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Inventory Turnover Ratio: The Ultimate Metric for E-commerce Growth

Inventory Turnover Ratio: The Ultimate Metric for E-commerce Growth

As previously mentioned, overhead costs are reduced and, as a result, the company's profitability performance improves by minimizing inventory holdings. Ideally, the inventory turnover ratio would be found by dividing sold units by on-hand units. However, because the financial statements themselves only contain monetary valuations, external evaluation of inventory turnover must rely on the valuation metrics recorded under GAAP:  Cost of Goods Sold/Average Inventory  = Cost of Goods Sold/(Beginning Inventory+ Ending Inventory)/2 While it is theoretically better to benchmark the Cost of Goods Sold for the entire year by using the average balance sheet inventory amounts, some analysts simply use the ending inventory number for computational expediency, which causes a minor inaccuracy in firing.  Inventory Turnover Ratio When product flow changes over the year and inventories contract and grow over time, more frequent inventory level measurements are needed to determine an accurate average inventory level.  Exhibiting high and low turnover ratios simplifies inventory turnover ratio explanations. Inventory issues prevent many businesses from surviving this. A low inventory turnover ratio indicates that a company may have overstocking or a lack of marketing or product line effort. Because inventory typically has high storage costs and zero return rates, it is a sign of ineffective inventory management. An increased inventory turnover ratio is seen as a good sign of good inventory management. Nevertheless, a higher inventory turnover ratio does not necessarily imply better performance.  The inventory period, which is the number of days worth of inventory on hand, calculated by dividing the inventory by the average daily cost of goods sold, is a common term for inventory turnover:  Inventory Period = Average Inventory/Annual Cost of Goods Sold There are several things to keep in mind when calculating the turnover ratio: -  Only think about the cost of goods sold from stock sales filled with warehouse inventory. Direct shipments and non-stock items are not included. It is clear that these sales are significant, but they don’t include your inventory investment. The formula's cost of goods sold figure includes the number of stock goods that are transferred to other branches and the amount of these goods that are used for internal purposes like repairs and assemblies. Inventory turnover ratio is based on the cost of items (what you paid for them), not sales dollars (what you sold them for).  The average value of stocked inventory determines inventory turnover. Calculate the total value of every product in inventory (quantity on-hand times cost) on the same day every month to find your average inventory. Be sure to use the same cost basis (average cost, last cost, replacement cost, etc.) when calculating the cost of goods sold and the average inventory investment.  If your inventory levels tend to fluctuate throughout the month, calculate your total inventory value on the first and fifteenth of each month. Find the average inventory value by averaging all inventory valuations from the previous twelve months. Flaws in Inventory Turnover Ratio Calculation and Implications for Financial Analysis The average value of stocked inventory determines inventory turnover. Calculate the total value of every product in inventory (quantity on-hand times cost) on the same day every month to find your average inventory. Be sure to use the same cost basis (average cost, last cost, replacement cost, etc.) when calculating the cost of goods sold and the average inventory investment.  These are:  1. Utilizing Sales Revenue rather than Cost of Goods Sold in the numerator.  2. Failing to account for the off-balance sheet LIFO Reserve in the denominator.  If your inventory levels tend to fluctuate throughout the month, calculate your total inventory value on the first and fifteenth of each month. Find the average inventory value by averaging all inventory valuations from the previous twelve months.  Turnover Goals Consider the average gross margin you receive on product sales when you determine your inventory turnover goals. Distributors with 20% to 30% gross margins should aim for five to six turns per year. When your business has high gross margins, you can afford to rotate your inventory less often.  A six-turn turnover rate per year doesn't mean that every item's stock will turn six times. The stock of popular, fast-moving goods should be rotated more frequently—even twelve times a year. Items that move slowly may turn only once or even not at all. Finally, calculate inventory turnover for each product line in every warehouse individually. This will help you find out when your inventory is not earning enough return on investment. Reducing the quantity you typically buy from the supplier can help improve inventory turnover. When you buy less of a product and more frequently, inventory turns out to improve. Companies have few funds to invest in inventory. They can't have a lifetime supply of all things. Firms must sell the goods they bought in order to get the money necessary to pay bills and return a profit. The rate of inventory turnover is a measure of how quickly inventory is moving through the warehouse. Inventory turnover, when used in conjunction with other metrics such as return on investment and customer service level, can provide a reliable indicator of a company's success. Interpretation of stock turnover ratio The inventory turnover ratio creates a connection between the following components: Cost of goods soldAverage inventory The result of the stock turnover ratio formula shows how many times a company has managed to sell all of its stocks within a year. Increased inventory turnover is not always a sign of better performance. Insufficient inventory can also lead to sales opportunities being lost. Cost of goods sold, also known as revenue cost, refers to the direct costs involved in producing goods or services, which include material, labour, and overhead costs that are sold. These expenditures are directly connected to income. The actual cost of the produced and sold goods is what the term "cost of goods sold" is meant to indicate. Conclusion A common measurement of how well a company manages its assets is the inventory turnover ratio. As previously mentioned, overhead costs are reduced and, as a result, the company's profitability performance improves by minimizing inventory holdings. Exhibiting high and low turnover ratios simplifies inventory turnover ratio explanations. Inventory issues prevent many businesses from surviving this.  A low inventory turnover ratio indicates that a company may have overstocking or a lack of marketing or product line effort. The formula's cost of goods sold figure includes the number of stock goods that are transferred to other branches and the amount of these goods that are used for internal purposes like repairs and assemblies. If your inventory levels tend to fluctuate throughout the month, calculate your total inventory value on the first and fifteenth of each month.  Find the average inventory value by averaging all inventory valuations from the previous twelve months.  Companies have few funds to invest in inventory. They can't have a lifetime supply of all things. Firms must sell the goods they bought in order to get the money necessary to pay bills and return a profit. Cost of goods sold, also known as revenue cost, refers to the direct costs involved in producing goods or services, which include material, labour, and overhead costs that are sold. These expenditures are directly connected to income. 

July 13, 2023

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Maximizing ROI with Effective Work in Process Inventory Management

Maximizing ROI with Effective Work in Process Inventory Management

It is well known that the industry is at the threshold of transformation, which will have a significant effect on the production of goods, the provision of additional services, the labour market, the working environment, and customer behaviour. The majority of production companies are interested in continuous cost reduction. The cost reflects the company's competitiveness and sustainability. Manufacturing efficiency is linked to many business costs.  work in process inventory is one of these costs.  The demands of society have always been met by research. Companies have evaluated these needs to meet them as scientific inventions. Since the Industrial Revolution, four major scientific have given companies a significant competitive advantage. The use of water and steam force was the first advancement that changed the production process. This contributed to the beginning of genuine mechanization and has also served as the foundation for further. Electrification and process thinking were the main subjects. Henry Ford was the first to implement this processing change. A movable assembly line, which made products move from one job to another, was the first process developed; This was in opposition to the prevailing trend. This enabled a reduction in production costs and an increase in production in order to meet mass demand.  Importance of effective Work In Process Inventory management for maximizing ROI The JIT model helps organizations replenish work in process inventory in SKU when it is needed. When it comes to very expensive inventory items—that is, those with relatively higher purchase prices, holding costs or ordering costs, but low demand—this will be the best approach. The model tries to avoid overstocking and the costs associated with it. Consequently, organizations only receive six inventories when the need for additional stock rises. Vendors must ensure prompt delivery for the JIT approach to succeed.  This is to prevent costly and irreparable business interruptions caused by work in process inventory delivery delays. Just-in-time, a developing field of scheduling, aims to increase return on investment by lowering work in process inventory and carrying costs. JIT is recognized as a production scheduling strategy in single and parallel machine environments, but it is now being taken into consideration in flow shop machine environments. Different types of inventory in a manufacturing environment Inventory can be classified into three types which include; Raw material inventory This includes all items purchased by an organization for processing. For instance, a confectionary organization has flour, yeast, eggs, and other raw materials in its stock. Work In Process Inventory This is an interim stage of raw material inventory that the plant needs to complete before moving on to another stage of processing. These are materials that have been somewhat processed but are still not finished.  Finished Goods Inventory This is the stock of products that have been completed. Regardless of whether the stock is in the warehouse or awaiting shipment, the level of finished goods stock is a matter of coordination between the organization's sales and production departments. However, warehouse management includes a variety of warehouse tasks, including inventory management. Lean Manufacturing for Managing Work In Process Inventory Lean manufacturing is an innovative paradigm that aims to eliminate waste in any form, anywhere, and at any time. It constantly strives to maintain a balanced flow of materials and information and always strives for perfection. Today, industries are using lean manufacturing ideas to reduce waste and increase efficiency. Lean philosophy has been recognized as one of the most important methods for increasing productivity, which increases an organization's competitiveness. Lean production is usually categorized under the category of process improvement programs; This category also includes other approaches like total productive maintenance and business process re-engineering theory of constraints.  Lean production is a multi-dimensional approach that incorporates a variety of management practices into an integrated system, such as just-in-time, quality systems, work teams, cellular manufacturing, supplier management, etc. Lean manufacturing principles What does it mean?EnablersStandardizationStandardized work procedures to do routine and repetitive tasks to improve efficiency and quality.  Standard work procedures, Design blueprints Simple and specified pathwaysThe flow of work to the right machine or person in the right form at the right time at the lowest cost with the highest quality possible which reduces production lead time.Kanban system, JIT Teaching and LearningThrough the continuous effort of managers and supervisors acting as enablers or mentors in solving problems.Scientific methods of problem-solving SocializationAn atmosphere of trust, respect and common purpose in which work is performed to improve efficiency and productivity. Consistency, consensus and communication  Continuous improvementExperimentation by the people at every level toward improving their own work systems. Kaizen, TQM, Six Sigma, JIT etc. Supplier-customer relationship  Supplier-customer relationship specifies the form and quantity of the goods and services to be provided, the way requests are made by each customer, and the expected time in which the request will be met.Long-term cooperative relationshipsCoordination through rich communicationCommunication is required to develop the idea into an innovation. go-see, involvement of suppliers early during PDFunctional expertise and stability  Every company depends on highly skilled engineers, designers, and technicians to bring a product to the market; it is about developing a standard set of skillsJob rotation policyThe pursuit of perfection / striving for the ideal goal It is common sense of what the ideal system would be, and that shared goal motivation to make improvements beyond what would be necessary merely to meet the current needs of their customers. Sharing a common goalCultivating organizational knowledgeIt shows the faith of the organization that the skills and knowledge generated will pay off later. knowledge sharing practices Table: Status of implementation of Lean manufacturing principles in the context ofIndian Industry: A Literature Review Tools and Technologies for Effective Work In Process Inventory Management Manufacturing execution systems (MES) Satisfying a variety of customer requirements and reaping benefits from mass and craft production, mass Mass customization production (MCP) satisfy a variety of customer requirements and reaping benefits from mass and craft production Emergency orders and frequent engineering changes are some of the disturbances that typically occur in MCP companies because customer orders and operation times are very unpredictable. Because a lot of parts and components used in mass-customized products are one of a kind, it is difficult to estimate the setup and processing times involved. Normal production plans and schedules will be affected by such uncertain disturbances. Furthermore, snowball effects such as delays in customer orders, logistics errors, and high levels of work in process inventory are caused by these disruptions.  RFID devices are systematically deployed on the shop floor to track and trace manufacturing items and collect production data in real time. RT-MES finds and manages disturbances. Decisions regarding planning and scheduling are made and executed more efficiently and accurately. There are online tools that allow you to visualize and monitor the dynamics of shop floor work in process inventory (WIP) in real time. Internet of Things (IoT) and real-time monitoring: Cloud-Based Smart Car Parking To best support the urban core, parking issues are becoming more and more pressing. Current trends in meeting the globally connected continuum could turn these persistent parking issues into new opportunities. New technologies that allow cities to reduce traffic and carbon emissions have changed the parking industry.  The parking industry has become more and more dependent on the Internet of Things (IoT), which has enhanced processes and enabled intelligent parking solutions that increase and manage parking inventories. Here, the Internet of Things (IoT) uses embedded wireless sensor networks to connect physical parking space infrastructures to information and communication technologies. Through these connections, cloud-based smart management services are provided.  Additionally, this shift in interconnectivity is driving social and economic transformations. For example, when physical infrastructure data is released, new applications and new business models are driving increased productivity. Parking space owners, be they individuals or businesses, can now market their assets with a Parking Service Provider (PSP) by turning unused parking spaces into money. Conclusion The majority of production companies are interested in continuous cost reduction. The cost reflects the company's competitiveness and sustainability. Manufacturing efficiency is linked to many business costs.  work in process inventory is one of these costs. When it comes to very expensive inventory items—that is, those with relatively higher purchase prices, holding costs or ordering costs, but low demand—this will be the best approach. JIT is recognized as a production scheduling strategy in single and parallel machine environments, but it is now being taken into consideration in flow shop machine environments. Lean manufacturing is an innovative paradigm that aims to eliminate waste in any form, anywhere, and at any time. It constantly strives to maintain a balanced flow of materials and information and always strives for perfection. RT-MES finds and manages disturbances. Decisions regarding planning and scheduling are made and executed more efficiently and accurately. There are online tools that allow you to visualize and monitor the dynamics of shop floor work in process inventory (WIP) in real time.

July 12, 2023
Revolutionizing Inventory Control: The Perpetual Inventory System and Its Benefits

Revolutionizing Inventory Control: The Perpetual Inventory System and Its Benefits

A perpetual inventory system is a stock management technique that updates stock levels when there are transactions, like sales, purchases, or returns of purchases. This technique can monitor sales and remaining stocks to prevent stockouts and out-of-stock. The software was developed using an Extreme Programming approach and an Agile Development Method, and it was tested in the Black Box to make sure all the necessary features worked. Stock control helps a company be more competitive, prevent stockouts and out-of-stock losses, and increase revenue. A perpetual inventory system is better than older periodic inventory systems because it keeps sales and inventory levels up to date, reducing stock-outs. This is its advantage. Solving inventory cost analysis issues is gaining popularity. Inventory models were numerous before control systems. Increased efforts have been devoted to the development of novel or amended inventory control systems. There are issues related to computer network congestion control. One applies work-in-progress to account for the destabilizing effect in the perpetual inventory system in order to make a fair comparison between a classical stock-based order-up-to policy and PD with the Smith predictor inventory control system.  Parameters of Perpetual Inventory System The application of the Perpetual Inventory Method (PIM) requires estimates and assumptions on three parameters:  Service life  However, statistical estimates of service lives are limited. Fiscal data and bookkeeping practices are the most important sources of information. Fiscal sources, annual business reports, and global data are also examined. A table of "best-practice" service lives by asset and industry was created by analyzing and combining all sources.  Discard pattern  It is commonly stated that in PIM, service lives are the only relevant parameter, and discard patterns' impact is negligible. As a result, in PIM, a simple step function is most frequently used. When capital stock is divided into vintage classes, the delayed linear survival function works well. It is also an approximation to any other survival functions used in this report. The delayed linear method also makes calculations less difficult.  Depreciation method PIM calculations can include a depreciation pattern in addition to service lives and discard patterns. The calculations, for which the results are shown in the previous chapters, use straight-line depreciation. This indicates that a portion of a vintage of assets is written off annually.  Benefits of Implementing a Perpetual Inventory System Because there is always inventory, companies don't have to close the doors for physical inspection. Moreover, stock forecasting and economic order quantity are made easier by using scanned barcode details. It certainly helps you predict future sales cycles by guaranteeing accurate inventory availability during different seasons, like public holidays. Furthermore, it helps in determining the point at which to reorder, which prevents overstocking issues. Also, using Point of Sales terminals helps to calculate when, what, and how much to stock.Please be aware that all transactions involving inventory are recorded in the perpetual system. As a result, it is easy to find mistakes. This not only supports the maintenance of total management but also helps direct transaction inquiries in order to facilitate training and operations. Furthermore, it increases the accuracy of inventory records over time.The value of the closing stock can be known at any time during the year because of continuous stocktaking. At the end of the financial period, it greatly simplifies the preparation of profit and loss accounts and balance sheets.A system of ongoing inventory control ensures that materials and stores are regularly received and delivered. This significantly reduces the investment in materials and minimizes storage expenses. A well-designed system for continuous inventory control allows for immediate identification of materials waste, leakages, and theft. Implementation of a perpetual inventory system The POS system automatically adjusts your inventory levels when you use perpetual inventory. Inventory management and purchases are made easier when you can always access your inventory reports online.  However, perpetual inventory systems are not always completely correct. Your company's inventory accuracy can be affected by a lot of things. You may forget to record a transaction or get robbed by your employees. To compare totals, occasionally check your actual inventory quantity.  When it comes to perpetual inventory, the calculations are typically done as you go instead of waiting until the end of the accounting period, which is the case with periodic inventory. Companies that use POS systems and sell valuable goods usually use perpetual inventory systems to count their inventory regularly. Challenges of Perpetual Inventory System Although a perpetual inventory system has many benefits, small businesses face some drawbacks. Initial and ongoing costs are higher because it takes more money to buy hardware, software, and training to implement and maintain the system. Regular backups and updates are also required to ensure reliability and security. Strict rules and protocols to ensure data accuracy and consistency increase complexity and workload. Furthermore, data errors and system failures, including human errors, data entry mistakes, and system glitches that may affect inventory records, must be taken into consideration. Backup systems and contingency plans are critical in case of power outages, network disruptions, or cyberattacks.  Perpetual vs. Periodic Inventory Systems The distinction between the two systems lies in the way they function. Computerized point-of-sale technology monitors sales continuously and instantly in perpetual inventory systems. Periodic inventory systems require a point-in-time count to track sales. A perpetual system works well for large companies or those with complex inventories. A regular system is often enough for smaller businesses with limited inventory. The same applies to the margin for error—a perpetual system has a lower margin for error, but a periodic system may have a limited, simple inventory.  An important accounting metric, the cost of goods sold (COGS), is calculated by adding the beginning balance of inventory to the cost of inventory purchases and subtracting the cost of ending inventory. In contrast to the alternative physical inventory, COGS is updated continuously with a perpetual inventory system. Conclusion A perpetual inventory system is better than older periodic inventory systems because it keeps sales and inventory levels up to date, reducing stock-outs. This is its advantage. Solving inventory management issues is gaining popularity. Inventory models were numerous before control systems. This technique can monitor sales and remaining stocks to prevent stockouts and out-of-stock. The value of the closing stock can be known at any time during the year because of continuous stocktaking. At the end of the financial period, it greatly simplifies the preparation of profit and loss accounts and balance sheets. A well-designed system for continuous inventory control allows for immediate identification of materials waste, leakages, and theft. However, perpetual inventory systems are not always completely correct. Your company's inventory accuracy can be affected by a lot of things. You may forget to record a transaction or get robbed by your employees. To compare totals, occasionally check your actual inventory quantity. A perpetual system works well for large companies or those with complex inventories. A regular system is often enough for smaller businesses with limited inventory. The same applies to the margin for error—a perpetual system has a lower margin for error, but a periodic system may have a limited, simple inventory. The distinction between the two systems lies in the way they function.

July 11, 2023
Inventory Cost Analysis: Uncovering Inefficiencies and Maximizing Profitability

Inventory Cost Analysis: Uncovering Inefficiencies and Maximizing Profitability

The stock of any item or resource that an organization uses is known as its inventory. Inventory levels are managed and maintained by a set of policies known as an inventory system. It decides how large orders should be and when stock should be replenished. Reducing overall costs and increasing profits is every manufacturing organization's main goal. Inventory costs consist of four expenses: purchase, ordering, inventory carrying, and shortage.  Companies are increasingly looking at their business as a pipeline, which controls the flow of materials from the source to the ultimate consumer. The pipeline inventory concept is not entirely new in terms of substance—a similar framework, the total cost concept.read more When deciding how much to buy from vendors or how many lots to send to the company's production facilities, it is necessary to find the lowest total cost that results from the combined impact of the four individual costs. Inventory cost managers often have to make important decisions about how to balance ordering and carrying costs. When the order quantity per unit time is small, the number of orders increases, which leads to a higher ordering cost. This may occasionally result in stockouts and market loss. Inventory cost accounting Physical inventory levels must be converted to inventory costs in almost every business analysis involving inventory costs. Although the precise determination of the cost rate to be applied is actually a matter of cost accounting, here are the primary components: Capital Cost This is typically an internal funding rate multiplied by the product's value. When the product moves down the supply chain, its value (materials, labour, transportation, etc.) increases.  Storage Cost Inventory units consume physical space and may incur heating, refrigeration, insurance, etc. In order to determine which parts of these costs are actually driven by inventory levels and which can be considered more or less, an activities-based cost (ABC) analysis is typically required. The magnitude of the inventory cost change you are studying will determine the answer. Obsolescence Cost Obsolescence cost is a bit harder to figure out. When technology or style changes happen, your current products may become obsolete. The more inventory you have, the more vulnerable you are to this kind of loss. Quality Cost The probability of product damage is usually increased when there are high inventory cost levels, which also leads to slower feedback loops between supply chain partners. The result: lower levels of quality and a rise in the myriad costs associated with low quality. Again, these expenses are hard to calculate precisely, but the current consensus is that they can be quite substantial. It is inevitable that this method has numerous issues. For one, inventory costs are not solely caused by a product's value. Other product attributes, such as size, the need for refrigeration, obsolescence risk, etc., determine major components of inventory cost. Applying a single cost rate to all products at all production and distribution stages can be a big oversimplification.  Secondly, when analyzing the inventory cost rate, one implicitly assumes that only minor inventory changes will occur. According to the original ABC analysis of the inventory cost rate, "a major structural change in the supply chain may eliminate all categories of expenses that were considered."  Types Of Inventory Cost Ordering costs  Every time your business buys something from a supplier, you must think about the associated ordering costs; There will always be ordering costs, even if the order in question is quite small. Estimate the cost of an order by tracking the purchase requisition, purchase orders and invoicing, labour costs, and transportation and processing fees. Although some of these expenses, like preparing invoices, will be minor, Others, such as purchase orders, will cost much more.  Carrying costs Companies pay inventory costs, sometimes referred to as "inventory holding costs", for keeping their inventory items in stock. Costs of carrying can truly range from taxes and insurance to employee expenses and the cost of replacing damaged goods. Knowing how much profit your current inventory can make requires having an accurate view of your carrying costs. Businesses, fortunately, can cut these costs by using a productive warehousing layout and using inventive inventory management. Stockout costs  Stockout costs refer to any potentially lost sales due to a product's lack of supply, or the loss of income and expenditure as a result of a supply shortage. For instance, if a customer orders the last unit of an SKU you have in stock, but that item is incorrect, this can happen. It will be considered a loss because you cannot ship a defective product or have enough inventory to fulfil the order. If a customer sees that the product they want is out of stock on your website and decides to buy it elsewhere, it may result in stockout costs. Shortage Costs A company incurs shortage costs when it does not have enough inventory on hand. These expenses include overnight shipping costs to get items that are not in stock, lost margins on unfinished orders, and lost revenue from customers who go elsewhere to buy things. When deciding how much inventory to keep on hand, this is very important, especially for businesses that compete on customer service. Spoilage Costs When perishable goods are not sold enough quickly, they can deteriorate or spoil; therefore, inventory control is crucial to prevent spoilage. Expiring products are a source of concern for many industries. Businesses like food and beverage, pharmaceutical, healthcare, and cosmetics are affected by the expiration and use-by dates of their products. Inventory Cost Methods Products, partially completed products, raw materials, and supplies are all part of an inventory that is waiting for the end of a sales transaction. Inventory cost is  usually calculated using the four cost formulas below:     Specific Identification Firms that have unique, valuable goods like automobiles, paintings, expensive jewellery, and custom-made furniture use the specific identification technique. But if items in inventory are interchangeable, specific identification becomes impractical. In such situations, firms typically use FIFO, LIFO, or Average-Cost cost flow methods to assume the sold items and remaining items in inventory. First-In-First-Out (FIFO)   In most companies, the FIFO method is consistent with the physical flow of inventories. It is based on the assumption that the latest purchases remain in the ending inventory and the earliest purchases are sold first. This indicates that the FIFO method values end inventory cost at current. Some argue that this FIFO method's chronological cost flow is in line with good business practices, especially for obsolete or deteriorating goods.  Last-In-First-Out (LIFO)  The LIFO approach does not correspond to the actual physical inventory flow. According to the LIFO method, the earliest purchases are sold first, so ending inventory is based on the costs of the earliest purchases. Since current costs are equal to current revenues, some claim that this method of valuation can lead to realistic reported profits. However, some contend that the value of inventories at the earliest prices can give an unrealistic representation of the current value of the inventory using the LIFO method. Average-Cost/Weighted Average-Cost  The weighted-average cost method is an alternative to FIFO and LIFO methods. When the inventory is made up of identical, interchangeable units and does not flow in any particular physical pattern, the average-cost system is appropriate. According to this approach, the value assigned to inventory is the overall cost of all inventory items that are available for sale during the given period. This technique smoothens the fluctuations in the cost of inventory items due to the technique of assigning an average cost.  Conclusion Inventory levels are managed and maintained by a set of policies known as an inventory system. It decides how large orders should be and when stock should be replenished. When deciding how much to buy from vendors or how many lots to send to the company's production facilities, it is necessary to find the lowest total cost that results from the combined impact of the four individual costs. Physical inventory levels must be converted to inventory cost in almost every business analysis involving inventory. Although the precise determination of the cost rate to be applied is actually a matter of cost accounting.    

July 11, 2023
Pipeline Inventory: A Strategic Asset for Efficient Supply Chain Management

Pipeline Inventory: A Strategic Asset for Efficient Supply Chain Management

Introduction Companies are increasingly looking at their business as a pipeline, which controls the flow of materials from the source to the ultimate consumer. The pipeline inventory concept is not entirely new in terms of substance—a similar framework, the total cost concept, has been discussed for a long time explains very well the inventory cost analysis. However, it is showing up to be an analytical concept with the ability to overcome internal political barriers and contribute to a significant improvement in operational effectiveness and functional integration.  The simple idea requires managers to think about their supply, operations, and distribution operations as an integrated pipeline inventory. The idea is to look at how all of these activities work together in a single integrated system and evaluate that system's performance using the three following dimensions:  Cost- The total cost of processing and transporting materials from the source to the destination.Service issues include deliverability, in-stock performance, and delivery time. Velocity The time it takes to move products through the logistics pipeline.  Total pipeline inventory levels and pipeline inventory flexibility to adapt to market changes are directly linked to this performance factor.  The Pipeline inventory approach  The pipeline inventory method provides a mechanism for analyzing the effects of each function's operating policies and for identifying inconsistencies and conflicts. For instance, this full-system view will quickly identify the cost, service, and velocity impacts of any poorly conceived practices. Examples of these practices include buyers' tendency to order a lot of things, which leads to bloated inventories because they are judged only by the price of the product. Furthermore, it will give managers an effective way to determine the following: The impact on system inventory of long production runs and manufacturing lead timesHow marketing promotions operating costs and effective net margins are affected.  The cost or savings are available from consolidating transportation.The cost of handling multiples through a multi-echelon warehouse network.  The logistics pipeline inventory concept has enabled companies to achieve functional integration, which is most encouraging. This easy-to-understand, sophisticated design explains the full performance impacts of all functional policies, whether it be manufacturing, marketing, finance, or distribution, in a way that is easy to understand. Pipeline inventory analysis also gives a solid reason to change narrow functional initiatives that don't create value for the company. Lower costs, better service, and increased velocity from a pipeline-oriented approach are clear benefits, which create a case for action. Thus, the pipeline inventory idea, makes it possible to overcome internal political barriers and build an improved operating capability. The Significance of Information Flow Pipeline Inventory in Supply Chain Management Each supply chain has two fundamental flows: the material pipeline and the information pipeline. But the traditional decoupling point method focuses only on the material flow pipeline. However, order information distortion as it flows upstream is one of the main causes of the supply chain dynamic magnification. The writers have adapted the decoupling point technique, which is traditionally associated with material flow, to the information flow pipeline. Supply chain information circulation is not a new concept. Its formalization within the decoupling point concept is proposed here.  Supply chains have two distinct flow pipelines: the order information transfer pipeline, which goes from the sales point to the raw material supplier, and the product transfer pipeline, which goes from raw materials to the end consumer. Demand information activates production, so speed and accuracy of order data transfer are essential to enable good supply chain dynamics.  Many businesses have focused on material flow pipeline inventory improvement strategies. This is due to the fact that implementing a thorough supply chain management approach that is necessary to redesign the information flow pipeline inventory is much harder than making a shop floor redesign under our supervision and seeking improvement from immediate suppliers.  The marketplace interface dealing with the end customer has undistorted order information available for all supply chains. However, because the information decoupling point is traditionally at the marketplace-retailer position, in many supply chains, only the player closest to the end customer has the luxury of knowing the true demand. The question is how to strategically utilize this wealth of information to improve the dynamic performance of the supply chain. When the information decoupling point is moved upstream, information distortion and waveform propagation, which are commonly seen in the real world, could be significantly reduced. This is due to the fact that unbiased market sales data could be added to supply chain member order decisions by moving the information decoupling point upstream.  From an individual company's point of view and from the perspective of the entire supply chain, this would have a positive effect on the ordering and stock level dynamics.  Strategies for Decoupling Stock and Optimizing Supply Chain Tracking their position in the supply chain is the first step in managing pipeline and decoupled stock. Segmenting inventory is useless if you have to guess the actual levels of transit stock. You should know where they are during the manufacturing process and where they get to the retailer at each step. Major manufacturers and suppliers will provide logistics updates in real-time. Use real-time scanning technology from smart devices, stock-keeping units (SKUs), and barcodes. The majority of companies should find the implementation of these technologies simple. When you have an accurately tracked and accounted inventory, your company will have more time to deal with unforeseen delays in customs when imports from other countries arrive. During a manufacturing strike, small retailers may find safety stock useful. Retailers should have contingency plans in place to handle a variety of unforeseen interruptions. Consumer-ready products with consistent cycles can be achieved by coordinating lead times through decoupling stock. However, a company should have another contingency plan in place as well. Additionally, a considerable amount of stock simply cannot be decoupled for the majority of retailers. Third-party automation for inventory management is a good investment. Calculating your pipeline inventory is only the first step. Inventory management optimize, reordering and provide stock reports. Additionally, the majority of software will allow auto-replenishment to maintain a specified inventory quantity. Many platforms work with e-commerce tools to predict lead times and forecast sales. In this way, you are able to fulfil all future orders from your customers by adjusting pipeline stock on-the-fly and automatically. E-commerce retailers can use Brightpearl to optimize order fulfilment and storage, which results in faster processes and greater customer satisfaction.   Conclusion The pipeline inventory concept is not entirely new in terms of substance—a similar framework, the total cost concept, has been discussed for a long time. However, it is showing up to be an analytical concept with the ability to overcome internal political barriers and contribute to a significant improvement in operational effectiveness and functional integration. The pipeline inventory method provides a mechanism for analyzing the effects of each function's operating policies and for identifying inconsistencies and conflicts. Pipeline inventory analysis also gives a solid reason to change narrow functional initiatives that don't create value for the company. Lower costs, better service, and increased velocity from a pipeline-oriented approach are clear benefits, which create a case for action. Sales professionals are greatly affected by the growth of information technology (IT), electronic commerce, and the integration of relationships between different business sectors. The marketplace interface dealing with the end customer has undistorted order information available for all supply chains. However, because the information decoupling point is traditionally at the marketplace-retailer position, in many supply chains, only the player closest to the end customer has the luxury of knowing the true demand.

July 10, 2023
Mastering Supply and Demand: A Guide to Effective Inventory Optimization

Mastering Supply and Demand: A Guide to Effective Inventory Optimization

Business circles have heard about inventory optimisation, but they have difficulty finding a solution to the numerous supply chain issues they might have in their company.  Inventory is a collection of goods that an organization keeps for later use. The inventory optimization system analyzes and manages the same. Inventory can be stored at different points along the production and distribution supply chain. When low items need to be replenished, the inventory optimization system helps determine the amount of each item to be hoarded and the number of items that need to be ordered or manufactured when replenishment is necessary.  Inventory optimization application improves inventory control and management across a broader supply network by integrating the most recent technologies and methods. Inventory optimization design goals include improving customer service, reducing lead times and costs, and meeting market demand. Raw materials, work-in-process inventories, and usually final products' storage policies and procedures are all covered by inventory optimization.  Effective supply chain management reduces costs and lead times, improves customer demand adaptation, and leads to optimal inventory. Inventory optimization and supply chain managers' main concern is to calculate the exact amount of inventory at every point in the supply chain without creating overstock or shortages in order to minimize the total supply chain cost. Because a shortage of inventory yields losses in sales, while an excess of inventory may lead to useless storage costs, it is critical to make an exact estimation of optimal inventory.  How to Optimize Inventory The operating cycle of a business determines the optimization of its investment in working capital. It calculates the amount of time that has passed between the investment of cash and the realization of the investment out of sales revenue. The period during which investments of one unit of money remain locked in the normal course of operations until revenue is recovered is known as the operating cycle. Each project's operating cycle is different.  The operating cycle of the cost element in a typical small-scale industry starts with the purchase of materials. The contents are not consumed right away. 'Raw Materials Conversion Period' is the next step in the cycle. When materials are sent for production, there is another time interval between sending the materials and making the finished product. This interval of time is referred to as the 'Work-in-Progress Conversion Period'. The company anticipates demand and produces finished goods. The finished product would remain in the store until the demand for it is fulfilled.  Competition and other factors cause the company to offer credit facilities to its customers. "Book Debts Conversion Period" is the period of time between sale and cash acquisition. When the company buys raw materials from suppliers, it gets the credit. This time frame, which is referred to as the "Payment Deferral Period", shortens the operating cycle.  Inventory Optimization Management Techniques Inventory management primary challenge is to balance operating efficiency, investment costs, and other costs associated with large inventories. The goal is to reduce the basic conflicts while optimizing inventory holding. When it comes to making decisions about which item to manufacture and when to keep inventories in balance, a lot of different techniques are needed, from simple graphical methods to more advanced and complex quantitative techniques. Many of these techniques use mathematics and statistical ideas and instruments, along with various control theories from engineering and other fields. They are mainly focused on helping with better policy compliance and decision-making.  Effective inventory optimization management requires an understanding of the nature of inventories. To achieve this, the following analysis and classification methods are available. TechniqueBasisMain UseABC (Always better Control)Value of ConceptionTo control raw materials, components and work-in-progress inventories in the normal course of business mainly to control purchasesHML (High, Medium, Low)The unit price of the materialMainly to control purchasesXYZValue of the items in storageTo review the inventories and their uses at scheduled intervalsVED(Vital, Essential, Desirable)Criticality of the componentTo determine the stocking levels of spare partsFSN(Fast-moving, Slow moving, Not-moving)Consumption patterns of the componentTo control obsolescenceSDE(Scarce, Difficult, Easy to obtain)Problems faced in procurementLead time analysis and purchasing strategiesGOLF(Government, Ordinary, Local, Foreign sources)Source of the materialProcurement strategiesSOS(Seasonal, Off-Season)Nature of suppliesProcurement/holding strategies for seasonal items like agricultural products. Continuous Improvement and KPI Monitoring Based on the organization structure, each objective is divided into several sub-objectives, and these sub-objectives are then further divided into KPIs for each department. Surprisingly, even though the KPIs are established to achieve the same overall objective, they frequently conflict with each other. Thus, some departments report failures when they meet their KPIs.  Each department's organizational structure and functions must be changed so that their KPIs are synchronized in order to resolve the KPI conflicts. To achieve KPIs, the information system design should support departments' activities.  Department-wise old KPIs Production Department- Operating rate, production efficiency, and production cost are the KPIs for the production department. Continuous production reduces idle time and increases operating rates. Thus, a higher operating rate frequently leads to overstocking. Bigger lot sizes and continuous production reduce setup and changeover costs. But it makes it harder for the production department to adapt to demand changes. As a result, it hurts the KPIs for Logistics (excess inventory) or Sales (lost sales opportunity). Sales Department- The sales department's KPI is its sales figure. Sales teams usually make sales plans that meet demand. There are two main reasons. Their desire to increase sales is first shown by an ambitious plan. Secondly, they include “safety stock” in their sales plan to prevent sales opportunities from being lost. As a result, the company has a tendency to overstock. Additionally, the sales team tends to concentrate on products that sell quickly because the KPI is an overall sales figure rather than a single product sale. As a result, these products' sales exceed the planned target, resulting in stock-out. At the same time, slow-moving product sales fall short of the target, which leads to excess inventory optimization.  When stock-outs occur, the production department must adjust its production and purchase plans to increase production, which leads to higher production costs. Overstocking increases storage costs. Logistics Department- The company's logistics department is in charge of its product distribution system, which includes warehouse management and transportation. On-time delivery rate, transportation costs, and storage costs are the KPIs of the department. These individual KPIs are in conflict. Regular deliveries of smaller amounts will increase the on-time delivery rate. Also, the logistics team maintains high inventory optimization levels so that the goods can be shipped quickly। This causes overstock.  Restructuring On-time delivery rate, transportation costs, and storage costs are the KPIs of the department. These individual KPIs are in conflict. Regular deliveries of smaller amounts will increase the on-time delivery rate. Also, the logistics team maintains pipeline inventory management optimization levels so that the goods can be shipped quickly. This causes overstock.  Department-Wise New KPIs Production Department- Production cost is now the most important production KPI, followed by plan achievement rate. After reorganization, SCM centrally controls the supply chain. Thus, the most important function of production is executing and achieving the production plan that has been prepared by SCM.  Sales Department- The company's sales figures are still the KPI for Sales. It is, however, the sum of all the individual products' sales, not just one total figure.   Logistics Department- The KPI for achieving the on-time delivery rate was also transferred to SCM from Logistics because the distribution planning function was transferred to it. The distribution plan achievement rate, transportation costs, and storage costs are the new KPIs for logistics.  Conclusion Business circles have heard about inventory optimisation, but they have difficulty finding a solution to the numerous supply chain issues they might have in their company. Inventory optimization application improves inventory management strategies across a broader supply network by integrating the most recent technologies and methods. Inventory optimization design goals include improving customer service, reducing lead times and costs, and meeting market demand. 

July 10, 2023
Different Types of Packaging and Their Uses

Different Types of Packaging and Their Uses

Warehouse packaging is crucial for a number of reasons, including protecting products, facilitating transit, and enhancing branding. For successful warehouse operations, you need to know about the different types of packaging and how they are used. We will discuss primary, secondary, tertiary, and specialised types of packaging in this blog, while also discussing the growing importance of sustainable packaging solutions. Retail-ready is one of the types of packaging that makes it easy to put products on store shelves and improves the shopping experience for both shopkeepers and customers. Flexible packagings, like plastic films, pouches, and bags, is versatile, convenient, and saves space. Customized packaging is specially made to match a product's needs and branding, helping companies stand out. Temperature-controlled packaging ensures that perishable items and medicines stay at the right temperature when they are transported. E-commerce is another type of packaging that focuses on keeping products safe, compact, and easy to open, which is important for online shopping. Primary types of Packaging Primary packaging is the first layer of packaging that comes directly into contact with the product. Protecting and keeping the product safe during transportation and storage is its main goal. Boxes, cartons, bags, pouches, bottles, and jars are some common types of primary packaging.  Various items are often packed in boxes and cartons, which provide a strong and secure enclosure. Bags and pouches, on the other hand, are flexible packaging options that are convenient for items like snacks, grains, and powders.  Primary types of packaging also allow advertising and communication of product information. Companies often use this layer to show their logo, product name, ingredients, usage instructions, etc. Secondary types of Packaging Primary packaged products can be stored and protected in secondary packaging. During transportation, it helps unitize, consolidate, and secure the primary packages. Shrink wrap, stretch wrap, and corrugated cases are common examples of secondary types of packaging. When heated, shrink wrap is a thin plastic film that adheres tightly to the packaged goods, protecting them from contamination, moisture, and tampering. Stretch wrap is an elastic plastic film that is stretched manually or mechanically and wrapped around palletized loads to secure them in place. Corrugated cases are made of corrugated cardboard. These are sturdy boxes that provide additional protection for main packages. They are often used for bulk shipments. It guarantees the product's integrity and safety during the journey. Retailers often use appealing secondary types of packaging to display their goods on shelves and increase visibility, which leads to more sales.  Tertiary Packaging Tertiary packaging is the outermost layer of packaging that is used to protect and transport several pieces of secondary packaged goods. During transportation, it is specially designed to facilitate storage, stability, and load security. Pallets, skids, strapping, banding, and dunnage are tertiary types of packaging examples.  Pallets and skids are flat structures made of wood, plastic, or metal on which products are stacked. They make warehouse handling, movement, and storage simple. Palletized loads are secured by banding and strapping to avoid collapsing or shifting during transportation. Dunnage, which includes air pillows, foam inserts, and paper fillers, is used to fill voids in tertiary packaging to protect goods from movements and falls. Tertiary packaging reduces product damage and transportation costs by maximizing storage space and stability. Primary PackagingSecondary PackagingTertiary PackagingDefinitionPackaging that directly holds the productPackaging used to group primary packagesPackaging used for shipping and handlingPros- Protects the product from damage and contamination- Provides product information- Enhances product visibility- Facilitates efficient handling and transportation- Protects primary packages during transit- Enables bulk packaging and labeling- Provides additional protection for shipping- Consolidates multiple secondary packages- Facilitates storage and distributionCons- Limited in terms of size and capacity- Can be costly to produce for individual products- May not provide sufficient protection for shipping- Adds extra material and cost to the overall packaging- Can be bulky and require additional storage space- Increased waste from packaging materials- May require additional handling equipment- Higher material and logistics costs- Increased waste from packaging materialsExamplesBottles, cans, pouches, blister packsCardboard boxes, shrink wrap, palletsWooden crates, shipping containers, pallets Specialized types of Packaging Based on the nature of the product being shipped or stored, special packaging is designed to meet specific requirements. e-commerce packaging, temperature-controlled packaging, and hazardous materials packaging are all included.  Temperature-controlled packaging is designed to keep products sensitive to heat, cold, or changes in temperature in a specific temperature range.  Transporting fragile goods, medicines, and other temperature-sensitive items requires this packaging.  Hazardous materials packaging is designed to follow rules and safely transport items categorized as hazardous. It maintains containment, stops leaks, and gives handlers clear labelling to warn of potential risks.  Due to the rise in online shopping, e-commerce packaging has grown significantly in recent years It is focused on giving customers a positive unboxing experience, ensuring that goods are delivered safely, and minimizing the risk of damage during transit. Sustainable types of Packaging Solutions As environmental issues are growing, sustainable types of packaging are becoming more and more popular. These solutions help in reducing waste and increasing carbon footprint. Sustainable packaging also allows the recycling of biodegradable and compostable materials. Plant-based plastics and fibres naturally break down over time, which reduces the types of packaging waste impact on the environment. Recyclable packaging is made of cardboard, paper, and certain plastics that can be reused to make new goods. Materials like bubble wrap, foam inserts, air cushions, and moulded pulp ensure that products remain undamaged during storage and transportation. Sustainable types of packaging minimize the impact that it has on the environment by using recyclable, biodegradable, or compostable materials. Minimalist packaging designs focus on reducing waste, maximizing space, and avoiding unnecessary types of packaging materials.  Businesses can save resources and cut costs by only using what is necessary. Sustainable packaging solutions improve a brand's image and customer perception while also helping save the environment. Consumers are becoming more aware of their decisions when it comes to purchasing things, and they prefer brands that align with their values. Types of Packaging solutions include methods, materials, and designs that are used to pack products. These solutions can be tailored to meet certain needs. This includes safety, transportation,  promoting the brand, eco-friendly, and making it convenient for customers. Importance of types of packaging in warehouses Protection: Packaging protects products from damage, contamination, and external elements like moisture, dust, and ultraviolet light. Transportation: Proper packaging helps products move safely and efficiently throughout the supply chain. Branding and marketing: Packaging enhances the customer experience by communicating brand and product information. Storage and organization: Storage, inventory management, and order fulfilment in warehouses are made easier with well-designed packaging. Conclusion For successful warehouse operations, you need to know about the different types of packaging and how they are used. Primary types of packaging are the first layer of packaging that comes directly into contact with the product. Boxes, cartons, bags, pouches, bottles, and jars are some common types of primary packaging. Primary packaging also allows advertising and communication of product information. Shrink wrap, stretch wrap, and corrugated cases are common examples of secondary packaging. When heated, shrink wrap is a thin plastic film that adheres tightly to the packaged goods, protecting them from contamination, moisture, and tampering. Tertiary packaging is the outermost layer of packaging that is used to protect and transport several pieces of secondary packaged goods. Temperature-controlled packaging is designed to keep products sensitive to heat, cold, or changes in temperature in a specific temperature range.  Transporting fragile goods, medicines, and other temperature-sensitive items requires this packaging.  Hazardous materials packaging is designed to follow rules and safely transport items categorized as hazardous.  Minimalist packaging designs focus on reducing waste, maximizing space, and avoiding unnecessary types of packaging materials.  Businesses can save resources and cut costs by only using what is necessary. Storage, inventory management, and order fulfilment in warehouses are made easier with well-designed packaging. Packaging solutions are essential for keeping products safe and giving customers a good experience. They are constantly changing to meet industry needs, consumer preferences, and sustainability objectives. Businesses can improve product safety, reduce environmental impact, and create a memorable brand image by choosing the right packaging solutions.

July 06, 2023
Inventory Management Strategies for E-commerce

Inventory Management Strategies for E-commerce

E-commerce has become popular in the retail industry due to the internet surge and increasing customer confidence. In E-commerce, business is conducted electronically and it satisfies the objective of an individual. Manufacturers get various opportunities to sell and distribute directly to the customer through E-commerce. Advancements in technology have built new streams in inventory management and supply chain.  Inventories across these networks must be controlled by the management in this era of complex supply chain networks. One of the core of supply chain management is effective inventory management. Along with traditional approaches that one adopted to control inventories, new tools and technologies are used to manage inventories in E-commerce.    With the advent of the same, several new supply chain concepts such as inventory aggregation, transshipping, virtual inventory, and virtual order fulfilment have emerged. Risk pooling allows to keep inventory management on hold allowing the supply party to do the same until it is needed at a downstream location. Virtual inventory management is a concept of satisfying customer demand from more than one inventory management location. It emerged from information sharing.  A primary distribution site is assigned to the customers. These sites have backup locations with minimal additional cost. The replacement of inventory management with information allows for the utilization of inventory from any available stocking location to fulfil an order. This can be accomplished by either shipping the products directly from one of these stocking points or by transferring inventory from one location to another, known as cross-shipping or transshipping, to meet the order requirements. Agile Web Systems for E-commerce Inventory Management Some companies do not have the necessary security and fail to provide reliable data and when these companies decide to incorporate a web-based system it gets affected. Additionally, they also require continuous maintenance with guaranteed improvement. It is imperative for the employee to re-record his/her data and information when a customer purchases a product. It may result in data redundancy that leads to long-term maintenance requirements. In order to create prototyping for inventory management, Scrum methodology is used. This strategy has easy management and process control. Scrum methodology allows one to carry out large projects in a shorter duration and therefore it involves 5 stages for a better result. The product portfolio of 6 user strategies is displayed in the first stage. This stage is crucial to understand the objectives of the system to be implemented. The second phase takes into account the stories and shows the sprint backlog. In this phase, the increment activities to be carried out are distributed. The third stage is dedicated to meetings to discuss software development. Stages 4 and 5 implement new stories and develop the software.  Role of AI in Inventory Management for E-commerce Inventory management is a major challenge in the retail market but it is now easily tackled by AI algorithms. As overstocking needs to meet inventory management costs and rental, managing stock became a nightmare for every retailer. AI can help to design models of predictive analytics in the fluctuating market. This includes identifying the key factors affecting the speed of orders. These analytics are used by E-commerce companies to improve productivity and utilization of resources. AI tools also help the provider simplify the distribution network and inventory management. A hyper-efficient logistic system is created by AI and big data in the smart E-commerce ecosystem. Data is gathered through IoT and remote sensing. Products and vehicles have sensors which provide data on the receipt of goods, origin, and destination. It also leverages the cost of last-mile delivery. Using big data and AI continuously pushes logistics to evolve in a more sustainable way. Marketplace Model Also known as zero inventory, this organization creates a platform where the dealer can frame its products and maintain stock in a store. A certain commission is changed on the order by the facilitator from the merchant. Examples include snapdeal, Flipkart, and eBay. Inventory model A product is chosen by a buyer from an online shopping platform post and the company take care of the process. In this inventory model, the organization maintains the distribution centre for the stock inventory and the order is dispatched to the customer's doorstep. Hybrid Model Amazon and Flipkart have recently shifted towards the hybrid model due to current FDI inflows in India. This model is a mixture of inventory and marketplace models. Fulfilment services like FBA, Snapdeal Plus and Flipkart Advantage are included in the marketplace model. Sellers can make the choice of self-fulfilment or marketplace fulfilment.  Talking about the application of machine learning in e-commerce, includes sentimental analysis, fraud detection, inventory management optimization, and much more. Retailers must see the demand precisely using predictive analytics. These models are designed with the help of AI which helps to identify the key factors that lead to changes in demand for different products. With the help of this, retailers can predict their inventory management needs. To save the product demand from the bullwhip effect, machine learning methods like neural network and support vector machine (SVM) plays a major role in demand forecasting. FactorMarketplace ModelInventory ModelHybrid ModelDefinitionAn e-commerce platform where multiple sellers list and sell their products.An e-commerce model where the company maintains its inventory and fulfills orders.An e-commerce model that combines elements of both the marketplace and inventory models.Inventory OwnershipThird-party sellersCompany-ownedCombination of third-party sellers and company-owned inventoryScalabilityHigh scalability due to a wide range of products from different sellers.Limited scalability based on the size of the company's inventory.Moderate scalability as it combines the offerings of multiple sellers with its inventory.Inventory ControlLimited control over seller's inventory.Full control over inventory management and optimization.Control over company-owned inventory and limited control over third-party seller inventory.AI IntegrationAI can be used to optimize search results, personalized recommendations, and fraud detection.AI can be leveraged for demand forecasting, automated reordering, and inventory optimization.AI can be applied for demand forecasting, personalized recommendations, fraud detection, and inventory optimization.Cost EfficiencyLower operational costs as there is no need to maintain inventory.May have higher operational costs due to the need for inventory management.Costs can vary based on the extent of third-party inventory and company-owned inventory.FlexibilityOffers flexibility in product variety and range.Limited flexibility as it relies on the company's inventory.Provides a balance of flexibility by combining third-party inventory and company-owned inventory.Customer ExperienceCan provide a wide range of products and competitive pricing.Offers better control over inventory availability and faster order fulfillment.Can offer a combination of diverse product selection and efficient order fulfillment.Risk ManagementLower risk as the responsibility lies with the sellers.Moderate risk as the company is responsible for maintaining inventory.Moderate risk due to managing both third-party inventory and company-owned inventory. Problems Encountered in Inventory Management Demand Fluctuation Demand fluctuations are caused due to seasonality and product popularity. Due to this most of the online retailers have to account for the same. For e.g., most stationary retailers face a challenge to supply the necessary item when schools reopen in India after summer vacation. During this time the demand will fluctuate more due to seasonality. Similarly for online apparel stores demand fluctuation will be caused by a particular product. Retails should be able to handle such situations by having better foresight. Reverse Logistics When online retailers face one of the greatest challenges to enhance customer satisfaction it is known as reverse logistics. The challenge is high product returns and therefore reverse logistics management is crucial for survival. When products are returned, they need to be organized into categories to see if they can be reused in different products.  Stockouts When online retailers carry lesser inventory to reduce costs its benefits are widely acknowledged. But on the other hand, it may increase the risk of stockouts. Stockouts can cause retailers to face declining sales and customer satisfaction. Managing SKU This is mostly faced by online apparel retailers where they face problems in inventory management of information for various SKUs. This occurs because each product can have various sizes and colours. Conclusion  In E-commerce, business is conducted electronically and it satisfies the objective of an individual. Manufacturers get various opportunities to sell and distribute directly to the customer through E-commerce. Along with traditional approaches that one adopted to control inventories, new tools and technologies are used to manage inventories in E-commerce. Risk pooling allows to keep inventory management on hold allowing the supply party to do the same until it is needed at a downstream location. The replacement of inventory management with information allows for the utilization of inventory from any available stocking location to fulfil an order. This can be accomplished by either shipping the products directly from one of these stocking points or by transferring inventory from one location to another. It is imperative for the employee to re-record his/her data and information when a customer purchases a product. It may result in data redundancy that leads to long-term maintenance requirements. In order to create prototyping for inventory management, Scrum methodology is used. AI tools also help the provider simplify the distribution network and manage inventory. A hyper-efficient logistic system is created by AI and big data in the smart E-commerce ecosystem.

July 06, 2023
An Introduction to Amazon FBA: Fulfillment by Amazon

An Introduction to Amazon FBA: Fulfillment by Amazon

Being one of the largest retail platforms, Amazon is a hub of millions of merchandise. To get success in online retailing, logistics plays an important part. An effective logistic system saves the processing cost, transportation cost, and storage costs, and adds value to the transaction. According to studies, for 93% of consumers, the shipping option is an important factor to be considered. Along with providing benefits to Amazon sales, the advanced logistics system is also available to third-party sellers through the Amazon FBA program. Through this program, third-party sellers can place their products at fulfilment centres. On behalf of these sellers, amazon then ships the items and provides customer services. How Amazon FBA Works FBA stands for fulfilment by Amazon and it allows the sellers to store their merchandise in Amazon fulfilment centres. Here is a step-by-step process of how it works: 1. Seller Account Setup: Create an Amazon seller account where you can choose between an individual/ professional seller account.  2. Product Listing: Sellers can start creating product listings once their account is created. One needs to provide detailed product information, description, title, pricing, and other details of the product.  3. Inventory Shipment: This process involves proper packaging and labelling of the products following Amazon’s guidelines. Sellers can ship their products in two ways: Directly or through Amazon’s partnered carriers.  4. Storage at Amazon Fulfillment Centers: Once the product is arrived at the fulfillment centers Amazon stores the inventory in its warehouse. Proper storage condition and inventory management to maintain stock.  5. Order Processing: After placing an order, it is processed through Amazon’s system. The order is then picked, packed, and shipped to the customer on behalf of the seller.  6. Shipping and Delivery: The extensive logistics network of Amazon here comes to play. It uses various shipping methods like Prime and non- Prime delivery options to ship the products, ensuring a fast shipping experience for customers.  7. Customer Service: Customer inquiries, complaints and return-related inquiries is handled by Amazon FBA. Returns and refunds are facilitated as per its policies.  8. Fee Structure: The Amazon FBA service includes a fee structure which includes storage fees depending on the space occupied by the inventory. The fees vary based on product size, weight and storage description. 9. Sales and Payments: Through the Amazon seller dashboard, sellers can monitor their sales and inventory performance. After every two weeks, Amazon distributes payments to sellers for their sales. 10. International Expansion: Amazon FBA also allows sellers to expand their business globally. Importance of Meeting Delivery Appointments and How to Ensure Appointments, Consequences of Failure In Amazon's Fulfilled by Amazon (FBA) program, meeting delivery appointments is crucial for successful business operations. Let's explore why it's essential, how to secure appointments and the impact of not meeting them. Why Meeting Delivery Appointments Matters: Customer Satisfaction: Timely deliveries make customers more satisfied, which leads to positive reviews and repeat purchases. Amazon Performance Metrics: On-time delivery is a critical performance measure that impacts your seller rating and buy box eligibility. Buy Box Eligibility: Your chances of winning the buy box and increasing sales increase with regular on-time deliveries. Order Volume: Meetings increase order volumes because your products remain available for purchase. How to Secure Delivery Appointments: Shipping Queue: Stay proactive and monitor your shipping queue regularly in order to secure preferred delivery dates. Ship Early: To avoid delays and meet appointments, ship items ahead of the estimated arrival date. Carrier Communication: Coordinate with carriers to ensure they pick up shipments at the earliest possible time. Utilize Amazon-Partnered Carriers: For reliable and faster deliveries, choose Amazon-partnered carriers. Impact of Failure to Meet Appointments: 1.Order Defect Rate (ODR): Late deliveries lead to a high ODR, which may result in account suspension. 2. Customer Feedback: Late deliveries cause negative feedback, which hurts your reputation and trustworthiness. 3. Lost Buy Box: Consistent late deliveries may result in losing the buy box, affecting sales. 4. Performance Notifications: Amazon sends performance notifications for unsuccessful appointments. Advantages of Amazon FBA 1. Wide Customer Reach: With a massive customer base, amazon provides its sellers with access to millions of potential customers. By leveraging the prime membership program, sellers can get a large customer base.  2. Prime Eligibility: Amazon FBA products are eligible for Prime which offers them free and fast shipping. Eligibility for prime enhances the visibility of products and increases customer sales potential.  3. Reliable Fulfillment: The fulfilment network of Amazon is well-established and efficient. It ensures timely processing, packaging, and shipping 4. Warehousing and Inventory Management: Third-party sellers can benefit from the warehouse infrastructure of Amazon. It helps in storing and managing the inventory freeing up the sellers from the burden.    5. Multichannel Fulfillment: Through the advantage of multichannel fulfilment, sellers can fulfil orders not only from Amazon but also from their websites. This provides a consistent experience for customers across various sales channels. 6. Customer Service and Returns Handling: Sellers that use FBA are taken care of customer inquiries, feedback, and returns. The customer service team of Amazon manages customer interactions, resolves issues, and processes returns. It also reduces the workload for sellers and ensures a positive customer experience. Potential Challenges and Considerations 1. Fulfillment Fees: FBA services from Amazon include fees for storage, picking, packing, and shipping of the products. The fees can impact one’s profitability especially if the products are of low margins. It is important to consider these fees while setting prices and managing your inventory. 2. Competition: The popularity of Amazon FBA has increased competition among sellers. One faces competition from other sellers, as well as from Amazon itself. To stand out from the competition it is necessary to conduct thorough market research and differentiate your products. 3. Product Preparation and Labeling: It is important to prepare and label the products to comply with Amazon FBA. This involves additional time, effort, and costs for labelling and packaging materials. To avoid issues and delays, understanding Amazon's packaging and labelling guidelines is a must.  4. Inventory Storage Limits: High storage limits are imposed on sellers by Amazon. This usually happens during the peak season. Exceeding these limits may result in additional fees. Some may also face restrictions while sending new inventory. To optimize storage space, effective inventory management is crucial. 5. Inventory Placement: Amazon helps sellers to distribute their inventory across multiple centres. But it can result in higher transportation costs and complexities in management. Success Stories and Tips from Amazon FBA Sellers Success Story: Deepak Rajaram and the 'Goodness' Pet Food Brand Deepak Rajaram is a dog-lover from Chennai. He embarked on a  journey to revolutionize the dog food industry in India. He was Inspired by his desire to provide the dogs with the best nutrition. That is how Deepak founded the brand 'Goodness pet food. With determination and the support of his wife Swapna, Deepak's business soared to new heights. Thanks to their strategic partnership with Amazon. Tips from the Story: By observing the market for gaps or unmet needs that align with your passion or expertise. Addressing these gaps can offer opportunities for business growth and customer satisfaction. Utilizing platforms like Amazon help to reach a broader audience, especially when facing challenges in traditional retail. Online marketplaces provide access to a large customer base, trusted infrastructure, and logistical support. One must prioritize quality and nutrition in their products. This can be done by offering something unique and valuable. Delivering on promises and maintaining consistent quality will help build customer trust and loyalty. Building a strong support system and delegating responsibilities to capable individuals who share your vision must be a priority. You may also like to read: Top Amazon FBA Alternatives in 2024 Boost Your Fulfillment Strategy with WareIQ's Seller Flex Services While Fulfillment by Amazon (FBA) offers a robust solution for sellers looking to streamline their logistics, integrating WareIQ's Seller Flex services can further enhance your fulfilment strategy. This innovative approach allows sellers to maintain control over their inventory while benefiting from the advantages of Amazon's extensive marketplace. The Benefits of Combining Seller Flex with FBA Greater Control Over Inventory Management With WareIQ's Seller Flex, sellers can manage their inventory from their own warehouses or utilise WareIQ’s network of fulfilment centres. This flexibility allows for: Responsive Stock Management: Quickly adapt to changes in demand without the constraints of Amazon's storage limits. Optimised Inventory Placement: Strategically position stock in locations that minimise shipping times and costs. Enhanced Delivery Speed In today's fast-paced e-commerce environment, timely deliveries are essential. WareIQ's Seller Flex services complement FBA by: Reducing Shipping Times: By leveraging a nationwide network of fulfilment centres, products can be dispatched from locations closer to the customer, ensuring quicker delivery. Maintaining Prime Eligibility: Products fulfilled through Seller Flex can still carry the Prime badge, providing the same level of customer trust and satisfaction associated with FBA. Streamlined Returns Management Returns can be a significant challenge for sellers. WareIQ simplifies this process by: Efficient Returns Handling: WareIQ manages returns on behalf of sellers, reducing the administrative burden and allowing sellers to focus on growth. Quality Control: Utilising an in-house QC app, WareIQ ensures that returned items are documented accurately, streamlining the claims process and minimising disputes. Addressing Common Challenges of FBA with WareIQ’s Seller Flex While FBA offers many advantages, it also presents challenges that can impact seller performance. WareIQ's Seller Flex services help mitigate these issues: Avoiding Compliance Pitfalls The intricate requirements of FBA can be overwhelming. WareIQ ensures that inventory is prepared according to Amazon's standards, reducing the risk of non-compliance penalties. Cost Management FBA fees can accumulate quickly, especially with storage and fulfilment costs. By using WareIQ’s Seller Flex, sellers can lower their overall fulfilment expenses through optimised logistics and reduced reliance on Amazon's pricing structure. Integrating WareIQ's Seller Flex services with your Amazon FBA strategy offers a powerful combination that enhances operational efficiency and customer satisfaction. By providing greater control over inventory, faster delivery options, and streamlined returns management, Seller Flex empowers sellers to navigate the complexities of e-commerce confidently. As you elevate your fulfilment strategy, consider the advantages of incorporating WareIQ's innovative solutions alongside Amazon FBA to achieve sustained growth and success in the competitive marketplace. Conclusion Amazon is a hub of millions of merchandise. To get success in online retailing, logistics plays an important part. According to studies, for 93% of consumers, the shipping option is an important factor to be considered. Along with providing benefits to Amazon sales, the advanced logistics system is also available to third-party sellers through the Amazon FBA program. FBA products are eligible for Prime which offers them free and fast shipping. Eligibility for prime enhances the visibility of products and increases customer sales potential. Through the advantage of multichannel fulfilment, sellers can fulfil orders not only from Amazon but also from their websites. FBA products are eligible for Prime which offers them free and fast shipping. Eligibility for prime enhances the visibility of products and increases customer sales potential.  Delivering on promises and maintaining consistent quality will help build customer trust and loyalty. The fees can impact one’s profitability especially if the products are of low margins. It is important to consider these fees while setting prices and managing your inventory.

July 04, 2023
7 Inventory Management Techniques: Exploring FIFO, FEFO, and LIFO Methods

7 Inventory Management Techniques: Exploring FIFO, FEFO, and LIFO Methods

Originating from the French word “Inventaire”, inventory means a listicle of things discovered. It simply refers to raw materials, products in the manufacturing process, goods, packaging, and all sorts of physical inventory. These items are stored to be kept prepared for future distribution needs. What are the inventory management techniques? The key factors that make a venture successful include its ability to provide valuable services to users and retain finances. Its major activity of it is to have suitable products available at an affordable price within an acceptable timescale. In stabilizing this situation, many parts of a business are involved, for eg., designing, purchasing, and manufacturing. The next important process involves the continuity of goods supply to the users. It applies to the items that are already in the marketplace. Customer service, logistics or manufacturing of a company is supported by inventory management techniques, especially in situations where the item is unable to satisfy the demand. It could arise due to many reasons such as the pace of purchasing, protracted manufacturing, or the demand rate exceeding the maximum supply rate.   Inventory management techniques and tools The inventory control organization employs inventory management techniques within the framework of one of the basic inventory models. The basic inventory management models include the fixed order quantity system or fixed order period system. All items of inventory and all stages from the stage of receipt from suppliers to the stage of their use should be covered.  ABC Analysis The mechanism provided by ABC analysis inventory management techniques for identifying items not only has a significant impact on overall inventory cost but also identifies different categories of stock that demand different management and control. The inventory items are valued while carrying out ABC analysis. Following this, the results are ranked. These results are grouped into three bands- ABC codes. The A band accounts for 85% of the total values while the B&C classes have 15% and 5% for the remaining. XYZ Analysis Another one of crucial inventory management techniques items is XYZ analysis. X refers to very little variation and is characterized by steady turnover occurring over time. Y means some variation and is not steady. Hence, the demand variability can be predicted to an extent. Factors causing demand fluctuations include seasonality, lifecycles, and the economy. Z has the most variation and the demand can fluctuate strongly for Z items. HML Analysis Similar to ABC analysis, HML analysis differentiates from ABC analysis in terms of cost per unit criterion. The items under HML analysis are classified based on their unit prices. They are categorized into high-price, medium-price, and low-price items. VED Analysis Aiming for vital, essential, and desirable analysis, VED analysis refers to the maintenance of spare parts and the functionality of stocking spares. The non-availability of some important spares renders a number of equipment and even causes damage to human life. Some spares on the other hand are non-functional and serve unimportant purposes. So all in all, V stands for the vital items which render the whole line operation or the equipment. In this process, unsafety leads to loss of production. E is the essential item which reduces the performance of the equipment without rendering it. D stands for the desired items which are non-functional and hence do not affect the performance. SDE Analysis SDE Analysis is done by knowing the availability in the market. This analysis is useful in industries where some materials are scarce as it provides proper guidelines for deciding inventory management policies. S are the items which are in short supply for eg., raw materials and spare parts. D refers to difficult items that are not available in the markets readily. For these items, it is difficult to get quality suppliers. E are the items which are easily available in the markets. SOS Analysis SOS refers to seasonal, off-seasonal systems and consists of raw materials like agricultural inputs. The price of these materials during the off-season would generally be lower. These items are procured and stocked for meeting the entire year's needs. The prices of these items are almost the same throughout the year and are less during the harvest season.  A perpetual inventory system is a stock management technique that updates stock levels when there are transactions, like sales, purchases, or returns of purchases. FSN Analysis The FSN analysis is based on the rate of spare parts usage. FSN stands for fast-moving, slow-moving and non-moving items. The items in the FSN analysis are characterized based on how frequently the parts are issued and used. For instance, fast-moving are items which are issued from inventory and are used more than once for a specific duration. Slow-moving items are less frequently used and might be used once. Non-moving items are not issued from the inventory at all.  FIFO, FEFO, and LIFO Methods First in, first out method (FIFO) The items under the FIFO inventory management techniques that are first procured must be sold for production first. This implies that in-hand items are recent ones. This strategy connects with the actual progress of stock in most industries and therefore is desirable. In the phase when the cost is increased. It is presumed that most primitive units are first utilized. This means that the smallest amounts are charged according to the cost of goods that are sold first. One advantage of this method is that the oldest stocks are flushed out and inventory that is retained. First Expired First Out (FEFO) Under FEFO the items that are procured with early expiry are sold for production first. It means that the items in hand are more durable. The materials that are utilized are the ones about to expire in recent times. This method benefits by flushing out the stocks and retaining the most fresh inventory. Last In, First Out Method (LIFO) One of the inventory management techniques where the items that are procured last are consumed first is LIFO. This implies that in-hand items are the oldest ones. LIFO is banned under international financial reporting standards as it does not go with the natural flow of stock. The last units procured are utilized first. The cost of goods that are sold, leads to a low amount of operating costs and low-income taxes. One disadvantage of this method is that the oldest stock is not flushed out for years. FIFO VS FEFO When organizations distribute products with a limited shelf life FIFO or FEFO plays an important role in inventory management accounting. In the FIFO analysis, the goods selected first are the ones which are procured first. Whereas in FEFO, when new stock is purchased the goods are scheduled in the line of expiry. This is useful for beverages, medical products, and groceries that can perish rapidly. The basic objective is to keep fresh food in hand with FEFO inventory management techniques. In the FIFO method, goods may be purchased by mistake which has less expiry date and in such case, organizations may have to suffer a hefty loss due to its First in first out policy. Conclusion The key factors that make a venture successful include its ability to provide valuable services to users and retain finances. Customer service, logistics or manufacturing of a company is supported by inventory management techniques, especially in situations where the item is unable to satisfy the demand. The basic inventory management models include the fixed order quantity system or fixed order period system. When organizations distribute products with a limited shelf life FIFO or FEFO plays an important role in inventory management accounting. In the FIFO analysis, the goods selected first are the ones which are procured first. In LIFO, The last units procured are utilized first. The cost of goods that are sold, leads to a low amount of operating costs and low-income taxes.

July 03, 2023