What is Lead Time in Inventory Management? 8 Important Strategies to Minimise Lead Time
Next-day delivery has become a standard expectation among online customers. As a result, consumers' willingness to wait for their orders has decreased dramatically in the last half-decade. You'll lose business if your eCommerce fulfilment procedure takes too long. Reduced lead timings are one of the most effective strategies to decrease your delivery window. Businesses calculate and shorten lead timings to match customer expectations and sustain their market position. It also improves manufacturing efficiency and increases sales income. Extended lead timings can be caused by various issues, including supply, production, and delivery delays, which can impair manufacturing and sales. Many people confuse it with throughput or cycle time, which is the time it takes to complete a procedure or order from start to finish until the product reaches the consumer. A better grasp of lead time, what it entails, and how cutting it may help your company develop. In this article, you'll learn all you need to know about this and how to utilize it to improve order fulfilment. What is Lead Time in Inventory Management? Time taken from when a purchase order is made to when it is received in the warehouse is referred to as lead time in inventory management. The definition of the term lead time, also known as a lead period, on the other hand, varies depending on the situation. It is also used in the following contexts: Customer Lead Time The time it takes for a client's order to be accepted and fulfilled is referred to as the customer lead period. The order fulfilment on the selected delivery date might be either a doorstep delivery or a pickup from an accessible area. Material Lead Time The time it takes to place an order with a supplier and receive the cargo is known as a material lead period. These are often large orders of raw materials needed in the production process or as inventories. So, whereas customer lead time refers to the time it takes for a product to reach its final destination, material lead time is primarily concerned with the production process. Production Lead Time The production lead period is the time it takes to make and send a product to the target destination, assuming the essential raw material is available, and there is no supply or logistical delay. Cumulative Lead Time The total of material and manufacturing lead timings is the cumulative lead period. Overall, it takes from when an order is confirmed to when it is sent, assuming that a raw material order must be placed. The overall lead time in inventory management for creating and delivering items comprises all of these aspects. For eCommerce fulfillment services, the customer lead period is the most crucial satisfaction metric. Customers anticipate quick delivery. Therefore cutting the time between consumer order and delivery will help you improve revenue. Your inventory planning and cash flow are affected by the time it takes to complete each part of your supply chain. For example, assume you wish to reduce client wait times by adhering to lean business management concepts and utilizing just-in-time inventory management. You'll need to lower your material and manufacturer lead times in such a situation. Components Of Lead Time The components of the lead period may be broken down into six categories. These elements are all essential and are given in chronological sequence. The following are the specifics: Preprocessing Time Receiving the request, interpreting it, and then converting it to a purchase order takes time. The word is also known as planning time, which refers to placing an order for a product or item one desires to purchase. Processing Time The time it takes to obtain or generate an order based on a prior request is known as processing time after preprocessing. Waiting Time The time it takes to get essential products or raw materials before the production process begins is called waiting time. Storage Time The time it takes for things to sit in a warehouse waiting to be delivered is called storage time. Transportation Time The time it takes for an object to reach its final destination is known as transportation time. Inspection Time The third component is inspection time, which refers to checking items for defects or flaws before delivering them to clients. [contactus_uth] Importance of Lead Time In Inventory Management Businesses must be able to manage timelines. For example, stock can run out, and customers' orders can't be fulfilled if lead timings aren't controlled properly. When lead periods become unmanageable, a vicious cycle might emerge, with lead times deteriorating as demand rises. This lag between customer orders and manufacturing may result in additional delays, causing the lead period to worsen. As a result, lousy order management may cost a company a lot of money by costing its valued clients and damaging its brand. Mention below are the points which show the importance of lead time in inventory management- Customers expect high-quality items delivered as fast as possible. Therefore a shorter lead period aids in customer satisfaction. Customers prefer to purchase from vendors that bring meals in the shortest amount of time as a result of this.To retain the inventory, the lead period is crucial. For example, suppose a corporation knows how long it will take to manufacture a product. In that case, it may order additional material in advance, reducing the possibilities of a material shortage or surplus in inventory.To attract clients, eCommerce businesses use lead time in inventory management as a USP. This is because customers are increasingly demanding high-quality items as quickly as feasible.A company's lead timings estimate how many items will be made and delivered at a given period. Therefore, they can boost their money creation by improving the pace.The lead period is beneficial in decreasing inventory waste. Instead of holding surplus goods in storage, the management will order merchandise as needed at a particular time. Lead Time Is Central To Inventory Control Regarding inventory management, you can state that lead time is required to keep your inventory running correctly. It's an essential hallmark of a well-functioning inventory management system. This isn't the only reason, though. To have a better understanding of the subject, examine the following factors: To understand why Lead Time is regarded as an essential aspect of Inventory Management, consider the following: Demand Estimation and Forecast You will be able to assess demand straight from the market and predict the product's requirements in a planned manner with lead time. As a result, you will be able to establish high standards without allowing inefficiencies to creep in. Order Management Order fulfilment is one of the most challenging aspects of inventory management. You may control your inventory in warehouses and take it out for distribution on time with the aid of lead time. You can also benefit from the ability to automate orders, reducing time and effort spent manually. Suppliers Management You may cooperate with your suppliers on needs and meetings linked to the supply of goods using lead time. Using this capability, you may contact your suppliers on a timely basis, avoiding any inventory gaps. As a result, the importance of Lead Time for good Inventory Management is evident. Factors Affecting Lead Time Manufacturers must be aware of the elements that influence the lead period. If the lead period is small, you are on the right track, but if it is large, you must document, control, and optimize the process to achieve superior growth and development. The following are the elements that influence lead time: Delayed Shipment Shipment delays are one of the most typical causes of lead time extensions. However, the cause is unknown owing to weather conditions or other unforeseeable circumstances. However, by accepting many orders that can be handled efficiently, efforts may be taken to lessen shipment delays. For example, due to procedures, delivery and orders were delayed during epidemic periods. It impacted the whole distribution industry, which caused issues in the beginning but was eventually alleviated due to the simplicity of processes. Unnecessary and Protracted Procedure Due to redundant processes needed in assembling raw materials to final goods, lead times can often be extended. As a result, order completion may take longer than usual, reducing production. It is critical to optimize the process so that no needless motions occur. In addition, it will allow you to save time and effectively manage your production. Stockout Situation When a manufacturer runs out of stock, it signifies that the firm cannot produce new products due to a lack of resources. Not only will the scenario harm the loads, but it will also result in disgruntled consumers. The issue might deteriorate, resulting in a loss of revenue, reputation, and clients, which could have long-term consequences for you. Variability in Lead Time Variable aspects connected to delivery, such as communication and coordination, impact lead time. If there are any delays, you should collaborate with your suppliers to guarantee that the manufacturing is completed on time. It can assist you in making your manufacturing process more accessible and efficient. How Lead Time Affects Inventory Control Stockouts are common in companies that keep inventory for use in manufacturing. This happens when the stock on hand runs out without fresh stock arriving. Stockouts typically inconvenience customers because they must wait for orders to be met, while the firm incurs costs since it may be compelled to halt operations. In addition, employees and manufacturing machinery will be idle for a while during stockouts. Still, the firm continues to pay utility expenditures such as power, water, gas and administrative costs. Lead period delays, which vary by supplier, are the most common source of stock shortages. Natural catastrophes, human error, raw material shortages, inadequate inventory management systems, and other issues are all significant causes of lead time delays. A vendor-management inventory tool that automates the stock ordering process can help businesses decrease stockouts. The application saves supplier information for each component, making it simple to order them as they near completion. By making inventory requests early enough to avoid stockouts, automatic ordering shortens lead timings and lowers delivery costs. In addition, the firm can keep a database of backup suppliers for the most crucial components to supply inventories if the primary source is unavailable or out of stock. Impact of Shorter Lead Time The primary logistical objectives are to get the right items to the right place at the right time, in the right amounts, and under the right conditions. The lead period is a temporal factor in the logistics equation that is directly tied to service quality but significantly impacts stock control and demand planning. Let's look at the reasons why having a short lead time is critical to your business: More accurate demand forecasting: Short-term demand forecasting allows for more precision. One of the fundamental rules of thumb in demand management is that the further into the future you plan, the more unpredictability there will be. Shorter delivery periods can alleviate this problem by allowing for more reliable and accurate forecasting.The ability to carry less inventory: a short lead time implies you can fulfil client demand with a lesser inventory level. The fundamental purpose of warehouse management is to bridge the time gap between when a customer puts order and when the supplier delivers the order to the client. The impact of supply delays on inventory policy is linear: the longer the lead time, the more stock is kept on hand, and vice versa.Customers want high-quality service in a short amount of time, with little effort, and at a fair cost. You may provide consumers precisely what they want if you have a shorter lead period, such as quickly responding to changing client demand, completing the specified order quantity in less time, repairing damaged items in less time, and lowering expenses throughout the process.A shorter lead period will save you money and allow you to deliver on schedule. Furthermore, a shorter lead period results in more order fulfilment, which equals more cash flow.You don't need to purchase in bulk if your lead period is minimal since your complete processing procedure is rapid. This keeps your inventory at the proper level, allowing your business to function smoothly without the stress of having too little or too much stock.Last-minute modifications can only be implemented when lead periods are short since you can swiftly update items without delaying the purchase and jeopardizing client happiness. Furthermore, short lead times allow you to adjust to changes in market trends swiftly. All without the risk of losing money. Impact of Longer Lead Time To preserve the effectiveness of their operations, manufacturers and suppliers rely significantly on factory direct and authorized distributors to fulfil orders and satisfy business expectations. When lead period unpredictability becomes a problem for supply chain management, distributors and providers may experience longer lead periods and lower productivity. Some of the more frequent, longer lead period variability issues that wreak havoc on supply chain operations are listed below. Stoppages in the Production Line A long lead period might stop production if engineers don't have the components they need to finish the project. Preventing the production line causes suppliers to fall behind on client demands, resulting in another issue of low supplies. If a market expands and authorized distributors cannot meet demand, original equipment makers will fall behind on their manufacturing demands for clients. To guarantee that planned orders are delivered on time and to the buyer's satisfaction, authorized distributors must use a highly effective in house or third party logistics management system. Stockouts and inventory shortages might result from lead time variability difficulties, prompting you to either find a more dependable parts supplier or place a one-time purchase with an independent distributor. Revenue Generation The more significant the impact on a company's bottom line, the more manufacturing deadlines must be stretched. They could even wind up paying extra money to get parts from an unvetted independent distributor so that manufacturing projects can be completed and client orders can be delivered, bringing in much-needed income. Conversely, if a company cannot fulfil order demands for its clients, lead time variability severely threatens its earnings. How to Calculate Lead Time Lead time (LT) = Order Delivery Date – Order Request Date is the most straightforward fundamental formula. This method, however, allows for a reordering delay in the context of inventory management. Supply Delay (SD) + Reordering Delay = Lead Time (LT) (RD) The time a supplier takes to fulfil a client order after it has been placed is known as supply delay. The period between a completed order and placing the following order is known as the reordering delay. It is also necessary to account for reordering delays. Some vendors may only take orders once or twice a week or once a month. This means shops must plan for this delivery delay to keep a safety supply or buffer stock on hand. While waiting for your supplier to replace your supply, you can satisfy orders using your safety stock. Let's imagine you sell 500 shirts every day on average. Supplier A, on the other hand, only takes orders for shirts every five days. This signifies that your shirt supplier's reordering time is five days. Let's pretend that A delivers shirts to your warehouse in 2 days. This results in a two-day supply delay. In this instance, The lead time is calculated as follows: supply delay (5 days) + reordering delay (2 days) = Seven days. It should be simple to stock up for seven days. But what if you were selling something valuable and uncommon, such as exotic plants or fancy home decor? Such items are likely to be slower-moving than apparel and eatables, with significant supply and reordering delays. This implies you'll have to prepare for their acquisition, stock, and sale months ahead of time. But how can you figure out how much stock you'll need and when you should restock? The answer resides in the reorder point and safety stock. How much of a safety stock should be kept on hand? Safety stock is the amount of inventory you must have on hand in case of a supply or reordering delay. Its calculation accounts for lead time and demand variability (possible demand variations). Customer demand for items might fluctuate owing to various factors such as vacations, weekends, wholesale price fluctuations, special offers, and so on. Besides that, managers must prepare for unpredictably fluctuating demand, such as unexpected shortages, weather disruptions, and so on, because supply and demand are inextricably linked. The formula for safety stock is as follows: (Maximum daily sales*Maximum lead period) – (Average daily sales*Average lead time) = Safety Stock When is it time to restock? The level of inventory that signals that you need to restock are known as your reorder point. The reorder point calculation influences your choice to replenish as inventory management, and the formula denotes it: (Lead time * Average daily sales) + Safety stock = reorder point It's time to pick up the phone and shop for some goods every time your stock reaches the reorder mark! Your reordering quantity will correspond to the amount of safety stock you have on hand. Additional factors to consider while determining lead time ARO Lead Time The point at which the supplier gets an order is known as the after receipt of the order (ARO). The overall period between ARO and order delivery makes up the lead period. Thus this is the first thing to consider when calculating the lead period. Lead Time in Manufacturing The manufacturing lead period is known as the time it takes for a merchant to place an order and for the product manufacturer to complete it. It comprises the time spent acquiring, manufacturing, and shipping items. 8 Best Strategies to Reduce Lead Time Remove Unreliable Vendors From Your Supply Chain. Do you get late delivery from particular vendors regularly? Keeping them in your supply chain might be more expensive than switching vendors. Even when considering the possible cost of a change, research conducted by NC State University reveals that supplier assessment nearly always has a favourable influence on a company's financial performance. If you decide to switch suppliers to shorten your lead time, ensure you have adequate inventory to carry you through the transition. Additionally, be sure that your new supplier is ready to begin shipping you things straight immediately. Select Vendors Who Are Near Your Warehouse You have access to more sellers than ever in today's global economy. Unfortunately, while searching for the most significant rates worldwide, you may find yourself waiting weeks for things to arrive from another country. This extends your lead period and makes returning broken or undesired items more difficult. Giving attention to local vendors to your warehouse or manufacturing site is one of the simplest lead time reduction methods for suppliers. If a local supplier can't compete on price, consider placing larger (but less regular) orders from foreign vendors and maintaining a more extensive inventory. Share Your Demand Forecasts With Your Suppliers Your orders may differ monthly if you work in a naturally fluctuating business. To keep your suppliers prepared for larger-than-normal purchases, let them know that you foresee an increase in demand as soon as possible. This ensures that they are not only capable of handling a huge order but also capable of doing it as rapidly as feasible. Internalize External Processes Do you manage most of your manufacturing processes in-house, but not all of them? Consider expanding your capabilities so you don't have to outsource the finishing of your items to a third party. This demands a considerable initial expenditure, but the long-term savings make it a financially viable choice in most cases. Furthermore, you'll be laying the groundwork for future expansion, allowing you to expand once your revenues rise quickly. Workflows for Order Processing Can Be Automated Ensure your internal procedures are up to standard after you have your raw materials and are ready to begin manufacturing. Consider: When it comes to consumer purchase orders, how long does it take you to enter them into your system?How long does it take you to get them through production and quality assurance when it comes to engineering change orders?How frequently does the process become stalled due to internal miscommunication?How frequently do orders go missing completely? Your lead times will most certainly deteriorate due to poor performance in any of these areas. However, automated order processing procedures might help you get your final items out the door faster. Complete Many Processes at the Same Time They were not getting past the fact that specific procedures must be finished before others can begin. However, if you can find strategies that many people can execute simultaneously, you can boost productivity and shorten lead times even more. Internal Communications Need to Improve Order processing necessitates the participation of all members of the team. Internally, if you're not cooperating correctly, you might be causing unnecessary delays. Suppose your process has numerous phases requiring input from multiple individuals. You may be wasting time you don't have. This is especially true if you're working with non-trackable paper. Paper-based projects on someone's desk lengthen your lead time and raise the risk of misplaced paperwork. Even though poor communication is a complex problem, manufacturers have numerous alternatives for removing bottlenecks. Communicate With Your Customers More Effortlessly So while this doesn't help you cut your lead time in half, it does keep your clients informed as they wait for their orders. In addition, in several studies, communication has been proven to be a significant predictor of customer loyalty. Therefore it's a crucial factor to consider. Consider investing in a system that will send out order alerts if you aren't already doing so. (There are dozens of tools that automatically handle notifications, so automation is a significant time-saver here.) However, it's a simple – and relatively straightforward – technique to boost satisfaction and set expectations. Conclusion Staying on top of your business necessitates short lead times. In addition, they assist you in enhancing your cash flow and client satisfaction by allowing you to adapt to shifting market patterns. You may utilize it to optimize and reorganize your supply chain and production process now that you know how to calculate it. While understanding the lead time formula is a fantastic start, you can't keep calculating things by hand all the time. It's all about saving time, remember? Businesses should obtain everything they need to improve their supply chain and manufacturing process, from workflow automation and customized widgets to project planning and resource allocation. Allow WareIQ to Assist You in Reducing The Lead Period. We at WareIQ know how important it is for you to keep your business operating correctly, and we're here to assist you. We've given hundreds of businesses the tools they need to automate their order processing. So what's the result? Less time spent on inefficient back-office operations means more time for sales and product development. You may even cut the lead period by partnering with WareIQ for inventory management and eCommerce fulfilment. [signup] Frequently Asked Questions Is inventory a factor in lead time?Lead times can be influenced by production processes and inventory management. Building all aspects of a finished product on-site may take longer than finishing some items off-site in terms of manufacturing. What impact does lead time have on the supply chain?The influence of lead time on inventory management is depicted in this image. Lower lead times are preferred. However, obtaining shorter lead times from suppliers is difficult. Longer lead times, on the other hand, result in more goods on hand and in transit. Longer lead periods can limit the supply chain's capacity to respond to shifting demand, unpredictability, and uncertainty. What is the connection between inventory management and supply chain management?The supply chain manager will oversee inventory and flow management, taking into consideration any capacity or productivity concerns that arise along the way. The inventory manager will focus on his local inventory and arrange orders with suppliers, taking into consideration lead times and tariffs. What does a lead time look like in real?A lead time is a time it takes for a process to start and finish. For example, depending on numerous factors, the period between placing an order and receiving new automobiles from a certain manufacturer might range from 2 to 6 months. What is the delivery lead time?The number of days between the date the Order is acknowledged by the Supplier and the date the material is sent by the Supplier is referred to as the Delivery Lead Time.
June 15, 2022
Finished Goods Inventory: Definition, Examples, Importance & 3 Easy Steps to Calculate Finish Goods Inventory
All inventory follows a life cycle. It begins as different raw materials being combined together, grows to be work-in-progress, and finally emerges as finished goods. But finished goods are more than just the last stage of the inventory maturation cycle. They are the key component of being able to participate in the selling of products on eCommerce platforms. Let's take a look at examples, calculations, and why they are important. What is Finished Goods Inventory? Finished goods inventory is the number of goods available for a company to be able to sell to customers and fulfill orders. However, finished goods is a relative term, as a seller's finished goods could be the raw material for a manufacturer. Therefore, it could mean the inventory lying with a seller that is ready for dispatch to be sold or stock with the company that is prepared to be sent to a customer. Briefly, finished goods inventory is the stock of a wholly manufactured set of goods. Therefore, it is also called finished product inventory. Finished Goods Examples Finished goods are the everyday items surrounding us. Here are some examples of finished goods: You come across all kinds of food and grocery items in a supermarket. These perishables are ready for sale. Similarly, the gadgets or outfits that you adorn are customer-ready in an online or offline electronic store and clothing store. Finished goods examples include every product available for sales such as fruits and vegetables, processed and canned foods, clothing items, electronics, eggs and packaged meats, toys, petrol and gas, vehicles, and everything else that is available for purchase by consumers in a ready-to-use function. [contactus_uth] What is the Finished Goods Inventory Formula and Why is it Important? Once you know what elements are needed to calculate the finished goods inventory, you can understand why it is critical for you. Here's the formula: Finished Goods Inventory Formula Finished Goods Inventory depends on the expenses incurred for manufacturing the complete stock of goods, the cost of goods sold off, and the value of finished goods inventory from the previous period. This duration could be a month, a quarter, or a year. Finished Goods inventory = [Cost of Goods Manufactured – COGS] + Previous Finished Goods Inventory Value There are many reasons why it is a crucial calculation for everyone involved in the supply chain. Importance of Calculating Finished Goods Inventory Verifies Gross Profit For every manufacturer or seller, knowing the value of their inventory helps them to determine their gross revenue and profit margins. In addition, this tally helps in future operational and financial budgeting. You get to establish the expenses on goods manufactured and sold and the value of inventory in your warehouse. Documents the Current Assets Volume Finished goods inventory is counted as current assets in the balance sheet, which means they are short-term assets intended to generate revenue for you within a year. Your production strategy may be based on a 'Build to Order' or 'Build to Stock' plan. But it determines how many assets you hold at a time. To calculate the finished goods inventory level, you need to confirm the number and value of current assets lying with you after all the sales are made. Minimizes Material Wastage The formula helps you understand the finished goods inventory turnover rate. It is the rate at which your finished goods inventory is sold and replenished within a set period of time. When you know the worth of the finished goods remaining versus goods sold by the end of the month, you can ascertain how much inventory was ultimately utilized. Keeping a tab on the finished goods inventory can help you monitor and minimize its wastage. Streamlines Inventory Management Many factors affect your inventory management decisions such as the economic, fiscal, and geopolitical scenario of the country, annual budgets, and other contingencies like war or natural disturbances, industrial dynamics, and price fluctuations. All these factors affect the finished goods inventory level you need to maintain. The formula helps you ascertain the costs you incur on manufactured and sold goods and how much inventory you need to preserve, from the date of your previous performance. This formula also helps you differentiate between goods that are hot-selling products versus the goods that stay in your warehouse longer. It also enables you to separate high-value goods from others and store them in a more protected space. 3 Easy Steps to Calculate Finished Goods Inventory Step 1: Check Finished Goods Inventory of Prior Years Determine the value of finished goods for the previous period. You reach this figure in the last duration, which could be a month, quarter, or year using the same formula for finished goods as mentioned previously which is: Finished Goods inventory = [Cost of Goods Manufactured – COGS] + Previous Finished Goods Inventory Value Step 2: Subtract the Current COGS From the Cost of Goods Manufactured This step involves the below calculations: Cost of Goods Manufactured (COGM) refers to the money spent on manufacturing every unit of the finished good. For instance, if you made 400 candles worth ₹200 per piece, your COGM would be: 400 x ₹200 = ₹80,000. COGM = [Raw materials used + direct labour employed + all manufacturing overheads + beginning WIP inventory] - the ending WIP inventory. Cost of Goods Sold (COGS): The money spent on manufacturing the products sold is referred to as COGS. So in the above example, if you sold 300 of the 400 candles made, your COGS would be: 300 x ₹200 = ₹60,000. COGS = [Beginning Inventory + Received Inventory] – Ending or Remaining Inventory Now deduct the COGS value from the COGM figure: COGM - COGS Step 3: Add the Prior Finished Goods Inventory Value to the Answer Combine the figure you have reached above with the value of finished goods inventory for the last period. Adding the overall value of assets available gives you the finished goods inventory for the current period. You can procure this data from past inventory records. [COGM – COGS] + Previous Period Finished Goods Inventory The period considered for the calculation must remain consistent throughout to avoid any discrepancies. How Do 3PL Fulfillment Companies like WareIQ Help to Efficiently Manage Finished Goods Inventory? 3PL companies assist businesses at every stage of the supply chain. Inventory management is crucial to your logistical success. An experienced 3PL service provider like WareIQ can help you efficiently manage your finished goods inventory. Here's how it can be achieved: Real-time Data WareIQ offers advanced real-time data collection and analysis technology throughout the inventory life cycle. This means that you are continuously updated about your inventory levels and whereabouts, across multiple platforms, the moment a change is made. This is necessary to know what inventory is available to you and when. For example, to determine your inventory level, you need to see the number of finished goods ready for sale and the stock already sold and delivered. Real-time updates affect your decision-making and budgeting capabilities and enable you to make faster and more well-informed decisions. Quality Control A promising 3PL partner like WareIQ assures you of quality checks throughout the inventory lifecycle, so you know if and when any product has gone bad or has expired and needs replacing. This prudence comes in handy, especially if you are dealing with perishables. Additionally, the way products are stored in the warehouse, picked and packaged when an order is confirmed and shipped to the customer, meets rigorous quality control standards to ensure that everything is done in the most careful and efficient manner. Automated Systems The superior inventory management software gives you access to essential data like inventory levels, orders, and billing cycles and can integrate with multiple eCommerce platforms. This data helps you trace the previous and current inventory levels and the goods sold. These automated reports can be triggered at pre-set intervals such as daily, weekly or bi-weekly, to be sent via email or directly to your system via API integration. So all the information you need to know about the finished goods inventory is available at your fingertips. Superior tech also guides you on scaling up or reducing the manufacturing dependence on seasonality and demand. Inventory Tracking WareIQ's advanced dashboard triggers punctual updates via texts and emails. Further, it creates your company's branded, fully customizable tracking page. You can track your inventory in any of WareIQ's pan-India warehouses from a single dashboard. So you can keep a tab on all the raw materials from Pune, Guwahati, and Hyderabad that you need in Gurugram in the current week, from a single webpage. Conclusion Finished goods inventory is responsible for bringing in revenue for your eCommerce business. Hence, it must be regularly monitored and tracked. The preparation you need to do this is a simple calculation that ensures you gather data on all the necessary elements. Along with a capable 3PL partner who provides the data collection and analysis on your behalf, you have fewer things to worry about. WareIQ is one of India’s fastest-growing eCommerce logistics companies that uses a centralized technology platform to provide every service that is associated with fulfilling eCommerce requirements. Finished Goods Inventory: FAQs How is finished goods inventory recorded?In the balance sheet, you need to credit finished goods inventory while debiting COGS. This means that the items are transferred from inventory to expenses. When an item is sold, it would be listed as a transaction while the sales revenue account is credited with the sale. Can inventory be classified as finished goods?Inventory is generally classified into 3 categories:1. Raw materials2. Work-in-progress items3. Finished goodsFor accounting purposes, inventory is classified as a current asset because of the firm’s plan to sell it within a year. Why is it necessary to have an optimum level of finished goods inventory?Finished goods inventory assists a company in ascertaining the value of each unit produced of a good based on the raw materials consumed, labour used, and overhead expenses. What types of companies use finished goods inventory?Finished goods inventory can either be used by a manufacturer or supplier who uses raw materials and other components in order to manufacture products. These products are then sold directly to consumers or retailers, who sell them to customers eventually.
June 13, 2022
Inventory Allocation: Definition, Pros and Cons & 4 Factors to Consider While Allocating Inventory
Inventory is the key asset of any eCommerce company to be able to transform an order into a delivery. One of the main ways to ensure that this process is carried out efficiently is proper inventory allocation. This enables companies to place the appropriate amount of inventory at every step of the supply chain process, to mitigate shortages and unforeseen circumstances. We will be discussing what inventory allocation is, inventory allocation methods, reasons for companies to employ an inventory allocation strategy and factors to consider when making that decision. What is Inventory Allocation? The process of strategically optimising and tracking the levels of inventory that an eCommerce company maintains across its entire distribution network (including multiple sales channels and fulfillment centers is called inventory allocation. Let us look at a typical, growing eCommerce company that sells its products across multiple online channels, including Flipkart, Amazon, Shopify (etc.), and needs to allocate its inventory to each channel based on the volume of orders received. To achieve the shortest possible delivery time, the eCommerce firm will use multiple fulfillment centers and warehouses to fulfill orders. Given this scenario, the firm must utilise various inventory allocation methods to fulfill orders based on the optimal mix of products, customer orders, and warehouse locations. An optimised inventory allocation exercise ensures that the correct inventory levels are maintained at each fulfillment location, so customers’ orders are delivered at the earliest possible time. Sudden increases in demand such as during a flash sale, are also built into the calculations. Inventory Allocation Methods Let us look at the two most prominent inventory allocation methods that are used: Manual Inventory Allocation As the name suggests, if an eCommerce firm uses physical spreadsheets, and inventory ledgers and analyses data manually for inventory allocation, it is referred to as manual inventory allocation. Unfortunately, not only is this method time-consuming but it is also prone to miscalculations, errors and other inefficiencies. A primary concern is that when a business grows, the problems multiply rapidly and manual inventory allocation can often compound those problems by creating more mistakes which can have disastrous consequences. Tech-Enabled Inventory Allocation Most modern inventory allocation methods are enabled by eCommerce firms investing in the latest technologies that seamlessly manage and track their inventory and its movement across their entire distribution network. By using electronically-captured data and the deep insights they offer, this method of inventory allocation is done in real-time and maintains high levels of accuracy and efficiency while being easy enough to use. Businesses primarily employ inventory management software that consists of all the above features which help businesses automate their inventory allocation procedures. Advantages and Disadvantages of Inventory Allocation Advantages of Inventory Allocation Avoids Overstocking The perils of overstocking are many, often with disastrous results which can be especially pronounced for eCommerce startups or small firms. To begin with, overstocking causes overutilisation of warehouse space, clogs up invaluable cash flow and increases carrying costs. Additional problems include high insurance premiums, rent and labour. Problems of expiry dates, damage and pilferage/theft also start cropping up for inventory that stays on the shelves for long periods of time without being shipped out. Inventory allocation helps prevent overstocking by making businesses aware of the optimum amounts of inventory they require. Helps in Order Fulfillment Conversely, very low stock levels cause their share of problems. Firms would run short of inventory and be unable to capitalise on customer demand. Even worse would be the issues of sudden stock-outs, especially when you may have already confirmed customer orders. All this would drive your customers to your most feared result, i.e. you would lose them to competitors who provide more efficient service. About 3/4th of today’s online customers would be unlikely to return unless their orders are fulfilled within 2-days. Efficient inventory allocation would eliminate such problems by helping firms ascertain the exact amount of inventory they would need. Assists in Understanding Buyer Behaviour A huge benefit of efficient inventory allocation is that it helps to understand the buying behaviour of your customers. By tracking data, clustering them into ACV-cohorts and analysing stock movement across important parameters, firms can learn much about their customers' buying habits and preferences. Ultimately, this enables management to make better business decisions. Disadvantages of Inventory allocation Lack of Proper Usage Poor inventory allocation methods that are not tailored specifically to your business can set you up for failure. Therefore, the goal is to make the correct and informed decisions to be able to efficiently manage and allocate inventory, not just to simply adopt an inventory allocation process to be up to speed with the rest of the industry. Struggles to Adapt Oftentimes, companies are led by pure profitability and only maintain high-profit and high-demand items. If customers decide to change their preference suddenly, you could be left with dead stock. You would be precariously placed since you would not have left enough warehouse space or invested in SKUs for other customers (that offer less profitability). 4 Reasons for eCommerce Companies to Have an Inventory Allocation Strategy We live in an age of information and as you would have heard, knowledge is power. Awareness about your inventory requirements, broken down by locations, nature of products and other factors, the type of SKUs, customer clusters and their preferences, and a deep understanding of buyer behaviour gives you this knowledge. With it, you can improve your decision-making through timely and informed decisions while also forming the bedrock of optimising your supply chain. Modern eCommerce firms are prone to fluctuating inventory levels which is an underlying result of selling across multiple channels and different locations. Using modern inventory management software and technology enables eCommerce management teams to stay ahead of the curve and maintain close working relationships with their 3PL partners and fulfillment teams. After all, an effective inventory allocation strategy will reduce operating costs, maximise inventory ROI and successfully satisfy customer demand. Let’s look at the 4 key reasons to have an inventory allocation strategy: Prevents Overstocking Firms often adopt the easy way, i.e. to stock more inventory than they expect, just in case they fall short. However, that is often counterproductive to company profitability and cost-efficiency. On the contrary, overstocking drives up inventory carrying costs, requires larger warehousing facilities, requires more labour and higher insurance and creates problems of pilferage and dead-stock – the list is endless. Optimising your stock levels by following a robust inventory allocation strategy based on comprehensive data analysis, demand trends and SKU movement is the way to go to prevent overstocking. Avoids Overselling A robust order pipeline is an aim for all eCommerce companies. However, it requires significant study and projections based on analysing the correct parameters. Overselling leads to backorders and results in a poor customer experience, delayed shipping, price fluctuations, etc. The correct inventory allocation strategy to prevent overselling is for it to stem from your demand analysis. Therefore, it becomes imperative to maintain data about seasonality, promotions or sudden changes in the ecosystem (e.g. a competitor going bust and their orders suddenly shifting over to you). This prepares firms to stock the correct inventory levels (with requisite safety buffers) based on past trends and future growth projections. Optimises Management of Multiple Channels Modern retailers have adopted an omnichannel strategy to satisfy changing customer preferences and demands. However, along with its advantages, it also needs an efficient omnichannel inventory allocation strategy to tackle stock level oversight, order returns, reorders and stock forecasting problems. Using inventory management systems that track the demand and supply of stock across an omnichannel network is of great help. Popular eCommerce platforms offer direct, API integrations with your MIS to help you track inventory movement from a centralised dashboard, across multiple platforms, which makes the entire inventory allocation process faster and more efficient. Assists in Scaling Business Operations Extending the point above, it will become impossible to scale if eCommerce firms don’t implement modern tech stacks and processes that enable better decision-making to run the business. However, this can be daunting, given its costs, knowledge requirements and time constraints. Therefore, eCommerce firms can partner with 3PLs (third-party logistics companies) to take care of the rising need for order fulfillment and inventory management. A 3PL brings significant capabilities across an extensive network of fulfillment locations, logistics capabilities and technology – these are must-have features as a firm begins its journey of growing its customer base and expanding its services. 4 Factors to Consider While Using Inventory Allocation You may sell hundreds of SKUs via an omnichannel sales network or use multiple warehouses for order fulfillment. You could be a niche brand selling to a limited number of customers or an eCommerce startup just getting started with limited monthly orders. You may even be a behemoth fulfilling thousands of daily transactions across the globe. Establishing a solid inventory allocation policy is the cornerstone of achieving supply-chain efficiency and successfully servicing your customers, regardless of your status. Let’s look at the key factors to consider during inventory allocation: Demand for Inventory Perhaps, the most important tool for an eCommerce business, especially a growing one, is the demand forecasting function. It creates a ripple effect throughout the organisation whereby you can make well-informed decisions around production, promotion, labour and much more. While it is true that you will unlikely ever achieve 100% accuracy with demand prediction, if you set up the correct procedures and use advanced tools and technology that are available, you should have an accurate enough handle on your sales patterns. Adopting a data-driven methodology will enable firms to make sound inventory allocation decisions and accurately predict the amount of inventory required to be stored across their warehouse locations and how much must be allocated to different sales channels, depending on demand. Strong demand-forecasting techniques also consider promotion-led demand, flash sales, seasonality and other temporary peaks and valleys in demand that will directly impact inventory allocation. Availability of Inventory Evolving customer preferences have meant that delivery times are an increasingly important element for a business to differentiate itself from the competition. Studies show that customers rarely return to an online platform if their order fulfillment experience isn’t satisfactory. A crucial part of this is achieved by ensuring that the correct mix of inventory and supply is maintained at shipping destinations closest to the customers’ addresses. Modern inventory tracking software is a useful tool that ensures accuracy and visibility. These highly sophisticated systems allow you to aggregate demand patterns across channels and locations, thereby allowing you to aggregate the appropriate inventory levels that must be maintained at every warehouse location. In turn, this helps in setting reorder levels, organising transportation, hiring labour (both full-time and part-time) and negotiating rates with suppliers, to name a few. Additional benefits include not having to urgently fulfill orders from warehouses further away from the delivery address due to a stock-out at the nearest one. eCommerce firms typically use automated stock-tracking systems that let them seamlessly connect to vendors, suppliers and other supply-chain stakeholders via a centralised cloud-based system. Therefore, all critical data points like SKUs, channel throughput, inventory availability at fulfillment centers and customer details are available holistically and easily. Availability of Warehouse Space Another important factor to keep in mind while planning your inventory allocation is the available warehouse space, the cost of renting it and operating costs. eCommerce firms partner with 3PL firms so that they have access to their vast network and resources of warehouses, on-site teams, transport fleets and modern operating systems. Based on your requirement, storage fees will vary from a fixed fee per pallet, square metres allocated, according to SKU, the transaction (etc.) Simplicity of Order Fulfillment As mentioned earlier, an efficient inventory allocation process shortens order delivery times; it simplifies logistics and saves costs. To ensure the shortest possible delivery times, you must minimise the shipping zones a parcel needs to travel to reduce last-mile delivery costs and the time taken to deliver it. This is achieved by maintaining sufficient stock levels at all warehouse locations across the entire network of warehouse/fulfillment centers that you operate. For example, suppose you anticipate an uptick in sweaters and warm clothes in northern India just before the onset of winter in November, you should allocate additional inventory there so that they can be delivered faster and with minimal distances travelled. How Can an eCommerce Fulfillment Company Like WareIQ Help With Inventory Allocation? 3PL fulfillment companies like WareIQ can assist clients with inventory allocation by deploying their significant capabilities in the field. Let’s look at some leading ones: Automating Inventory Allocation With its modern automated technology, WareIQ provides its users with a centralised dashboard that gives clients a bird’s-eye view of the entire operation, across all platforms. This provides a detailed and accurate view of inventory movement, including tracking at the SKU level, cluster viewing broken down by sales channels, unit type, storage locations (etc.). This is a critical tool in managing your inventory allocation. Streamlining Inventory Management Today’s eCommerce firms adopt a multi-channel sales approach – this naturally includes multiple fulfillment centers, on-site teams and various vehicular fleets. This could get tricky and result in disastrous consequences if not handled properly. Challenges like stock fluctuation, intra-network movement, re-order levels, etc., are naturally amplified due to this multi-channel sales network. The levels of automation that today’s 3PLs such as WareIQ can bring, thereby reducing human error and ensuring real-time visibility and communication, which have become a strong tool for clients. Forecasting Sales Patterns 3PLs use highly sophisticated data-analytics systems that can record and mine massive amounts of data every second. This comprehensive data analysis generates deep levels of insight that enable management teams to make more informed and effective business decisions. Detailed reports that provide in-depth information at both the macro and micro levels of client operations and metrics that outline the best practices of sales-based inventory allocation help clients immensely. Channel throughput and efficiency, stock turnover, fast/slow-moving products, etc., are some key data points in determining sales patterns. Advantages of an Elaborate Fulfillment Network Today’s eCommerce firms mostly use an omnichannel sales strategy. With its elaborate and extensive network of fulfillment centers, WareIQ allows clients to leverage the strength and resources of this network in fulfilling their orders. Reduced shipping costs, faster delivery times and inventory-splitting are some of the associated benefits. Conclusion Today’s eCommerce companies operate in a fast-paced, highly competitive and complex eco-system that spans international borders. They deploy an omnichannel sales and distribution network and several fulfillment centers and employ huge teams to manage their inventory. Therefore, firms must use a data-led and technology-enabled inventory allocation system that considers all the numerous variables that affect it to come up with a winning one. WareIQ provides commercially certified solutions, professional services, barcode scanning and technology such as an advanced WMS to assist businesses in better understanding and controlling their assets, inventory management in the supply chain and industrial processes. These solutions are quickly implementable and cost-effective, saving your time, money and effort. We offer extensive knowledge and capabilities in all eCommerce-related requirements, from inventory allocation to order distribution. Inventory Allocation: FAQs What is the goal of inventory allocation?The main objective of inventory allocation is to ensure that the optimum amount of inventory is available to fulfill orders across every channel. This is done by determining the demand and the amount of inventory needed to fulfill it. Why is it important for businesses to allocate inventory?It is important for businesses to allocate inventory so that they can avoid stock-out or overstock situations and they can efficiently manage storage space and operating costs. What factors can affect inventory allocation?The factors that can effect inventory allocation include:- Inventory demand- Inventory availability- Warehouse space How can WareIQ help with inventory allocation?WareIQ has a custom WMS that can group and organize your inventory in any way that you need, across fulfillment center locations and sales channels. We also assist in demand forecasting to determine how much inventory is needed for each sales channel.
June 13, 2022
What is Inventory Days on Hand? Definition, Inventory Days on Hand Formula, Importance & 5 Strategies for Improvement
When you buy or replenish inventory in your warehouse, it doesn't leave immediately. It lies there for a period of time before being shipped or transferred. It is important for a business to refine its inventory management processes so that the duration of inventory lying idle is limited as this can lead to obsolescence or expiry. However, it is also suitable for a business to have inventory on hand in case there is an emergency or urgent requirement. Businesses need to find the sweet spot of having just the right amount of inventory in storage. In this article, we take a look at the meaning of inventory days on hand, how to calculate it using the inventory days on hand formula, its importance, and ways to improve it. What is Inventory Days on Hand (DOH)? Inventory Days on Hand (DOH) is the number of days that inventory stays in your warehouse or storage space before being sold. It reveals how many days it takes you to sell your average inventory on hand. It is an accounting ratio that indicates the average number of days that different kinds of inventory, including raw materials, work-in-progress goods, and finished goods, spend in your warehouse before turning into sales. It is also called Days Inventory Outstanding (DIO), Days in Inventory, Inventory Period, or the Inventory Days of Supply. Further, it depicts how soon a company can turn its current assets into cash. This metric is extensively used by analysts and business intelligence to gauge the company's liquidity and financial and operational health. [contactus_gynoveda] What is the Inventory Days on Hand Formula and How to Calculate it? The inventory Days on Hand formula considers the average inventory value in your warehouse compared to the Cost of Goods Sold (COGS) and the number of days in an accounting period such as a week, month, or year. The below equation comes in handy for calculating the inventory in hand: Inventory Days on Hand = [Average Inventory Value / Cost of Goods Sold] x Number of Days in Accounting Period And if you know the inventory turnover ratio for your business, you can use the below inventory on hand Formula: (Number of Days in Accounting Period) / (Inventory Turnover Ratio) = Inventory Days on Hand Importance of Inventory on Hand The inventory days on hand figure reveals much-desired information about your business. Here's why you need to monitor it regularly: Analysis of Operational Performance Inventory days on hand show how long working capital gets frozen in stock. Once you have that data, you can devise ways to shorten the duration by optimizing procurement and sales processes. A lower DOH value indicates that your business is productively utilizing its inventory. On the other hand, a higher number shows the company's poor investment decisions and inefficient stock utilization. However, a high inventory quantity doesn't always showcase unproductive business practices. For example, you may have a higher DOH value if you store stock for around-the-corner peak season sales or a lockdown-like contingency. Either way, this analysis helps calculate and enhance your business's operational performance. Prevents Stockouts and Overstocking While companies keep adequate stock to shield them from demand fluctuations and variable market dynamics, inadequate inventory management can hurt business operations and revenue. Stockouts or overstocking occurs due to poor demand forecasting or incorrect analysis and reporting. That is when inventory days on hand come to your rescue. DOH clearly tells you how far you are from a stockout or when you need to stop further ordering of inventory. Keeping a tab on it warns you before a crisis unfolds in your warehouse and can help prevent the crisis from occurring. Improves Efficiency Inventory on hand is an indicator of business efficiency. A lower DOH indicates better cash flow and higher productivity. A smoother cash flow also gives you the leverage to pump more capital into the business for expansion, promotion, research and development, and other activities. Attracts Potential Investors DOH helps you gauge the inventory conversion rate of your business. A higher stock conversion or liquidity means that you can frequently replace or refill your merchandise, thus keeping your product offerings refreshed for your customers. It is an indication of an agile and flexible business. This practice tends to lure more customers to your stores and attract larger amounts of attention from potential investors. Similarly, lower liquidity indicates poor business performance. It shows that you cannot sell the stock you buy and cannot replace it with fresh supply on time. Forecasts Storage Costs Inventory days on hand show how much inventory you need to order and when. It indicates the amount of stock turnover which tells you how frequently you need to replace or replenish the stock of a particular commodity, within a specified time period. It also highlights areas in your inventory management process where there is scope for improvement. Thus, you can use the inventory on hand figure to forecast storage costs for your inventory. Mitigates Operating Costs Where and how long you store your inventory affects your storage and operating costs. The lesser stock you have on hand, the lesser you need to spend on ecommerce warehousing and other operations. Therefore, knowing the storage period of your stock enables you to plan your finances in advance and mitigate expenses to the largest extent possible. Of course, having a competent 3PL partner like WareIQ allows you to leverage a nationwide presence of warehouses closer to customer locations. This type of service helps further reduce cost overheads. Increases Profit Margins Inventory is a current asset and affects a company's cash flow and profit margins. The inventory days on hand ratio shows how much time and money must be invested in a stockpile before they turn into sales. Therefore, better and regular monitoring of the inventory on hand can safeguard you against loss-making decisions related to unwanted stockpiling or a lack of adequate volume. Top 5 Strategies to Improve Inventory Days on Hand If you regularly deal with inventory days on hand, you might want to improve it wherever possible. Here's how you can do that: Utilizing Inventory Management Software Your 3PL partner's superior inventory management software can track and trace inventory and keep inventory records actively updated. This software can be coupled with devices such as hand-held scanners that scan merchandise in the warehouse and sends data directly to the system for accounting and record-keeping purposes. In addition, these systems can trigger alerts when some stock needs replenishing, when you have overstocked or when it needs to be replaced with a fresh supply, especially in the case of perishable items. Such robust tech can remove the burden of keeping accurate inventory records and renewing them regularly. Furthermore, they essentially guide you on how to improve your inventory management efficiency. Improving Relationships With Manufacturers Better inventory management by the business causes less hassle for the manufacturers and sellers of products. In addition, accurately telling them when you need to stock up or replace the old inventory strengthens your relationship with them. Logistical pace and associations affect the relationship between sellers and manufacturers. For example, if a retailer needs a small quantity of stock urgently, the supplier can utilize existing stock to deliver it to their doorstep on time. In such a scenario, their relationship will grow and become stronger. If, on the other hand, the logistics speed is slow, the supplier will have to keep extra merchandise, thus increasing their inventory days on hand. Strong alliances with suppliers will push you to keep adequate inventory days on hand, thus improving inventory management and business performance. Providing Markdowns and Bundles You can bundle slow-moving stock in pre-determined groups with further discounts. Products experiencing low sales can be combined with a similar category of other products that have a higher rate of demand. For instance, you can combine poorly selling plates with fast-moving coffee mugs. A markdown on their prices can further attract the attention of customers. Clean-ups, closeouts, or flash sales are common ways to mark down your inventory and push it out to improve the inventory days on hand. Making Use of Unsold Inventory If markdowns don't work for your unsold inventory, there might not be a way out of storing it indefinitely. The stock in your warehouse costs you the storage, maintenance, labour, and other overheads. Hence, it is better to put it to use in whatever way it can. If you cannot sell it, you can always donate it and count it as a CSR initiative, recycle it to make new products, or refurbish it to attract new demand. Even if you cannot sell it, it will be less of a loss if it is involved in another business process rather than just wasting your storage space and the money spent on renting it. Streamlining Operational Processes Unclear and poorly strategized operational processes cause trouble in inventory management. Your warehouse and supply chain operations need to be streamlined to avoid an excess burden on the existing inventory. Ensure seamless communication and a smooth flow of information to avoid logistics chain disruptions. Combined with a skilled workforce to operate the systems and man the merchandise on the ground, this can help to improve your inventory days on hand ratio. How Can a Fulfillment Company like WareIQ Help Improve Inventory Days on Hand? A strong 3PL partner like WareIQ can change the way you manage inventory. We can provide three things you will need the most to monitor your stock effectively: State-of-the-art WMS to assist in inventory management and forecasting inventory days on hand of your current inventory.Advanced technology to record and monitor the inventory days on hand and provide solutions for improving it.Nationwide network of fulfillment centers so you can store inventory near areas of high demand or near shipping and distribution hubs. Most importantly, a trustworthy logistics partner can empower you with all the tools, technology, and knowledge to control your inventory on hand in the most intelligent manner. Inventory Days on Hand: FAQs What is the difference between inventory days on hand and inventory turnover?Inventory days on hand refers to the average time it takes for a retailer to turn its inventory into sales whereas inventory turnover indicates how fast a retailer can sell its inventory. During calculations, DOH is the inverse of inventory turnover. What is considered a normal number of inventory days on hand?The ideal inventory days on hand ratio for an eCommerce business can be between 2 and 4. If it is lower than this, it could indicate weak sales or a decline in the demand for your products. What causes increases in inventory days on hand?Inventory days on hand can increase for a multitude of reasons but mainly because of economic, global, and competitive factors that result in a sudden fall in demand and sales levels. How to calculate the inventory days on hand?While ideal inventory on hand differs depending on the nature, price point, and type of products that a business deals with, it can be found out by dividing the average stock by the cost of goods sold and then multiplying the figure by the number of days in that accounting period.
June 13, 2022
Stock Discrepancy: Definition, 5 Main Causes and Top 7 Methods to Avoid Inventory Discrepancy in 2022 in eCommerce
The fast-evolving business trends and technologies bring new challenges to every organization. To mitigate the issues of the end-to-end supply chain and cope with customer expectations, organizations are constantly focusing on reducing the delivery lead time. And one of the essential steps to reduce the lead time is to manage inventories in every form like raw material, semi-finished products, and final products. Experts define inventory as a necessary evil. It is essential to run the business, but it blocks the business capital in the form of materials. Therefore, it is essential to manage accurate inventory. The stock discrepancy is one of the major challenges in inventory management, especially in the eCommerce business. This article will take you through a brief definition of a stock discrepancy, its primary reasons, and the best practices to avoid inventory discrepancy. What is Stock Discrepancy? Stock discrepancy refers to the variety of physical available stock or inventory of items with respect to the current inventory in records or systems. To run a successful business of any size, maintaining accurate stock is vital. But inventory variation is a common scenario in a practical situation. In the case of industries like e-commerce, where you need to deal with a massive number of different SKUs, quick and error-free product transfer, and handling hundreds of last-mile deliveries, the chances of inventory mismatch increases. Minor inventory discrepancies can be managed easily, but major inventory discrepancies can lead to considerable losses to your organization. Therefore, you must have a robust system to check inventories, find loopholes and implement best practices to avoid any untoward situations. [contactus_gynoveda] 5 Main Causes of Inventory Discrepancy Managing inventory throughout an eCommerce supply chain may sound easy, but it is a complicated task. You need to deal with thousands and lakhs of inward receipts and outward delivery day in and day out. Tracking every material movement, delivering the right product to the right place at the right quantity, and above all, managing inventory accuracy is nothing short of a nightmare. But the task becomes easy if you know the probable causes of inventory discrepancy and how to avoid them. Here are some major causes of Inventory Discrepancy. Inventory shrinkage As the name suggests, when there is a shortage in the actual inventory compared to the stock in the records, it is known as inventory shrinkage. Simply put, it refers to when the physical stock of any item is less than the system stock. There are some probable reasons behind such discrepancies: Pilferage or Theft: Here are two possibilities:If a person involved in operations may pilferage items. Or,Some outsiders may steal.Administrative errors: There may be a chance of error in the accounting system, which eventually decreases the item's quantity. Vendor Fraud: Manufacturers/suppliers may have sent you fewer number items than they billed for it. Misplaced inventory There is a place for every material in modern warehouses, and it is described in the inventory management system. Whenever the warehouse team receives an item, it is labelled first and then goes to its exact location. The same activity happens in the case of goods for delivery. In most industries, this activity is done by humans whereas, in some advanced warehouses, automated robots perform the task. Discrepancies in inventory are primarily due to human errors like wrong material receipt or issuance, putting materials in wrong locations or incorrect labeling. Many times, suppliers also send the wrong materials unintentionally. Any of these mistakes can lead to a stock disrepancy. Human error One of the major causes of inventory discrepancy is human error. Apart from using highly advanced e-commerce warehouse management systems, some of the eCommerce end-to-end supply chain is driven by humans. And if your employees are not appropriately trained on how to receive, store, track and manage stocks, inventory discrepancy is unavoidable. An inventory management system can assist people in managing the inventory efficiently, but they are the people who run the system. Firstly, to avoid human errors, you need to make sure that people understand the consequences of inventory variations. Keeping a standard operating procedure in place, displaying visual instructions, regular training, and frequent inventory audits are some of the best practices to avoid such errors. Mismanaged returns Return management does not add value to the business directly, but it has an impact on the balance sheet and revenue of the organization. Reverse logistics is as important as last-mile delivery. Poor return management can generate significant stock discrepancies and damages. As there are several ways to treat the returned materials (restocked, refurbished, bad-quality-disposed, or scrapped), it is important to perform every activity carefully. If a bad-quality material is not stored back in the warehouse, it will create a stock discrepancy. Similarly, if a returned material is coded wrongly and placed in the location, it will show the wrong information in the system. Effective return management not only helps you to avoid inventory discrepancies but also helps you to improve revenue. Glitches in Inventory Management Software Inventory management software must connect with the existing softwares/platforms businesses use in order to scale to accommodate advanced logistics. Choosing from hundreds of inventory management software solutions and understanding a slew of its features that necessitate training and continuous assistance is a difficult task. Choosing a wrong inventory management software can give further rise to stock discrepancy due to incorrect inventory counting, inventory forecasting etc. 7 Methods to Avoid Stock Discrepancy Having a healthy inventory with accuracy is the key to delivering products on time. On the one hand, it improves customer satisfaction, and on the other, you can book more orders due to better visibility of your inventory status. Stock accuracy is beneficial in mitigating supply chain risks by avoiding incorrect customer orders, material shortages, theft, and damages. Here are some best practices which can help you to avoid stock discrepancy. Double Check During Counting of Stock Physical inventory counting is a common process to identify and avoid inventory discrepancies. In this process, every item is checked physically, and then the stock is matched with the inventory records. Double counting can minimize errors. In case of a large inventory pool, you can use the ABC analysis method to identify high-value items and perform a double check on those items especially. You can decide the frequency of physical counting on the basis of ABC and FMR strategy, and decide on a quarterly or annually sales velocity audit (for fast-moving items and slow-moving items). Identify the Location of Stock In a running eCommerce or production environment, the pace of materials movement is very fast, and there is a tendency to keep the same items in different locations. It is also important to check whether similar items are mixed with each other or not. With a slight change in design, the item code changes, but identifying the difference between such items becomes challenging. While performing physical inventory counting, you must check all the locations thoroughly and avoid the mixing of similar materials. Check the levels of Inwards & Outwards Stock To improve the inventory accuracy of your warehouse, you must ensure a strict inward and outward process. During the inwards process, checking every item along with their vendor invoices can help avoid major inventory mismatches. Often suppliers inadvertently send similar items with different item codes, leading to stock variation. Communicate with Manufacturers Suppliers play a significant role in an efficient inventory management process. You should establish strong communication with your vendors so that any issues, especially inventory variations, can be communicated immediately. If you inform your supplier about any stock discrepancies during the inward process, they can also check at their end and resolve the problem at the moment. Moreover, training the supplier’s staff can also make a big difference and help run your business smoothly. Strong and transparent communication with your vendors not only helps you to manage inventory discrepancies but also helps avoid a stock-out situation or overstocking and reduces the cost of poor quality (COPQ). Opt for an Inventory Management System In this dynamic eCommerce environment, it is inevitable to have a smart inventory management system in place. It can help you to manage the stock levels, indicate the possible errors, and even help you to locate the item quickly. The advanced inventory management software is beneficial in significantly reducing the inventory counting time, which is a huge saving for any eCommerce business. Train Employees To make a big change, it is essential to increase awareness. As the technology in every field changes, new tools and techniques get introduced into the market every day. Adopting new technologies and training people on the fundamentals is essential. Employees need to know the correct method of inventory counting and its benefits and drawbacks for efficient inventory management. Partner with a 3PL Another best practice to avoid inventory variations is partnering with a 3PL like WareIQ. Being an experienced organization, WareIQ knows every nitty-gritty of inventory management and how to prevent stock discrepancies effectively. It offers stringent control and saves your time and money. Through the latest digitized tools, the overall inventory forecasting process is performed quickly and with high levels of transparency. Conclusion Technological advancement has increased buyers' expectations in terms of competitive price, better material quality, and quick delivery. Poor inventory management with many discrepancies can hamper your revenue and result in customer dissatisfaction. Human errors and inefficient systems are the root cause of a stock discrepancy. By implementing best practices, you can eliminate all bottlenecks and establish a healthy inventory system in your organization. Adopting intelligent inventory management software and partnering with an efficient 3PL like WareIQ can help manage your inventory better. We at WareIQ give you full transparency of your inventory with real-time tracking features that make you monitor your product levels & status across our multiple warehouses from anywhere. As we know, return and reverse logistic is the major cause of the stock discrepancy, we provide RTO and logistics insurance to save your time, money, and other resources. If you keep the listed items on your website in our fulfillment centers, then you do not have to worry about inventory management and stock discrepancy. We are solely responsible for any discrepancy. If in case, it comes from your vendor's side, you will be informed immediately. [signup] Stock Discrepancy FAQs What is the reason for stock discrepancies?Reasons for stock disparities are:i) Theft of stockii) Incorrect recording of dataiii) Misplaced stock and can't be trackediv) Mis-handling of damaged and returned stockv) Human error while the stocktake process like wrong counting What are the necessary actions businesses should take if there is a discrepancy in stock?i) Confirm the discrepancy by double-checking recordsii) Make necessary changes in the records if there is a discrepancyiii) Remove any extra items that have been detected as a discrepancyiv) While arranging replenishment orders, make sure you have enough stock to cover the difference How does WareIQ ensure low to zero inventory discrepancies?WareIQ does inventory tracking for sellers through its own warehouse management system software where WareIQ operations experts handle the process of managing inventory that ensures low to zero inventory discrepancy. How can companies minimize stock variances?To minimize stock variances:i) Inspect incoming inventory and label itii) Separate customer-owned inventory from the restiii) Standardize Inventory Picking Recordkeepingiv) Audit the Bill of Materials and sign for every inventory removed from the warehousev) Extra Requisitions and Returns should be tracked
June 11, 2022
4 Techniques and Importance of Inventory Management in Supply Chain
Inventory management affects the movement of items along the supply chain. An effective inventory control system ensures that the corporation retains just enough stock or raw materials to maintain good manufacturing and market supply of completed products. As a result, a company with a well-functioning supply chain management system can stay competitive in its field. Information technology has benefited inventory management. For example, IT systems can monitor inventory to guarantee that no excess or insufficient stock is stored, improving the firm's efficiency and lowering operating costs. Manufacturing companies manage their inventory levels to keep track of raw materials and then manufacture just enough goods for the market to avoid the costs of generating and maintaining surplus inventory. That is why inventory management in supply chain management is essential for the efficient working of eCommerce fulfilment organizations. Inventory Management in Supply Chain Inventory management is one of the most crucial components of any organization. It is essentially the management of items or stock, which refers to the goods that a company organization produces at any particular time for selling or manufacturing. The administration must ensure that the commodities are kept at a cost-effective level and that stock is always available. If an organization has too much inventory at any particular time, it will be unprofitable since the cost of holding it will be too high, reducing profitability. Inventory control is crucial in the supply chain since it is the key to long-term success. Inventory may play the most crucial function in supply networks by balancing demand and supply characteristics. The size of the firm determines how well inventory is managed. The actions taken put a corporation in the position of attempting to strike a balance between meeting client needs, which are frequently impossible to foresee precisely, and keeping an adequate supply of resources and commodities. Strategic plans are commonly used to attain balance in managing inventory. Carrying cost or holding cost of inventory, replenishment lead time, inventory valuation, asset management, inventory quality management, price forecasting, inventory forecasting, the physical state of the stock, ordering cost of inventory, and the physical condition of the list are all areas of concern for inventory management in supply chain management. One of the goals of managing inventory is to guarantee that the merchant has the information to manage and maintain proper merchandise when placing orders, shipping items, handling them in a variety of warehouses, and keeping other costs in check. [contactus_lilgoodness] Relationship between Inventory management and Supply Chain Management Inventory control is one of the most critical aspects of supply chain management because it significantly impacts the company's profitability. Because one of the main goals of a company is to make money, inventory management in supply chain management is critical because it leads to higher revenues. In addition, this centralized management aims to maximize customer value and provide a competitive edge. The merchant must first determine inventory requirements before establishing organizational goals. After that, he should be able to maintain a supply chain management system and a report on the inventory status at the end of a financial quarter. The inventory should be compared between actual and expected levels. Furthermore, the management should be able to track inventory movement to guarantee no losses. Finally, using the various reports, the manager should be able to reconcile the inventory balances at regular intervals. 7 Objectives of Inventory Management In Supply Chain Management System The technique of coordinating the movement of items and services across several processes and locations is known as supply chain management, or SCM. Raw material storage and transportation, work-in-process inventories, finished objects, and end-to-end order fulfilment from origin to consumption are all included. All business activities linked with a company's procurement, production, distribution, and sales order fulfilment functions are included in SCM. As a result, it entails managing supply and demand, sourcing raw materials and components, manufacturing and assembly, warehousing and inventory tracking, order processing and management, distribution across all channels, and ultimate customer delivery. Supply chain managers are in charge of creating effective plans and strategies to guarantee that the supply chain is running smoothly. They develop well-defined action plans based on detailed analysis and forecasts, enhancing overall performance. The backbone of today's business organizations is the ultimate integration of inventory management in the supply chain system. Suppliers who follow SCM principles are anticipated to provide more value to their customers than those who do not. The seven most important goals of inventory management in supply chain management are listed below. Improve Operational efficiency Efficiency is one of the most important goals of Supply Chain Management. Waste minimization is synonymous with efficiency. Waste can take many forms, including squandered materials, squandered funds, person-hours, delivery time, and so on. Therefore, waste minimization is an essential aspect of managing the supply chain. What role can SCM play in waste reduction? First, it manages manufacturing, inventory, transportation, and logistics to reduce waste. This is accomplished by exploring ways to improve systems to reduce waste. If your organization, for example, exchanges inventory data with a supplier and keeps it updated in real-time using ERP software, inventory may be replenished quickly to meet demand. It might be tough to master the process of efficiently managing these operations, but knowing how to do so can be incredibly valuable to your company's overall performance. Improve Quality Waste reduction is only one aspect of inventory management in supply chain management. Another important goal is ensuring the product is of the most excellent quality possible. Quality Assurance is the observance of numerous customer-specified quality parameters, ranging from performance to particular features. This involves following food safety rules, displaying ethical and sustainable business practices, and taking other comparable steps. Establishing exact criteria and including supplier partners from the beginning is crucial. To keep things moving through the supply chain, you must be nimble in real-time handling modification and variation to that specification. The quality of a company's goods, as well as its total profitability, are directly influenced by SCM. Quality management in the supply chain is critical for gaining a competitive advantage while minimizing operational costs. Optimized Logistics The better the inventory management, the better would be the supply chain. However, the purpose of logistics management is to optimize transportation and the supply chain. Each company is responsible for its part in ordering, shipping, and delivering goods in an autonomous commercial environment. Due to bad timing and coordination, the costs of this company model are substantially greater. Supply Chain Management guarantees that your operations run smoothly and that all stakeholders, including suppliers, manufacturers, wholesalers, and retailers, are on the same page. With SCM, you may optimize transportation and logistics processes with any vendors or buyers you work with. Orders are automatically recorded into a system, alerting other facilities that more resources are needed to complete the request. This ensures that the entire procedure runs smoothly and flawlessly. Reducing Logistics Costs Efficient supply chain management inventory helps cut off the company's operational costs. Building an optimized flow of goods reduces the cost of all forms of company costs, including acquiring, manufacturing, and shipping items. In addition, by facilitating a seamless flow of raw materials between a supplier and a firm and the movement of finished goods between a company and its consumers, the holding period of both raw materials and finished goods may be reduced—this aids in the reduction of losses and the minimization of total operating costs. Enhancing Customer Services One of the essential aims of supply chain management is customer happiness. By far, the most efficient method of client service is through your supply chain. It directly impacts two of the most critical aspects of customer satisfaction: price and delivery. You can surpass your competitors in terms of retail price and profitability if you have a well-functioning supply chain. Having high-performing operations also aids you in meeting or exceeding your consumers' product delivery expectations. It's vital to keep your consumers happy by giving them what they want, when they want it, and at the lowest price feasible. That's precisely what good Supply Chain Management allows you to achieve. You can give the excellent service, transparency, and visibility that your consumers want by choosing the suitable systems, processes, and partners for your supply chain. By building strategies that minimize mistakes and maximize inventory management efficiency, you keep total control over the lifespan of your items, from conception to delivery. The stronger your supply chain is, the better the customer experience will be, the happy your customers will be, and the more likely they will buy from you again. Streamlining Distribution Supply Chain Management benefits businesses by streamlining the distribution process. Creating adequate coordination between various transportation routes and warehouses is vital to promote faster goods flow. Also, Logistics Management allows companies to reduce logistics costs while delivering goods more rapidly. Consequently, the whole distribution system has been upgraded, allowing items to be delivered at the right time and place. As a result, it's a good idea to invest in technology that allows you to efficient inventory management, provide detailed data, automate delivery, give real-time tracking, and conduct other distribution duties. Established Coordination The purpose of supply chain management is to improve coordination among the different stakeholders in an organization. Employees, customers, and suppliers will be able to connect with the firm more efficiently thanks to establishing a channel. In the case of an emergency, managers may immediately lead their workforce, and employees can contact their supervisors via the established channel. Customers can also access relevant information through self-portals as part of the customer support system. It promotes information exchange among all stakeholders and aids in the creation of a well-coordinated organization. 5 Reasons for Inventory Control To Be The Initial Step in Supply Chain Management Systems Even in our increasingly competitive economy, keeping track of inventory is a virtual necessity because inventory is often a business' most vital and costly asset for maintaining a centralized supply chain management system. Yet, according to U.S. Small Business Administration, 46% of small firms either don't track inventories or do so using a manual technique. For five reasons, inventory control should be the initial step in fine-tuning your supply chain management systems. Inventory Turnover One of the essential criteria for centralized management is the inventory turnover ratio, which is the cost of items sold divided by average inventory. A balanced ratio is critical for keeping your inventory profitable rather than squandering money on overstocking, stocking obsolete products, or rushing shipments to satisfy consumer demand. For example, a low inventory turnover ratio (low cost of goods, high average inventory) means you're spending too much on items that should have already shipped to customers or were never manufactured in the first place because of the cost of keeping them on the shelves while their value depreciates is counterproductive. High inventory turnover, on the other side (high price of products, low average inventory), suggests you won't be able to satisfy demand fast if the market shifts. Allows Capital to be Released Once you've paid for the supplies you'll need to make your inventory, that money won't be available until you've received payment from a buyer — in other words, your capital is tied to the prospect of a sale. This may restrict you from using that money to put back into your firm or recruit new personnel, among other common tactics for improving revenue development, unless your organization has a quick cash conversion cycle. Inventory control includes making sure that inventory isn't put into production until you know it will sell rapidly. Improved Customer Service Customers should be satisfied with a well-made and rapidly delivered product, which is the expected outcome of a lean and efficient supply chain. An optimized inventory and supply chain results in fewer shipments to complete orders, real-time tracking of orders from the warehouse to the customer's front door, accurate inventory that prevents charges from being placed on out-of-stock items, and a lower return rate because customers have fewer issues with their product. Swiftly and adequately resolving a customer's concern will go a long way toward boosting your reputation and assuring future business. Advanced Technology Inventory control used to entail spreadsheets and manual audits, which were prone to human error and left businesses vulnerable to accounting errors that put them in financial and legal jeopardy. Across many industries, automated and integrated technologies are becoming the norm. For example, financial data, such as accounts receivable, is increasingly combined with sales information, including client histories. The idea is to keep inventory under control from quarter to quarter so that it does not affect the bottom line. That type of real-time data integration wasn't conceivable until recently. Still, inventory control solutions are now built from the ground up to handle these functions, which helps centralized supply chain management systems run more efficiently. Encourages Growth Trends in Optimizing Supply Chain Processes Future trends are increasingly becoming a reality for organizations of all sizes, from cloud computing to real-time tracking. Automated inventory control is the ideal approach to connecting with technologies that will keep you one step ahead of your rivals. "Just-in-time" inventory, for example, can help improve turnover rates by allowing you to retain inventory levels just high enough to meet demand. Businesses require strong ties with suppliers via common software databases to execute "just-in-time" operations like supplying customizable packaging. This will allow order fulfilment to your locations as needed. Many interrelated yet separate pieces work together to generate customer happiness and higher income in a complex supply chain. Our supply chain is exposed to several variables out of our control in today's often-disrupted business environment, including fluctuating market demand and new competitors. Our inventory is the one thing we can control: where it is, where it is going, and what we need to do to keep it at growth-friendly levels. Inventory control is the first stage in maintaining an effective supply chain. It may also be the most crucial step, given that poor management and lack of planning are two primary reasons small businesses fail. How Can I Improve Inventory Management in Supply Chain Management? Technology is at the heart of effective supply chain management. Traditional, frequently manual procedures are eliminated, saving time and lowering the chance of mistaken addition. In addition, any information captured becomes easier to communicate throughout a complete supply chain when activities are managed digitally. You're halfway to comprehensive supply chain optimization if your organization has installed a transportation management system (TMS). Transportation and inventory management are two critical components of a successful supply chain. Transportation management systems handle product movement along the supply chain and offer a robust communication platform for carriers, shippers, and manufacturers. The amount and kind of items in an eCommerce warehouse or other storage facility are the subjects of inventory management platforms. These pieces of technology, when combined, establish the foundation for businesses to get their products into the hands of customers as quickly as feasible. When a corporation uses a centralized supply chain management system to respond promptly to a customer's order, for example, merchandise travels quickly out of the warehouse and no longer occupies inventory space. That space is then freed up for newer goods to take their place. Quick shipments may be handled via inventory management systems, guaranteeing that the oldest product is dispatched first. When inventory and supply chain management operate together, tracking ruined or damaged inventory is more accessible. Products may be tracked down to the SKU level and readily traced as they leave the warehouse. When a product is recalled, inventory management teams have the information they need to locate and isolate faulty merchandise. Specific transportation management systems, such as Microsoft Dynamics, can link directly with ERPs. When these technologies are combined, logistics professionals benefit from enhanced shipping accuracy, considerable time savings, and access to valuable data for SKU-level cost allocation. Additionally, by exchanging data between systems, integrations between a TMS and an ERP may assist bridge the gap between inventory management and transportation management, ensuring that all parties involved have reliable, real-time inventory information. Inventory Management Techniques to Overcome Supply Chain Problems From the procurement of raw materials to the delivery of the item to the ultimate consumer, the supply chain tracks products. As a result, supply chain management encompasses various components and factors, including logistics for moving resources and goods from point A to point B. Inventory management may be considered part of a more extensive supply chain system. Ordering, storing, and distributing goods are all aspects of inventory management. Inventory management, when done correctly, may have a substantial positive impact on a company's bottom line. On the other hand, poor inventory management decisions, such as over-or under-ordering, may be costly and detrimental to a company's long-term health. If a company does not spend on learning and adopting the best inventory management practices, supply chain interruptions will increase dramatically. There are vital concerns that have led to supply chain challenges. One is the worldwide supply chain crisis linked to the COVID-19 outbreak has received the most significant attention. Worldwide, suppliers have been impacted by safety limitations, labour shortages, and shutdowns. Some supply chains have only had minor glitches, while others have yet to recover and return to routine fully. The good news is that you and your firm can overcome these supply chain disruptions by employing a few proven, contemporary inventory management solutions. Utilization of Automation, Artificial Intelligence, and Machine Learning Automation is a fantastic technique for improving inventory management efficiency. Warehouse automation, for example, may increase productivity by directing robots to discover or transport products using cloud-based technologies. As a result, individuals no longer need to locate and package products. Essentially, these robots may support human employees by acting as assistants and increasing the overall pace of operations within a company. Automation technologies powered by AI and machine learning can also help with supply chain difficulties. The programme may gather and interpret data to make the supply chain as a whole more visible. Inventory Control Applications The more inventory management you have, the less disruption and stress the rest of the supply chain will give you and your company. While achieving the appropriate degree of inventory control isn't always simple, many businesses use inventory management methods like the ABC analysis to make the process go more smoothly. All goods are designated as A, B, or C in an ABC analysis. The highest demand or value is for A-level items. C-level items, on the other hand, sell slowly and are counted seldom. B-level things fall midway in the middle. Inventory and supply chain managers can better assess whether to purchase replacement stock once goods have been categorized this way. Utilization of Both Passive and Active Demand Forecasting Techniques. It makes economic and logistical sense to know how much of a product to have on hand each quarter. However, predicting demand for a particular product may be challenging, which is why many people divide demand forecasting into passive and active demand forecasting approaches. Active demand forecasting entails keeping a close eye on what's going on in the market. It's a combination of intuition, trend data, and historical data. Because they have limited historical data to evaluate, startups often rely on active demand forecasts for advice. Historical patterns are used in passive demand forecasting to predict future requirements. Companies can choose between passive and active demand forecasting or a combination. Employing Inventory and Warehouse Management Software Must If you go into any company for inventory control and good supply chain management techniques, you'll see a lot of technology. The warehouse management software system has been a game-changer for smoothing out the creases of inventory management. The majority of warehouse management systems collect significant amounts of data. They also indicate what's going on in the warehouse and the whole supply chain. This makes them essential in identifying possible supply chain disruptions and pain areas. There are several other advantages to using warehouse management software. Many work in tandem with other business systems, such as customer relationship management software. That implies that when a customer cares professional answers the phone, they may leverage warehouse management information to give excellent service. It's hard to outsmart every supply chain snag, especially in the face of uncontrolled occurrences like a worldwide epidemic. Nonetheless, inventory management best practices and tools can help mitigate the impact of interruptions. Conclusion Supply chain management is an integral part of every business's operations. It is critical to assist a company in gaining a competitive edge and maximizing customer satisfaction. Because of the increased degree of competitiveness, a company's supply chain management function has grown increasingly significant in today's corporate environment. As a result, there is a more critical requirement for businesses to assure consumer satisfaction. Inventory management, the backbone of supply chain management, is vital to customer satisfaction. Inventory management, through EOQ and JIT, aids in the reduction of supply chain management expenses as well as the forecasting of inventory levels. Furthermore, inventory management is a valuable strategy for managing risk in an organization by ensuring that safety stock is maintained. Supply chain management can fulfil its most fundamental goals through inventory management. As a result, it may be claimed that inventory management lies at the heart of supply chain management and that organizations must embrace it if supply chain management is to be successful. In other words, without inventory management, businesses will struggle to prosper in the supply chain. It serves as the foundation for all other supply chain operations, including transportation, production, and distribution. WareIQ- The Most Efficient Inventory Management System WareIQ is a leading fulfilment company in India, specialising in managing the supply chain of eCommerce businesses through effective inventory management. Through automatic replenishment suggestions, WareIQ's inventory planner aids in demand forecasting and maintaining precise stock levels across SKUs in warehouses in appropriate locations.Checklist-based Quality Checks are also conducted by WareIQ's operations professionals, guaranteeing that the QC process is complete and dependable.WareIQ adheres to the two points listed below to avoid mispicking:1. Using handling units to convey merchandise and scanning bar codes for pick and pack fulfilment services.2. Design and implementation of a process for tracking and tracing mis-picked merchandise [signup] FAQs Why is inventory management so crucial in the supply chain?Because a corporation must balance client demand with storage space and cash constraints, inventory management is critical in the supply chain. Inventory management gives you a clear picture of your supply chain like procurement, production, delivery, etc. What is the impact of excellent inventory management on the supply chain?By maintaining a consistent inventory flow, good inventory management may promote profitability, improve supply chain visibility, and improve operations. For today's supply chain management, inventory optimization is the gold standard. What is the definition of inventory supply?MRO inventory is often referred to as supplies or supply inventory. It's made up of consumable materials, equipment, and supplies that are utilised in the manufacturing process but aren't included in the final product. What role does inventory play in the supply chain?What role does inventory play in the supply chain?Inventory facilitates the balance of demand and supply, which is perhaps the most essential role it performs in supply networks. Firms must deal with upstream supplier exchanges and downstream consumer needs to efficiently manage forward and reverse flows in the supply chain. Is inventory control an element of operations control?As a result, inventory management is an important aspect of operations management. When it comes to inventory, the most important factors are when to refresh stock and how large orders should be. An inventory policy is what it's called. The basic considerations of when and how much to order are addressed by an inventory policy.
June 11, 2022
Opening Inventory: Definition, Importance & 4 Methods to Calculate Opening Stock with Opening Inventory Formula
The beginning of a new accounting period, like the latest financial year, brings along new levels of supply chain inventory. Inventory is an important aspect of every eCommerce business and the amount of opening inventory available at the start of an accounting period can provide insights into a company’s performance in the previous cycle. In this article, we will take a look at what opening inventory is, the methods to calculate it and its importance. Keep reading. What is Opening Inventory? Opening inventory is the book value of inventory that is available at the beginning of an accounting period. It also includes the stock value carried forward from the previous period. It is counted as a current asset in the financial books. Furthermore, it helps calculate the average inventory value during a specified time period and helps to determine the cost of goods sold. It is also called the beginning inventory value of a company. Its calculation depends on several factors. [contactus_gynoveda] 4 Methods to Calculate Opening Stock Find the Cost of Goods Sold for the Previous Accounting Period The cost of goods sold (COGS) is the expense that you incur for manufacturing products and preparing them for sale. It is the sum of beginning inventory and inventory bought during the last accounting period, excluding the ending stock in the same period. It is also the total per-unit cost to a company for each sale. The lower the COGS and higher the product cost price means higher revenue margins for the company. All gross profits and expenses on product sales qualify as inventory metrics. Opening inventory formula = [Beginning inventory + inventory purchased during the last accounting period] – ending inventory of the same period Find Your Ending Inventory Balance This figure depends on the opening inventory, net purchases for the last accounting period and the cost of goods sold. Here's the formula: Ending inventory formula = [beginning inventory of the last accounting period + net inventory purchase in the same period] – COGS Determine the Cost of Purchases Made It is the money spent on buying additional inventory. This number helps decide your working capital requirements. It depends on the value of your opening inventory and ending stock in the previous accounting period and adds the cost of goods sold. It is calculated as follows: [Ending inventory – beginning inventory in the last accounting period] + COGS This formula doesn't work well for labour-intensive sectors, like manufacturing, where the cost of goods sold depends on factors other than the inventory. Such elements make the calculation of actual goods sold trickier. Use the opening inventory formula There are two opening inventory formulas to calculate opening stock: For manufacturing enterprises: Opening inventory formula = cost of raw material + value of WIP goods + cost of finished goods When we know the cost of goods sold, closing inventory and sales data: Opening inventory formula = [COGS + ending inventory in the last accounting period] – inventory purchased in the same accounting period Or Sales – gross profit – [COGS + closing stock] You may also be using one of the following methods for inventory valuation: FIFO First in, first out is a common method of pushing out the inventory that entered the warehouse first. The first manufactured or purchased stock is sold off before the others. It uses the same disposition as supermarket stores, where you may observe that the oldest products are displayed upfront. It is mainly used by sellers of perishable products. LIFO As opposed to FIFO, the last in, first out method suggests selling off the newest inventory first. Auto dealers commonly use this method to lure customers in with new models and sell them off before the old ones. Weighted Average Method The average cost of items purchased is used to calculate the COGS and ending inventory value. Many manufacturers use this technique of inventory valuation, so they can avoid differentiating between product batches. Importance of Calculating Opening Stock Calculating opening stock helps in the estimation of various critical factors to ascertain your business performance. Cost of Goods Sold You can use the formula mentioned above to calculate COGS. However, to ascertain this, you should include unsold ending stock for prior accounting periods in the gross profit figures. Opening stock creates the opening balance of a new accounting period and forms the basis of COGS. Gross Profit Once you have determined the COGS, compare it with the revenue earned to find your gross profit margins. Equating COGS with sales tells you whether your operations brought you a profit or a loss. Average Value of Inventory This is an average of beginning and ending stock. It can be calculated as [opening inventory + ending inventory] / 2 Inventory Turnover It measures how frequently you sell your inventory in a year and if you can replace it in a timely manner. Inventory turnover indicates the operational efficacy of a company. A slow turnover suggests weak sales and a quick turnover shows healthy sales figures but insufficient inventory. Most retailers with high volumes and low margins experience one of the highest inventory turnover rates. Here is the most commonly used formula: Inventory turnover = COGS / average value of inventory Although inventory turnover can be calculated by dividing COGS by sales, most analysts and businesses don't use it. This is because sales figures include profit margins that can skew the inventory turnover figure. 7 Important Use Cases of Beginning Inventory Here are some primary use cases for beginning inventory: Recognises Inventory Management Disputes A higher number of leftovers or a supply crunch signals inventory management disputes. Frequently evaluating the opening inventory can help identify these issues at the right time. More negligible beginning stock shows lapses in the merchandise ordered during the last period. Calculating opening stock helps highlight these issues, so you can take timely actions to restore balance. Identifies Logistical Issues Owning more or less inventory than forecasted inventory indicates supply chain gaps. As a result, a demand or supply mismatch could lead to logistical disruptions. Knowing the opening inventory balance at the beginning of every accounting period helps you ascertain the loopholes in the chain. Spots the Shrinkage Inventory shrinkage occurs due to a difference in the stock accounted for in the books and the actual quantity in the warehouse. It is a logistical nightmare for retailers and suppliers and occurs for various reasons. Damaged or stolen goods or human errors are the most common causes of shrinkage. Monitoring the beginning inventory level can highlight gaps in the figures and help prevent or reduce shrinkage. Highlights Demand Changes Variations in the opening stock levels indicate changes in your business' supply and demand. For instance, a sudden growth in sales leads to a reduced beginning stock and vice versa. So calculating the opening stock helps in understanding your business performance. Controls Your Taxable Revenue Opening inventory helps determine the average stock level. Combined with sales forecasts done right, the opening inventory level can help you understand how much stock you need. Thus, you can decide when and how much to pre-order. This can also help you reduce your taxable income. Analyses Your Business Performance Opening stock is a current asset that forms a part of your working capital. It is to be held temporarily and assists in estimating the liquidity levels of a business. Statutory Compliance The AS-2 and Ind AS-2 guidelines mandate disclosure of inventory levels of your company. Information like the carrying amount of inventory and the related expenses need to be revealed. Some of the stock-related data you need to provide are: Inventory accounting policies.Carrying amounts for all inventory stages such as raw material, WIP and finished goods.The written-down amount of any inventory counted as an expense or a reversal of that amount and the conditions that led to it.The cost of inventory is counted as an expense, like COGS. Conclusion Inventory valuation deeply affects supply chain efficacy. And the stock levels decide the demand and supply gaps which influence your business performance. Numbers are everything for an enterprise; managing the inventory becomes critical for success if you deal with tangible products. Your logistics and operational prowess can break down if the inventory is not managed correctly. The simple formula of opening stock tells you where you stand at the beginning of a new accounting period. Pay close attention to what the stock numbers say as it determines how well you can meet customer expectations. Evaluating opening inventory is critical to deciding your expenses and the gross profit you earn in every cycle. It is a metric of your business's success. You can utilise skilled staff and technology to monitor the inventory levels closely. Of course, inventory monitoring demands some time, but your products need it. If you require inventory monitoring, order management or any other logistical task, WareIQ can be of assistance. WareIQ is one of India’s fastest-growing eCommerce companies that centralises the use of technology in all our core offerings. In addition to helping you monitor opening inventory levels, we also provide inventory and order management through our custom WMS, a country-wide network of fulfillment centers and partnerships with more than 20 of the largest shipping aggregators in India to ensure that your orders will always get delivered at the fastest pace and the cheapest rate. Opening Inventory: FAQs Can opening inventory be considered an asset?Opening inventory is considered a current asset when mentioned on the balance sheet. It includes both items that are in production and ready for sale. Is opening inventory a debit or credit?Opening inventory is the amount of inventory that has been left over in the previous year and is carried forward to become the opening stock of the next financial year. It is considered as a debit balance. What are considered purchases in relation to opening inventory?Any finished item, raw material that goes into the creation of a product or any other material that is used anywhere in the manufacturing process can be considered a purchase. How can WareIQ help you to manage your opening inventory?WareIQ has a custom WMS that takes care of all inventory-related and order management activities across multiple platforms and fulfillment centers.
June 10, 2022
Inventory Levels: Definitions, 5 Strategies & Benefits for Having a Minimum Inventory Level￼
An inventory is the life of any business. It is immensely important in producing and selling products or services. There are many different types of inventory levels and you need to understand them to help run your business cost-effectively and efficiently. What are Inventory Levels? A company holds stocks of products in its inventory, which are its business assets. Hence, inventory levels need to be at the optimum. None of the products can be left unaccounted for, or unattended to, as such breaches can cause heavy losses and create confusion over a period of time and across the supply chain. Inventory levels are classified as Minimum level, Maximum level, Danger level and Average level. [contactus_gynoveda] What are the Different Levels of Inventory? Minimum Level A business always needs to maintain a minimum inventory level to ensure that a sufficient amount of raw materials are readily available for production to continue without any interruptions. Whenever the level dips below the minimum inventory level, it can lead to a production outage. This may cause a dip in the stock levels and sometimes a business can run out of stocks completely. Based on the demand and consumption rates, and the average production time to produce goods, the minimum inventory level can be easily calculated based on a simple formula: Minimum inventory level = Average usage x Average lead time (reordering level) The minimum inventory level can vary depending on the type of business. However, the following supply chain elements need to be taken into account: Material Type: If there is a standing order that requires a specific type of material, there is no need to keep a minimum inventory level.Purchase Time: This refers to the lead time or the time taken by a business to acquire supplies for the manufacturing process. The time is calculated from the order placement stage to the arrival of the supplies.Consumption Rate: The material consumption rate is calculated based on the trends in a particular industry but also depends on the data analysis of production history over a specific time period.Reorder Level: The stock reordering level depends on the replenishment requirements of the business, which are based on production volumes. This level hovers between the maximum and minimum inventory level and can be easily calculated with a simple formula: Reorder level = Rate of maximum consumption x Maximum reordering period Maximum Level While the minimum inventory level has to be maintained at all times to avoid the production process getting affected, the maximum inventory level should never exceed the set level since it can lead to overstocking and raw materials lying idle for an extended period of time. Moreover, maximum inventory levels result in higher storage costs, pilferage, discrepancies in quantities of stock and other inconsistencies. It is easy to calculate the maximum level using the below formula: Maximum Inventory level = Reorder level + Reorder quantity - (Minimum usage x Minimum purchase time) The reorder level can be arrived at using a simple formula: Reorder quantity = Average daily consumption x Average purchase time The key factors to consider while calculating the maximum inventory level: Daily consumption of raw materials (on average)Average purchase time required to replenish stocks of raw materialsAvailability of storage spaceReordering quantityCost of holding inventoryRisks involved such as damage, pilferage, materials turning obsoleteFluctuations in raw material pricesShelf life of raw materialsFluctuating consumer preferences Danger Level A business can never afford to have its inventory levels reaching the danger level at any time. This is because it means that the stocks of raw materials are running out at a dangerously fast speed. Whenever the inventory levels breach the danger level, the company has to source materials quickly. More often than not, procuring materials from other sources on an emergency basis increases the cost. Danger levels must be avoided at all costs, as businesses need to look for new, unqualified or unverified vendors, which affects the overall quality of the end product. Moreover, ordering on an emergency basis increases the freight cost, leading to an overall increase in inventory costs. It is wiser to calculate inventory levels in advance to prevent them from reaching dangerous levels. The danger level can be arrived at by using a simple formula: Danger Level = Average consumption x Lead time for emergency procurements Average Level As the name suggests, the average level refers to the level of raw materials available in the inventory at any point in time. The average level is usually consistent and does not vary unless there is a spike in demand or stocks lie unused due to some extraneous circumstances. It can also dip to the danger level if the procurement of raw materials is affected for any reason whatsoever. It is easy to calculate the average level with a simple formula: Average level = Minimum stock level + 0.5 x Order quantity How to Calculate Inventory Levels for Optimum Use? Lead Times of Inventory Production The lead times of inventory production can be calculated on reordering delays. While considering the lead times of inventory production, the time involved in processing the purchase order and the time the supplier or vendor takes to accept and process the order need to be considered. If the supplier has a practice of accepting orders only once a week, it is advisable to place purchase orders well in advance (at least four days earlier). The extra four days is the buffer time to cover any delays in supply. The delay in supply is calculated by adding the sum of the supply delay to the reordering delay. Availability of Safety Stock Safety stock can be easily calculated. It is the sum of maximum daily usage x the maximum lead time or the maximum time a vendor takes to effect deliveries. From this result, subtract the average product usage (daily) and multiply it with the average lead time. The formula is somewhat tricky: Safety Stock = (Maximum daily usage x Maximum lead time) – (Average daily usage x Average lead time*) * Lead time is calculated as the number of days Forecasting Demand Forecasting demand, also known as demand planning, is arrived at by referring to the past data, current trends and upcoming requirements, all of which help to forecast demand for the future. Accurate forecasting is essential for a business to maintain sufficient buffer stock to fulfill customer orders without having to keep large amounts of inventory lying idle. Forecasting demand is not just about setting a reorder schedule, it is also about using data analysis to help identify set patterns and trends. It helps in adapting to the prevelant dynamic conditions and to meet or exceed customer demands or expectations. 5 Best Strategies for Maintaining Stable Inventory Levels Implement an Inventory Tracking System An inventory tracking system, like a barcode scanner, is useful for manufacturers to track and manage inventory. Your inventory management system can seamlessly integrate with barcode readers to track the products in stock or transit. You can also store and analyse the data to create reports that provide valuable insights into your inventory’s performance and can help to maintain optimum inventory levels. Determine Reorder Points A reorder point (ROP) is the minimum stock a business needs to hold in inventory to avoid stockouts and be able to fulfill orders smoothly. The reorder point’s goal is to maintain inventory levels to meet supply demands. Hence, each time the inventory levels hit the reorder point, an alert is triggered to replenish stocks of raw materials for the specific item. The reorder point is determined based on daily sales volumes or the number of product units sold per day. It also considers the vendor’s lead time, which is the time it takes for materials to arrive. The simple formula for calculating a reorder point is: Reorder point = Lead time demand + Safety stock Use an Inventory Management System If you deploy the relevant technology to complement your supply chain at all stages, it ensures that your distribution network operates smoothly and without any glitches. Implementing an inventory management system helps sync SKUs and orders to monitor fulfillment centers, sales channels and inventory levels in a centralised location. An efficient inventory management system helps in tracking and managing inventory levels accurately to save precious time. Communicating Clearly With Your Supplier You must make your expectations clear by communicating effectively with your vendors. Efficient inventory management depends on maintaining proper stock schedules. Holidays, power disruptions, transit delays, etc., need to be taken into account to avoid delays in scheduling. The finer details of your vendor’s operations need to be integrated with your inventory management system, as vendors play a critical role in the supply chain. Monitoring your vendor’s performance over a period of time is crucial in achieving the best results. Carry Out Inventory Audits Inventory audits, or warehouse audits, may take more of your precious time than you bargained for. However, when a huge amount of inventory is involved, mere manual use of spreadsheets to keep track of it just won’t do. You need to automate and digitise your inventory audits to make them consistent and reliable. You can think of syncing your inventory with a reliable inventory storage system to make it more efficient. Benefits of Having a Minimum Inventory Level Maintaining a minimum inventory level is a common objective for most businesses, as it makes sense. Higher inventory levels mean additional management and higher costs. A right balance needs to be struck between inventory and demand. Here are the benefits of maintaining minimum inventory levels: Reduced Storage Costs Holding stocks for long periods of time costs money. The costs include utilities for space and the manpower deployed to manage the inventory. Moreover, holding minimum inventory helps to pay vendors promptly instead of holding huge stocks in inventory, which will lie idle even after the payment has been made. Easy to Manage It is always easy to manage minimum inventory levels, as the time involved in organising and retrieving inventory is reduced drastically. Moreover, the replenishment process is also simplified and is more efficient if the inventory is shortened. If your business has a high inventory turnover rate, holding minimum inventory levels is beneficial in the long run. More Cash at your Disposal Having minimum inventory levels leaves you with liquid cash, as acquiring inventory is a costly process. If your business involves expensive products, having heaps of money stored in idle inventory leaves you with hardly any cash to deploy for meeting other expenses. When you replenish inventory levels at almost the same rate you sell your products, the cash inflow matches what you pay for the inventory. More Space Becomes Available Due to space and inventory being inversely proportional, you will have more space by having lower amounts of inventory. Businesses should be concerned with holding maximum inventory levels, as the cost per square foot of shelf space increases if there is any space lying unused. Maintaining lower inventory levels requires less demand for space and helps you manage your inventory levels more efficiently. How can WareIQ help achieve a Minimum Inventory Level? Live Updates to Changes in Inventory Levels With WareIQ, you can track inventory levels and receive functionality reports. WareIQ can share real-time updates on stock positions from its dashboard. It allows you to make the right decisions as to when stocks need to be replenished to prevent stockouts. You can have the following critical information at your fingertips: Current inventory held by the businessData on historical inventory levels for any period/locationThe next reorder due for a specific productWhether a flash sale will cause a dip in inventory levelsIf the current product demand is in sync with historical dataDetermines the fastest-selling productsDetermines which products are moving sluggishly causing additional inventory costs Reduces Cost of Inventory WareIQ makes your expansion plans a lot easier. You can even expand globally, while still keeping track of your expenses on storage. You can use WareIQ to ask questions such as: How much is the per-unit storage cost I incur?What is my average cost to fulfill an order?How many pallets/shelves/bins am I being charged for?When I change my inventory locations, how much can I save on shipping costs? Further, WareIQ helps you automate your inventory levels by suggesting the appropriate infrastructure and expertise, along with technology integration. WareIQ also helps optimise your storage to enable cost savings. Mitigates Wastage of Inventory WareIQ uses cutting-edge technology and demand forecasting to help you maintain optimum inventory levels, thus reducing the risk of holding too much inventory. The inventory forecasting tools help you decide on the optimum level of inventory based on demand and also take care of seasonality wastage, products passing expiration dates and other factors that result in diminished sellability. You can have tight control over your inventory levels, which helps prevent inventory shrinkage. Automates Notifications for Replenishment of Low-Stock Items WareIQ helps retrieve historical inventory data to help you calculate precise reorders to replenish stocks quickly. It helps you to consider lead times and inventory replenishment times as well. The inventory automation tool triggers alerts whenever stocks reach the threshold level that has been pre-determined. Counts Inventory at the SKU Level WareIQ features an advanced inventory tracking software that lets you view inventory on SKU levels on demand. You can also monitor the performance, along with the ‘unit sales per day’ details. You get to know what is available at which locations, letting you make quick changes whenever required. Access to a Nationwide Network of Fulfillment Centres WareIQ lets you gain access to a nationwide network of fulfillment centers to enable you to scale and grow. You can expand your customer reach, reduce shipping costs and hasten last-mile delivery without incurring additional costs. The technology-driven nationwide fulfillment network lets you know which is your best-selling product and at which location and allows you to place inventory at the most intelligent locations based on customer demand and access to transport, among others. Conclusion As you scale your business, you must keep track of your inventory levels, especially when your plans include opening new warehouse locations and selling across multiple channels, which can become pretty challenging over time. WareIQ is here to lend a helping hand with matchless fulfillment solutions that enable you to maintain optimum inventory levels and track inventory across multiple locations. Inventory Levels: FAQs How do you determine the optimum inventory level?Proper inventory planning and forecasting involves setting a minimum and maximum threshold to ensure that there is never overstocking or understocking. It is calculated as average inventory divided by average sales. What is an ideal inventory level?An inventory turnover ratio of anywhere between 5 and 10 is generally considered ideal for most industries. This indicates that your business restocks its inventory every 1 to 2 months. How can you consistently maintain inventory levels?Some key strategies to manage your inventory levels are listed below:Streamline your forecastingUse the FIFO methodIdentify low-return stockAudit your inventoryUse inventory management softwareTrack your stock levels constantlyReduce equipment repair times How can WareIQ assist with maintaining optimum inventory levels?Users can take advantage of our advanced WMS to be able to analyze past inventory and order data across multiple platforms, forecast demand and supply levels for a specified time period, and manage inventory levels across multiple warehouses.
June 10, 2022
What is Direct Fulfillment? How is it Different from Amazon FBA?
eCommerce retailers are constantly striving to offer the best services to their customers at the most competitive rates to out-shine their rivals. There are many important decisions to be made, especially in terms of order fulfillment because that is the most visible aspect to the customer and they get to experience it first hand. There are many different methods of order fulfillment and today we take a look at one of the more unconventional ones - direct fulfillment. Read further to understand what it is, how it works and if it would be the right fit for your business. What is Direct Fulfillment? Direct fulfillment is the process of shipping goods ordered by a customer directly, using the company’s own facilities and resources, and not relying on a 3PL fulfillment company for any aspect of the fulfillment process. Another process is that wholesale sellers make a large number of product purchases, obtained from the producer, after which separation of the goods into distinct categories occurs, in order to sell to retailers. The distributor then sells the products to the end consumers. This is known as Indirect distribution. Fulfillment By Amazon (FBA) is a service provided by Amazon that helps their clients with storage, packaging, shipping guidelines, and other aspects of the fulfillment process. This reduces the burden on sellers. Sellers ship their products to an Amazon fulfillment center, where the products are stored in warehouses, according to their demand, expiry date, etc. The products are then shipped whenever they are needed. When an order is placed, the employees in Amazon are always physically getting ready to prepare, package, and ship the products. [contactus_uth] What are the Benefits of Direct Fulfillment? There are many benefits in the process of direct order fulfillment, especially during the inception of an online retailer, where customers would be fewer and demand would still be on the lower side. A few benefits of direct order fulfillment are Ability to consolidate important information on client purchasing habits.Ability to separate yourself from the competition.First-hand look as to the performance of certain products and client feedbackFaster supply of your goods to your customer'sRemoval of payments and credit to a third-party distributorDirect relationship with your clientsExpanded number of ASINsBuy request no neededUnavailable assuranceHassle-free reverse logisticsNo outbound delivery costs How do I get started with Direct Order Fulfillment? Direct order fulfillment starts with the following steps: The online retailer gets client requests and orders.The company checks stock and by the same token, acknowledges or dismisses the order request.The company initiates the fulfillment of each order from the area allocated by Amazon (commonly a stockroom) and drops the request if they don't have stock in that area.The company satisfies the order request by utilizing the chosen transporter and transport strategy during the arrangement. If you are currently an Amazon vendor 1. If it's not too much trouble, record a help case in your Vendor Portal mentioning the desire to be set up on Drop Ship Central and Direct Fulfillment. If you are not currently an Amazon vendor Train your onboarding contact that you would like the "DF (Direct Fulfillment)" box checked during arrangement on Vendor CentralDuring the Vendor Central arrangement process, you will get a challenge to pursue Drop Ship Central, the administrative entry for dealing with your immediate satisfaction queries.As a component of the guided setup process, you will be asked to (1) pick your conveyance name preference (utilize Amazon's transportation mark as opposed to giving your delivery name); (2) provide your fulfillment warehouse data; (3) provide your hours of operations, occasion, and termination plans; and (4)select a transporter.In around 48 hours, you will get the last guidance to transfer your stock feed data into Drop Ship Central. What are the Advantages and Disadvantages of Direct Order Fulfillment? Advantages Of Direct Fulfillment You can oversee your own branded shipping, stock, and orders.As long as you have the space, can print address names, pick and pack, and stand in line at a mailing station, you can satisfy orders on your behalf.It functions reliably, assuming your clients are nearby, the operations are sensible, and the transportation costs are negligible, particularly when order volumes are relatively low.Rather than most 3PLs, you can store and transport transitory or perishable merchandise, such as blossoms or lithium batteries.You can be located closer to your clients since this choice accompanies more client contact. Disadvantages Of Direct Fulfillment This strategy requires a lot of staff to oversee customer service and other eCommerce fulfillment processes. This is likely removing diverting your attention away from developing the business.You need to have adequate warehouse space to store items.To ensure quick international shipping, would require a lot of capital and resources than partnering with a 3PL fulfillment company.Human blunders can happen when orders expand in size and complexity, particularly on the off chance that you are not utilizing automation to assist in dealing with your stock. Read our blog about Seller Fulfilled Prime to get a better understanding of other services Amazon has to offer. What are the Main Points to Keep in Mind while Choosing Direct Fulfillment? Fulfillment companies new to direct order fulfillment and multi-level marketing (MLM) organizations might battle with one or more of the extraordinary prerequisites needed to successfully serve their customers. Nature of Business Retailers with expanding business operations are best suited to benefit from direct order fulfillment. Such businesses have the monetary means and available manpower to take on the process of fulfilling customer orders on their own, without needing to bank on Amazon’s fulfillment services. Retailers that seek to reduce their order fulfillment and logistics costs can do so by distributing to customers directly and don’t need to pay any fees to a 3PL fulfillment company. Reduced Delays Retailers who rely on Fulfillment by Amazon frequently face challenges relating to inventory receiving times. The receiving process, which would initially take 5 days, can now take upwards of 30 days. This lengthy delay can severely reduce the availability of inventory. By independently taking care of order fulfillment processes, companies can make use of their entire inventory, which would result in an increase in sales. Benefit to small businesses Small businesses generally find Fulfillment by Amazon to be a useful tool and can adopt Amazon’s offerings as their main fulfillment strategy with Direct Fulfillment as a backup. Retailers who make use of Fulfillment by Amazon have access to standardized shipping devoid of any hassles. Amazon takes care of the storage of inventory, packing, and shipping aggregation for all orders that come in. Smaller businesses can also use direct order fulfillment as a backup option to transfer more of their products. Fulfillment by Amazon (FBA) vs Direct Fulfillment: What are the Differences? Given the benefits, it shouldn’t shock anyone that most third-party sellers on Amazon utilize its Fulfillment by Amazon (FBA) service. With FBA, sellers' items automatically qualify for Amazon Prime and Super Saver Shipping. They can likewise exploit Amazon's customer service experience, and this all means acquiring more deals than contending with non-FBA sellers. Notwithstanding, not all that sparkles is gold. Amazon's FBA has its disadvantages as well, and numerous sellers frequently select to deal with this aspect of eCommerce logistics themselves. If you're a third-party seller deciding on direct order fulfillment, you might need to enlist external assistance to help you in dealing with the logistical portion of your business. Fulfillment, direct or otherwise, has become well known and has progressed as necessities have ascended over the last ten years. Innovation is a major tool in terms of dealing with the entire cycle and monitoring individual shipments as well as the stock in the warehouse. For the vast majority of businesses, the goal is to get to the same level of assurance that Amazon Prime offers in terms of reliability and quality. The differences between direct fulfillment and FBA are listed below: [table id=5 /] Conclusion Direct order fulfillment facilitates your enterprise to manage expenses and mitigates dangers while at the same time enhancing your capacity to serve customers. You get all the recognition for providing professional services but conversely, you also get all the blame if something goes wrong. It is a primary step and doubtlessly, a hard one. If you feel that your business needs to outsource its fulfillment requirements to a 3PL company, WareIQ can definitely be of service. WareIQ, is a full-stack eCommerce fulfillment company for some of the most reputed brands in India. WareIQ offers a full-stack platform for eCommerce companies to enable same-day delivery and next day delivery to customers – an Amazon Prime-like experience but accessible to everyone. Why You Should Choose WareIQ's Fulfillment Centers for FBA Prep Service? Comply with Amazon’s scheduled delivery Prep services ensure proper packaging and preparation which helps to reduce delays in receive time. Taking scheduled appointments in the Amazon Fulfillment Center is a hassle because of the complex checklist of items to be executed. There are chances of missing the time slot leading to stock rejection. Stock preparation needs to follow Amazon guidelines which is a thorough process that WareIQ staff is trained in. WareIQ offers FBA prep services that ensure quality control, streamlining and adherence to Amazon standards whether it comes to fragile item preparation, repackaging thousands of SKUs to simply labelling products correctly with barcodes. WareIQ’s automated order fulfillment system ensures efficient and accurate picking and packing. Save operational costs Keeping track of a lot of different stock keeping units or SKUs that require different prep services can be tricky. You have to ask yourself if your business can afford to have its products returned or be billed a non-compliance fee for failure to meet FBA standards. Outsourcing FBA prep is a cost-effective way to move inventory. With WareIQ’s smart technology, SKUs are mapped across sales channels for efficient fulfillment. Also, with WareIQ you’ll only pay for what you use, which means if you ship only one product in a month, you’ll only pay a pick and pack fee for that one. WareIQ books slot for clients on their behalf and offer bulk shipping with multiple sellers thereby ensuring cost efficiencies. Save space FBA doesn’t just take up mind space, it takes up a whole lot of physical space as well. De-palletizing and repackaging, and storing packing materials such as poly mailers, fragile item wrapping, or labels can take up a lot of space, which most vendors do not have. In this case, a fulfillment center may be a great option. WareIQ has the bandwidth to fulfill 1 to 10,000+ orders each day. Save on resources Think about what you could be doing with the resources it takes to manage FBA prep. Outsourcing to a fulfillment centre can help you focus on growing your core business. [signup] Direct Fulfillment FAQs (Frequently Asked Questions) What does direct fulfillment order mean?The term "direct fulfillment" refers to sending an order directly to the customer. Direct fulfillment is when your eCommerce company sells D2C (direct to consumer) and ships orders to your customers. However for wholesalers, if you are selling products to other online retailers, you will ship the orders of your products in large quantities. What are direct fulfillment centers?A direct fulfillment center is a site where products and orders are shipped directly to customers or individual shoppers. These multi-million-square-foot warehouses store products, pick and pack orders, ship orders, and manage product returns. What is Amazon’s direct fulfillment program?Amazon Direct Fulfillment is a backend service of Amazon fulfillment. A vendor that is a part of the Amazon direct fulfillment program can ship products directly to consumers when Amazon runs out of product. What is the difference between FBA and Direct Fulfillment?In FBA, Fulfilled by Amazon, You ship a portion of your inventory to Amazon fulfillment centers, where it is held until a buyer decides to purchase it. However, in the case of Direct Fulfillment, vendors ship their products directly to the customers.
June 09, 2022
How to Sell on eBay? 9 Simple Steps to Become an eBay Seller in 2022
eBay was one of the companies that were born from the internet boom in the 1990s. Since its inception in 1995, it has become a household name in the eCommerce business and currently operates in 32 countries, worldwide. The company was founded in 1995 and is headquartered in San Jose, California. eBay predated the entry of its closest rival, Amazon, into the Indian eCommerce market by almost a decade, commencing operations in the country in 2005. It has arguably pioneered the rapid growth of the eCommerce industry in the country, with other major players such as Amazon and Flipkart, wanting a share of the action. In this blog, we will take you through how you can sell on eBay, the benefits of using eBay for sale, the challenges associated with it and how WareIQ can help. Why Should You Choose eBay for Sale? Immediate Recognition While Amazon has garnered more trust from customers in recent years, eBay is no slouch when it comes to trustability and customers’ ability to recognise the brand as an eCommerce giant. If a retailer uses eBay for sale, customers will automatically associate them and their products and services with eBay and all the positives that come with it. This instantly increases the chances of customers buying your products compared to if you were an independent seller because they have faith in eBay’s verification processes and trust that their purchase and order fulfillment experience will be up to the mark. Auction Services One of eBay’s unique features that continues to set it apart from other competitors is the ability for retailers who sell on eBay to conduct auctions. Products that get sold at auctions always end up getting sold for a much higher price than the retail equivalent, simply because the product will always get sold at the highest possible price that people are willing to pay. eBay also gives users the option to set a reserve price, which acts as a safety net to prevent products from getting sold at a severely discounted price compared to what it is actually worth. Promising SEO Capabilities This is another metric where eBay is slightly behind Amazon but still offers prime SEO results, pun not intended. Regardless of what types of products customers are searching for, eBay results are bound to pop up in the top 5 to 10 results, at least. Retailers who only sell on eBay and other eCommerce platforms and who do not operate their own websites can take advantage of the heightened SEO results. Reduced Prices This is one metric where eBay has a clear advantage compared to Amazon. Amazon charges around 15% plus additional fees per sale compared to eBays 10%. This means that retailers who sell on eBay can retain higher profit margins while selling at the same or discounted prices compared to who sell on amazon , flipkart or other eCommerce websites, which can be a huge boon, especially for small to mid-sized businesses. Gigantic Customer Market eBay, while still second to Amazon, has an astounding 183 million active users. This means that retailers who sell on eBay instantly get access to this huge market of potential customers which can instantly result in more demand and sales. However, sellers will have to fend off other competitors who are also seeking to make use of this newfound demand. Retailers will need to adjust their business strategy accordingly but new customers are always a good thing. [contactus_gynoveda] 9 Simple Steps to Start to Sell on eBay Creating an Account Open the “My eBay” drop-down menu that is present on all eBay pages and click on “selling”. Type of Account You can either opt for a business account or a personal account. Once that is done, enter the information in the registration form and click on “create account”. You can also sign up with an Apple, Google or Facebook account. Then fill out your contact details and click “Continue”. Registering as an eBay Seller After filling out the contact details, you will be redirected back to “My eBay”. You will have to register as an eBay seller. Click on the “My eBay” menu and click on “selling” as done previously. Listing an Item You will be directed to the Selling Overview page where you need to click on “List an Item” which will redirect you to fill out the “Sell Your Item” form. Naming Your Product Once you enter the name of your product, click on “Get Started”. Adding Product Information Once you enter all the details in the “Sell Your Item” form, click on “Submit”. The listing will then be saved as a draft from where you will be directed back to the Seller Account Registration page where you have to click on “Get Started”. Verify Your Phone Number You will have to fill out your phone number and have it verified by entering an OTP. Changing Account Type You can now change your account type if you want to. It will mostly not be needed. Users can opt between 2 types of accounts to sell on eBay: Personal Account: Choose this if you want to sell on eBay as an individual or if you are connected to a registered business.Business Account: Choose this if you want to sell on eBay as a company (Single-member LLC, Corporation/Multi-member LLC, Partnership) or a sole proprietor. You Can Now Sell on eBay Now that your account has been verified, you can commence selling on eBay. Challenges Faced by Retailers Who Sell on eBay Presence of Additional and Hidden Fees eBay, like other eCommerce selling platforms, cannot abstain from imposing additional and hidden fees on retailers. Retailers are often bombarded with new and varying prices that they have to pay if they want to continue to sell on eBay. Examples include getting charged an insertion fee if you add one listing in 2 different categories and you are also using a free account. These expenses can often have dire consequences for retailers who already have slim profit margins. Restrictions on New Sellers eBay seeks to make the most amount of money it can. Retailers have to remember that it is not a charity service and eBay's bottom line probably matters even more than their own. To ensure that firms are pulling their weight, restrictions such as selling thresholds or minimum income requirements for a specified period of time are often imposed on sellers, with penalties being imposed on sellers who cannot meet them. This will rub salt in the wound for new businesses that are already struggling to get by. Creation of Product Listings Creating listings on eBay can often be a lot harder than it needs to be. For example, if retailers want to upload in bulk, they can upload a CSV file but will have to filter through more than 60 pages of instructions, which can make it unnecessarily complicated for people who are not well-versed with technology. This process can take time and effort, especially if your catalogue is diverse and you have different products with multiple variations. Restrictions on Type of Images eBay imposes restrictions on the type of images that can be used. Images can only be between 500 pixels wide and 1600 pixels wide. Images that are either above or below this threshold will not cut it. Additionally, eBay is very strict when it comes to images used from existing sources and requires crediting the original source, which can then direct the interest of customers away from your page. Lack of Automation and Integration When retailers opt to sell on eBay and utilise eBay’s 1st-party services, they often limit themselves because there are no options to integrate with other platforms or software solutions. This makes life much harder for businesses that want to sell their products on multiple platforms because they will have to juggle manually updating multiple different pages that have different passwords which can be a cumbersome process. Additionally, there are limited options for automation for basic tasks such as packaging. Suggested Read: Sell on Instagram eBay for Sale: 8 Strategies to Get the Most Out of it Run Promoted Listing Campaigns Promoted listings are a tried and tested way of improving product visibility and eventually, sales. Research shows that promoted listings are viewed 36% more than regular ones. The pricing scheme for these campaigns also limits the amount of risk incurred by a retailer because instead of paying upfront, eBay receives an additional percentage of each sale made. Use Intelligent Keywords Keywords are the words that customers type into search engines when they are looking for a product. Keywords constantly evolve depending on the season, type of products, the platform used, etc. Retailers need to constantly be ahead of the curve and use the appropriate keywords in their product descriptions, page titles and image descriptions so that they can give themselves the best chance of matching with what customers are looking for. Offer Fast and Free Shipping In the current landscape we live in, same-day and next-day shipping have become the norm. Your business needs to offer it to avoid being left behind. Another way to spark interest from customers is to offer free shipping wherever possible. There are many methods to offer free shipping while still retaining a high-profit margin such as including the shipping cost in the price of the product and having minimum cart requirements, among others, so retailers need to analyse their capabilities and offer shipping services accordingly. Try Hiding Negative Reviews If your listing page is constantly flooded with negative reviews, it could be indicative of a much larger issue. However, if you are a growing business, there are bound to be trials and errors along the way. Retailers who sell on eBay, need to make sure that they address and correct every negative review that they receive so that can be gotten out of the way because they have been solved. They also need to put an honest effort into turning negative reviews into positive ones so that when another customer checks the reviews, the ratio of positive to negative reviews will be higher. Try to Achieve eBay Top Seller Status If you sell on eBay, you should definitely consider becoming a top-rated seller. This will give you an achievable long term goal and will enable you to optimize all the metrics that will help get you there such as providing an excellent customer experience and selling products that are popular. By becoming a top-rated seller, you would be eligible for various perks such as boosted visibility, a specified amount that gets credited towards promoted listings, discounts on shipping and much more. Have a Fair Return Policy Retailers who use eBay for sale need to frame an appropriate return policy. Since returns expenditures are generally incurred by sellers, they need to have a policy in place that doesn’t put undue pressure on them. Conversely, they also need to keep in mind that a strict, rigid return policy can be a turn off for customers. Retailers need to strike a balance between offering a fair return policy for themselves and their customers. eBay offer a cash-back guarantee relating to orders that are not fulfilled, damaged products and orders that don’t match the description. Excluding these circumstances, retailers are free to choose if they want to offer returns or not. Promote Your Listings on Social Media Social media and eCommerce go hand in hand. The same people that are browsing pages on Facebook and Instagram are also checking for products that they want to buy and spend hours looking for the best deals possible. The logical conclusion is to utilise social media to promote products that you sell on eBay since those users are already well-informed about the internet, how to buy products online and would appreciate extra knowledge about a sale or a product that they may want to buy. Run Email Marketing Campaigns For retailers who sell on eBay, running email marketing campaigns is a good way of keeping people informed and reminded about your products, promotional offers you are running and information about your brand in general. It is also a good way of gathering data about the tastes and preferences of customers so that it can be used for future marketing campaigns and can yield better results. Conclusion It is a dream for many retailers to sell on eBay due to the vast array of benefits that comes with it. While it is definitely a good idea to register to sell on eBay, we also do not recommend putting all your eggs in just one basket. Due to the adverse growth of the eCommerce industry in the country, it pays dividends to generate as much exposure as possible in order for a retailer to capture the maximum amount of market share that they possibly can. It also depends on factors such as the nature of your business and products, the financial capabilities of your business and the potential customers you are trying to target. If you do decide that selling on eBay is the right decision for your business, you would need to think about the best way to fulfill all those orders. This is where WareIQ can be of assistance. WareIQ is emerging as one of India’s most rapidly expanding 3PL fulfillment companies. We provide every aspect of order fulfillment such as fulfillment centers to store products, picking and packing services, distribution and delivery services and reverse logistics. This, coupled with our superior and advanced tech platform that provides a state of the art Warehouse Management Software, NDR support and an RTO shield that gives you protection from liabilities and return orders, is sure to make your order fulfillment experience world-class. [signup] Sell on eBay: FAQs What are some things retailers shouldn’t do while selling on eBay?There are few things that retailers should abstain from while selling on eBay and some of them are listed below:- Using unoriginal photos- Not being honest about the product and its features- Ignoring messages and enquiries from customers- Miscalculating shipping charges- Not fulfilling orders to certain locations- Setting the wrong start price at an auction How long does it take for you to get paid when you sell on eBay?Payment usually occurs 1 day after confirming the payment from the buyer, unless there is some issue with the transaction. It takes about 2 days for the amount to reflect in the sellers account. Is there a listing fee while listing products to sell on eBay?No, there are no fees associated with listing your products on eBay. Fees will only be charged if a product is sold and if you opt for any of the featured listing options. Can you integrate an eBay account with WareIQ’s WMS?Yes, an eBay seller account can be integrated with WareIQ’s WMS and users can avail of all the benefits that come with that. How can 3PL companies like WareIQ solve the challenges faced by eBay sellers?3PL companies such as WareIQ provide flexibility to users by providing services such as order fulfillment, packaging and shipping at much cheaper rates. Additionally, WareIQ’s WMS can integrate with most eCommerce selling platforms and can consolidate data relating to orders and inventory from all of them in one centralised location.
June 08, 2022