Inventory Management – Dutch Uncles

Inventory Management for Your Online Store

Shalmoli Sarkar — Tue, 16 Feb 2021 01:35:04 +0000

Rita does an online business of quirky t-shirts for the college-goers is facing certain hurdles in managing her inventory and cashflows. Rita’s t-shirt prints are based on the popular memes that float on social media, DC and Marvel superheroes, and college lingos. The t-shirts get sold as long as the fashion is not obsolete. Recently, the Bernie Sanders meme did multiple rounds on social media, eventually driving more demand from college-goers for t-shirts bearing the same meme print. But the recently released movie of DC Comics Wonder Woman 1984 failed to create magic, which led to a lesser demand for wonder woman t-shirts. Going through the notion that the DC character movies are usually a hit, she stocked more Wonder Woman print t-shirts and less of Bernie Sander’s meme t-shirt. Her inventory planning backfired her when she started to lose customers since meme print t-shirts were out of stock. Now Rita cannot buy new stocks since a lot of money is tied up because of the overstocked inventory of the DC print t-shirts.

The inventory management problems faced by a D2C fashion owner like Rita are not very uncommon. Good inventory management is crucial for the growth of a company. Demand for a product is highly dependent on the volatile nature of trends, consumer choices, and seasonality. A business owner needs to understand to create a balance between having too much or too little. Similar to cash flow, it can make or break a business.

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Inventory management can make or break a business.

What is inventory management?

Inventory management is tracking the company’s stocked goods by monitoring their weight, dimensions, amount, and location. Inventory management aims to minimize the cost of holding inventory by helping business owners know when to restock products or buy more materials to manufacture them.

What will happen if inventory management is sloppy?

As said, that a balance needs to be maintained, we shall bifurcate the disadvantages arising from both understocked and overstocked inventory.

Problems due to understocked inventory

Missed Sales

Be it a start-up or a Fortune 500 company, the only means of revenue generation for a company is through sales. It is sales, that the company can set aside a separate budget for marketing and promotional activities, giving salaries to employees, and buying stocks. Missing sales due to understocking on a peak season truly hurts a business, knowing that the company could have made profits. Understocked inventory results in customers migrating to your competitors. The damage caused due to lost sales depends on the price of the item and order quantity. New businesses that run out of stock frequently will have trouble reaching the break-even.

Lose customers

Online businesses have become highly competitive. For a single product, there are many shops to buy from online. Customers will not come back to your store if they find someone else who can promptly fulfill their demands at a competitive price. As per a study from Harvard Business Review, 31 per cent of customers will buy from a different online store if the product is not found in your store due to understocking, and 26 percent will substitute a similar product with some other brand.

Understocked inventory results in losing a repeat business. Every customer that turns away is a lost source of recurring profit for your business.

Problems Due to Overstocked inventory

Held up money

Overstocked inventory holds up money that could be utilized for better use. The same tied up money can be used to pay salaries, pay off debts, purchase more understocked inventory, and other miscellaneous expenditure. Inventory has a limited shelf life because of spoilage, obsolescence, material degradation, or changing consumer trends. If the inventory expires, the tied-up money in the inventory is lost that becomes detrimental to the company’s cash flow. Businesses need to determine with accuracy the inventory requirement without understocking or overstocking it.

Excessive spending on warehouse

Warehouse storing charges depends on how much inventory is stored. Inventory that does not sell fast, is bound to increase your storage costs.

A proper Inventory Management improves cash flow

Good inventory management makes your business more cost-efficient, as it helps manage cash flow. A poor understanding of inventory management leads to a miscalculation of supply. An inventory is a finished product that we have purchased with cash and will be sold in exchange for cash, but if the demand is low, we will not be able to liquidate it, eventually increasing our storage costs. Higher unsold inventory means more cash outflow, and running out of stock means missing on sales revenue. With more cash inflow a company gets extra resources to expand the business.

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Higher unsold inventory means more cash outflow, and running out of stock means missing on sales revenue.

Effectively managing inventory from Shopify

D2C stores or small online stores are now not only about giving discounts to entice customers but also aim to provide convenience, wider product availability, and experience. Online businesses are adopting an omnichannel approach to ensure that customers can receive the product faster. This is why businesses need to have superior tracking over inventory on both offline and online channels. An organized multi-channel inventory management helps to evade losses from misplaced items, returns and spoilage reduces inventory costs and paves the way for better customer service.

Small businesses usually manage inventory manually by creating large spreadsheets. Now imagine this, say you are dealing with multiple product lines, you will need to develop spreadsheets for each product type. And every time to track and update inventory you would refer to multiple documents, unnecessarily consuming time and creating confusion. And to make things worse, if your colleague fails to update the sheet with the latest number in inventory, it will be a doomsday for your business.

Now, here lies an advantage for businesses that are operating on Shopify. Shopify comes with in-built inventory management features at the backend for its customers. Also, it has a plethora of inventory management apps that helps you to make inventory decisions effectively. So, let us begin managing the inventory from Shopify.

Benefits from Shopify Inventory Management

Tracking and updating inventory easily

From Shopify, we can customize the Stock Keeping Units (SKU) and inventory number for each product based on category, type, season, etc. Each product in the inventory app consists of an inventory field that can be adjusted manually. You can view the number of each product you have on your Inventory page. You can also use filters to sort through product information by availability, quantity, product vendor, tags, and product type. We can also change inventory quantities in bulk through the bulk editor option for multiple product variants and locations appearing on your Shopify store. Inventory adjustments made for bulk inventory are displayed in rows and columns similar to a spreadsheet.

Inventory history

Shopify can provide you the inventory history of up to 90 days of any product or variant. Inventory history is viewable that includes the date of inventory adjustments made, the changes made by the individual, and the updated quantities of the inventory.

Inventory transfers

We can log, track and receive transfers between various warehouse locations and suppliers.

While the above features will be helpful for small to mid-sized online businesses, but they might not be sufficient for businesses who are scaling and are selling on multiple e-commerce platforms like – Flipkart, Amazon, and other social media pages, etc. Thus, managing inventory using the in-built inventory management from Shopify can be a daunting task. Shopify has various inventory management apps that will give access to greater functionality.

What Shopify Inventory management apps can offer?

Below are a host of benefits that Shopify inventory management apps can offer the businesses:

Multi-channel functionality

The inventory management apps can enable tracking of stock levels across multiple sales channels such as Shopify, Flipkart, Amazon, Etsy and Facebook Shops. It reduces the risk of stock counting errors and helps to keep a watch on sales across channels.

Automatic order generation and replenishment

Based on sales velocity, lead time, delivery date, and inventory availability across warehouses the apps can automatically generate purchase orders whenever stock is low. When a business handles more product lines, its inventory replenishment becomes more complicated. The apps can recommend order quantities that will streamline replenishment, thus minimizing errors.

Sales analytics

It provides a detailed in-depth report of stock level across all the channels and warehouses, from which we can determine product sales, profitability, sales margin, etc.

Demand forecasting

From the past sales data and business trends, the apps can suggest which products are worth reordering and to be kept on the shelves.

Things to consider while selecting an inventory management app

Any app we choose to manage inventory should have:

It should be able to integrate with other existing apps that you use.
If you have a physical store, then select apps that can integrate with the Point of Sales (POS) billing system. This will allow you to automatically sync online and in-store orders and stock levels, ensuring no discrepancies between stock levels in your online and offline sales channels.
The app should have sales forecasting capabilities offering an approximate projection of market trends and growth rates.
Should generate a variety of real-time actionable reports on inventory analysis.

Popular inventory management apps on Shopify

Stocky
Trade
Skubana
Stock Sync
Trade Gecko

A good inventory management app will help you streamline and automate inventory management, save on and reallocate resources, and help you forecast trends, which is crucial for running a successful e-commerce business. With the above knowledge, find out the right app for your store, so that you can keep inventory under control and sales graph on an increasing mode. Download the app now to get started.

The post Inventory Management for Your Online Store appeared first on Dutch Uncles.

Inventory Management: Better Safe Than Sorry

Kiran Kennedy — Mon, 21 Dec 2020 06:54:31 +0000

Don’t you just hate it when you go to a restaurant in anticipation of your favourite dish but they say, “Sorry, we ran out of stock.” A big disappointment for sure, but you might order the next best thing or go to another restaurant instead. This is exactly what happens if you do not have full control over your inventory or stock of finished products. You will lose customers to your competition and your profits will dip and you fail to supply what your customers want.

What Is Inventory Management?

A crucial part of the supply chain, inventory management is more complex than stocking your warehouse or feeding your procurement needs. Inventory refers to all physical items which flow in and out of a company. This includes the raw materials for production as well as the finished products for sales. Inventory management uses various methods and management techniques to handle the process of ordering, storing and using a company’s inventory.

Now, one may think that inventory management only concerns the raw materials that come into the flow of production, but it happens at all stages of a company’s line of production and supply chain. This includes raw materials, semi-finished goods, and even the finished products that are waiting somewhere in a company warehouse, waiting to be shipped off to the market.

Inventory management can be framed as having the right amount of goods or items necessary for a business to run successfully at any given time. On the one hand, there should be no shortages of inventory, but there the company should also avoid having so much in storage that it all goes to waste. Inventory management helps keep the balance.

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Without an inventory, a business will not have anything to offer its customers. Consider it the life blood of a business rather than just items.

How Does It Work And Why Is It Important?

Inventory management’s role in all this is to make sure that the company never runs out of these things. To make sure that does not happen, you need to track the market’s level of demand for your particular product or service. This gives you an idea of how often customers purchase your product/services and shows you how the pace at which inventory is should be ordered.

All this tracking and managing can be taken care of in two broad ways – manually or through software. With software the tracking is automated with minimal involvement of people. The manual method on the other hand, is almost entirely done by people.

Whatever path you choose for your company, it is apparent that inventory is key for any business to operate. Without it, even the supply chain, becomes just an empty system without anything to transfer, move or co-ordinate. Maintaining the right balance is crucial for any business, big or small. This is especially true for the likes of inventory-heavy industries such as the food business.

For instance, restaurants, need to make sure that they maintain a perfect balance at all times, while still maintaining quality (good food needs good ingredients). They have to have enough food that they do not run out on a busy night, but not so much that if business suddenly stops, (say, a sudden lockdown due to the pandemic) they are left sitting there with tons of food rotting in a storage unit.

Business foresight and ability to read the pulse on the market become vital. You do not want to suddenly find that there is a shortage – have the right amount of inventory, in the right place, at the right time. This is why inventory management is important, it lets you know when there is no more food in the kitchen.

Which Inventory Method Works For You (Types Of Inventory)

ABC analysis

A technique that helps a company classify and manage its inventory based on the demand of the stock and the cost of holding or transporting it. The analysis tells us how fast the goods should be moved and how fast it needs to be reordered based on the demand. There are three different categories for this technique:

A level goods: The most popular and in-demand goods which will fly off the shelves and need to be restocked fast. These are not too expensive to store as these would be sold fast.

B level goods: Not so much in demand as the A-level goods but still enjoy a decent amount of demand. These are moderately expensive to store as they have to be stored for a longer period.

C level goods: Next come the laggards. C-level goods have the least demand, take up the maximum of storage space and, therefore, cost the most.

Just-in-time inventory

An extreme version of the EOQ system, it orders inventory when it is needed at the exact amount. It is a system that does not store much in reserve. Items are ordered only at the last minute.

Safety stock inventory (buffer)

Essentially keeping a backup stock for emergencies like a dip in the market, loss of revenue, loss of customers and so on. It will not work for perishable items like food though.

First in, first out (FIFO)

The oldest inventory in storage is sent out first for sales.

Last in, first out (LIFO)

The newest inventory is sent out first. Both help calculate the profitability of the inventory. You just have to pick one based on the demand in the market.

It is, indeed, a risky method but has a high-reward capacity if done right. The key here is to hire an inventory manager who understands the market and has a proven track record to get the job done.

A quick example of these fundamental techniques applied successfully is Walmart, a brand that most of us are familiar with. The retail giant has over $32 billion in inventory across 70 different countries. To move this massive amount, the company relies on two things. It uses automation software to move the inventory up and down the supply chain, and it does not store the stock for a long period. To put it simply, everything is sold and shipped quickly to make the flow faster and streamlined for maximum efficiency. The tracking software also helps reduce human error and keeps a tab on the numbers.

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The final aim of any inventory management system should be to get the products out to the customers as fast and as efficiently as possibile.

The Way Forward

Economic Order Quantity (EOQ)

This is the core of inventory management – order the minimum amount that you think your business needs to keep up with even the highest customer demands on any given day. The aim of this is to lower the cost of buying, storing and moving inventory as much as possible while staying competitive.

Minimum order quantity (MOQ)

On the other end of the spectrum, we have the minimum order technique. It is when a supplier is only willing to sell you a fixed minimum amount. This is the lowest quantity they can sell you while still making a profit if they sell lower than this, the supplier loses money. The purpose of this is so that suppliers can move inventory fast and skip over the businesses that want to bargain the price, which ultimately slows down the process.

The Materials Requirement Planning (MRP)

An inventory management method that is entirely dependent on the planning and forecasting abilities of inventory managers. They should be able to predict when a spike in demand is likely and place orders accordingly. If they overshoot or underestimate the prediction, it may result in severe losses for the company.

All of this can be achieved much more easily with the help of automation software. It is well worth the time and capital. It takes care of everything from tracking, budgeting, helps with planning for more inventory and also gives you an idea of how your sales are going to perform based on demand rates.

Trial runs help

Start with choosing the technique that best works for the specific type of industry that you want to be in and then, takes it for a spin. Conduct a practice run and ship some inventory around the system to make sure that everything works and flows nicely. Next, make use of reports, lots of reports. They help you keep a track of what went where and gives you a clear picture of how well your system performed in the past.

This is also why a trial run is needed moving forward as you do not want to do this when business is in full swing. You want to cover all your bases, that is to say, hire some extra staff. They do not have to be full-time; you can hire them part-time and keep them in reserve if demand ever goes through the roof and you suddenly need those extra hands. Speaking of covering all your bases, check out all your inventory – see how much you have to sell, how much you need to store, how much can be stored and for how long. That will give you a budget that you need to work within for the inventory system to work.

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