become a Snapdeal top seller, you need to offer a prolific support experience to customers whether they have already purchased your product or are thinking about doing so. This will enable you to generate their valuable feedback as to what they appreciated and if there was anything that they didn’t. This will allow you to increase their chances of becoming repeat customers and their positive feedback and reviews will direct more customers towards your business. Utilise SEO Tactics SEO tactics are extremely important if you want your product listings to rank at the top of search results when customers search for similar products. It is an acronym for Search Engine Optimization and involves intelligently placing keywords in order to rank highly compared to other results on search engines such as Google. Employing relevant and high-volume keywords in your product descriptions and titles can make the difference between generating heaps of visibility and barely having any customers visiting your page. Utilising good SEO practices will greatly improve your chances of becoming a Snapdeal top seller. Add High-Quality Images Adding high-resolution pictures and videos of your product from different angles and use cases can have a positive impact on your goal of becoming a Snapdeal top seller. Retailers who sell on Snapdeal should make sure to add attractive images as this is the first visible interaction that a customer will have with your product so it should be as memorable as possible for the right reasons. Pictures can often make the difference between a customer purchasing a product and searching for other listings because the product images were of poor quality. Employ the Use of Email Campaigns Email campaigns are a great way to keep in touch with existing customers to remind them about upcoming events and product launches. It is also a useful method to convert prospects into customers by getting them interested in your product and brand through the use of well-written and visually appealing emails. Either way, it can spark interest in your business and help you to become a Snapdeal top seller. Run Sales and Provide Discounts Retailers who sell on Snapdeal can run sales and provide huge discounts on certain products in order to attract the attention of customers. Research shows that customers are more likely to purchase a product if they think they are getting a significantly better deal than what it usually costs. Sales can be run for older products that are at risk of becoming obsolete, products that are not selling well or to spark interest in a brand new product. Customers will also appreciate these discounts and are likely to inform family and friends about offers that they deem as being good value which will help you in generating more sales and becoming a Snapdeal top seller. Reduce Shipping Costs Shipping costs can have a significant impact on whether your customer proceeds to check out or exists the page because it is too high. There are many ways to reduce shipping costs such as partnering with a 3PL company to take advantage of bulk shipping, discounts and more but there are also ways to intelligently make shipping costs invisible such as by bundling them into the product cost and offering free shipping, qualifying customers for free shipping if their shopping cart is of a certain value and much more. Retailers who sell on Snapdeal can make use of these tactics to become a Snapdeal top seller. Sell on Snapdeal: Pros and Cons Pros for Retailers Who Sell on Snapdeal Snapdeal enables retailers and their customers to save money, time, effort and resources by getting everything done online. Retailers do not need to incur the setup and operational expenses that are involved in a conventional store while also not needing to be physically present at an office to be able to ensure that operations are running smoothly. The user interface of the website and dashboard is easy to use for retailers who sell on Snapdeal. This enables any and every type of seller to sell on Snapdeal effortlessly, regardless of their technical prowess. Users can manage orders, check their inventory levels and edit listings from one master dashboard.There are currently more than 27 million unique customers that interact with Snapdeal to browse and purchase products. When retailers choose to sell on Snapdeal, they instantly get access to this entire base. While the sheer numbers will obviously reduce when you filter the statistics based on customers who shop for similar products and at a particular price point, you will still be left with a huge network of potential customers that you can convert into buying your products.Retailers who sell on Snapdeal can take advantage of its vast operational network that covers 96% and more than 2,500 cities and towns in the country. This enables users to generate sales to distant locations across the country because they are no longer constrained by their location.In addition to giving retailers who sell on Snapdeal access to a wide pool of customers, the platform also operates 24/7 to ensure that regardless of what time customers are browsing, sales can always be made. And since Snapdeal also takes care of the logistical procedures, retailers do not need to worry about fulfilling orders at odd hours. Cons for Retailers Who Sell Snapdeal Retailers who sell on Snapdeal are subject to some of the highest operating expenses of any eCommerce marketplace. In addition, Snapdeal also provides the lowest sellable amount to sellers which greatly reduces profit margins, especially for small and medium-sized retailers who are struggling to get by.The listing power that sellers have on the platform is extremely limited compared to other platforms. Not only is it much slower and is frequented by glitches, but it also does not offer any customization options and does not penalise sellers who use images from other businesses.Retailers are forced to incur returns expenses if the return is initiated by the customer for a particular reason, regardless if it is the fault of the seller or not. Since returns happen frequently, this additional expense, which includes travel to and from the destination and any other logistics costs that have been spent, can eat away at a seller’s profit margins. Conclusion If you are a retailer that seeks to sell on Snapdeal, it would be in your and your customers' best interest if you employ strategies to enable you to become a Snapdeal top seller. While Snapdeal themselves don’t provide any additional benefits for being a top seller, it will pay dividends in terms of customers having the best possible experience, highlighting that feedback in public forums and attracting new customers, who want to buy from a reliable retailer that sells quality products. This will help you to generate more sales and ultimately increase your profit margins. If you need assistance with fulfilling orders on Snapdeal or any other type of eCommerce-related assistance, you can think about partnering with WareIQ. WareIQ is one of the fastest expanding eCommerce fulfillment companies in India that provides a whole range of services that encompasses every aspect of eCommerce retail. Whether it is fulfillment centers to store products, fulfilling orders or managing inventory, WareIQ has got you covered. We utilise advanced technology to the greatest extent possible, to mitigate unwanted errors and provide a seamless user experience. Snapdeal Top Seller: FAQs What enables Snapdeal to be successful?Snapdeal has found its niche market, 90% of which consists of customers that are located in smaller cities in towns that gravitate toward affordable products and the company has tailored its business model accordingly. How many retailers sell on Snapdeal?Snapdeal consists of more than 500,000 sellers and has almost 80 million website visits per month. Does Snapdeal offer any monetary benefits for being a top seller?No, Snapdeal does not offer any compensation. Becoming a top seller is primarily in the best interest of a retailer to earn the maximum amount of sales possible. How are retailers paid on Snapdeal?Retailers get payments to their bank accounts through NEFT transfers which happen 4 times a month and can be adjusted depending on the performance of the specific retailer. Can you fulfill Snapdeal orders with WareIQ?Yes, not only can you integrate Snapdeal with WareIQ’s WMS but you can also use WareIQ as a fulfillment partner to fulfill Snapdeal orders in addition to integrations and fulfillment services for multiple other selling platforms such as Flipkart, Amazon, eBay, etc.
June 20, 2022
What is Decoupling Inventory? Definition, Methods, Differences and Effect on the Supply Chain in 2022
Inventory is a basic asset of any business operation, so inventory management becomes an essential task. Inventory management includes more than just arranging the items on shelves, picking them up when an order comes in and delivering it to the customer. It also comes with a lot of uncertainties. These uncertainties are part of operating a business and managing them by taking the appropriate steps is a sign of efficient business skills. Events such as the global pandemic and supply chain disruptions caused due to the war in Ukraine have highlighted many challenges and lack of inventory is one of them. Depending on the nature of a business, there could be a shortage of semiconductors, edible oil, medicines, etc. So to maintain functional production and supply operations, forecasting needs to occur. Decoupling inventory is one part of it and it needs to be implemented to prevent stock-out situations and grinding operations to a halt. What is Decoupling Inventory? Decoupling inventory, also known as decoupling stock, is the process of separating extra inventory within a production process to ensure smoothness in every operation. Buffer inventory is stored in order to prevent one step of production from causing delays in other steps. Manufacturers need to ensure that if any of the machines involved in production breaks down or slows down production rate at any point, production does not get affected. An Example of Decoupling Inventory For different purposes, the relevant decoupling inventory example can vary depending on the situation. One example for a manufacturing unit is as follows: If a manufacturer makes bread and biscuits that require the use of flour, they must purchase a huge amount of wheat to grind it into flour. For processes such as grinding, backing, kneading and cutting, various machines are put into use. If any of the machines get damaged or stop working due to an issue, the entire production process can get delayed. In order to mitigate this, the manufacturer can use the principle of decoupling inventory to keep extra flour if the grinding machine fails, keep some buffer knead to cut it and shape it for future steps. If the kneading machine fails then there should be another way to knead it, bake it or use the flour to make something else from the items in the product line that the company offers. This is a good decoupling inventory example that other businesses can emulate in order to prevent a delay in multiple other processes, just because one operation isn’t going to plan. [contactus_gynoveda] How Can You Achieve Decoupling Inventory? Most online retailers will keep extra stock to ensure that client orders are fulfilled on time. Many times, the order frequency gets too high. For example, if the monsoon arrives early, umbrella sellers will get more orders and may struggle to fulfill them. If you sell a product on your website and multiple other sales channels that needs to be a handmade item or requires assembly, it will benefit you to learn about how decoupling inventory can help you optimize your processes. Here is a step-by-step guide to completely comprehend how decoupling inventory works: Calculate your sales and production capacity.Determine the current raw material or work-in-progress inventory levels at each decoupling point in your manufacturing line.Analyze previous order data and patterns to forecast demand strategically.Determine the amount of extra raw materials you can keep on hand after demand has been met.Establish a predetermined inventory replenishment strategy based on the average delivery deadlines for each material after you know the quantity of raw materials to have on hand.Maintain accurate inventory records and historical order trends for each SKU and adjust your decoupling inventory purchase orders as needed. Keep in mind that your decoupling inventory replenishment approach will need to be tweaked over time. Decoupling inventory will not only require additional space in your warehouse but also you will have to dedicate resources towards holding and securing it. So the holding cost limit that you have set should not be surpassed. Always keep an eye on your holding expenses and avoid building up too much surplus inventory, especially if your raw materials have expiration dates or are prone to becoming obsolete. Advantages of Decoupling Inventory Maintains Buffer Stock for Repairs and Maintenance Decoupling inventory is particularly advantageous in the event of a facility outage for repairs or machine maintenance. Manufacturers can still fulfill orders on time despite any failure of equipment failure if they have adequate decoupling inventory on hand at every step of production. This enables them to use this inventory as a substitute to bypass the failure and enable normal production speed and efficiency. Provides Protection During Periods of Uncertainty When manufacturers are unable to obtain sufficient raw materials to finish producing a product, the work-in-progress manufacturing line slows or stops completely. Decoupled inventory is stored at each level of the production line to offer protection against any uncertainties that could occur and constructs a resilient failure-proof supply chain. This means that no matter which stage of the manufacturing process a product is in, there should be enough raw materials on hand to continue production without any delays. This is especially useful for companies that make a lot of goods with similar parts or ingredients. Helps to Avoid Stock Outs Decoupling inventory is a strategy for ensuring on-time retail fulfillment, particularly if the items you offer require machinery or assembly to fulfill a customer order. When you sell finished products through dropshipping or direct fulfillment that is done by the manufacturer, you do not have control over the manufacturing process. There are, nevertheless, measures to ensure that demand is met despite production delays. To reduce the risk of inventory shortages, partnering with manufacturers or suppliers can be a good option. However, this isn't the only technique to avoid bottlenecks in your supply chain. You can forecast demand and keep safety stock with you at all times to offset the chances of a shortage in inventory or raw materials. Decoupling Inventory vs Pipeline Inventory Though they have some similarities in terms of advantages, they are not used in the same way. Decoupling inventory and pipeline inventory both aid supply chain efficiency, with the primary purpose of both being to avoid wastage of time and reduced productivity. [table id=30 /] How Does Decoupling Inventory Affect the Supply Chain? Decoupling inventory operates alongside the material flow as well as the informational flow pipelines in the supply chain. Without decoupling points, a supplier error or downtime might have a negative impact on the demand and supply of products. Decoupling, for the most part, works inside the supply chain by emphasizing the prevention of time waste or downtime in relation to productivity. The use of manufacturing automation to streamline the production process is emphasized by these decoupling points. Manufacturing automation includes several features that make production more efficient such as order management, parts tracking, outlined/identified production stages, inventory management, etc. In case of a lack of ability to decouple inventory, production can get lower and then it can affect the following aspects of the supply chain: Impacts Dropshipping Some retailers opt for the manufacturer to fulfill orders to customers directly. In this case, sellers only focus on confirming orders on their website or other selling platforms. If decoupling inventory is not done properly and there are hindrances in the production process, manufacturers may be unable to fulfill orders due to various issues which will result in unhappy customers and negative feedback for the business. Affects the Purchasing of Inventory Many types of small and medium-sized eCommerce sellers purchase a minimum order quantity (MOQ) and economic order quantity (EOQ). If a manufacturer has low amounts of inventory in stock, there are fewer chances for the seller to get enough inventory to fulfill orders in a timely manner. Thus, the seller will have to settle with what the manufacturer has and is quoting, which may be much more expensive than ordering on the basis of MOQ and EOQ. Increases Freight Rate In case there is a stock shortage and sellers have to fulfill multiple orders, they will have to opt to obtain the goods from other warehouses which may be located in other regions, in order to not keep customers waiting. This process can work out to be much more expensive as sellers will have to incur extra freight charges to transport the commodities from those warehouses and can also result in delays as products are not being shipped from a warehouse that is in close proximity to the customer. Hinders Seasonal Sales When there is an uncertainty of inventory due to a lack of decoupling inventory, a seller cannot run flash sales or fulfill demand during a season sale which will ultimately lower the profit and cash flow and remove a seller’s ability to get rid of obsolete or low-demand inventory. Lowers Sales Velocity A higher sales velocity is always beneficial for a seller. They are often ready to compromise on profit margins to focus on selling more products because that is the way to generate high revenue and increase profit margins. However, if there is a shortage of inventory or other issues in the supply chain, sellers are often unable to achieve the desired sales velocity because they do not have the means to do so. 3 Different Methods to Avoid Stockouts Automate Order Placement If you are an eCommerce seller, technology plays a huge role in your business. The Internet of Things(IoT) is one of them. If you apply IoT for not only selling and tracking goods but also for procurement of inventory that you will be selling in the future, you can avoid any errors or miscalculations that could occur if it is done manually. This helps you to generate the data for future orders and optimizes your inventory. Through the use of technology, multiple facets of the business can be automated such as order placement, inventory management and order fulfillment. This will help increase the speed and accuracy of these processes. Keep Buffer Stock Handy Online retailers can utilize safety stock to determine how much extra inventory they can afford to have on hand in case of an emergency or supply chain failure that could cause a delay in order fulfillment, similar to how decoupling inventory works. The amount of safety stock you'll need is calculated using the following formula: Safety Stock = (Maximum Lead Time x Maximum Daily Usage) – (Average Daily Usage x Average Lead Time) However, keeping too much buffer stock can also lead to obsolescence and further expenses so it is best to calculate this accurately. Use a Warehouse Management System It is possible to strategically estimate future demand by collecting and evaluating precise past supply chain data. Though no forecast is 100% accurate, thanks to the rise and accessibility of digital supply chain technologies, forecasting demand is becoming easier to manage, allowing online retailers to make better judgments about inventory levels. Investing in technology that delivers real-time supply chain analytics and inventory forecasting insights will help you ensure that you have enough inventory throughout your supply chain to fulfill demand. A centralized warehouse management system (WMS) such as the one used in WareIQ's logistics network, collects and records real-time inventory data which helps in inventory planning and management. Conclusion: How Can WareIQ Help in Decoupling Inventory? Inventory Management Solutions provided by WareIQ will help you track inventory in real-time and provide insights to assist you to improve stock availability. Its inventory management apps for eCommerce businesses allow you to create automated reorder point notifications based on prior inventory performance at the SKU level, so you'll know when you're running low on stock. WareIQ is a trusted and tested technology platform that gives you all the inventory details you need and lists all the variations in a single dashboard. Experts control every aspect of inventory management. You get the data and insights you need with WareIQ to gain control over the movement of inventory, lower carrying costs and ensure you always have enough inventory on hand to fulfill demand. Our intelligent method of inventory management ensures balanced inventory in multiple locations according to the order traffic and proximity to customers. Decoupling Inventory: FAQs How does WareIQ manage to decouple inventory?Inventory management systems using advance AI and ML platforms assist with inventory planning and management, demand forecasting and automation of warehouse processes to help eCommerce sellers tackle situations and manage decoupling inventory. What is the decoupling point in logistics?The Material Decoupling Point (MDP) is where push meets pull in the supply chain's materials pipeline. It often coincides with stock-holding points like warehouses or fulfillment centers. What are the step-by-step processes To implement inventory management?1. Determine your budget2. Make a warehousing plan3. Make a preliminary order list4. Select and implement the appropriate software5. Decide on a pricing range6. Recognize your true requirements7. Determine specific integrations you’ll require What is MRO inventory?MRO refers to components that are utilized in the manufacturing process but are not included in the final product, unlike raw materials. The consumable materials, equipment and supplies required for maintenance, repair and operations are included in the MRO inventory. What is hedge inventory?Hedge inventory is surplus inventory kept in stock as a buffer to limit the risks in case of any uncertainty or future price volatility.
June 20, 2022
Stock Audit: Objectives, Importance and 10 Procedures for Inventory Audit in eCommerce
Inventories contain finished goods for sale in the ordinary course of business, work-in-progress goods, supplies, and goods employed in manufacturing goods and order fulfillment services. Because inventory is critical to any firm, performing an inventory control audit is crucial. The procedure entails determining whether the entity holds the inventory value recorded in the entity's books. While performing stock audits internally or through external auditors, the organization should consider the following considerations. These factors include whether the company's inventory can be physically counted by hand, whether the Inventory is held in the company's warehouse or a third-party facility, and if the audit time is adequate. These considerations will aid in determining the audit method and schedule. What is a Stock Audit? A stock audit, also known as an inventory audit, ensures that the actual products are accessible in your store's warehouse corresponding to the stock registry findings. The Inventory audit procedure entails validating or cross-checking an inventory's financial records with its physical count. External auditors or internal firm employees carry out the stock audit, and the auditors use a variety of audit processes, which we will go over in detail. "The global financial auditing professional services market size was assessed at USD 109.21 billion in 2017," according to Grand View Research. From 2018 to 2025, it is expected to grow at a 7.4% compound annual growth rate." An audit can be divided into two main categories: Internal Audit Internal audits can be carried out in which the team examines the process, assets, and inventories. The company employs an auditor and reports to the CEO or the organization's senior management. When a company wants to prepare for an external audit, it conducts an internal audit. Another situation is when they are unsure about inventory or another issue. External Audit An external audit is a review undertaken by a non-affiliated accountant. This sort of audit is most typically used to get a certification of an entity's financial statements. Confident investors and lenders, as well as all publicly traded companies, demand this certification. Inventory Audit Objectives The main inventory audit objective is to compare and contrast financial inventory records with physical counts. However, because financial records are kept internally, there is a potential that they are wrong due to human mistakes, omission, or purposeful manipulation for personal gain, which is considered fraud. A stock audit ensures that these errors are avoided and that the audit is carried out correctly to present a truthful and fair picture of the organization's inventory situation. Therefore, inventory auditing involves verifying or cross-checking inventory counts and the quality and condition of inventory that is not recorded in financial records. The following are the stock audit objectives- Verifying Physical Existence As previously stated, the primary goal of a stock audit is to cross-reference financial data with physical counts. While conducting a stock audit, auditors keep an eye on the inventory counting process to verify if it is being done efficiently. They choose a sample of commodities to see whether physical counts correspond to financial records and vice versa. Examining the Operations Accuracy An auditor checks to see if the inventory counting system is accurate, and they do it using a statistical sample approach. Ownership Rights Another goal of the inventory audit is to evaluate whether the firm genuinely owns the inventory it has documented. Evaluation of Realizable Value One of the audit's goals is to see if the inventories are reported in the general ledger at the proper value. In addition, the auditor examines whether or not damaged and low-quality products are documented at a realizable value. Importance of Inventory Audit Inventory is a critical component of any organization, which is why auditing inventory is crucial. Inventory auditing is essential for gathering proof, especially for retail businesses. In addition, it may deal with a massive asset or capital balance. Inspecting Inventory should validate the amount of supply, quality, and condition to see if the stock's worth is accurately represented in financial records and articulations. The following points will help you understand the importance of stock audit- Inventory audits are necessary to compare the actual number of things in stock to accounting records, compensating for variances and allowing for shrinkage so that the ledger represents accurate values.A Stock audit will indicate which physical commodities or products are overstocked or understocked. This will allow you to stock your firm appropriately and effectively, allowing you to optimize earnings.Auditing inventory is required to eliminate wasteful stock investments and maintain correct line balancing in operation.An Inventory audit is required to compare accurate physical counts with company data. Auditing inventory will provide an actual image of what you own compared to the recorded stocks. If this count is done correctly, which will offer you a knowledge of the company's financial health. Inventory balances are frequently misstated, and this has a direct impact on reported profit.An inventory control audit will also uncover any faults with your warehouse practices, whether at the receiving dock or during packaging. This might assist in identifying any possible inefficiencies in the process, such as warehouse disorganization and delayed retrieval techniques.Stock levels that are too high sometimes lead to wasteful overstocking, resulting in poor cash flow and financial loss. A stock audit performed at regular intervals will aid in the resolution of this problem. It also aids in identifying any obsolete product in stock or orders mistakenly delivered to clients, which might result in financial loss and permanent harm to the company's image. [contactus_gynoveda] The Stock Audit Process While there is no one-size-fits-all approach to conducting an audit, there are key stages and activities that are similar to most audits: Demand Forecasting and Stockpiling Running out of stock would be the worst thing that could happen to you during the stock audit. After all, you don't want to put your entire business on pause while the audit is conducted. Of course, this isn't always possible, and some smaller businesses may be able to shut down for a day, but this is a dangerous approach. That is why, prior to auditing, it is critical to dive deeply into the data you have on hand to forecast future demand. Count the Tangible Items Here, there are a variety of techniques and methodologies to consider. For example, you can browse your warehouse's shelves item by item and document everything you see. You may perform a cutoff analysis to make things simpler by putting your entire business on hold during the audit, but this might lead to various concerns. You might instead try a cycle count, which does not need you to count your whole stock at once. You can specify a product type to audit within a specific term with a cycle count. It's less exact than a comprehensive physical count, but it's less disruptive to your business. You can also do a spot check audit, in which you merely evaluate one or two goods to discover any recordkeeping errors. If there are no discrepancies, you may assume that your sources are current and your stock is safe. Double-check your findings While doing everything twice may seem excessive, double-checking in-stock audits are necessary. Human error is a concern here, and the project scope is frequently too large to entrust to a single source. This is why it's critical to double-check your findings. Mix and match your auditing tactics (as long as you can justify it), give UPC tags or QR codes to each item to digitize the process for your future self, and employ a helping hand - there are lots of possibilities here; make sure the final count is as accurate as possible. Compare Between Your Results and The Financial Records It's time to compare your results to your sales records after you've tallied all of your physical merchandise. Any differences or mismatches signify the start of a distinct process of locating the problem's cause. 10 Best Procedures for Stock Audit Some audit processes can be used to accomplish stock audits. Ten of the most popular audit processes are listed below- Count of Physical Inventory The most typical method for conducting an inventory audit is to use a spreadsheet. It entails physically counting all of your inventory items and comparing the results to the numbers in your system. This is simpler for organizations that utilize a just-in-time inventory system or regularly compute their economic order quantity. Counting the Inventory Cycle Cycle counting, like physical counting, is manually counting a number of goods and comparing them to your system. On the other hand, cycle counts are done on a limited number of items regularly. This means you may do more frequent audits of your most valued items and avoid concerns like inventory loss. Analyze ABC Inventory ABC analysis is a method of categorizing goods based on their monetary worth, and this allows you to save and audit the groups that you wish. Analysis of the Cutoff Point You suspend all processes during the physical inventory count using this analysis. This eliminates the possibility of uncontrollable variables causing errors. Analytical Methods In this section, you may compare your inventory turnover ratio, gross margins, or unit costs to past years' statistics, allowing you to detect any unexpected spikes in volatility. Analysis of Overhead An overhead analysis is a thorough examination of all non-material costs. This covers rent, utilities, payroll, and other "invisible" inventory expenses. Analyze the Cost of Finished Items. For manufacturers and producers, this strategy is excellent. To guarantee that financial statements are accurate, all products are accounted for and valued upon completion. Analysis of Freight Costs This research looks at how much you spend on shipping and how long it takes (lead time). It also takes into consideration any losses or damage that occurred during transport. Shipping Invoice Matching This inventory audit is frequently performed at random by auditors. It entails matching the cost of sent goods to the number of items shipped. It ensures that no things are sent out at the incorrect price. Reconciliation of Products You must explore any problems discovered during your inventory count to reconcile items. This will allow you to note any SKU numbers that are prone to mistakes in the future. Stock Auditing Challenges and Solutions Almost every stock auditor must deal with some procedural difficulties at some time. Fortunately, they are usually minor annoyances that you should be aware of rather than significant issues that you should avoid at all costs. So, here are a few of the most prevalent stock audit issues: Stock management Is Time Consuming It takes time since it necessitates a great deal of attention to detail and personnel. As a result, the best method to avoid this problem is to plan audits and allocate a suitable amount of time for them. The procedure might take anywhere from a few days to a few weeks, depending on the magnitude of your surgery. No Real-Time Inventory View Most of the time, there is no real-time view of your inventory. Thus stock verification must be done regularly. Weekly or monthly auditing sessions may be excessive, but double-checking that the number of your actual things matches your sales record at least twice a year might save you a lot of pain. Procedure Cannot Be Automated Most audit procedures cannot be automated, and many operations must still be completed by hand. However, certain auditing activities may now be performed with the assistance of specialized software. Thus, our first recommendation is to invest in such a system. Aside from that, following the preceding two pieces of advice should reduce the manual labour you must do. Pauses Other Operations Inventory audits frequently disrupt other activities, creating delays in shipments and annoying in general. The most straightforward approach to avoid this is, once again, to plan ahead of time for your auditing and to rely on timely market research to estimate demand. 5 Benefits of Stock Audit in eCommerce Businesses A sound inventory management system may reduce audit frequency, length, and complexity. In addition, eCommerce inventory differs from traditional retail inventory in that sales can occur anywhere on the planet, making it more unpredictable. In today's digital environment, your inventory auditing processes must also be digital. The following are aided by employing technology that maintains inventory counts synchronized in real-time rather than using something static like Excel. Profit Calculation Inventory audits can assist you in calculating correct earnings since inventory accounting accuracy informs your bottom line. Accounting for variations in inventory value over time as it pertains to production and expenses of goods sold can significantly influence your accounting records. Inventory audits can help reduce inventory shrinkage (when actual inventory levels are lower than accounting reports) and detect expensive, slow-moving items. Budgeting With Precision You can't budget for the next batch of merchandise you need to buy if you don't have an accurate system for keeping track of its value. When you know the precise inventory count you're going through and how much safety stock you should have, stock audits may help you budget better and more correctly. Look For Inefficiencies. Inventory that isn't selling rapidly (or at all), SKUs that are selling out quickly and generating frequent stockouts, inconsistencies with storage or inventory monitoring procedures, and other operational issues can be discovered through audits. By abandoning failing goods, doubling down on what's working, and improving other elements of your supply chain — from manufacturers to warehouse locations — you may enhance your company's financial health. Make The Most of Your Inventory Storage. The total of all expenses associated with carrying inventory, such as storage, labour, insurance, and rent, plus the value of damaged, expired, and out-of-date items, is known as holding costs. The more money you pay, the longer you keep merchandise and the more useless goods you have. Inventory audits can assist you in limiting these variables. Getting Rid of Phantom Inventory It's not beneficial for the business to have phantom inventory. Phantom inventory is inventory that is shown as being available at a storage place but is unavailable when you try to utilize it. It's one of the most common causes of shelf issues. But unfortunately, many businesses overlook this problem because they believe it is minor. On the other hand, asset and inventory audits can help you solve this problem. You may appropriately delete them from your business and business documents using auditing. However, it is impossible for it to exist because of this programme. 4 Ways to Optimize the Internal Audit of Inventory Management Process Inventory audits address high-risk, high-value areas that firms need to be aware of to enhance the efficiency and efficacy of their inventory audits. Use the best practices listed below for your 2021 audit programme. Recognize Value and Risks of the Warehouse Examine the warehouse's accounting before entering. Spend time learning about the inventory, identifying outliers, and determining where the biggest value and risk are. Look for things that aren't like the rest of the population. Examining reconciliations and roll-forwards for reconciling items might reveal what management is having trouble with and where you should focus your efforts. This data can assist you in optimizing your stock audit so that you can focus more time on high-value products that pose the most danger to your financial statements. Consider Using a Qualitative Methodology. Asking as many questions as possible and not making any assumptions is the most effective method of learning the inventory system. Meet with management and warehouse teams in person or organize a video conference to discover how they receive inventory and process it in the design of record (SAP, Oracle, etc. ), as well as how they process and run reports. Ask specifically whether they are having any problems with the system and what efforts have been made to resolve them. These discussions will put you in a better position to spend your time where management is spending its time and having problems, allowing you to conduct a more successful audit. Look At The Cycle Count Results. Variations in cycle counts might help you figure out what's going on. However, these should not be utilized to determine fundamental causes but as symptoms to consider in conjunction with your other studies to complete the inventory system's picture. Strengthen Your Connections. Recognize that audit customers frequently have a negative impression of auditors. Therefore, make your audit clients allies by stating that the internal audit's purpose is to learn how they conduct their jobs so that improvements may be made to simplify their lives. When audit customers realize that the purpose of internal audit is to assist the organization rather than discover faults, they are more willing to cooperate. Conclusion A stock audit is an essential step for every eCommerce fulfillment services firm since it guarantees that everything operates properly and provides you with a clear picture of your financial situation. While audits by your fulfilment partner are not mandatory, they might be beneficial in the long run, especially if you run an international company with a variety of warehouses worldwide. Many logistics and fulfilment partners provide this service as a courtesy and may conduct inventory checks with minimum impact on your business. You'll be safe against the most common auditing problems in such a situation. Regular, thorough inventory reviews may help you avoid fraud, improve inventory management strategies, and increase income! Choosing WareIQ as your fulfillment platform helps your eCommerce businesses with inventory management, inventory planning, stock auditing & much more. [signup] Frequently Asked Questions What exactly is a stock audit?A stock audit, also known as an inventory audit, is a physical examination of a company's or institution's inventory holdings. Every firm should conduct an audit at least once a year to guarantee that the physical stock and calculated stock are in sync. What is the purpose of a stock audit report? A stock audit report is used to capture the facts or information acquired during a stock audit concerning the company's existing stocks. Annual audit reports include critical information that firms employ in their financial accounts. What role do asset tags play in stock audits for businesses? Asset tags are applied to assets and inventory and are vital to the physical verification process. Asset tags give real-time information since they include built-in technology such as barcodes, QR codes, RFID, and so on. Each tag has a unique identification number that is recorded in automated software, and you can know the information in real-time using these unique numbers. How do inventory audits work?Based on your procedures, historical trends, "where used" data, and inventory use statistics, the auditors will decide if the amounts you have recorded as allowances for old inventory or scrap are acceptable (as well as by physical observation during the physical count). How does WareIQ's fulfillment platform help with stock audit and inventory management?- You can track inventory across multiple warehouses & sales channels- You can use inventory & network planner to distribute/place inventory & warehouses, respectively, tolocations that allow you to optimize for speed and cost.- Auto-replenishments triggers remind you to proactively replenish inventory- It also allows you to bundle products in a way that enhances sell-through- You can also make inventory transfer requests from one warehouse to another
June 18, 2022
What is The Meaning Of Inventory Records? 4 Methods Of Maintaining Accurate Inventory Books In 2022
Inventory is the lifeblood of your company and it is continuously in motion across the supply chain. Examples of the movement of inventory include new shipments of inventory reaching your warehouse, items being serviced and packaged, and more inventory being purchased, shipped, processed, and stored. Businesses need an efficient way of keeping track of all these inventory movements and transactions and this is where inventory records can assist. In this blog, we will take a deeper look into what an inventory record system entails, the importance of keeping these inventory records, the various methods you can use to track them, and the various features that it consists of. What are Inventory Records? An inventory record is the collection of all data pertaining to various aspects of the inventory that is maintained by your business. An inventory record comprises information on the type and quantity of merchandise a company has in stock. Merchandise on hand, inventory on order, and inventory on hold for work-in-progress are all included in the inventory books. It is often referred to as a stock record. Inventory records can be considered as archives of data for every item in a brand's product range, including: The quantity of stock at the SKU levelThe quantity of stock that has been sold and reorderedThe total value of each productThe location where the inventory is storedOther business-related information, such as work-in-process (WIP) inventory data Each entry must have a description of its SKU and other relevant data. Inventory records can be made and maintained digitally as well as manually. An accurate inventory record system helps track sales patterns and distinguish between fast-moving and slow-moving items. This helps you to anticipate and plan for surges in demand, ensuring that your most popular goods are properly supplied. This will prevent supply shortages, which can irritate consumers and harm your company's reputation. [contactus_gynoveda] Importance of Maintaining Accurate Inventory Books Inventory records may be used for various purposes, ranging from providing information on daily finances to completing yearly taxes. It may be used to establish strategies, increase operational cost-effectiveness and track output volume. An accurate inventory record shows that you are more likely to be able to fulfill client orders effectively. Customers will trust you if you know exactly what stock you have, where it is, and how much you may need to order to achieve optimum levels. An accurate inventory record system guarantees that you will always have in-demand items on hand, ensuring you never run out of them. Some ways in which inventory records are essential for your business are as follows: Ensures Accuracy of Inventory Tracking Keeping track of the inventory that is being received and is being used continuously promotes inventory visibility and leads to proper balancing of inventory levels. Inadequate inventory accounts for inventory shrinkage, i.e., the stock being less than the recorded amount in the accounting system and it can produce large disparities that can adversely affect profitability and other financials by creating confusion regarding the availability of items and how much of each item was ordered. Simplifies Inventory Accounting Inventory accounting is made considerably easier when accurate inventory records are maintained. The Financial Accounting Standards Board (FASB) and Generally Accepted Accounting Principles (GAAP) require all merchants and manufacturers to keep track of inventory value and count. To avoid overstating profit by understating inventory value, GAAP requires inventory to be correctly accounted for according to a highly specific set of rules. The GAAP guidelines also prevent a corporation from overstating its worth by overstating the value of its inventory. Inventory influences the total worth of the organization since it is an asset. You can track changes in value and know how much your inventory is worth at the completion of each accounting period by maintaining a comprehensive inventory recordkeeping method. Prevents Overstocking and Out-of-Stock Situations Keeping accurate inventory records allows you to avoid overstocking and better understand when you need to reorder more stock. Determining the exact quantity of stock for numerous product types is a difficult undertaking, whether it is sourcing raw materials for production or estimating the ever-changing client demand for retail sales. If done incorrectly, it might result in one of two equally aggravating issues: overstocking and out-of-stock situations. Not having enough inventory can lead to out-of-stock problems, while too much inventory can raise carrying costs, potentially leading to too much wastage. Since inventory moves continually across the retail distribution network, using real-time inventory management systems makes it easier to check whether every item of inventory is available and accounted for while comparing stock levels and electronic records. Mitigates Uninformed Decisions Made Through Inaccurate Data Outdated and unsynced inventory records may lead to you and your team running the risk of making crucial business decisions based on incorrect information. Errors can be minimized by reducing time-consuming, manual efforts by employing technology to manage inventory in real-time. Inventory management systems, such as inventory applications or a more complex system like ERP inventory software, can be used to track inventory in real-time. These solutions enable you to combine information by integrating your upstream production methods with your downstream sales. With real-time data linked to inventory, you can also discover patterns and estimate demand, enabling better forecasts on inventory reorder amounts and levels. 4 Methods to Achieve an Up-to-Date Inventory Record System To run a successful business, you must keep your inventory precise, simplified, and up to date at all times. If you want to be competitive, you must maintain your inventory with accuracy. When you lose grasp of your inventory, you instantly lose control of your company's profitability. Furthermore, out-of-stock situations usually result in customer displeasure and losses for businesses. Thus, an up-to-date inventory system is a prerequisite for the smooth functioning of your business. The 4 most prominent methods for achieving an up-to-date inventory record system are as follows: Store Tangible Backups Businesses need to compare their inventory levels from time to time. An inventory audit is a practice of comparing a company's actual inventory levels to its financial records to assist with proper inventory accounting. To improve inventory auditing efficiency, businesses should preserve physical records of every item of inventory as well as online backups. In certain countries, keeping original hard copies may be required by law. It also safeguards your data in the event that the security of your cloud server is breached and valuable information is lost. Consult Your Accountant on the Relevant Information Needed For the proper management of inventory records and thereby ensuring the smooth running of your business operations, professional help is an important requisite. You should enlist the services of a reliable accountant and ask them for advice on maintaining proper inventory records for your firm. In most circumstances, the information you require during the accounting period comprises COGS, production inventory (if relevant), beginning inventory, and the value of ending inventory, i.e., what remains at the conclusion of an accounting period. You may also consult with your accountant about the appropriate inventory valuation technique based on the products you sell and your average sales volume. Maintain Consistency in Your Accounting Methods There are numerous techniques for tracking and recording inventory. Whatever approach you use, the most essential aspect is maintaining consistency to ensure accuracy. Consistency is the key to having proper inventory records. At the end of each accounting period or fiscal year, you must determine the value of your inventory. The following are the most frequent eCommerce valuation methods: FIFO (First-in, First-out)LIFO (Last-in, First-out)Weighted Average of Inventory (WAC)Specific identification method Utilize Advanced Inventory Management Software Inventory Management systems are concerned with keeping an account of physical quantities and the total monetary worth of goods sold and those in hand. It aids you in tracking items as they arrive at the warehouse or godown and when they are issued for sale. It guarantees that the commercial enterprise's records are entirely up to speed. You have two choices while maintaining inventory records: After a specific accounting period, update your records (periodic inventory system)Every transaction should result in an update to the records (perpetual inventory system) Adopting a definite inventory system is your best choice as your business expands. This may be accomplished by purchasing inventory management software, which allows you to track inventory movement in real-time, record daily coverage with minimal effort, and automate multiple aspects of inventory management such as record-keeping and tracking data. Features Offered by Inventory Management Software An effective inventory management software is crucial for simple and effective inventory books. You can optimize inventory to match demand and increase supply chain efficiency by automating the monitoring of all inventory along with real-time adjustments. You can simply download records and custom reports with the correct software to have all the relevant data you need when it's time to consult your accountant and also for the smooth and effortless management of inventory. Some of the more critical features provided by an inventory management software are explained below: Real-Time Insights Across Platforms As your business grows, you will expand to other avenues besides selling online. Direct-to-consumer (DTC) firms may increase their client reach by selling through marketplaces (like Amazon) and social media platforms (such as Instagram).As a result, many businesses use multichannel inventory management software, which manages inventory across channels and gathers information in one location.Inventory levels are continuously updated in real-time as bought or returned products arrive or leave and sales occur through multiple channels.You get visibility into your inventory, save time identifying essential products and eliminate interruptions, theft, and overselling with real-time data sharing.Image attachment and barcode/RFID scanning capabilities are two essential tools that enhance tracking and help speed up picking operations. They aid in increasing accuracy and reducing discrepancies.When you work with a technology-enabled 3PL, you have access to inventory management systems that allow you to track inventory across channels and distribution centers from one location.Instead of depending on different suppliers, retailers can distribute goods across several fulfillment locations and manage inventory in real-time through a single dashboard. Automated Generation of Reports The reporting of various business operations is one of the most valuable instruments of an inventory management system. People in charge of the inventory of a business must be informed about different business operations such as the availability of delivery personnel, the state of goods, information about the shipment of the order, and so on.Many technologies can be integrated into the inventory management software to facilitate reporting of these metrics.According to some experts, your inventory management software is only as good as the inventory reports it creates.Calculating and tracking this information in spreadsheets or via various integrations might be difficult.Inventory management software automatically gathers data, allowing you to generate customized reports whenever you need them. Reorder Thresholds Based on Past Data Inventory management software allows you to automatically establish reorder point notifications, allowing you to resupply inventory on time without having to manage to restock manually when each order is placed. For many supply managers, automating reordering is one of the most appreciated and stress-relieving aspects of IMS. The IMS can be designed to detect low stock levels and subsequently develop and submit purchase orders for the required products, including items sold in packages or packs.You can also establish personalized notifications to notify you when you hit the reorder point because you are running low on particular goods.The merchandise management program uses past sales data to provide insights on when it is appropriate to reorder more inventory per SKU, allowing you to establish a predefined reorder point. It is pointless knowing your exact inventory count and where it is located if it doesn't prevent you from avoiding stock-out situations.As a result, your inventory management software must be capable of establishing automatic notifications when critical stock is running low and must also have the ability to swiftly produce a purchase order in response to that warning. Conclusion The finest data in the world won't help your business if you can't locate what you're looking for when you need it. Inventory records are utilized for organizing and managing files, both physically and digitally. Inventory record systems may be used for various purposes, ranging from providing information on daily finances to completing yearly taxes. It may be used to establish strategies, increase operational cost-effectiveness and track output volume. It is feasible to increase operational efficiency by rearranging and retaining stock in the most advantageous position for production by understanding where and how much of each product is available in stores. It may also assist a business in ensuring that inventory is not wasted, abused, damaged, or lost. Maintaining inventory records independently as your company starts to grow can be a challenge so it is beneficial to partner with a 3PL company like WareIQ. WareIQ is one of the fastest expanding eCommerce fulfillment companies in India and can help retailers with a wide range of inventory requirements, including maintaining inventory records. Our advanced WMS provides data and insights on every metric of inventory you need to keep track of it and can automate multiple processes of inventory management to take the burden off you. Inventory Records: FAQs What should be included in an inventory record?Generally, inventory records consist of a description of each item, how many units are available, where it is stored, identification number, etc. It should paint a clear picture of every item that is available in the inventory. For how long should historical inventory records be maintained?If you are using an inventory management software or online inventory tracker, you will always have access to all inventory records that were updated since you first started using the platform. When is the best time to record inventory?Inventory should be recorded every time an item is sold. Inventory is shown on a company’s balance sheet as a cost so when an item is sold, it is recorded in the income statement as the cost of goods sold. How can WareIQ help you to record inventory?WareIQ has a custom WMS that tracks inventory automatically and can generate reports whenever you need them. Thus, inventory records are always maintained and updated every time a purchase or sale is made.
June 17, 2022
Inventory Valuation: Importance, Objectives, Methods and Challenges in 2022
When you become an eCommerce seller, inventory becomes your biggest asset and a majority of your capital investment goes into procuring it and storing it until it gets sold and starts to recover your expenditure. The value of the assets of any business provides an insight into the financial condition of that business. A business is believed to be in good condition if its balance sheet shows that it has more assets than liabilities. It can be calculated if the business has kept records of every asset, sale, order, profit margin, liability, etc. In terms of business, these records are referred to as inventory valuation. The most important aspect of calculating inventory is knowing how much your inventory is worth during a financial time period like a quarter or fiscal year. Inventory valuation impacts the cost of goods sold (COGS) which ultimately determines the overall financial health of your business. In this inventory valuation guide, we will review the critical aspects of inventory valuation, the different methods used and how to control inventory. What is Inventory Valuation? Inventory valuation is a term used for calculating the value of inventory a company has during a particular time period. Inventory is a prime asset of an organization and to record it in the balance sheet, it needs to have a monetary value. This value can help you measure your inventory turnover, which will help you to plan your purchasing decisions. Inventory valuation is based on the total costs incurred to acquire the inventory and get it ready for sale. You can find out your Inventory valuation by evaluating your cost of goods sold (COGS) and ultimately, your profitability. The most widely used inventory valuation methods are WAC (Weighted Average Cost), FIFO (First-in, First-out) and LIFO (Last-in, First-out). [contactus_uth] Importance of Inventory Valuation The cost of goods sold (COGS), gross income and the monetary worth of inventory remaining at the end of each accounting period are all affected by how a company conducts inventory valuation. As a result, inventory valuation has an impact on a company's profitability and prospective value as shown in its financial accounts. A few points that stress the importance of inventory valuation are listed below: Impact on the Cost of Goods Sold If the volume of goods sold is high at the end of the period of calculating inventory valuation, the total cost of goods sold will also be higher which means that most products from the inventory have been sold. Alternatively, if inventory has a lower valuation, holding costs will increase which will also lead to a higher overall cost. As a result, inventory valuation has a significant impact on the profit levels reported. Impact on Multiple Records If the inventory valuation is not calculated correctly and on time, the errors may be recorded repeatedly for the next quarter/fiscal year and because of the incorrect ending balance in the first period, it will be carried forward into the beginning inventory balance of the next reporting period, causing multiple errors in reported profits in two consecutive quarters or years, because of which, the balance sheet will not tally as more assets will always be shown. Impact on Loan Ratios If a business owner wants to take a loan for their business, the lender will base the loan on the company valuation and after passing it successfully, a restriction on the permitted proportions of current assets to current liabilities may be included in the loan agreement if a business has received a loan from a bank or lender. The lender has the option to cancel the loan if the entity fails to satisfy the target ratio. Inventory valuation is important because inventory is often the major component of the current ratio. Impact on Income Taxes When the balance sheet is involved during company valuation, the amount of income tax paid can be affected by the inventory valuation method used. The LIFO (Last-in, First-out) approach is widely used to lower income taxes paid during periods of rising prices. LIFO matches current sales and current costs of those sales with historical sales. If the production costs of an item increase due to inflation, the cost of goods sold is increased under LIFO, which creates a higher cost of goods sold tax deduction and thus, a lower taxable income. What Are the Objectives of Inventory Valuation? The term inventory refers to products that are for sale. It covers raw materials, semi-finished items and finished goods. At the end of each fiscal year, inventory valuation is performed to determine the cost of goods sold and the cost of unsold inventory. This is critical because any excesses or shortfalls in inventory have an impact on a company's production and profitability. There are various reasons to evaluate inventory. A few of them are: To Evaluate the Capital Invested in the Business You must have spent a lot of capital on your business, like most other retailers. Some of that money must have been spent on fixed assets like stores, warehouses, furniture, computers, etc. and most of it on assets that are variable in nature. Getting the value of fixed assets is a relatively simple task but knowing the monetary value of inventory is much more difficult so this is where inventory valuation can help. To Get the Sales Velocity of the Company If you operate a small eCommerce business, it is much easier to conduct inventory valuation but when you provide the data of a specific time period in your balance sheet, it shows how many items you sold in that certain time period. This can give you an idea of how smartly you rotate your money on buying and selling your inventory. To Determine the MOQ and EOQ When you evaluate inventory at the end of an accounting period, you are able to figure out how many products you have sold during that period so you know how much inventory you need to keep in stock to avoid overstocking and understocking. You can calculate the economic order quantity (EOQ) to get the ideal order size and the minimum order quantity (MOQ) so that you have an idea of the least amount of money you will need to spend on procuring inventory. To Get Help in Taking Valuation-Based Loans When a business owner wants to expand their business by adding more products to their selling list, listing the available products on multiple selling channels and arranging for storage in multiple warehouse locations, it requires a steady amount of investment. Most of the time, sellers take loans to invest in infrastructure for expansion. So for that purpose, banks demand access to the balance sheet to check the inventory valuation of the company to determine if they are eligible for the loan or not. To Determine the Gross Income As your inventory is stored with the ultimate goal to sell it and generate revenue, inventory valuation can easily show you the money that has been invested, earned and is held up in procuring it. To determine the gross profit, match the cost of goods sold with the revenue of the accounting period. Cost of goods sold = Stock at beginning of accounting period + Purchases – Stock at the end of an accounting period. The equation shows how inventory valuation influences cost and ultimately, the gross profit. To Reflect the Financial Position of the Business Inventory after closing is considered as a current asset. The financial status of the business is determined by the value of the shares while filling out the final balance Sheet. Overvaluation or undervaluation can show a false image of a company's working capital and overall financial position. To Show Any Gaps Between Assets and Liabilities An asset valuation tells you about the total value of assets you have at the end of a particular time period. When you have a strong idea about the figure of the valuable assets in your business, you can compare it with the liabilities and implement processes to reduce them such as extra warehouses, removing non-performing assets, getting rid of useless supply chain partners, etc. 4 Most Prominent Inventory Valuation Methods First-In, First-Out (FIFO) This strategy works with the idea that the first inventory purchased should be sold first. The remaining inventory assets are then matched and marked as the most recently purchased or produced assets. Because it is simple and easy to implement, it is one of the most commonly used inventory valuation methods by eCommerce sellers. The FIFO approach gives you a higher value of remaining inventory, a lower cost of goods sold and a higher gross profit if there is inflation. During inflation, when prices rise quickly, the FIFO model fails to provide a realistic picture of the costs. It also does not provide any tax benefits, unlike the LIFO technique. Last-In, First-Out (LIFO) As the name suggests, this inventory valuation method works on the idea that newer goods are sold first while the older inventory remains in stock. Businesses rarely adopt this strategy since older inventory can increase holding costs and become obsolete over time. The business suffers a big loss as a result of this. The LIFO method is used at a time when eCommerce businesses expect inventory costs to rise over time because of price inflation. Businesses’ declared profit levels can be reduced by transferring high-cost inventory to the cost of goods sold which enables companies to pay less tax as a result of this. Specific Identification Method Every item in your inventory is recorded using this inventory valuation method from the time it is stocked until the time it is sold. It is typically reserved for large items that are immediately identifiable and have a wide range of features and costs associated with them. The ability to trace each item individually using an RFID tag, stamped receipt date or serial number is the most important prerequisite for this system. While this method provides a high level of accuracy in inventory valuation, it is limited to valuing uncommon, high-value items that require these extra procedures. Weighted Average Cost Method Under the weighted average cost method, the weighted average is used to determine the amount that goes into the cost of goods sold and inventory. The weighted average cost per unit is calculated as follows: Average Cost Per Unit = Total Cost of Inventory Goods / Sum of Total Units in Inventory The above inventory valuation method is mainly used to determine the cost for the total sum of units that are indistinguishable from one another and when it is difficult to track the cost of individual items. It can be used to calculate inventory valuation by very niche businesses. It does not provide the actual inventory valuation of a business. Challenges of Inventory Valuation Determining the Total Cost of Inventory Use COGS for calculating the cost of your inventory: COGS = Inventory at starting + Purchases – Inventory left Therefore: Inventory left = Inventory at starting + Purchases – COGS The value of Inventory at the start and end of an accounting period may not be as simple as it appears. Anything you can't sell for MRP due to damage, obsolescence or even shifting consumer tastes must be marked down and valued properly. This makes determining the total cost of inventory a challenging affair. Determining the Amount of Inventory Left This is more challenging than it appears. If a business has products in transit, it must decide whether or not to include them in the inventory valuation. Many businesses keep track of goods using a periodic inventory system. Companies use this technique to evaluate inventory after each accounting period. A perpetual inventory system, on the other hand, tracks every purchase order and sale, and updates inventory to reflect those transactions regularly. Adding Other Related Costs When you evaluate your inventory, you do not only add up the costs of the products you have but also the costs of procuring it like the transportation cost, inventory holding cost, delivery cost, insurance cost, packing and picking cost, etc. Even electricity that is utilized to store your inventory can be added to your inventory valuation. Adding the exact value of these expenses with the ratio of remaining inventory can be a challenge for a seller. It is nearly impossible to determine the actual expenses that occur due to the leftover inventory and the further expenses to keep it safe and fresh for as long as possible. Calculating Depreciation Depreciation is also a big factor that affects your inventory valuation. With time, inflation not only surges but object values also depreciate. Most of the time, electronic items depreciate when the latest and updated versions come into the market. For example, if you are selling a mobile phone and after a period of a few months, the same company launches a model with more features at the same price, the product sales of the older phone will reduce or stop entirely so ultimately, the company will have to sell it at a lower price. Valuating Damaged Products Products after they occur damage are difficult to monetarily evaluate. A seller cannot command its actual price. They can try to sell it as a refurbished product during sales or sell it to a second-hand dealer like Cashify. The same thing happens with perishable products after a specific duration because storing perishable products is more expensive than the incomes they fetch in a highly competitive market space. Some perishable products demand special warehousing facilities like temperature control, special containers, etc. Identifying Stock Discrepancy Stock discrepancy is the difference between the physically available stock or inventory and the current inventory that is recorded in the system. To run a successful business, maintaining accurate stock is important but inventory discrepancy is a common scenario in real-life eCommerce operations. When it comes to inventory valuation, stock discrepancy is a big hurdle. To find out the inventory valuation, you should have an accurate figure for your inventory. If there is a disparity in the count, sellers need to find the mismatched amount of inventory by calling the manufacturer, rechecking old bills, etc. and after that lengthy process is done, the seller may not be able to account for those missing items so it can go to waste and cause differences in the final valuation. Valuing Seasonal Items The value and pricing of seasonal items change over time. When a season ends, the manufacturers also start offering heavy discounts and when sellers take advantage and procure items, the price of the same product will vary compared to the price it was bought at the beginning of the season. For example, if you are a garments seller and you sell coats during winter but the weather doesn’t get as cold as you expected which results in lower demand for coats, you will have to store all that inventory till the next winter which can damage the products or make them obsolete as newer designs are introduced in the market. If you always keep a record of your inventory with the help of inventory planning through inventory management software, you may not find any challenges during inventory valuation. How to Choose the Right Inventory Valuation Method and How can WareIQ Help? When choosing the right inventory valuation method, there is not an absolute formula. It depends on the purpose of doing it and the type of inventory. WareIQ is a trusted eCommerce fulfillment brand that helps many companies store their inventory and dispatches for delivery when an order is placed. We take care of your inventory and give you transparency in valuating it to measure the profitability and success of your business. WareIQ helps you to know the actual value of your inventory through its different inventory valuation methods, handled by experts. A few things to note about choosing the right inventory valuation method are: FIFO generates the highest gross income at the present time while LIFO generates the least and WAC is somewhere in the middle. Assuming a normal inflationary scenario in which supply costs rise over time, FIFO generates the greatest taxes, while LIFO generates the lowest with WAC again in the center. It minimizes the consequences of inflation and deflation by matching recent income with recent costs. When you or your customers want to know the cost and selling price of each unit, Specific Identification is the logical solution. People who buy and sell art may be curious about how the price of a certain piece altered from the year it was last purchased to the year it was sold. LIFO, FIFO, WAC and Specific Identification are the most common inventory valuation methods. Some of the others which are used according to the preference of many sellers are: First-In, Last-Out (FILO): Seller sells the firstly stored items at last.First-Expired, First-Out (FEFO): Seller sells the earliest-expiring inventory first.Highest-In, First-Out (HIFO): Seller sells the highest-cost inventory first.Lowest-In, First-Out (LOFO): Seller sells the lowest-cost inventory first. Conclusion After getting this detailed information on inventory valuation, you must have gotten an idea of how it is helpful in the growth of your business. It is important for you to partner with a company that provides inventory management services by using the best procedures and the most advanced technology. We at WareIQ provide our partners with the count, location (warehouse or transit) as well as the monetary value of your inventory. WareIQ offers customizable fulfillment services that stores your inventory, receive orders and take the responsibility of delivering it to the buyer at the fastest and most cost-effective methods possible. WareIQ provides the actual figure of your inventory valuation as well as the value of each and every item that is available in stock through our custom WMS. To achieve better results in inventory valuation at the end of the financial period, WareIQ can help in: Inventory planningMultiple location storageGiving actual sale velocity figuresLIFO and FIFO methodsExperts to handle every procedureDeciding MOQs and EOQsGetting RTO insurance Inventory Valuation: FAQs How is inventory valuation calculated?Inventory values can be calculated by multiplying the number of items left in hand with the price of a single item. What is the inventory valuation formula?The formula for inventory valuation of a company is equal to the figure of its assets subtracted from its liabilities. Anything that has a monetary worth, such as real estate, equipment or inventory, is considered a business asset. Which method is best for inventory valuation?When it comes to inventory accounting methods, the FIFO approach is most commonly used since it provides the most accurate picture of costs and profits. What is the objective of inventory valuation?The primary goal of inventory valuation is to determine the company's actual income and true financial situation. Why should inventory be valued at its cost price?Items in inventory are often valued at their cost rather than their selling prices because of the cost principle which says assets, liabilities and equity investments should be recorded on any financial record at their cost price.
June 17, 2022
Inventory to Sales Ratio: Detailed Guide Including Definitions, Calculations and Metrics Used In 2022
There are many aspects of running an eCommerce business that retailers need to focus on but one of the most important is inventory and having a proper method in place for management. Inventory can comprise a range of products, at various stages of completion, but the most significant are finished goods because those are what are ultimately sold to end consumers and earn revenue for the business. When a business generates the maximum number of sales from the available inventory, it is considered successful. The way to measure this success is through the inventory to sales ratio. We will go in-depth on what it is, how to calculate it, understand its importance, and how WareIQ can help. What is the Inventory to Sales Ratio? The inventory to sales ratio, also called the stock turnover ratio, is a metric used to measure the amount of inventory a company has for sale. This ratio can assess whether a company has too much or too little inventory relative to its sales volume. It can be a helpful tool for managing inventory levels. A high inventory to sales ratio may indicate that a company carries too much inventory, which can tie up working capital and lead to higher storage and handling costs. On the other hand, a low ratio could suggest that a company is not carrying enough inventory to meet customer demand, which could lead to lost sales. An ideal ratio will vary depending on the industry and type of business so it is essential to compare a company's stock turnover ratio with others in its sector. The inventory to sales ratio is a helpful tool for managing inventory levels. Still, it is important to remember that it is just one metric that should be considered when making decisions about inventory. Other factors such as lead time, customer demand, and seasonality can also impact inventory levels and should be considered. [contactus_gynoveda] How to Calculate the Stock Turnover Ratio? The stock turnover ratio is a key performance indicator that measures the number of times inventory is sold or used. There are two ways to calculate the stock turnover ratio: Average Inventory/Cost of Goods SoldInventory on Hand/Cost of Goods Sold Average Inventory/Cost of Goods Sold This is more common and provides a better understanding of how well a company manages its inventory. To calculate the stock turnover ratio using the average inventory method, divide the average inventory by the cost of goods sold. Inventory on Hand/Cost of Goods Sold This method can be useful for companies with high levels of stock. To calculate the stock turnover ratio using the inventory on hand method, divide the inventory on hand by the cost of goods sold. The stock turnover ratio is important because it shows how efficiently a company uses its inventory. A high ratio means that inventory is being turned over quickly and a low ratio means it takes longer to sell stock. A high stock turnover ratio is generally seen as a good thing because it means a company sells its inventory and makes money. However, a very high stock turnover ratio could also indicate that a company cannot keep up with demand, which could lead to lost sales. To get the most accurate picture of a company's stock turnover ratio, it is essential to compare it to other companies in the same industry. This will give you a better idea of what is considered normal for that industry and whether or not the company's stock turnover ratio is good or bad. Why is it Important to Know the Inventory to Sales Ratio? Provides an Accurate Depiction of Business Performance The inventory to sales ratio is a key metric for businesses, indicating how well a company manages its inventory. If the ratio is too high, it may indicate that the company is carrying too much stock and not selling it quickly enough. This can tie up working capital and lead to cash flow problems. On the other hand, if the ratio is too low, it may indicate that the company is not carrying enough inventory to meet customer demand. This can lead to lost sales and missed opportunities. Helps to Mitigate Uncertainty It is essential for businesses to monitor their inventory to sales ratio and strive to maintain an optimal level. The ideal ratio will vary from industry to industry and even company to company, depending on product turnover rates and seasonality factors. However, as a general rule of thumb, a healthy inventory to sales ratio is usually between 0.16 and 0.25. This will help businesses maintain accurate levels of inventory even when unforeseen circumstances arise. Determines the Optimum Level of Inventory A high stock turnover ratio indicates that inventory is selling quickly and efficiently. Ideally, you want a high stock turnover ratio because your inventory is fresh and you're not spending much money on unsold goods. A high stock turnover ratio also indicates that you have efficient ordering and stocking procedures. On the other hand, a low stock turnover ratio could be a sign that you're overstocking or carrying slow-moving items. Either way, the stock turnover ratio helps you determine the optimum amounts of inventory you need to store in order to satisfy demand and reduce operational costs. Compares Your Business With Competitors In some cases, you may want to reevaluate your inventory levels and product mix. You can also compare your company's stock turnover ratio to industry norms to see how you stack up. If your ratio is significantly higher or lower than the average, it could indicate something is amiss. This will help you to understand what needs to be changed and can reduce any competitive advantage that rival companies had previously. Understanding the 80/20 Rule of the Inventory to Sales Ratio The 80/20 rule is a guideline that states that 80% of a company's inventory is typically sold 20% of the time. This rule can help businesses manage their inventory levels and ensure they are not carrying too much stock. The 80/20 rule is based on the Pareto principle, which states that roughly 80% of the effects come from 20% of the causes of many events. The 80/20 rule applies in various situations, including business and economics. Inventory management is critical to any business, as it can directly impact profitability. Too much inventory can tie up working capital and lead to storage expenses and other costs, while too little stock can result in lost sales and customer dissatisfaction. The 80/20 rule can be a helpful tool for managing inventory levels. By understanding that most of the sales will come from a small portion of the inventory, businesses can focus on ensuring they have enough stock of the items that are most popular with customers and can limit the supply of slow-moving or low-demand items. There are a few different ways to apply the 80/20 rule to inventory management : One approach is to keep a close eye on the inventory turnover rate, which measures how often the average item in stock is sold. A high turnover rate indicates that items are selling quickly and may need to be replenished more frequently, while a low turnover rate suggests too much stock is on hand. Another way to use the 80/20 rule is to track the sales of each stock-keeping unit (SKU). This information can help businesses identify which items are selling well and which may need to be discontinued. Finally, the 80/20 rule can also be applied to pricing. By understanding that most sales will come from a small portion of the inventory, businesses can price their products accordingly. For example, if a company knows that 80% of its sales come from 20% of its SKUs, it may choose to offer discounts on the remaining 80% of SKUs to boost overall sales. The 80/20 rule is a helpful tool for managing inventory levels but it is essential to remember that it is only a guideline. No hard and fast rule says precisely how much inventory should be kept on hand. Each business needs to tailor its inventory management strategy to its unique needs and circumstances. What Metrics are Used to Measure the Stock Turnover Ratio? A few different metrics can be used to measure the stock turnover ratio. Let us take a look at the most common ones: Frequency of Sales The most common metric is simply the number of times that inventory is sold over time. This metric can be expressed as a rate (e.g., how many times per year stock is sold) or as a percentage (e.g., what percentage of inventory is sold each year) and helps in gauging if a product is doing well or poorly and actions can be taken accordingly. Average Inventory Level Another standard metric is the average inventory level, which measures how much inventory is on hand at any given time. This metric is important because it helps show how quickly stock moves through the company and which items need to be replenished at a faster rate than others. It also shows which items are being underutilized and are eating up storage space. Day Sales in Inventory Finally, another metric sometimes used to measure the stock turnover ratio is the day's sales in inventory (DSI) metric. This measures the days it takes to sell all the inventory on hand. This metric is important because it can help show how efficiently a company sells its inventory. It also helps companies analyze which parts of their sales strategy are working and which aren't. To calculate the day's sales of inventory, you can use the day's sales of inventory formula: Days Sales of Inventory = (Average Inventory ÷ COGS), multiplied by 365. All of these metrics are important in measuring the stock turnover ratio. Still, the most important one is probably the number of times that inventory is sold. This metric gives the clearest picture of how quickly inventory moves through the company. How Can WareIQ Assist? WareIQ provides a comprehensive and intuitive solution that can help you optimize your warehouse operations, reduce costs and improve customer satisfaction. Our WMS software is designed to give visibility into every aspect of your warehouse operations, from inventory management to order fulfillment. We also offer tools to help you streamline all your eCommerce processes and improve efficiency all along the supply chain. Whether you're looking to improve your current process or build a new one from scratch, WareIQ can help. In terms of inventory to sales ratio, WareIQ can help you keep track of all the important metrics you need to calculate it in the most efficient way possible to help you understand how much inventory you require in relation to sales, what processes need to be changed or improved and how to achieve the ideal stock turnover ratio. Conclusion The stock turnover ratio is a crucial metric for businesses to understand, showing how efficiently inventory moves through the company. The most important metric in measuring the stock turnover ratio is the number of times inventory is sold. It can help you improve inventory management efficiency and reduce holding costs by freeing up storage space by generating more sales. You can opt to partner with WareIQ to achieve a healthy inventory-to-sales ratio. WareIQ is one of the most rapidly growing eCommerce fulfillment companies in India and provides a comprehensive and intuitive solution to help businesses optimize their warehouse operations and enhance their inventory-to-sales ratio. We also offer tools to help you streamline all your eCommerce activities to provide an exceptional experience to both you and your customers. Whether you're looking to improve your current business or build a new one from scratch, WareIQ can help. Inventory to Sales Ratio: FAQs What is the goal of the inventory to sales ratio?The inventory to sales ratio helps you understand the amount of available inventory in relation to the number of sales you have made. Its primary goal is to help you to optimize the amount of inventory you have in storage and which products are desirable and which aren't. What happens if your inventory to sales ratio is too high?A higher than average inventory to sales ratio could indicate that you have surplus inventory in stock that is being utilized which could increase your operational expenses. What is the ideal inventory to sales ratio?Generally, if you have an inventory-to-sales ratio between 0.16 and 1.25, you are doing alright. However, growing businesses can often have higher ratios due to the expanding rate of order fulfillment. How can you improve your inventory to sales ratio?You can use the following methods to improve your inventory-to-sales ratio:1. Better forecasting2. Improving sales3. Reducing prices4. Focus on high-demand products5. Better order management6. Eliminate safety stock and old inventory7. Reduce purchase quantity
June 17, 2022
What Are the 10 Inventory Management KPIs? Why Are the KPIs Important to Measure in 2022?
Inventory management refers to ordering, storing and making the best possible use of a company's inventory. Inventory typically consists of raw materials, components and finished products. Inventory management optimizes inventory levels to avoid situations of overstocking or understocking. Materials Requirement Planning and Just in time inventory systems are critical inventory management systems. A good way to organise inventory is through key performance indicators or inventory management KPIs to be able to understand how your business stacks up based on these predetermined factors. We will be discussing inventory management KPIs in more detail including types, methods, importance and benefits. Read along. What are Inventory Management KPIs? Inventory management KPIs are linked with inventory management supply chain metrics. It consists of various mathematical ratios compared against the established norms, which vary by industry, functional area and the KPI itself. The variances between the actual and the benchmark ratios identify any disparities and help determine which areas of inventory management need improvement and which processes are successful. KPIs ideally contribute to achieving the organisation's goals - whether it is growth strategies or profitability targets. KPIs need to be smart, measurable, achievable, relevant and timely. [contactus_uth] 10 prominent Inventory Management KPIs Inventory Turnover Ratio This inventory KPI ratio is measured as the Cost of Goods Sold divided by Average Inventory Value. The inventory turnover ratio measures the number of times the inventory is sold, replaced or turned over in a year which helps businesses determine what products are successful and need constant replenishment and what products are being underutilized and taking up precious space in the warehouse. Customer Satisfaction Levels Inventory management KPIs such as this can be measured through customer feedback like when the customer assigns a score between 1-3 or 1-10 for their satisfaction level for the product or service they have purchased from your business. It is a subjective score, based on customers’ individual experiences but it can be analysed to see if there is a recurring theme of positive or negative feedback and measures can be taken to move forward accordingly. Inventory Accuracy Ratio This inventory KPI measures the number of items in stock versus the number of items showing as per official records. This fraction is divided by 100. This measures the accuracy of warehouse record-keeping and identifies any disparity in the numbers, which helps companies determine if there has been any damage, breakages, theft, counting error or any other factor that has caused it Inventory to Sales Ratio This inventory KPI measures the total value of the inventory and analyses the organisation's sales performance. When these ratios are high, it is a cause for concern because that means there is overstocking of inventory occurring and there is a danger of the inventory becoming obsolete due to the low sales figure which can lead to increased storage and operational costs. Order Cycle Time Order cycle time is the time it takes to prepare and place an order with your supplier. The greater the frequency of orders being placed, the lower the stocking costs. For instance, in the case of a Just-in-Time inventory system, inventory is not stocked but repeated orders are placed in small quantities, which results in minimum inventory holding and capital costs. Out of Stock Items This inventory KPI measures the effect of out-of-stock SKUs. Even one out-of-stock item can reduce customer satisfaction and have a snowball effect further down the supply chain and can affect repeat sales and lead to poor customer reviews. eCommerce stores should avoid out-of-stock items to the maximum extent possible by implementing an inventory management system where items running low on stock are automatically notified to the management so that they can be replenished instantly. Carrying Cost of Inventory There are four components to the carrying cost of inventory: Capital costs: These costs are measured as the sum of the following three costs:Cost of the stockInterest in the working capital financeOpportunity cost of the capital invested in inventoryInventory service costs: This covers all costs, including costs relating to the inventory management system, hardware depreciation and inventory handling.Storage costs: This relates to the warehouse rent or interest on the mortgage and regular maintenance costs such as lighting, heating and air-conditioning.Inventory risk costs: This cost deals with the loss of inventory value due to shrinkage or obsolescence. Demand Forecast Accuracy This measures the gap between forecasted demand and actual demand. The more accurate the demand forecast, the higher the efficiency of inventory usage and turnover will be. This will lead to lower stockouts and lower inventory carrying costs. Many enterprises use planning system resources to help get a correct estimation of demand so that the optimum level of inventory can be stored. Supplier Quality Index This measures the percentage of the supplier’s total quality cost to the purchase price. This goes beyond just securing a low-cost supplier or getting bulk discounts on orders. It also includes the costs of communicating, transacting, resolving problems or switching suppliers. A proactive and collaborative approach with suppliers is required to maintain a high level of the supplier quality index which will lead to higher quality goods being delivered at a faster pace and at cheaper prices. Labour Cost Per Item Labour cost per unit itemises and collates all costs related to the labour used in managing inventory. This includes order receipts, packing and dispatch of items ordered to the end customer. It also includes the costs of labour involved in receiving, unpacking and storing the various items of inventory from suppliers in the warehouse. A lower labour cost per item means that businesses are running efficiently and effectively. Methods to Choose the Best Inventory KPIs for an eCommerce Business Refrain from Using Vanity Metrics Oftentimes, many third-party KPI tools prompt businesses to choose KPIs that showcase their business to be more efficient than it actually is. These inventory KPIs are called vanity metrics because they give businesses a false sense of security that everything is all and well when in reality, it may not be. You should focus on choosing inventory management KPIs that paint an accurate picture of your business operations, even if it exposes a harsher reality because it will enable you to make the necessary improvements to those processes. Stress on Answering Business-Related Queries It is important to focus on your business and the strategy it employs. While focusing on choosing inventory management KPIs, you need to opt for ones that will give you clear insights into the actual successes and failures of your business strategies so that you can tweak them and make improvements wherever they are needed which will lead to long-term success. Always Keep Customers in Mind While choosing inventory management KPIs to focus on, make sure you choose some customer-centric ones so that you get an idea of where you are going right, in terms of positive feedback, so that you can continue to implement those processes and where you are going wrong, in terms of issues and complaints, so that you can sort them out instantly and avoid other customers having a similar negative experience. This will help your business increase its overall customer satisfaction levels and will lead to more sales and repeat customers. Track and Analyse Trends Analysing trends in your past performances through inventory KPIs will give you a vast amount of insights in terms of the success and failures of your business. You can check which products had the highest demands, during which time of the year and whether you were running a promotion or ad campaign to enable that high demand. Conversely, you can analyse when there were slumps in sales and track the similar factors which may have led to it so you can avoid repeating those same errors in the future. Similarly, you can analyse trends in the market for similar products, price points and business types. Don’t Bank on Statistics Alone While pure statistics and numbers play an important role in ascertaining key points about the success or failure of a business, you need to analyse some inventory management KPIs that focus on the human aspect of your business. While those KPIs are still quantifiable, they help you gauge a more accurate idea of why certain things were successful and others weren’t. Customer behaviour is an underrated trait and businesses that can successfully analyse it will often come out on top. Why Are Inventory KPIs Important to Measure in eCommerce? Tracking and measuring inventory management KPIs is important because, without inventory, eCommerce businesses could lose vital customers. Inventory KPIs also ensure that eCommerce businesses know when to restock items and maintain the optimum stock levels. Prevents Poor Customer Satisfaction It enables eCommerce stores to provide adequate customer satisfaction. Stock-outs leave a bad taste in the customer’s mouth and negatively affect online feedback and reviews provided. Avoids Overstocking and Understocking Inventory KPIs help eCommerce stores maintain optimum inventory levels, avoid high finance costs due to overstocking, and prevent stockout situations. This ensures a healthy cash flow for the business. It also enables planning for Just in time inventory or a drop shipping model, which helps an eCommerce business avoid both excess stock and stockout situations. Assists in Framing of Return Policies Proper return policies ensure return customers. When eCommerce stores do not have a favourable return policy, it does not bode well for them. It helps businesses in finding the right balance between offering returns and maintaining their profit margins. Helps in Building the Right Brand Image Inventory KPIs facilitate efficient inventory management practices, boosting customer satisfaction and leading to positive feedback and reviews which will lead to other customers giving your business a chance because they have a positive perception of it. Prevents Exploitation From Competitors Poor inventory management systems and improper inventory KPIs will lead to customers opting for competitors who may offer various incentives such as cheaper rates or free shipping. Measuring inventory KPIs will help businesses keep pace with their competitors to avoid losing out on customers to them. Conclusion Inventory management is the very heart of an eCommerce store's success. Inventory management is a critical task for eCommerce merchants. It’s a good practice to track and control inventory orders, analyse the process and keep up with the usage and storage of readily available stocks. Without proper solutions to inventory management, no eCommerce technology is sufficient. For any eCommerce website, it is a challenge to manage multiple product lines or various product categories of different brands. Using inventory KPIs to maintain safety stocks to prevent stockout situations, find the right balance of inventory to maintain optimum inventory levels, put together the correct kitting offers, analyse past purchases to predict future patterns in stocking levels and be smart with the storage of various SKUs in the warehouses will help deliver the optimum performance at an organisational level. If you need assistance with finding the right inventory management KPIs for your business and inventory management as a whole, WareIQ can definitely help. WareIQ is one of the fastest-growing eCommerce fulfillment companies in the country and has a state-of-the-art WMS which keeps track of major inventory KPIs to keep your business at the top of the game. Inventory Management KPIs: FAQs What are some of the best inventory management KPIs for your business?Some important inventory KPIs are listed below:- Inventory Turnover or Days on Hand- Average Days to Sell Inventory (DSI)- Average Inventory- Holding Costs- Stock-Out- Service Level- Lead Time- Rate of Return How can inventory KPI accuracy be measured?Inventory accuracy can be calculated by counting the products available in your inventory, dividing it by the official recorded inventory count and multiplying it by 100. What are the 5 SMART criteria that KPIs should abide by?SMART is an acronym for Specific, Measurable, Assignable, Relevant, and Time-bound. All of these factors help to improve your business performance. How can KPIs be monitored?KPIs can be tracked and measured using a variety of online tools such as Google Analytics.
June 16, 2022