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Inventory Cycle Count: A Detailed Guide Including Definition, Methods, Advantages and Processes in 2023

Inventory Cycle Count: A Detailed Guide Including Definition, Methods, Advantages and Processes in 2023

If you are an eCommerce seller, inventory becomes your biggest asset to invest in. Having inventory cycle counts is important because it can prevent losing out on sales and revenue. Inventory disparities are a problem that can be resolved relatively quickly. Every firm should strive to run accurate inventory cycle counts. For warehouse and returns management, general logistics and sales forecasting to be successful, accurate inventory counts are essential. Accurate cycle counting has an impact on almost every part of your company and its effects can last for years. It is a crucial component of inventory management procedures used by many firms since it ultimately ensures that consumers can obtain what they want when they want it while minimizing the costs associated with maintaining goods on hand. Today, we will learn about the method of controlling inventory through inventory cycle counts, what inventory cycle counting is, how it can improve your inventory accuracy to avoid stockouts and the best practices for implementing it. What is an Inventory Cycle Count? An inventory cycle count, also called cycle counting, is an inventory counting method that decreases the need for conventional audits by rotating product counts in a cyclical schedule. For large warehouses with a huge number of several distinct product types, inventory cycle counting is the preferred method. Cycle counting helps businesses operate effective, cost-friendly and time-saving inventory counts. Inventory cycle counts are commonly referred for inventory cycle audits. Different Methods of Inventory Cycle Counting ABC Cycle Counting This approach is used for inventory counts that are based on the Pareto Principle when counting more expensive, faster-moving items. According to ABC cycle counting, 20% of the parts in a warehouse correspond to 80% of the sales. These are the "A" items (the "B" items make up 30% of the inventory and 15% of the sales and so on.). Your most valuable assets or fastest-moving SKUs might be "A" goods.  Software for inventory control can classify the counts as A, B or C goods. Consider counting your "A" items more frequently while counting your "B" and "C" goods less frequently. You can use additional indicators like transactions and production figures to start ABC cycle counting. You can determine which products significantly affect your company's overall inventory cost using a variety of measures. Read to learn about what is ABC Analysis. Usage-Based Cycle Counting Any time an item is transferred (part of inventory transfer), whether it is through a manufacturer, distributor or eventually to the client, there is a chance that the inventory will vary. The most frequently accessed products are given priority in usage-based cycle counting to curtail that. Access could refer to being physically handled in any form, including being processed into or out of a warehouse. Hybrid Cycle Counting The usage-based and ABC counting techniques are combined in the hybrid cycle counting method to give the most frequently accessed, high-value items priority. When the ABC categories get too big, this approach is required. Managers can prioritize the A-category products with the most traffic by further segmenting their ABC categories. These items' inventory volatility hurts the company's bottom line the most. As a result, it makes sense that leaders would want to concentrate on precise counts within this area. Control Group Cycle Counting Control group cycle counting is based on the idea of establishing a control group and then using the information to expand to bigger sets. Companies will count the same products repeatedly over a short period of time using this practice. This is done in order to identify counting problems, correct them and improve the counting procedure before applying it to a larger group of items. For companies that are new to inventory cycle counts, this strategy may be advantageous. It enables you to practice your cycle counting skills over time until they are suitable for usage on a broader scale. Random Sample Cycle Counting Random sample cycle counting works well for businesses that sell lots of similar goods. This method enables you to choose a random sample of objects for each cycle count. The advantage in this situation is that random sample cycle counting may be done during regular business hours and poses little inconvenience to your warehouse. As the item selection procedure is random in this configuration, certain items may be tallied frequently and others infrequently. A diminished population, a subset of random sample cycle counting, is a different approach. Here, items are counted and then excluded from further inventory cycle counts until everything in the inventory has been counted. Geographic Cycle Counting The geographic counting approach emphasizes counting goods in a specific physical location. This approach, combined with random counts spaced at random intervals, can assist in pinpointing issue areas like theft or damage. Advantages of an Inventory Cycle Count Enhances Productivity Source An inventory cycle count keeps track of your inventory by maintaining inventory accuracy and efficiency in a variety of areas which leads to better productivity and output. The following aspects of your business will benefit the most from conducting an inventory cycle count: Assists in Purchasing Source Performing consistent inventory cycle counts enables you to purchase only what you need to prevent jamming money on overstocked or unsold goods. This will help reduce costs and wastage associated with over-ordering. Helps With Production Source Doing routine inventory cycle counts will help you plan your production to meet your demand and produce the proper quantities at the appropriate time to prevent making products that will occupy storage space. Assists in Sales & Marketing Source Inventory cycle counts can enable you to discuss with your sales team what is and is not selling. It will improve internal business relationships and generate more revenue as a result. Check on extra products and plan promotions to assist in generating sales.  Helps in Financing Source An inventory cycle count is necessary for many accounting computations. Cycle counting makes it possible for you to run reports and calculate data with the assurance that there won't need to be any large recalculations throughout tax season. Saves Time and Effort Source Cycle counting is more efficient than lengthy annual inventory counts because it can break up the monotony of protracted inventory audits. Therefore, you generally won't need to close your business or ask your staff to skip work in order to count your inventory. Additionally, regular inventory cycle counts make it simpler to locate misplaced, harmed or stolen goods in a sizable warehouse inventory. Saves Monetary Resources Source An inventory cycle count will also help you save money. To fully count every item in your inventory, annual counts frequently necessitate overtime hours. Setting aside time in daily or weekly chunks to count groupings of goods works out to be more economical. Processes Involved in an Inventory Cycle Count in 2023 Warehouses start inventory cycle counting to avoid the root causes of errors in tabulating inventory. After you complete a full physical inventory check to know and correct any discrepancies, you must use a regular counting program for maintenance. Steps during an inventory cycle count are listed below: Review All Your Documents Starting with an accurate database is important. Review and correct all data entries for inventory transactions to start the inventory cycle count process. Upload the Inventory Cycle Count Report Make a report on the inventory cycle count. Upload the report to your database or software solution if you plan on conducting the count. Start the Inventory Cycle Count The report's inventory locations, summaries and numbers should be reviewed by a counting person, who should then contrast them with what is physically present on the shelves. Investigate and Correct Any Discrepancies Determine any differences discovered during the count and work with the stock manager to resolve them. Search for mistake patterns. Change Processes and Add Policies Whenever necessary, put any inventory counting policies or processes into action. For this, you may need to change some processes in your standard workflow. Update Records Update the inventory record database to reflect the items that are currently on the shelves. Calculate the Accuracy Percentage For this, first match your data with a standard inventory cycle count and other competitors. After getting the inventory cycle count, keep auditing the inventory regularly and get the accuracy percentage each time. Then compare them and identify the best practices. Conclusion: Automate Your Inventory Cycle Counts With InventoryLogIQ Inventory cycle counts are a valuable tool for businesses of all sizes and industries. By regularly counting a portion of their inventory, businesses can maintain accurate inventory records, identify discrepancies, improve operational efficiency and provide better customer service. As such, businesses should consider implementing inventory cycle counts as part of their inventory management strategy to streamline their operations and improve their bottom line. InventoryLogIQ can automate your inventory counting process by utilizing an advanced AI-based OMS to enable automated inventory counts and real-time inventory updates across multiple fulfillment centers and eCommerce platforms. The benefits of outsourcing inventory management to 3PL providers experts like us are better accuracy and more efficiency. This greatly accelerates the process of inventory management while reducing any chance of errors occurring. You can benefit from a shorter order cycle time as a result, which might increase the number of days your inventory can be sold for. It also frees up your time so you can concentrate on the other operations of your eCommerce store. Inventory Cycle Count: FAQs How do you calculate the inventory cycle count?Divide the annual cost of sales by the average inventory level for the year to arrive at the cycle's calculation. As a result, if the company spent 100 days in total last year to produce its products and its average inventory time comprised of 20 days, its inventory cycle would be 5 days. How often should you count inventory?Once a year, a physical inventory count should be done. However, more frequent inspections can be fruitful. You may ensure that your inventory and your records match by periodically verifying your stock. Additionally, you will be able to see any issues with your record-keeping practices. What is the inventory cycle?The time it takes to generate and fulfill an order is known as the inventory cycle time and it is typically expressed in days. It basically gauges how quickly a business can finish the entire manufacturing or assembly process and transforming raw materials or components into a marketable product. Why is cycle count important?In cycle counting, fewer things are inventoried at once which involves inventory assessment with an automated system and maintains reliable data with a lower chance of error. Employees that are aware that inventory levels are appropriately updated frequently will not be tempted to steal. What is the 80/20 rule in inventory?According to the 80/20 rule, only 20% of effort, consumers or other units of the measurement result in 80% of the results. The rule says that businesses make about 80% of their revenue on 20% of their inventory.

March 28, 2023

What is Physical Stock? Meaning, Types, Steps & Best Practices of Physical Inventory Counting Methods in 2023

What is Physical Stock? Meaning, Types, Steps & Best Practices of Physical Inventory Counting Methods in 2023

The highest growth rate the sector has had since 2011 was $5.15 trillion in retail spending in physical locations in 2021. Retailers are retaining more inventory than ever before to meet demand. It's understandable why the number of warehouses in the US has been steadily rising since 2013. Despite the exponential rise in warehouse storage and inventory levels, evidence indicates that merchants aren't doing a great job controlling their goods. Only 8% of smaller companies keep track of their inventory. Pen and paper are used manually by another 14% of people. This article will explain the advantages of maintaining a physical inventory count for your retail shop as well as how to go about doing it. The tangible goods that retail establishments, manufacturing facilities, and warehouses stock are essential. Companies should do physical inventory counts of their products to maintain appropriate and correct inventory levels. Physical inventory counts can monitor stock levels, confirm current numbers, and spot internal problems or theft. In this article, we define physical stock, list various inventory counting techniques, and outline the procedures for doing accurate inventory counts. What is a Physical Inventory Count? Physical inventory counts are a method used in inventory management to track every physical item a company has. Cycle counting often referred to as periodic counting or yearly counting, are two ways to do physical inventory counts. A corporation can find out if there is any loss or shrinkage that they can account for in their financial records by performing a physical inventory. Physical inventory counts take place in a variety of companies, although they are most frequent at manufacturing plants, distribution centres, and retail outlets. Suggested Read: What is a Periodic Inventory System? 4 Major Purposes of Conducting Physical Inventory Count The physical inventory count serves a variety of functions, which includes: Ensuring Accurate Stock Levels Physical inventory levels frequently differ from what digital records indicate. For instance, inventory levels might change in a production setting if a worker takes a replacement item but fails to register it. Employees may unintentionally enter inaccurate inventory into the system when working in retail. Additionally, there have been incidents of stealing, theft, damage, or incorrectly recorded returns, giveaways, or ruined goods. The physical inventory levels go out of sync with the records when this occurs. The resolution of a physical count can explain these differences. Keeping Track of Theft, Damaged Goods or Internal Problems A corporation can monitor for internal and external theft, damaged items, or internal problems by doing physical inventory counts. Theft, often known as shrinkage in the context of inventory, may make it difficult for firms to stay profitable. Employees must also take proper care of damaged inventory by reporting the damage to a manager or supervisor so that inventory levels may be adjusted and the product can be returned to the manufacturer for a warranty replacement or credit. The need for staff training on inventory protocol, shipping and receiving policies, or manufacturing best practices is just one internal issue that inventory counts might highlight. Reporting Wages and Income Accurate revenue statements and other financial papers may be produced by businesses with the use of adequate inventory levels for reporting. For instance, making actual earnings and precise balance sheet statements depend on maintaining an accurate inventory. The board of directors, top management, and investors of an organization utilize this data to make choices regarding the course of the business. The accuracy of revenue, wages, and inventories is so crucial. Creating a Precise Budget Inventory counts are also used by businesses to assess how much has been sold and how much stock is still available. When determining which things are the most popular, this might give helpful information regarding the inventory turnover rate or how frequently the item sells. As a result, this can assist businesses in developing a precise inventory budget. They may choose which items and how many of each to have on hand. To prepare for the upcoming year's purchases, a retail business can, for instance, do an inventory count on seasonal items. 6 Main Types of Physical Inventory Count Methods The main types of physical inventory counting procedures include: Point-of-Sale or Electronic Counting Electronic counting scans and tracks goods digitally using specialized computer tracking software. For instance, many businesses utilize point-of-sale (POS) systems, which enable staff to scan things as consumers buy them. The application automatically subtracts the quantity from the inventory as soon as the buyer purchases the item, and the team monitors it through the POS system. The warehouse receiver adds new products to the system when the shop gets them using the same technology to increase stock. POS systems frequently communicate with other types of software, such as enterprise resource planning, accounting, or merchandising software. The firm employees may, for instance, conduct a physical inventory count to ensure that the physical and digital numbers match. Although this technology helps to increase inventory accuracy, the associated fees might raise a company's costs. Employees have time to become familiar with the system and appropriately carry out the operations. Manually Counting  Unlike automated counting, manual inventory counting involves staff members writing down the inventory results on paper. The management of a corporation can assign workers as necessary or have a dedicated employee or team perform physical inventory counts. To count, they can go about the shop, warehouse, or storage area to identify the things and add up the amounts using a spreadsheet or printout of the products. By using this technique, a business might avoid paying for the initial expenditures of building an electronic system. It is also helpful in confirming POS system findings. It's crucial to remember that human inventory counting might produce a range of results based on the size of the business, the accuracy, and the care taken by the counters. Periodic Counting Periodic Counting or Cycle counting is a method of physical inventory counting in small increments over the course of a month or year. For instance, to assure accurate data, a retail shop would tally the most popular produce items each Monday morning. Fourth Tuesdays, the specialized section receives a similar treatment, and so on. The corporation will gain from this in a number of ways. First of all, it enables the business to continue operating rather than shutting down to finish an entire physical inventory count. Additionally, since inventory is constantly counted and faults can be found promptly, it enables any inconsistencies to be resolved sooner. This is advantageous for quickly transporting goods or products that the business wishes to monitor. Many companies choose to perform a complete inventory count once a year and the regular cycle counts. Complete Physical Counting Companies frequently do a comprehensive physical inventory once a year. Organizations can utilize their own workers to count, engage temporary help, or pay an inventory counting agency to complete this task. Many organizations arrange shelves, storerooms, and warehouses before finishing a complete inventory to make sure that goods are located correctly and are simple to find. Depending on how things go at the firm, the business may temporarily close or stay open on inventory day. Counters can be given inventory lists or spreadsheets by managers, along with instructions on how to record the number of things sold accurately. At the conclusion of physical inventory counting, all counters give in their sheets to the supervisors, who then compile the findings. Spot Counting Spot counting, arbitrary counting or ad-hoc counting is a type of physical inventory counting method that is frequently started by the user and is not planned, making it useful in unusual circumstances. Let's say you counted a zone, but a few days later, the system malfunctioned because of someone or some procedure. Instead of waiting for the next cycle count, you can construct a new, empty order and begin adding counted items to it. Of course, your system must be able to compare the quantity that was tallied to the data stored in the program. Arbitrary counting is sometimes referred to as blind counting since it typically takes place in unplanned, tiny store/warehouse zones or locations. Tag Counting The personnel of the store or warehouse should physically tag each item prior to tag counting. The worker must complete the required slots on the tag with the item ID, counted amount, and other pertinent information during physical inventory counting. Some labels have two sides, allowing an additional worker to check the data and, if necessary, fill in the adjustment on the second side. These tags are gathered and added to the system as journals when the counting procedure is complete. The primary distinction between tag counting and all other counting techniques is that tag counting does not involve a direct comparison to system data. As opposed to just producing a counting order and comparing it to the tag counting list, it is more like creating a rough draught list of your goods and quantities, refining it (e.g., updating with sales that have occurred during the counting), and then comparing it to the final list. How to Conduct a Physical Inventory Count in 12 Easy Steps A successful retail business is built on effective inventory management. Customers will always find what they're looking for in a well-stocked backroom, and your workers will always have what they need to do their jobs. In the best-case scenario, organized stock supports your everyday operations so that personnel may concentrate on customers. At worst, you're left with a logistical nightmare of missing items and lost sales. Your staff will need to count meticulously, track, and process products on a regular basis to keep your inventory operating correctly. Are they driven to complete the assignment as inventory season approaches, or would they prefer to skulk off? The given steps for counting physical inventory can help you manage stress if you run a retail firm. Let's take a look: Check the Date It can be a big deal if you have to manually count your physical inventory every month, every three months, or at the conclusion of a reporting period. It may be necessary to take stock outside of regular business hours because it is a laborious operation. Give your team plenty of warning so they can plan accordingly around their commitments, and be sure to schedule workers correctly, so nobody takes on an opening shift. Post a sign in your store or on your social media accounts informing clients if you need to close your store during regular business hours. The secret is to plan. Assign Your Counters Physical inventory counting needs expertise. Before you allocate your counters, make the position a learning opportunity for both inexperienced and experienced workers by letting them train one another and providing checks and balances along the way. Make a written protocol and include information on how you'll establish a precise cut-off point for stock movement for an accurate count. Count teams typically consist of two individuals - one who counts and the other who records. To make sure that everyone will be accessible on the specified day and time, provide your team with their schedules as far in advance as you can. Notify All Storage Facilities Make sure to inform relevant third parties that they should likewise undertake a physical count of inventory on the given date, whether your organization has merchandise in outside storage or on consignment. To ensure that they are not counted, make careful to separate any recently acquired products. Deliveries to the warehouse should be delayed if at all feasible to prevent variations from occurring during the count. Before starting the count, you'll want everything to be free of clutter. Examine Your Stock A few days ahead of time, check your inventory to make sure everything is in order. Search for objects with missing or partial component numbers and those that are in a state that might complicate the procedure. Adjust your inventory as needed to make it ready for the physical count. Make a Proper Warehouse Plan Make sure your staff has a map of your floor, backroom, and storage so they know where to go when they need to. A map can let you allocate personnel to their stations more efficiently, whether you need to take photographs or sketch up a plan. Create a tracking sheet for each sector and assign a different number to each display, rack, and shelf. Visualizing your inventory area will reduce confusion and make it easier for your personnel to get started. Make Your Own Category You may count and group comparable objects together with the aid of categories. The categories for a retail setting may be footwear, tops, bottoms, outerwear, and accessories. Depending on your industry, these groups can be further divided based on color or gender. The counting procedure will be more smoothly executed if a systematic system is created. You'll run into certain things that don't have a designated spot in your store when you're arranging your physical count. It would be best if you made a decision on how to handle objects without a clear home. They can be transferred or returned from other places. Start the Pre-Count Make sure everything is tagged correctly and labeled before the count starts. After all the things have been tallied, failure to deal with stray objects can lead to problems and anger. Start early by counting some of the items. Put the objects that were counted in sealed boxes when the pre-count is done. The goods will need to be recounted if, on the day of the physical count, you discover broken seals on packets that have already been counted. Set Frequent Reminders Give your staff a review of what they learned in training before the big day. Walk your staff around the shop if you've relocated any stations or merchandise to prevent confusion. Distribute instructions that break down the counting procedure into simple stages. Despite the fact that there shouldn't be any things without labels or pricing, emphasize the significance of gathering such items in a specific location so they may be handled last. Explain the Procedure Lead by example and demonstrate to your staff the correct way to do a physical inventory count. Give them a sample of a completed form, then have them go over their initial try to ensure the form was filled out correctly. Assign the count teams to various areas of the shop using the map. To prevent double-counting, mark the regions on the map that have been counted. Get Set and Go Counting You may pair off your teams and start physical inventory counting now. The second person completes the count tag using the sample data below after the first person has finished counting: LocationItem informationportion numberQuantityMeasurement unit The team attaches the original count tag to the inventory item, keeps a copy, and turns the tags into the person in charge. The person in charge will verify that all titles have been completed entirely and none are missing. Recheck Your Possessions Perform spot checks in sections to see whether the items were appropriately counted. Take advantage of the chance to verify each section doubly if this stock audit finds a mistake. It will be worthwhile to double-check the counts that have previously been made. To assure the correctness of the inputs, a data entry team should additionally include two members. Complete the Reporting To add up your computations, record your physical inventory counts on a spreadsheet. Your inventory reports will enable you to find any discrepancies between the physical and book counts so that you can develop a strategy to eliminate them. To find potential patterns, compile physical count inventory records over a specified time period. Is there, for instance, a particular low-count spot in your store? Are there any procedures you might strengthen to prevent the loss of goods? Your business should be impacted by your reports and results in all areas, from financing to visual merchandising. 5 Benefits of Physical Stock Counting in 2023 To maintain accurate and up-to-date inventory records, physical inventory counts are a crucial component. Better sales and purchase estimates may be made thanks to correct inventory records, which also guarantee that you always have the proper quantity of stock on hand. Your consumers will benefit from having a physical inventory taken. Precise physical inventory counts are essential for the reasons listed below: Provides an Accurate Insight Into Inventory Levels  You will have a far better knowledge of how much merchandise you will need to have on hand to satisfy consumer needs when you effectively manage your inventory. You won't have to worry about running out of supplies all the time, thanks to this. By being aware of your inventory levels, you may prevent clients from making orders for items that are not currently in stock. Without having to worry about keeping too many goods on hand, shortages will be less of an issue. Improves Demand Predictions An essential component of inventory management is demand forecasting. It occurs when you foresee a product's level of demand, the rate at which it will sell out, and the time at which that SKU has to be restocked. A physical inventory check can enhance buying and forecasting of inventories. For example, retailers that see demand forecasting reports that suggest which products to replenish based on their profitability and restock rate can do so in a way that allows them to do so based on both the popularity and profitability of the items. Suggested Read: What is Inventory Forecasting? Enhances Sell-Through Rate of Slow-Moving Inventory An actual inventory count does more than avoid stockouts. Retailers also reduce the chance of keeping out-of-date stock at the total price for an extended period of time. Retailers should have access to inventory grading data that group items according to their cost per unit, selling price, number of sold units, and overall income over time. Merchants should proactively think about re-merchandising items in-store, advertising them to generate interest, or offering a special discount to encourage sales for those that aren't selling as intended. In order to recover your initial investment and create a place for more in-demand goods that either sell at a larger volume, have better profit, or both, it is helpful to move through failing inventory. Reduces Inventory Shrinkage Inventory loss is a frequent and annoying issue for merchants. When your actual stock is less than the amount listed in your inventory management software, this occurs. Theft by employees and shoplifting are the two main reasons for stock shrinkage. A weekly partial inventory count, for instance, can assist retailers in identifying discrepancies between a store's actual inventory and the inventory levels recorded in its point-of-sale system with a smaller sample size of inventory that is easier to count (one particular product category, for example), giving them enough time to determine what caused the shrinkage and reconcile it. Prevents Overstocking and Understocking  Lack of physical inventory tracking can lead to carrying too much (or not enough) goods, which could lead to budgetary concerns if not maintained under control. Overstocking, often known as the gap between available inventory and demand, has resulted in markdowns totaling more than $300 billion. Discounting at scale leads to lost income because of lower-than-expected margins on each transaction, despite the fact that it has valuable use cases. You can allocate enough money to inventory to satisfy demand without overstocking or understocking by maintaining an accurate inventory ledger and using the information from your POS system to understand better how well-liked the products you carry are with customers. 7 Best Practices to Implement for Counting Physical Stock in 2023 Make a Map of Your Shop, Warehouse or Stockroom Source Make a map of the locations where your inventory is kept, whether it be on your shop floor, in a stockroom, or in a warehouse, as part of your preparations. Label each product category's location and the person in charge of counting it on the map. This will aid store employees in getting their bearings and assist the manager you assigned to maintain track of who is in charge of what. Give each employee a list of the SKUs they will count in their assigned region as well. This may be a helpful tool when they scan product barcodes and enter their count into the POS system. Use Box and Shelf Labels Source Label shelves and boxes according to the things they hold and make sure the contents of each are located where they should be according to a map of your store. The shop map you made in the previous step should be reflected in these labels. Prior to the inventory count, it will be easier to stay organized and save time when it comes time to account for the miscellaneous things if boxes and shelves are proactively labeled and products are placed in their proper locations. Clean the Locations Where You are Counting Source Make sure there is enough space for employees to count large quantities of items in each location designated for stock-taking. Get rid of any boxes or inventory items that are unnecessary. Any freestanding furniture, such as mannequins or display cases, should be moved to one side. Use Barcode Readers Source While it is possible to hand count the objects, teams are more prone to make mistakes. For quicker and more accurate counting, choose barcode scanners. Store employees scan the barcode on the product's tag, and the inventory levels connected with that product's SKU are automatically entered into the POS system as opposed to each product having to be manually counted and recorded in a spreadsheet or on paper. Mis-counts are unlikely unless the store employee scans the exact same item twice. Barcode scanners are necessary for teams charged with counting enormous volumes of merchandise. Set a Time When Counting Will Be Handy Source Setting a deadline for your inventory count is worthwhile. Depending on how many things you carry, performing a physical count can take one business a whole day and another just a few. In either case, giving oneself too much time is preferable to not enough. Additionally, some retailers choose to conduct nighttime inventory counts, appointing a team of staff to enter the premises during off-hours. Just bear in mind that in many areas, paying employees more for midnight labor than for a shift during regular business hours is the norm. Train and Inform Staff Members Source Before beginning a comprehensive physical inventory count, take the time to teach and instruct your store personnel on how to perform it. To count inventory and record outcomes, every member of your team should be able to operate a barcode scanner and your POS system. Spend some time outlining the typical difficulties they may encounter. What happens if a tag is missing, a product is defective, or a label is mislabeled? To ensure that staff members know what to do in each instance, share the solution and the procedure you've put in place. Utilize Technology for Physical Inventory Count Source Pen and paper counting takes more time than electronic counting. It's simple to make a mistake when counting, leading to erroneous inventory data. Additionally, a physical stock count across many retail locations will generate more data that will require much more time to process and understand than if everything were recorded using inventory management software. Inventor management technology provides solutions to these issues. Inventory reconciliation is sped up, and merchants have a single source of truth for both their financials and inventory when they scan products since the point-of-sale system will automatically register inventory levels for that SKU. Suggested Read: Supply Chain Forecasting Conclusion: Improve Your Physical Inventory Counts With InventoryLogIQ In conclusion, it is crucial to perform routine physical inventory counts even if you have an inventory management system in case-specific procedures are not operating as effectively as they should. Inventory counts assist you in reducing unexpected shortages and identifying which internal processes need to be changed to enhance your business operations as a whole. One of the top providers of inventory and data-collecting services is InventoryLogIQ. We offer physical inventory counting, merchandise planning and space optimization services to the majority of large retailers across the nation using our custom OMS and professional team. The integrated, one-handed inventory count terminal and warehouse management solutions are the technological advancements from which InventoryLogIQ continues to hold an excellent reputation in the market. This will not only handle your complete inventory but also make doing an inventory count simple by offering a section just for counting your inventory and notifying you right away if there are any shortages or exceeding stock. Physical Stock: FAQs Why is the physical inventory count performed?The Inventory account balance is updated to reflect the actual amount of accessible inventory using the physical count. To ascertain whether there have been any theft, loss, damage, or inaccuracies in inventory, a physical count is performed. How frequently should physical inventory counts take place?At the very least once a year, a physical inventory count should be done, however more regular inspections might be helpful. You may ensure that your inventory and your records match by frequently verifying your stock. Additionally, you'll be able to see any issues with your record-keeping practices. How is physical inventory managed?Wireless inventory scanners make it simple to scan a product wherever it is stored using barcodes to distinguish between each SKU type. You can simply monitor things by SKU, know how much is in stock, and identify every SKU in a warehouse by adding a barcode to your product tags or packaging.

March 24, 2023
Perpetual Inventory System Guide: Definition, Methods, Factors Considered, Benefits & How is Perpetual Inventory Different From Periodic Inventory Systems in 2023

Perpetual Inventory System Guide: Definition, Methods, Factors Considered, Benefits & How is Perpetual Inventory Different From Periodic Inventory Systems in 2023

For any sustainable and successful business, a sound inventory system is required to track goods throughout the supply chain cycle. From purchasing raw materials to producing the goods and, finally, selling the product, proper inventory management is key. It’s an effective system that keeps records of purchased materials, sales inventory and also stock-on-hand details of your business entity. The fundamental structure of inventory management includes inventory purchase (ready-to-sell goods that are procured and delivered to the point of sale or warehouse), storage of inventory (inventory that is stored until needed) and goods and materials that are at different stages of the fulfillment network. There are two types of inventory, as stated below:  Periodic Inventory Perpetual Inventory  While both these accounting methods are similar (businesses use them to track the number of products, stock availability, etc.), they have several inherent differences. What is a Perpetual Inventory System? A perpetual inventory system allows businesses to keep a real-time account or stock of inventory on hand. The widespread usage of computers and technology has made this system very effective. Businesses worldwide have found that this system is highly user-friendly and has fostered the ease of conducting various processes, eliminating redundancies and complexities of the traditional inventory system. Barcodes, Radio Frequency Identification Scanners (RFID) and point of sales systems supported by perpetual inventory systems quickly input inventory information of all business transactions on a real-time basis. Perpetual Inventory Systems are popular in modern business. They are often found in large businesses across multiple industries, such as jewelers, electronic stores and global enterprises such as restaurant chains, clothing stores, etc. Perpetual inventory systems track the details of product sales instantly through point-of-sale systems (PoS). However, perpetual inventory does not keep track of physical stock/products. Inventory reports can be accessed online at any time, making it easier to manage inventory levels and the cash needed to purchase additional inventory. Updates are automatically created when you receive or sell inventory. Your inventory accounts immediately reflect data about purchases, return of goods and stock data. 6 Main Differences Between Perpetual Inventory and Periodic Inventory Systems A perpetual inventory system constantly updates the purchase and sales records constantly, which provides a real-time reflection into what is staying or leaving the warehouse. A periodic inventory system only records updates to inventory and costs of sales at scheduled times throughout the year, not on a constant basis. While a perpetual inventory system can record and monitor the movement of the stock non-stop, a periodic inventory system can update inventory records at intervals, which happens after the stock is physically accounted for. The 6 main differences are listed in the table below: [table id=1 /] Advantages of Perpetual Inventory There are multiple advantages of perpetual inventory, which gives companies the ability to operate more effectively. They are listed below: Provides Updates in Real-Time Perpetual inventory maintains live records of inventory as soon as it is bought or obtained by the company. This enables the retailer to always be aware of when stocks are running low, which items are popular, when items were bought etc., so they can plan accordingly and be ahead of the curve. Manages Inventory in Multiple Warehouses Gone are the days when companies had to maintain multiple spreadsheets or files and manually add and remove items from the list. Perpetual inventory systems consolidate all your inventory records which is stored across multiple warehouses in one place. This will help make processes more efficient and will surely mitigate any errors or delays. Keeps Users Informed Through Forecasting Using perpetual inventory, retailers have a better idea of their customers' purchasing patterns based on the inventory sold. They will have a better idea of which products are in demand, during which season and which price point is doing the best. They will also get an idea of which products aren’t doing well and are just accumulating space in the warehouse. This understanding will help the business forecast demand and supply in the future. Suggested Read: What is Inventory Forecasting? Assists in Accounting Procedures Inventory is a key aspect of every accounting process as it gauges the value of the assets that firms have on hand. Since perpetual inventory systems constantly track and provide updates on inventory levels, it becomes much easier and faster to access this information. Disadvantages of Perpetual Inventory Can be Expensive Perpetual inventory is generally regarded as not being a pocket-friendly solution because of all the technology and software that is needed to enable it. Adding new inventory lists can also be chargeable, in addition to needing to train employees on how to use them. Overall, it may not be the best option for small businesses that do not need to calculate inventory for multiple different warehouses. Does Not Consider Expired and Mishandled Goods  Since perpetual inventory systems utilize data from sales and purchases to maintain records of inventory, it sometimes leaves out items that have been purchased but may have expired or have broken due to mishandling. Since manual counts are not performed, the management will continue to count those items unless someone has physically noticed the incident. This opens the door for unwanted errors and discrepancies in the inventory count. 5 Operations of a Perpetual Inventory System Point-of-Sale System A point-of-sale or point-of-purchase in a perpetual inventory system is the place where the customer walks up to your checkout counter after they pick up a product or service at a store or business entity. A point-of-sale is the combination of hardware units and software applications that enable your business to make those sales to customers. Cost of Goods Sold Updates Cost of goods sold (COGS) refers to the direct costs of the production of goods sold by a company. This includes the cost of the materials procured and labor hired to create the goods. Indirect expenses like distribution costs and sales force costs are excluded in COGS. Reorder Point Automation A reorder point system alerts you about when to place an order, so you won't run out of stock and tells you when to place a requisition to replenish your stocks. The reorder automation point automatically calculates your stock based on supply chain forecasting that is based on past consumption data (historical data) to forecast future requirements. Purchase Order Automation Purchase Order Automation Systems streamline your purchase orders to increase efficiency by tallying with the corresponding invoice and requisition purchase requests automatically. Warehouse Management Software Typically, any warehouse management system (WMS) is designed to monitor the entire inventory in hand. It can also manage supply chain operations right from the manufacturing or distribution center and can coordinate with different parts of the supply chain to get tasks done. 6 Things to Consider Before Choosing An Inventory System Requirements Source You first need to assess your requirements and make a decision based on that. A small business would require a very different inventory management system than a multinational company. You would need to be aware of how much inventory you would need to manage, the nature of the inventory, the value of the items, etc. Expenses Source Because of the fact that certain inventory management systems are so dependent on technology, such as the perpetual inventory system, prices can easily skyrocket, which would be pointless if you don’t need all those features in the first place. Choose a system that fits your budget so that you can invest in other facets of your business. Configuration Options Source If your business deals with multiple types of inventory, scattered across different warehouses, it would be important to make a note of the customizability of the system so that you can get the most out of it. It would not be of any help if you are not able to manage your inventory as efficiently as possible due to constraints in your inventory management software. Ease of Use Source It is important for businesses, especially smaller ones, to factor in ease of use when they are opting for an inventory management system. If the system is too complicated and requires a sharp learning curve, it could take days for your employees to get accustomed to it. Choose a system that has all the features you are looking for but that is also well-designed and user-friendly. Integration Ability Source Inventory is the key component of any eCommerce business. It pays off to have an inventory management system that can play nice with other software tools and systems involved in other business activities. There shouldn’t be a bottleneck in any section of the business and you can do your best to make sure your inventory management system can integrate well with other applications. Flexibility Source Flexibility is a very important factor to consider while choosing an inventory management system since it’ll be handling such a key aspect of your business. You need to find out things like if it is compatible with devices of all screen sizes, what software platform it uses and if it can integrate with other systems. Once you understand this, it’ll make your decision much easier. Support Source After-sales support is a key factor when choosing an inventory management system, especially if you have shelled out a decent amount. You would want to have access to facilities such as tutorials and customer support in case something goes wrong and you need some assistance. Companies that care about their customers even after the sale is made often provide the best services. The 3 Main Methods of a Perpetual Inventory System FIFO Perpetual Inventory Method FIFO is a cost flow tracking system under which the first unit of inventory acquired is considered to be the first unit consumed or sold. The perpetual FIFO inventory method determines the cost of your oldest inventory and multiplies that cost by the total amount of inventory sold. LIFO Perpetual Inventory Method This method is a cost flow assumption that businesses use to evaluate their stocks wherein the last items placed in inventory are the first items sold. To Summarise, the last costs available at the time of the sale are the first to be removed from the Inventory account and debited to the Cost of Goods Sold account. Weight Averaging Cost Perpetual Inventory Method The weighted average cost method is a means of tracking inventory that assigns a cost to each unit based on the average cost of all units that are available for sale during a specified time period. The weighted average cost per unit is arrived at by adding the total cost of all units available for sale divided by the total number of units available. Perpetual Inventory Benefits for eCommerce Businesses in 2023 Shortens the Time Needed for Accounting Procedures During the preparation of financial books, usually at the end of the year, the value of the closing stock needs to be known. With a perpetual inventory system, this information is always on-hand as it reflects any changes to the inventory in real-time, which helps to speed up accounting procedures. Requires Less Investment in Materials Since perpetual inventory systems keep track of every purchase and sale of inventory, whether it is raw materials, finished goods or work-in-progress inventory or products, businesses can get a clear idea of the what amounts they are spending on what materials and it can help them optimize the quantities that are needed and thus, reduce inventory costs. Helps in Restocking A business will be able to know if inventory of a certain product is running low and will be able to reorder items before it runs out completely. This aids in the continuous fulfillment of customer orders and keeps the business running smoothly and effectively. Optimizes the Use of Resources Since perpetual inventory gives us a clear idea of what the expenses and incomes of the business are and where they are entering and exiting from, the business can optimize every process that involves working capital, whether it is labor working on a particular task, the purchase of materials, the transport of goods, etc. Helps Provide a Clear Picture Perpetual inventory systems update inventory levels in real-time. This means that you will always have an idea of which products are doing well and which aren’t. In addition, you’ll get access to more granular data such as seasonal demand for products, what causes spikes and dips in demand and much more. Conclusion: How InventoryLogIQ Can Help You Monitor Your Perpetual Inventory A perpetual inventory system provides more accurate information because ongoing recording and prompt verification of inventory are done. Perpetual inventory also enables financial statements to be prepared quickly and accurately. A Perpetual inventory system is best suited for big enterprises, while a periodic inventory system is suitable for small businesses. Perpetual inventory is the preferred method for tracking inventory with accurate results on an ongoing basis. If you need help with acquiring a perpetual inventory system for your business and any other inventory-related requirements, InventoryLogIQ can be a good option for you. InventoryLogIQ has a custom OMS that aids in providing real-time updates of your inventory levels across multiple warehouses. In addition, our platform can integrate with most big eCommerce marketplaces to ensure that all your inventory management and order fulfillment happens in one centralized location. We also give you deep insights into the inner workings of your inventory and order-related data so that you can plan ahead. Perpetual Inventory System: FAQs What is a perpetual inventory system?It is a program designed to estimate your inventory without any disruptions. A perpetual inventory system relies on electronic records rather than physical ones. It generally starts from the baseline with a physical count and details get updated as and when purchases are made and shipments come inward or move outwards. Why is it important to have a perpetual inventory system?A perpetual inventory system instantly tracks sales and inventory levels for individual items, which helps to prevent stock-outs. Perpetual inventory systems monitor the availability of stock at all times and alerts you whenever a product is out of stock or is getting depleted. Why is a perpetual inventory system most suited for eCommerce businesses?With a high degree of record accuracy, inventory reordering can be conducted with confidence and it ensures stable delivery timelines for your customers. The perpetual inventory system tracks every inventory transaction in real-time; the resulting inventory records are highly accurate and reliable. This may improve customer satisfaction and bolster sales. It also gives business owners a more accurate understanding of customer preferences and centralizes the inventory management system for multiple locations.  What are the advantages of the perpetual inventory system over the periodic inventory system? A Perpetual inventory system captures and tracks updates to inventory and costs of sales throughout the year. A perpetual inventory system is designed to update and record the inventory account automatically whenever a sale or purchase takes place. Each sale or purchase that happens immediately upon sale or purchase is recognized. A periodic inventory system updates the inventory account at certain scheduled times or at the end of an operating cycle. The update and recognition could occur at the end of the month, quarter or year. There is a gap between the sale or purchase of inventory and when the inventory activity is recognized. A faster inventory system enables companies to react faster to the supply and demand of the market.  What kind of business is ideally suited for a perpetual inventory system?Typically a large enterprise with large amounts of inventory, sales volumes and multiple retail outlets need perpetual inventory systems. The scope for marginal errors with the periodic system is higher when compared to the perpetual system because it is based on a physical counting system. Many leading eCommerce enterprises use a perpetual inventory system for tracking stocks at their stores and warehouses such as Amazon, Walmart, Marks & Spencer and others.

March 23, 2023
What is Work in Process Inventory? Definition, Calculations, Importance and Optimization Techniques in 2023

What is Work in Process Inventory? Definition, Calculations, Importance and Optimization Techniques in 2023

Inventory distortion costs the global economy an estimated $1.1 trillion, including inventory shrinkage, stockouts, and overstock. The quantity of waste created by system inefficiencies is simply mind-boggling. It is nearly equal to the gross domestic product (GDP) of the whole nation of Australia. It is crucial to account for raw materials and completed items, and each firm must account for the products used in the production process. Ensuring that no raw resources are idle is another benefit of calculating work in process inventory, which indirectly helps to reduce the waste produced, encountering the extra revenues lost during manufacturing. For most businesses and shops, recovering even a small portion of that loss may completely alter their course. From here on, this article will explain what work in process inventory is, its importance, and how to calculate work in process? What is Work in Process Inventory? Work in process or WIP inventory refers to items in the manufacturing stage and being prepared to become a finished good for sale. Work in process inventory comprises the cost of labour, raw materials, and any production-related overhead expenses. It does not include any raw materials that have yet to be used to manufacture commodities or things already prepared for market sale. As a business manager, overseeing and managing a company's warehouse, and inventory costs and levels is crucial to maintaining the stock at targeted levels through inventory management. WIP inventory is mainly concerned with businesses in the manufacturing, construction, consulting, etc. industries. In general, it is suggested that you compute your inventory periodically, such as every two weeks, at month's end, or every three months. It should be noted that work in process inventory is another name for work in progress inventory, both of which are shortened as WIP inventory. Is there a difference in meaning between these phrases, or are they synonymous? Let's see. Comparing Work in Progress and Work in Process Inventory Despite being used interchangeably, the meaning of these two phrases in the business language is different. The main distinctions between work in progress and work in progress are as follows: Raw materials quickly transformed into final commodities are referred to as work in process inventory. On the other hand, work-in-progress inventory, frequently used in the construction industry and other service-related industries, describes how a project is progressing overall and how much it costs concerning its progress. Additionally, both names have the same meaning when used by companies that sell actual goods. Work in process refers to unfinished items that will soon be transformed into finished goods. For instance, a bakery producing 50 packets of bread or a company that makes mobile phones assembling various components for an order will be considered to have work in process. While work in progress takes a long time to convert into a finished product. For example, a building whose five floors are to be constructed out of a planned twelve floors building is a WIP example. Renovation, tasks, and services can all be referred to as work in progress, which is more comprehensive than work in process. Work in process is often exclusively used for things that are currently being manufactured. Importance of Work in Process Inventory  The what is explained in work in process inventory definition above, but the why is not. Why do businesses keep partially finished inventory? The fact that things are being created is the most evident. They can be fabricated on a conveyor belt, or they might be in line for additional processing. They are actively being produced in any case. Safety stock, buffer stock, or anticipation inventory are additional justifications for work-in-process inventory. Some businesses find it advantageous to keep products in stock throughout specific production phases as backup against supply shortages or surges in demand. Although classifying WIP material that is stored in a warehouse awaiting assembly may seem tiresome, it is essential for tracking and enhancing your supply chain and inventory control. Keeping too much work in process inventory is often inadequate for a company's financial line. This is due to a few factors: WIP inventory consumes room on a production floor or in a storage facility that could be utilized for merchandise that is ready to sell, raising carrying costs.Your capital is more heavily invested in inventory awaiting sale the more WIP you have on hand.The danger of items being misplaced, damaged, out-of-date, or lost before they can be assembled increases when there is excessive WIP inventory. Work in process inventory should also be classified because it significantly impacts your company's worth. In addition, even though work-in-process inventory is counted as an asset when you seek a loan, the lender might be wary of using it as collateral because it isn't very liquid. The Importance of Calculating Accurate Work in Process Accounting Every business pays close attention to its cash flow statement and overall financial stability. On the other hand, small to medium-sized companies frequently have little to no tolerance for the mistake, but more prominent corporations may tolerate a few more faults owing to scale and average. Three crucial factors make calculating WIP accounting essential. They are listed below: Taxes  Nobody wants their country's tax office to audit them for filing incorrect taxes. WIP inventory is a taxed item since it is a current asset, and any understatement or incorrect accounting may incur significant penalties. Overestimating can result in producers paying huge taxes when they are not necessary, which is equally dangerous. Cash Flow and Financing Many businesses turn to short-term financings, such as work in the process of inventory financing, to solve short-term cash flow concerns. Accurate WIP accounting and valuation are a must for this kind of financing, and if either is done incorrectly, the short-term financing agreement may be terminated. Accurate values are also employed when evaluating a company's health for a longer-term loan. Impact on Production Production mistakes can also be caused by inaccurate WIP accounting. Upstream operations may be activated to make up a perceived loss or idled to enable a perceived overage to diminish if one segment of WIP is valued too highly or too lowly. If the WIP computation and value were incorrect, the plant may go out of balance, affecting delivery schedules and resulting in financial losses since fewer future sales would be made. Inaccurate accounting can also send the wrong demand signals when purchasing raw materials, which results in overordering materials and decreased cash flow. This excess inventory or underordering materials and increasing costs due to equipment shutdown will pause to bring in of the necessary material. This can be reduced only once the error is discovered. Terms and Formulas to Know Before Calculating WIP Inventory Calculating WIP inventory has several components, the same as other computations. Calculating this becomes impossible without knowing these elements. So let's learn more about these parts so that you can rapidly calculate your inventory: Beginning Work in Process Inventory Cost The beginning work in process inventory cost represents your balance sheet's asset column for the preceding accounting period. You must identify the ending WIP inventory from the previous accounting period and carry it forward as the beginning inventory for the current fiscal year to compute the cost of your beginning WIP inventory. Your ending WIP inventory may be seen on your balance sheet under existing assets. Cost of Manufacturing The costs involved in creating a finished product that can be sold are all included in the manufacturing cost of your goods. It covers the price of labour, raw materials, and any other production-related expenses. The quantity of work in process inventory on hand causes the manufacturing cost to increase. The cost of production rises as inventory in the process increases. As a result, this raises the price of manufactured items. Calculate the cost of manufacturing using the work in process inventory formula given below: Manufacturing Costs = Raw Materials + Direct Labor Costs + Manufacturing Overhead  Cost of Manufactured Goods The overall expenses incurred to produce a finished good are referred to as the cost of manufactured goods (COGM). To determine the worth of your current in-process inventory, you must know the final COGM. The COGM is calculated by adding your starting work in process inventory to the production expenses. The ending result in process inventory is then subtracted, giving you the final cost of manufactured products. The equation is: COGM = Total Manufacturing Costs + Beginning WIP Inventory - Ending WIP Inventory How to Calculate Work In Process inventory? The work in process inventory formula combines the beginning work inventory for the subsequent period with the ending work inventory for that period. Once you have calculated your starting in-process inventory, manufacturing expenses, and cost of made items, you can quickly ascertain how much work in process inventory you have. WIP inventory is estimated using the following formula: Beginning WIP Inventory = Ending WIP Inventory - Manufacturing Costs + COGM How to Get Beginning Work in Process Inventory?  There is no difference between starting and finishing work in process inventory; the only difference is the accounting period. Work in process inventory is always calculated by businesses after accounting periods, whether those periods be quarters, years, or other durations. Therefore, this total WIP value represents the beginning and the conclusion of the work-in-progress inventory for the relevant accounting period. The current balance sheet of your business includes this ending WIP inventory as a current asset. Therefore, you need the initial work in process inventory to understand how to discover work in process inventory. You will also need the finishing work in the process inventory to compute it. How to Calculate Ending Work In Process Inventory? Before calculating your inventory in-process, manufacturing cost, and COGM, you must first compute your beginning work in process inventory. Once they have been established, you may quickly add your WIP inventory using the method below: Ending WIP Inventory = Initial WIP Inventory + Manufacturing Cost - COGM Let's look at an example to comprehend better how to compute this: Imagine that your business's work in process inventory at the start of the new year is $125,000. You spend $100,000 on manufacturing expenses in the same year, and your cost of manufactured goods (COGM) is $1,75,000. Consequently, the ending in process inventory would be: Ending WIP Inventory = Beginning WIP Inventory + Manufacturing Costs - COGM   $125,000 + $100,000 - $175,000 = $50,000 Your ending WIP inventory would be $50,000. Suggested Read: What is Ending Inventory? How to Cut Down Your Work in Process Inventory in 2023 Managing all sorts of inventory and supply chains are now well-established domains of specialization. And these occupations all concur that it's generally ideal for keeping the inventory of work in progress to a minimum. The greater your work in process inventory: The fewer storage options you have for your most lucrative goodsThe more money you have invested in products that won't sellThe greater the chance that unfinished items may expire or become outdated Associating a cost with a completion percentage makes determining WIP inventory complex. Not a simple task to do, so reducing WIP inventory before reporting is a standard procedure. The following practices mentioned below can reduce your work in process inventory: Just in Time Procurement Source A production technique known as "just-in-time inventory" involves bringing in the materials as needed based on demand. It is a method many businesses use to cut down on resource and financial waste. The primary goal of this strategy is to eliminate excess inventory, waste of commodities, overproduction of items, and management of storage expenses, among other things. Better Coordination Source This advice may not be as technical, but it is just as crucial as any technological strategy. Coordination is the secret to managing a good, profitable, healthy business. Ensure your staff members share the same objective of creating as much as possible with the given resources if you want to maintain an ideal level of WIP inventory. To function effectively, they must know every step in the production process. In addition to assisting you in maintaining a perfect level of work in process inventory, this will also hasten the manufacturing and supply process. Upgrading to New Equipment Source It's crucial to provide qualified workers with the appropriate tools and equipment. To increase their output, they require the right equipment. The fastest and most affordable strategy to reduce WIP is to keep equipment in good condition. How to Improve Work in Process Inventory Flow in 2023?  Most e-commerce businesses rely on a manufacturer or supplier for sellable items. Therefore, it is essential to comprehend the process and movement of in-process inventory since it might indicate how efficiently your supplier or manufacturer creates finished goods. Additionally, you may find ways to strengthen the supply chain by working closely with your supplier and other partners in your retail supply chain, such as a 3PL company. Some of the main methods are listed below: Source the Right Supplier You probably won't have much insight into the work in process inventory process unless you sell a highly customized product. Then, you influence the manufacturer you choose to engage with and the products you source. Still, it is up to your manufacturer to monitor WIP levels and look for methods to save costs while enhancing labour, workforce, and production procedures. First, however, you can ask your provider about things like: From whence do the raw materials originate?Is it possible to reduce expenses and manufacturing lead times?Can your products be manufactured locally? Use a 3PL to Assist You With Inventory Management The main asset of an e-commerce company is frequently its inventory. Therefore, you will need a system to track inventory as it is sold after your work in process inventory transforms into sellable items. The technology used ultimately interacts with your store, allowing you to effortlessly manage all inventory and orders from a single dashboard while they handle order fulfilment on your behalf. Conclusion: How InventoryLogIQ Can Help You to Optimize Your Inventory Management With WIP Inventory In a period of exceptional supply chain disruptions that cause a lack of raw materials and longer lead times, keeping an eye on supply chain efficiency is crucial. In addition, many retailers predict demand and order goods months in advance due to the longer lead times. Therefore, collaborating closely with suppliers to get the most precise lead time predictions possible to prevent a buildup of WIP inventory is crucial. Accurate inventory cycle counts made possible by an integrated warehouse management system (WMS) are another crucial aspect of maintaining low work in process inventory levels. In addition, accurate, real-time inventory counts allow for more precise forecasting, facilitating simpler, more effective communication with suppliers and freight forwarders. Small to mid-sized retailers may use enterprise-level inventory management tools to improve their WIP inventory flow by outsourcing their requirements to a company like InventoryLogIQ. InventoryLogIQ is a dedicated inventory management platform that can help your business in the following ways: Enables a More Accurate Value for Your Business Work in process inventory is an inventory asset. Thus, failing to account for it on your company's balance sheet might result in an undervaluation of your overall inventory. The price of your final items will be inflated as a result. InventoryLogIQ's services help accurately determine the value of your inventory for tax purposes. Detects Red Flags Faster For managers, rising WIP inventory levels are a warning sign. A significant WIP inventory level may indicate bottlenecks in your manufacturing process and that the process isn't running correctly. With InventoryLogIQ, you can identify and fix these issues before they hurt your bottom line by tracking WIP. Prevents Counting Inventory Manually InventoryLogIQ helps you to assess the value based on the present stage of each unit in the production process. As some businesses physically count their WIP inventory, this wastes a tonne of time and keeps your staff from working on more complicated tasks. You can estimate the worth of your inventory using the work in process formula without the hassle of manual counting. Suggested Read: What is the Physical Inventory Counting Method? Work in Process Inventory: FAQs What distinguishes inventory from WIP?When an item of inventory has been combined with human labour but has not yet attained the state of completed products, it is categorised as a WIP. With it, some but not all of the required labour has been completed. There are several accounting techniques used by various firms to calculate WIP and other inventory accounts. How should a WIP be documented in accounting?Simply begin with the work-in-progress account's opening balance. The expenses of the resources added during the applicable time should then be included. Subtract the work-in-progress account's ending balance for that time period to finish. Why is an inventory of work in process a significant factor?Your balance sheet may be impacted by understanding how to calculate WIP inventory appropriately. It's critical to comprehend how WIP inventory functions, what factors affect its cost, and how to compute it at the conclusion of the accounting period if your company sells highly customised items. Based on how much it costs to create and manufacture completed items, this will give you an idea of COGS. What is included in the inventory of work in process?Costs for the manufacturing process, including labour and all raw materials, are included. Because it calls for an evaluation of the cost of labour and overhead related to the proportion of work completed, calculating WIP inventory is challenging. Most merchants attempt to have as much inventory as possible in the completed product's condition before the end of a reporting period since it is challenging and time-consuming to compute. Is WIP an asset?Since there is reasonable anticipation that such items will become marketable products that can potentially convert into cash within a year, accountants see works in progress (WIP), which are materials and partially produced goods that are awaiting completion.

March 14, 2023
Ending Inventory Guide: Definition, Importance, Formula and Methods to Calculate Closing Inventory in 2023

Ending Inventory Guide: Definition, Importance, Formula and Methods to Calculate Closing Inventory in 2023

Every retail business, be it eCommerce, SMEs, or those following a multi-channel approach, need to have a clear idea of closing stock. The ending inventory of the sellable stock in the warehouse is vital for businesses to have visibility of sales, understand the value of the inventory, changes to be made in inventory forecasting and stock levels, etc. The closing inventory is a crucial metric for better inventory forecasting, understanding what items should be stocked more, which items don't get as many sales, and how the business needs to reassess strategies to remain profitable.  What is Ending Inventory? At the end of an accounting period, the ending inventory is the stock value of finished products in sellable condition. The closing stock includes mentioned assets on the balance sheet. Taking note of the ending inventory is necessary for accurately calculating taxes and estimating the total business value. Closing inventory calculates the total value of the good, not the inventory volume or the number of units available.  What is the Need to Calculate Ending Inventory? Calculating ending stock is important to identify what products are fast selling and need greater importance and which items take a longer time to sell. By understanding which products take longer to be sold, businesses can improve their forecasting and production strategies and decide if their production or sourcing volumes need to be shortened or lengthened accordingly. Visibility on closing inventory is important to: Match Recorded Inventory with Actual Stock Levels This provides insight into any stock discrepancies between the recorded and physical inventory in the warehouse/fulfilment centers and matches it with the sales made. If the physical inventory is less than what is recorded, it is known as 'inventory shrinkage'. The cause for this discrepancy could be accounting errors, theft, or various other concerns. Know the Revenue Being Generated Calculating the business's net income becomes easier with the starting inventory and ending stock. This can also help provide clarity on the pricing strategy. Suppose the recorded inventory and physical inventory costs don't match up, it can indicate that the sold items are not profitable as the initial purchase or production will be more expensive than the sale price. You can see how to calculate average revenue here. Improve Forecasting and Inventory Management When you calculate the closing stock, it considers the starting inventory during the beginning of the accounting period. This, of course, is a cycle. Having the closing stock details paints a clear picture of which items sell better than others, the ideal volume of items in the inventory, and how soon items need to be replenished. This also improves the forecasting capabilities for future inventories, discounts etc.  The Formula for Ending Inventory Calculation Using the Ending Inventory Formula It is important to calculate the closing inventory correctly to keep taxes and accounting in check. For every new accounting period, the starting inventory is calculated from the closing inventory of the previous period. This makes it even more crucial to have the right data to achieve better inventory management. Having accurate calculations also ensures no unexpected shortage or shrinkage in the physical inventory compared to the recorded inventory. The ending inventory calculation formula is: Ending Inventory = (Beginning Inventory + Net Purchases) - Cost of Goods Sold (COGS) Here's what each term means: Beginning inventory is the closing inventory from the last accounting period.Net purchases include all items that have been additionally bought and added to the inventory.Cost of goods is the total costs involved in sourcing, procuring, manufacturing and getting the finished product ready for sale. Various variables come into play. We arrive at different values based on the calculation method when the ending inventory is calculated. Note that only the estimated value of the inventory changes as the units in hand is constant. You will find these 3 methods for ending inventory calculation in the following section. 3 Different Methods of Closing Inventory Calculation With Examples in 2023 A physical inventory count is the easiest approach for closing stock calculation. However, doing a physical check may not be feasible, especially if you have a huge volume of inventory to track. There are a few different ways to calculate the closing inventory. Because there are various methods for calculating EI, it's advisable to stay with one every year to minimise discrepancies in subsequent reports. Let's see the different ways to calculate closing inventory: Last in, First Out (LIFO) Source This method of inventory calculation considers that the most recent stocks were sold first. The older stocks become part of the closing inventory and the newest inventory is noted as the COGS. For example, you purchased 100 books at Rs.5 per unit, making beginning inventory (100x5=500). When the books needed to be replenished after sales, the per-unit price increased to Rs. 7. During the accounting period, let's assume that 125 books were sold.  In this method, your cost of purchasing the latest inventory was higher than the older stock. So, COGS will be (100x7=700), which is the cost of purchasing the replenishment stocks + (25x5 =125) which will be the additional 25 units you sold from the old stock. This comes up to Rs.825. After using the ending inventory formula is: Ending Inventory = Rs.500 (Beginning Inventory) + Rs.700 (Net Purchases) – Rs.875 (COGS) The value comes up to Rs.325. First in, First Out (FIFO) Source This second tracking method, FIFO calculates by assuming that the oldest inventory gets sold first. So, the older stocks become part of COGS, and the newest inventory is added as ending inventory. For example, you purchased 100 books at Rs.5 per unit. During replenishment, the per-unit price increased to Rs. 7. During the accounting period, let's assume that 125 books were sold.  So, COGS will be (100x5=500), which is the cost of purchasing the replenishment stocks + (25x7 =175) which will be the additional 25 units you sold from the new stock. This comes up to Rs.675. After using the ending inventory formula: Ending Inventory = Rs.500 (Beginning Inventory) + Rs.700 (Net Purchases) – Rs.675 (COGS) The value comes up to Rs.525. Weighted Average Cost (WAC) Source This calculation method takes COGS as an average of the cost of inventory purchased during the accounting period and divides it by the total units in hand. For WAC, all inventory units are assigned the same value. For example, you purchased 100 books at Rs.5 per unit. During the replenishment of the next 100 books, the per-unit price increased to Rs. 7. During the accounting period, let's assume that 125 books were sold.  For WAC, the total cost of both orders will be added (500+700=1200) and will be divided by the total number of units in hand (200). This gets the price per SKU as (1200/200), which is Rs. 6. So, COGS will be (125x6=Rs. 750), the cost of the weighted average of a single SKU x the total units sold. After using the ending inventory formula: Ending Inventory = Rs.500 (Beginning Inventory) + Rs.700 (Net Purchases) – Rs.750 (COGS) The value comes up to Rs.450. Conclusion: How Can InventoryLogIQ Help Manage Closing Inventory for Your eCommerce Businesses in 2023? Ending inventory is an important figure for businesses to track, as it is used to calculate the cost of goods sold, which is a key component in determining a company's profitability. A company's closing stock can be affected by a variety of factors, such as changes in demand, production delays, or supply chain disruptions. Understanding and calculating closing stock are critical to your company's success. However, the process might be complicated, which is where technology-enable inventory management companies like InventoryLogIQ can help. When the time comes to file business taxes, having the correct inventory management solution will save you a lot of time and trouble. Some of the benefits of partnering with InventoryLogIQ to manage your ending inventory include: Managing inventory levels, order data and billing Flexible scaling based on seasonality, order velocity and other factorsEasy to view dashboards for orders, inventory and returnsSeamless integration and collation of data from warehouses and retail outlets using our custom OMSReal-time insights to identify mishaps and promptly fix problems With a fulfillment company like InventoryLogIQ, there's no need to invest in a separate OMS, inventory management software or tracking tools. We offer end-to-end inventory management services by combining network, technology and knowledge. With a centralised platform for everything related to inventory management, InventoryLogIQ manages the entire range of complex operations, such as inbound functions like scanning and quality checks, accurate demand predictions, automated order replenishment and inventory management across all channels, for a delightful experience and zero to minimal supply chain leakages. Suggested Read: What is Work in Process Inventory? Ending inventory: FAQs What all costs should be included when calculating ending inventory?The value of products available for sale at the end of an accounting period is the ending inventory which is the starting inventory + net purchases less the cost of goods sold. When calculating the net purchases, deduct any return costs and discounts before calculating the final value. How can a company like InventoryLogIQ help manage your closing inventory?InventoryLogIQ utilises an efficient OMS that aids in inventory management and is able to forecast demand levels and the supply levels needed to keep up with that demand. This helps retailers stabilize their inventory levels to mitigate losses from ending inventory. Is ending inventory and closing stock the same?Yes, the ending inventory and closing stock calculate the same value, the value of saleable goods at hand at the end of an accounting period. How can ending inventory be interpreted?A rising trend in ending inventory balances over time may suggest that some inventory is becoming obsolete, as the amount should remain relatively constant as a percentage of sales. A falling trend in the ending inventory balance, on the other hand, may suggest that a company's production capacity is insufficient to meet customer demand.

March 10, 2023
Beginning Inventory: Definition, Importance & 4 Methods to Calculate Opening Inventory in 2023

Beginning Inventory: Definition, Importance & 4 Methods to Calculate Opening Inventory in 2023

The beginning of a new accounting period, like the latest financial year, brings along new levels of supply chain inventory. Inventory is an important aspect of every eCommerce business and the amount of opening inventory available at the start of an accounting period can provide insights into a company’s performance in the previous cycle. In this article, we will take a look at what beginning inventory is, the methods to calculate it and its importance. Keep reading. What is Beginning Inventory? Opening inventory is the book value of inventory that is available at the beginning of an accounting period. It also includes the stock value carried forward from the previous period. It is counted as a current asset in the financial books. Furthermore, it helps calculate the average inventory value during a specified time period and helps to determine the cost of goods sold. It is also called the beginning inventory value of a company. Its calculation depends on several factors. 4 Methods to Calculate Opening Inventory Find the Cost of Goods Sold for the Previous Accounting Period The cost of goods sold (COGS) is the expense that you incur for manufacturing products and preparing them for sale. It is the sum of the beginning inventory and inventory bought during the last accounting period, excluding the ending stock in the same period. It is also the total per-unit cost to a company for each sale. The lower the COGS and higher the product cost price, means higher revenue margins for the company. All gross profits and expenses on product sales qualify as inventory metrics. The formula is listed below: Opening Inventory = (Beginning Inventory + Inventory Purchased During the Last Accounting Period) – Ending Inventory of the Same Period Find Your Ending Inventory Balance This figure depends on the opening inventory, net purchases for the last accounting period and the cost of goods sold. Here's the formula: Ending Inventory = (Beginning Inventory of the Last Accounting Period + Net Inventory Purchase in the Same Period) – COGS Determine the Cost of Purchases Made It is the money spent on buying additional inventory. This number helps decide your working capital requirements. It depends on the value of your opening inventory and ending stock in the previous accounting period and adds the cost of goods sold. It is calculated as follows: Cost of Purchases = (Ending Inventory – Beginning Inventory in the Last Accounting Period) + COGS This formula doesn't work well for labour-intensive sectors, like manufacturing, where the cost of goods sold depends on factors other than the inventory. Such elements make the calculation of actual goods sold trickier. Use the Opening Inventory Formula There are a couple of opening inventory formulas to calculate opening stock: For manufacturing enterprises: Opening Inventory = Cost of Raw Materials + Value of WIP Goods + Cost of Finished Goods When we know the cost of goods sold, closing inventory and sales data: Opening Inventory = (COGS + Ending Inventory in the Last Accounting Period) – Inventory Purchased in the Same Accounting Period Or Opening Inventory = Sales – Gross Profit – (COGS + Closing Stock) You may also be using one of the following methods for inventory valuation: FIFO: First in, first out inventory valuation is a common method of pushing out the inventory that entered the warehouse first. The first manufactured or purchased stock is sold off before the others. It uses the same disposition as supermarket stores, where you may observe that the oldest products are displayed up front. It is mainly used by sellers of perishable products.LIFO: As opposed to FIFO, the last in, first out method suggests selling off the newest inventory first. Auto dealers commonly use this method to lure customers in with new models and sell them off before the old ones.Weighted Average Method: The average cost of items purchased is used to calculate the COGS and ending inventory value. Many manufacturers use this technique of inventory valuation, so they can avoid differentiating between product batches. Reasons You Should Calculate Opening Stock Calculating opening stock helps in the estimation of various critical factors to ascertain your business performance. Its importance is listed in the points below: Cost of Goods Sold You can use the formula mentioned above to calculate COGS. However, to ascertain this, you should include unsold ending stock for prior accounting periods in the gross profit figures. Opening stock creates the opening balance of a new accounting period and forms the basis of COGS. Gross Profit Once you have determined the COGS, compare it with the revenue earned to find your gross profit margins. Equating COGS with sales tells you whether your operations brought you a profit or a loss. Average Value of Inventory This is an average of beginning and ending stock. It can be calculated as [opening inventory + ending inventory] / 2 Inventory Turnover It measures how frequently you sell your inventory in a year and if you can replace it in a timely manner. Inventory turnover indicates the operational efficacy of a company. A slow turnover suggests weak sales and a quick turnover shows healthy sales figures but insufficient inventory. Most retailers with high volumes and low margins experience one of the highest inventory turnover rates. Here is the most commonly used formula: Inventory Turnover = COGS / Average Value of Inventory Although inventory turnover can be calculated by dividing COGS by sales, most analysts and businesses don't use it. This is because sales figures include profit margins that can skew the inventory turnover figure. 7 Important Use Cases of Beginning Inventory in 2023 Recognising Inventory Management Disputes Source A higher number of leftovers or a supply crunch signals inventory management disputes. Frequently evaluating the opening inventory can help identify these issues at the right time. More negligible beginning stock shows lapses in the merchandise ordered during the last period. Calculating opening stock helps highlight these issues, so you can take timely actions to restore balance. Identifying Logistical Issues Source Owning more or less inventory than forecasted inventory indicates supply chain gaps. As a result, a demand or supply mismatch could lead to logistical disruptions. Knowing the opening inventory balance at the beginning of every accounting period helps you ascertain the loopholes in the chain. Spotting Inventory Shrinkage Source Inventory shrinkage occurs due to a difference in the stock accounted for in the books and the actual quantity in the warehouse. It is a logistical nightmare for retailers and suppliers and occurs for various reasons. Damaged or stolen goods or human errors are the most common causes of shrinkage. Monitoring the beginning inventory level can highlight gaps in the figures and help prevent or reduce shrinkage. Highlighting Demand Changes Source Variations in the opening stock levels indicate changes in your business' supply and demand. For instance, a sudden growth in sales leads to a reduced beginning stock and vice versa. So calculating the opening stock helps in understanding your business performance. Controlling Your Taxable Revenue Source Opening inventory helps determine the average stock level. Combined with sales forecasts done right, the opening inventory level can help you understand how much stock you need. Thus, you can decide when and how much to pre-order. This can also help you reduce your taxable income. Analysing Your Business Performance Source Opening stock is a current asset that forms a part of your working capital. It is to be held temporarily and assists in estimating the liquidity levels of a business. This can help you discern the current performance of your business and whether any changes need to be made. Maintaining Statutory Compliance Source The AS-2 and Ind AS-2 guidelines mandate disclosure of inventory levels of your company. Information like the carrying amount of inventory and the related expenses need to be revealed. Some of the stock-related data you need to provide are: Inventory accounting policies.Carrying amounts for all inventory stages, such as raw material, WIP and finished goods.The written-down amount of any inventory counted as an expense or a reversal of that amount and the conditions that led to it.The cost of inventory is counted as an expense, like COGS. Conclusion: Optimize Your Opening Inventory With InventoryLogIQ Inventory valuation deeply affects supply chain efficacy. And the stock levels decide the demand and supply gaps which influence your business performance. Numbers are everything for an enterprise; managing the inventory becomes critical for success if you deal with tangible products. Your logistics and operational prowess can break down if the inventory is not managed correctly. The simple formula of opening stock tells you where you stand at the beginning of a new accounting period. Pay close attention to what the stock numbers say, as it determines how well you can meet customer expectations. Evaluating opening inventory is critical to deciding your expenses and the gross profit you earn in every cycle. It is a metric of your business's success. You can utilise skilled staff and technology to monitor inventory levels closely. Of course, inventory monitoring demands some time, but your products need it. If you require inventory monitoring or any other related task, InventoryLogIQ can be of assistance. InventoryLogIQ is a rapidly growing inventory management platform that centralises the use of technology in all our core offerings. In addition to helping you monitor opening inventory levels, we also provide inventory and order management through our custom OMS, the ability to reduce your inventory costs and value-added services such as automated reorders, alerts in real-time and much more to ensure that your inventory will always be at its optimum levels and can be fulfilled efficiently and cost-effectively. Suggested Read: What is Work in Process Inventory? Beginning Inventory: FAQs Can opening inventory be considered an asset?Opening inventory is considered a current asset when mentioned on the balance sheet. It includes both items that are in production and ready for sale. Is opening inventory a debit or credit?Opening inventory is the amount of inventory that has been left over in the previous year and is carried forward to become the opening stock of the next financial year. It is considered as a debit balance. What are considered purchases in relation to opening inventory?Any finished item, raw material that goes into the creation of a product or any other material that is used anywhere in the manufacturing process can be considered a purchase. How can InventoryLogIQ help you to manage your opening inventory?InventoryLogIQ has a custom OMS that takes care of all inventory-related and order management activities across multiple platforms and storage locations.

March 01, 2023
Importance, Objectives, Uses and 4 Techniques of Inventory Management in Supply Chain Processes in 2023

Importance, Objectives, Uses and 4 Techniques of Inventory Management in Supply Chain Processes in 2023

Inventory management affects the movement of items along the supply chain. An effective inventory control system ensures that the corporation retains just enough stock or raw materials to maintain good manufacturing and market supply of completed products. As a result, a company with a well-functioning supply chain management system can stay competitive in its field. Information technology has benefited inventory management. For example, IT systems can monitor inventory to guarantee that no excess or insufficient stock is stored, improving the firm's efficiency and lowering operating costs.  Manufacturing companies manage their inventory levels to keep track of raw materials and then manufacture just enough goods for the market to avoid the costs of generating and maintaining surplus inventory. That is why inventory management in supply chain management is essential for the efficient working of eCommerce fulfillment organizations. What is Inventory Management in Supply Chain Operations? Inventory management in supply chain operations is one of the most crucial components of any organization. It is essentially the management of items or stock, which refers to the goods that a company organization produces at any particular time for selling or manufacturing. The administration must ensure that the commodities are kept at a cost-effective level and that stock is always available. If an organization has too much inventory at any particular time, it will be unprofitable since the cost of holding it will be too high, reducing profitability. Inventory control is crucial in the supply chain since it is the key to long-term success. Inventory may play the most crucial function in supply networks by balancing demand and supply characteristics. The size of the firm determines how well inventory is managed. The actions taken put a corporation in the position of attempting to strike a balance between meeting client needs, which are frequently impossible to foresee precisely, and keeping an adequate supply of resources and commodities. Strategic plans are commonly used to attain balance in managing inventory. Carrying cost or holding cost of inventory, replenishment lead time, inventory valuation, asset management, inventory quality management, price forecasting, inventory forecasting, the physical state of the stock, ordering cost of inventory, and the physical condition of the list are all areas of concern for inventory management in supply chain management. One of the goals of managing inventory is to guarantee that the merchant has the information to manage and maintain proper merchandise when placing orders, shipping items, handling them in a variety of warehouses, and keeping other costs in check. [contactus_lilgoodness] Relationship Between Inventory Management and Supply Chain Management Inventory control is one of the most critical aspects of supply chain management because it significantly impacts the company's profitability. Because one of the main goals of a company is to make money, inventory management in supply chain management is critical because it leads to higher revenues. In addition, this centralized management aims to maximize customer value and provide a competitive edge. The merchant must first determine inventory requirements before establishing organizational goals. After that, he should be able to maintain a supply chain management system and a report on the inventory status at the end of a financial quarter. The inventory should be compared between actual and expected levels. Furthermore, the management should be able to track inventory movement to guarantee no losses. Finally, using the various reports, the manager should be able to reconcile the inventory balances at regular intervals. 7 Objectives That Emphasize the Role of Inventory in Supply Chain Management Systems in 2023 The technique of coordinating the movement of items and services across several processes and locations is known as supply chain management or SCM. Raw material storage and transportation, work-in-process inventories, finished objects, and end-to-end order fulfillment from origin to consumption are all included. All business activities linked with a company's procurement, production, distribution, and sales order fulfillment functions are included in SCM. As a result, it entails managing supply and demand, sourcing raw materials and components, manufacturing and assembly, warehousing and inventory tracking, order processing and management, distribution across all channels, and ultimate customer delivery. Supply chain managers are in charge of creating effective plans and strategies to guarantee that the supply chain is running smoothly. They develop well-defined action plans based on detailed analysis and forecasts, enhancing overall performance. The backbone of today's business organizations is the ultimate integration of inventory management in supply chain systems. Suppliers who follow SCM principles are anticipated to provide more value to their customers than those who do not. The 7 most important goals of inventory management in supply chain management are listed below: Improve Operational efficiency Efficiency is one of the most important goals of Supply Chain Management. Waste minimization is synonymous with efficiency. Waste can take many forms, including squandered materials, squandered funds, person hours, delivery time, and so on. Therefore, waste minimization is an essential aspect of managing the supply chain. What role can SCM play in waste reduction? First, it manages manufacturing, inventory, transportation, and logistics to reduce waste. This is accomplished by exploring ways to improve systems to reduce waste. If your organization, for example, exchanges inventory data with a supplier and keeps it updated in real-time using ERP software, inventory may be replenished quickly to meet demand. It might be tough to master the process of efficiently managing these operations, but knowing how to do so can be incredibly valuable to your company's overall performance. Improve Quality Waste reduction is only one aspect of inventory management in supply chain management. Another important goal is ensuring the product is of the most excellent quality possible. Quality Assurance is the observance of numerous customer-specified quality parameters, ranging from performance to particular features. This involves following food safety rules, displaying ethical and sustainable business practices, and taking other comparable steps. Establishing exact criteria and including supplier partners from the beginning is crucial. To keep things moving through the supply chain, you must be nimble in real-time handling modification and variation to that specification. The quality of a company's goods, as well as its total profitability, are directly influenced by SCM. Quality management in the supply chain is critical for gaining a competitive advantage while minimizing operational costs. Optimize Logistics The better the inventory management in supply chain procedures, the better would be the supply chain. However, the purpose of logistics management is to optimize transportation and the supply chain. Each company is responsible for its part in ordering, shipping, and delivering goods in an autonomous commercial environment. Due to bad timing and coordination, the costs of this company model are substantially greater. Supply Chain Management guarantees that your operations run smoothly and that all stakeholders, including suppliers, manufacturers, wholesalers, and retailers, are on the same page. With SCM, you may optimize transportation and logistics processes with any vendors or buyers you work with. Orders are automatically recorded into a system, alerting other facilities that more resources are needed to complete the request. This ensures that the entire procedure runs smoothly and flawlessly. Reduce Operational Costs Efficient supply chain management inventory helps cut off the company's inventory costs. Building an optimized flow of goods reduces the cost of all forms of company costs, including acquiring, manufacturing, and shipping items. In addition, by facilitating a seamless flow of raw materials between a supplier and a firm and the movement of finished goods between a company and its consumers, the holding period of both raw materials and finished goods may be reduced—this aids in the reduction of losses and the minimization of total operating costs. Enhance Customer Services One of the essential aims of supply chain management is customer happiness. By far, the most efficient method of client service is through your supply chain. It directly impacts two of the most critical aspects of customer satisfaction: price and delivery. You can surpass your competitors in terms of the retail price and profitability if you have a well-functioning supply chain. Having high-performing operations also aids you in meeting or exceeding your consumers' product delivery expectations. It's vital to keep your consumers happy by giving them what they want when they want it and at the lowest price feasible. That's precisely what good Supply Chain Management allows you to achieve. You can give the excellent service, transparency, and visibility that your consumers want by choosing suitable systems, processes, and partners for your supply chain. By building strategies that minimize mistakes and maximize inventory management efficiency, you keep total control over the lifespan of your items, from conception to delivery. The stronger your supply chain is, the better the customer experience will be, the happy your customers will be, and the more likely they will buy from you again. Streamline Distribution Supply Chain Management benefits businesses by streamlining the distribution process. Creating adequate coordination between various transportation routes and warehouses is vital to promote faster goods flow. Also, Logistics Management allows companies to reduce logistics costs while delivering goods more rapidly. Consequently, the whole distribution system has been upgraded, allowing items to be delivered at the right time and place. As a result, it's a good idea to invest in technology that allows you to have efficient logistics inventory management, provide detailed data, automate delivery, give real-time tracking, and conduct other distribution duties. Establish Coordination The purpose of supply chain management is to improve coordination among the different stakeholders in an organization. Employees, customers, and suppliers will be able to connect with the firm more efficiently, thanks to establishing a channel. In the case of an emergency, managers may immediately lead their workforce, and employees can contact their supervisors via the established channel. Customers can also access relevant information through self-portals as part of the customer support system. It promotes information exchange among all stakeholders and aids in the creation of a well-coordinated organization. 5 Reasons for Inventory Control to be the Initial Step in Supply Chain Management Systems Even in our increasingly competitive economy, keeping track of inventory is a virtual necessity because inventory is often a business' most vital and costly asset for maintaining a centralized supply chain management system. Yet, according to U.S. Small Business Administration, 46% of small firms either don't track inventories or do so using a manual technique. For five reasons, inventory control should be the initial step in fine-tuning your supply chain management systems. They are listed below: Improves Inventory Turnover One of the essential criteria for centralized management is the inventory turnover ratio, which is the cost of items sold divided by the average inventory. A balanced ratio is critical for keeping your inventory profitable rather than squandering money on overstocking, stocking obsolete products, or rushing shipments to satisfy consumer demand. For example, a low inventory turnover ratio (low cost of goods, high average inventory) means you're spending too much on items that should have already shipped to customers or were never manufactured in the first place because of the cost of keeping them on the shelves while their value depreciates is counterproductive. High inventory turnover, on the other side (high price of products, low average inventory), suggests you won't be able to satisfy demand fast if the market shifts. Allows Capital to be Released Once you've paid for the supplies you'll need to make your inventory, that money won't be available until you've received payment from a buyer - in other words, your capital is tied to the prospect of a sale. This may restrict you from using that money to put back into your firm or recruit new personnel, among other common tactics for improving revenue development, unless your organization has a quick cash conversion cycle. Inventory control includes making sure that inventory isn't put into production until you know it will sell rapidly. Improves Customer Service Customers should be satisfied with a well-made and rapidly delivered product, which is the expected outcome of a lean and efficient supply chain. An optimized inventory and supply chain results in fewer shipments to complete orders, real-time tracking of orders from the warehouse to the customer's front door, accurate inventory that prevents charges from being placed on out-of-stock items, and a lower return rate because customers have fewer issues with their product. Swiftly and adequately resolving a customer's concern will go a long way toward boosting your reputation and assuring future business. Advances Technology Inventory control used to entail spreadsheets and manual audits, which were prone to human error and left businesses vulnerable to accounting errors that put them in financial and legal jeopardy. Across many industries, automated and integrated technologies are becoming the norm. For example, financial data, such as accounts receivable, is increasingly combined with sales information, including client histories. The idea is to keep inventory under control from quarter to quarter so that it does not affect the bottom line. That type of real-time data integration wasn't conceivable until recently. Still, inventory control solutions are now built from the ground up to handle these functions, which helps centralized supply chain management systems run more efficiently. Encourages Growth Trends in Optimizing Supply Chain Processes Future trends are increasingly becoming a reality for organizations of all sizes, from cloud computing to real-time tracking. Automated inventory control is the ideal approach to connecting with technologies that will keep you one step ahead of your rivals. "Just-in-time" inventory, for example, can help improve turnover rates by allowing you to retain inventory levels just high enough to meet demand. Businesses require strong ties with suppliers via common software databases to execute "just-in-time" operations like supplying customizable packaging. This will allow order fulfillment to your locations as needed. Many interrelated yet separate pieces work together to generate customer happiness and higher income in a complex supply chain. Our supply chain is exposed to several variables out of our control in today's often-disrupted business environment, including fluctuating market demand and new competitors. Our inventory is the one thing we can control: where it is, where it is going, and what we need to do to keep it at growth-friendly levels. Inventory control is the first stage in maintaining an effective supply chain. It may also be the most crucial step, given that poor management and lack of planning are two primary reasons small businesses fail. How Can You Improve Inventory Management in Supply Chain Management? Technology is at the heart of effective supply chain management. Traditional, frequently manual procedures are eliminated, saving time and lowering the chance of mistaken addition. In addition, any information captured becomes easier to communicate throughout a complete supply chain when activities are managed digitally. You're halfway to comprehensive supply chain optimization if your organization has installed a transportation management system (TMS). Transportation and logistics inventory management are two critical components of a successful supply chain. Transportation management systems handle product movement along the supply chain and offer a robust communication platform for carriers, shippers, and manufacturers. The amount and kind of items in an eCommerce warehouse or other storage facility are the subjects of inventory management platforms. These pieces of technology, when combined, establish the foundation for businesses to get their products into the hands of customers as quickly as feasible. When a corporation uses a centralized supply chain management system to respond promptly to a customer's order, for example, merchandise travels quickly out of the warehouse and no longer occupies inventory space. That space is then freed up for newer goods to take their place. Quick shipments may be handled via inventory management systems, guaranteeing that the oldest product is dispatched first. When inventory and supply chain management operate together, tracking ruined or damaged inventory is more accessible. Products may be tracked down to the SKU level and readily traced as they leave the warehouse. When a product is recalled, inventory management teams have the information they need to locate and isolate faulty merchandise. Specific transportation management systems, such as Microsoft Dynamics, can link directly with ERPs. When these technologies are combined, logistics professionals benefit from enhanced shipping accuracy, considerable time savings, and access to valuable data for SKU-level cost allocation. Additionally, by exchanging data between systems, integrations between a TMS and an ERP may assist in bridging the gap between logistics inventory management and transportation management, ensuring that all parties involved have reliable, real-time inventory information. 4 Inventory Management Techniques to Overcome Supply Chain Problems in 2023 From the procurement of raw materials to the delivery of the item to the ultimate consumer, the supply chain tracks products. As a result, supply chain management encompasses various components and factors, including logistics for moving resources and goods from point A to point B. Inventory management may be considered part of a more extensive supply chain system. Ordering, storing, and distributing goods are all aspects of inventory management in supply chain processes. Logistics inventory management, when done correctly, may have a substantial positive impact on a company's bottom line. On the other hand, poor inventory management decisions, such as over-or under-ordering, may be costly and detrimental to a company's long-term health. If a company does not spend on learning and adopting the best logistics inventory management practices, supply chain interruptions will increase dramatically. There are vital concerns that have led to supply chain challenges. One is the worldwide supply chain crisis linked to the COVID-19 outbreak has received the most significant attention. Worldwide, suppliers have been impacted by safety limitations, labour shortages, and shutdowns. Some supply chains have only had minor glitches, while others have yet to recover and return to routine fully. The good news is that you and your firm can overcome these supply chain disruptions by employing a few proven, contemporary inventory management solutions. They are listed below: Utilizing Automation, Artificial Intelligence and Machine Learning Source Automation is a fantastic technique for improving the efficiency of inventory management in supply chain processes. Warehouse automation, for example, may increase productivity by directing robots to discover or transport products using cloud-based technologies. As a result, individuals no longer need to locate and package products. Essentially, these robots may support human employees by acting as assistants and increasing the overall pace of operations within a company. Automation technologies powered by AI and machine learning can also help with supply chain difficulties. The programme may gather and interpret data to make the supply chain as a whole more visible. Taking Advantage of Inventory Control Applications Source The more inventory management in supply chain processes you have, the less disruption and stress the rest of the supply chain will give you and your company. While achieving the appropriate degree of inventory control isn't always simple, many businesses use logistics inventory management methods like the ABC analysis to make the process go more smoothly. All goods are designated as A, B, or C in an ABC analysis. The highest demand or value is for A-level items. C-level items, on the other hand, sell slowly and are counted seldom. B-level things fall midway in the middle. Inventory and supply chain managers can better assess whether to purchase replacement stock once goods have been categorized this way. Using Both Passive and Active Demand Forecasting Techniques Source It makes economic and logistical sense to know how much of a product to have on hand each quarter. However, predicting demand for a particular product may be challenging, which is why many people divide demand forecasting into passive and active demand forecasting approaches. Active demand forecasting entails keeping a close eye on what's going on in the market. It's a combination of intuition, trend data, and historical data. Because they have limited historical data to evaluate, startups often rely on active demand forecasts for advice. Historical patterns are used in passive demand forecasting to predict future requirements. Companies can choose between passive and active demand forecasting or a combination. Employing Inventory and Warehouse Management Software Source If you go into any company for inventory control and good supply chain management techniques, you'll see a lot of technology. The warehouse management software system has been a game-changer for smoothing out the creases of inventory management in supply chain processes. The majority of warehouse management systems collect significant amounts of data. They also indicate what's going on in the warehouse and the whole supply chain. This makes them essential in identifying possible supply chain disruptions and pain areas. There are several other advantages to using warehouse management software. Many work in tandem with other business systems, such as customer relationship management software. That implies that when a customer cares professional answers the phone, they may leverage warehouse management information to give excellent service. It's hard to outsmart every supply chain snag, especially in the face of uncontrolled occurrences like a worldwide epidemic. Nonetheless, best practices and tools can help mitigate the impact of interruptions in inventory management in supply chain processes. Suggested Read: What is Supply Chain Forecasting? Conclusion: How InventoryLogIQ is the Most Efficient Inventory Management System Supply chain management is an integral part of every business's operations. It is critical to assist a company in gaining a competitive edge and maximizing customer satisfaction. Because of the increased degree of competitiveness, a company's supply chain management function has grown increasingly significant in today's corporate environment. As a result, there is a more critical requirement for businesses to assure consumer satisfaction. Inventory management, the backbone of supply chain management, is vital to customer satisfaction. Inventory management, through EOQ and JIT, aids in the reduction of supply chain management expenses as well as the forecasting of inventory levels. Furthermore, inventory management is a valuable strategy for managing risk in an organization by ensuring that safety stock is maintained. Supply chain management can fulfill its most fundamental goals through inventory management. As a result, it may be claimed that inventory management lies at the heart of supply chain management and that organizations must embrace it if supply chain management is to be successful. In other words, without inventory management, businesses will struggle to prosper in the supply chain. It serves as the foundation for all other supply chain operations, including transportation, production, and distribution. InventoryLogIQ is a leading inventory management company that specialises in managing the supply chain of online and offline businesses through effective inventory management. We can help your company improve its inventory management in supply chain processes in the following ways: Through automatic replenishment suggestions, InventoryLogIQ's inventory planner aids in demand forecasting and maintaining precise stock levels across SKUs in warehouses in appropriate locations.Checklist-based Quality Checks are also conducted by InventoryLogIQ's operations professionals, guaranteeing that the QC process is complete and dependable.We use handling units to convey merchandise and scan bar codes for pick and pack fulfillment services.We help design and implement of a process for tracking and tracing misplaced merchandise. Inventory Management in Supply Chain: FAQs Why is inventory management so crucial in the supply chain?Because a corporation must balance client demand with storage space and cash constraints, inventory management is critical in the supply chain. Inventory management gives you a clear picture of your supply chain, like procurement, production, delivery, etc. What is the impact of excellent inventory management on the supply chain?By maintaining a consistent inventory flow, good inventory management may promote profitability, improve supply chain visibility, and improve operations. For today's supply chain management, inventory optimization is the gold standard. What is the definition of inventory supply?MRO inventory is often referred to as supplies or supply inventory. It's made up of consumable materials, equipment, and supplies that are utilised in the manufacturing process but aren't included in the final product. What role does inventory play in the supply chain?What role does inventory play in the supply chain?Inventory facilitates the balance of demand and supply, which is perhaps the most essential role it performs in supply networks. Firms must deal with upstream supplier exchanges and downstream consumer needs to efficiently manage forward and reverse flows in the supply chain. Is inventory control an element of operations control?As a result, inventory management is an important aspect of operations management. When it comes to inventory, the most important factors are when to refresh stock and how large orders should be. An inventory policy is what it's called. The basic considerations of when and how much to order are addressed by an inventory policy.

February 27, 2023
Inventory Costs: Definition, Calculation, Mistakes to Avoid, Affecting Factors, 3 Lowering Methods, Types of Inventory Costing Methods and 5 Types of Inventory Costs in 2023 

Inventory Costs: Definition, Calculation, Mistakes to Avoid, Affecting Factors, 3 Lowering Methods, Types of Inventory Costing Methods and 5 Types of Inventory Costs in 2023 

Inventory is debatably the most important asset of any retail business. By selling it, businesses can make up the expenses they spent on research and development, production, marketing, fulfillment, and more, and eventually start becoming profitable. This is why it is imperative for companies to constantly monitor and analyse their inventory and the costs associated with it. Inventory costs comprise of various components and if steps aren’t taken to keep them in check, each cost can skyrocket, reducing the profit margins of the business and placing an immense burden to try and bring them down. This can be avoided by simply being aware of what inventory costs are, how they can be calculated, common mistakes to avoid, elements that affect them, methods to lower them, the types of inventory costing methods you can use and the various types of inventory costs, all of which will be covered in this blog so read along. What are Inventory Costs? Inventory costs are the expenses that are associated with storing, managing and maintaining inventory. All of these costs can add up quickly and have a significant impact on a company's bottom line, which is why inventory management is an important part of any business strategy. The lower the overall inventory costs, the higher the profit margins and the more successful your business will be. There are various strategies that can be used to reduce the various types of inventory costs, which will be covered later on in the blog. How Can Inventory Costs be Calculated? Using the Inventory Cost Formula You can learn how to calculate inventory costs using the inventory cost formula with the help of this real-world example. Suppose you begin your business operations for the year with inventory that is worth around $20,000. As the year progresses, you purchase more inventory needed to fulfill orders that is worth around $100,000. At the end of the year, you are left with inventory that is worth $50,000. We will now use the inventory cost formula to calculate your total inventory cost for the year. It is as follows: Inventory Cost = (Beginning Inventory + Inventory Purchases) - Ending Inventory Inventory Cost = (20,000 + 100,000) - 50,000 Inventory Cost = $70,000 Using Inventory Cost Calculators You can also use various inventory cost calculators that can be found online to streamline the calculation process. They will help in automating the calculation process, saving you time and enhancing the accuracy of ascertaining your inventory costs. You simply need to enter the relevant information pertaining to your beginning inventory, inventory purchases and ending inventory over the course of the year. After that, the tool will automatically perform the calculation for you, greatly enhancing the effectiveness of the calculation.  Recurring Mistakes Associated With Inventory Costs to Avoid in 2023 Misjudging the Value of Using Inventory Management Software The process of managing inventory is complex. It is insufficient to rely solely on manual procedures and spreadsheets, which can be error-prone and inefficient. You can get your business out of these sticky circumstances by using the strategic inventory solutions offered by inventory management software. Using a dedicated software solution will enable you to be ready for scenarios that would otherwise have a significant negative impact on your business by keeping track of your inventory in real-time and putting backup plans in place for possible future inventory issues. Constantly Purchasing Large Amounts of Inventory Bulk purchases can frequently result in lower spending but they may not always be the greatest choice if you don't consume or sell the products before they become obsolete. Unsold products that are no longer in use or have expired may cause you to lose money. This is why it is important to conduct accurate inventory forecasting of the upcoming demand your business expects to face and plan your inventory purchasing and stock replenishing strategies accordingly. Understocking Fast-Moving Products On the other hand, some companies might aim to cut costs by keeping fewer units of stock on hand. Being overstocked is probably more preferable to being understocked because you can still fulfill orders when they come in as opposed to losing out on that business entirely. If you make the mistake of underestimating your demand, your products will frequently be out of stock, which will irritate customers and cause them to shop elsewhere, resulting in negative feedback and a poor impression on prospective customers. Refusing to Use Inventory Management Software for Forecasting Even while historical sales data is frequently used to anticipate future sales, it is insufficient in providing precisely accurate forecasts. Many businesses undervalue the impact of inventory management software during the process of inventory forecasting, which gives you crucial information to keep your inventory levels ideal. In order to conduct forecasts about when and how much you need to refill, you can track product performance, the inventory turnover rate, average lead times to obtain fresh stock and more with the aid of an inventory management system. Attempting to Manage Inventory Costs Only After a Product Launches The idea that you should only manage your inventory costs once a product launch is a frequent one. By doing this, you run the danger of having to cope with costly inventory purchases and supply problems. For instance, if you didn't plan ahead for an unforeseen situation, it could take months to produce and refill your inventory levels if you wind up selling out quickly after a successful debut. Therefore, throughout the protracted waiting period, you may run the risk of losing potential clients. Elements That Affect Inventory Costs Lack of Storage Space It is difficult to store inventory and make place for additional seasonal products when warehouse vacancies are scant. Retailers must therefore turn to other solutions that could have a negative effect on their inventory expenses and storage quality. Total inventory expenses, for instance, can be impacted by the price of leasing new space, the added costs of getting rid of outdated goods and transporting your inventory from the existing warehouse to the new one. Fluctuations in Demand A multitude of variables could cause varying degrees of demand for certain products for any and every type of business. A negative press report could result in a sharp decline in demand, whilst a positive influencer evaluation could possibly have a reverse impact. Geopolitical concerns and other metrics can also potentially cause unanticipated surges and declines in demand, which will have an impact on your inventory prices and your purchasing decisions. If not accounted for correctly, it could cause your inventory costs to skyrocket. Hindrances in Transportation Transit delays might occur while transporting inventory to your fulfillment centers as a result of bad weather, traffic delays and other unforeseen circumstances. Due to delays while products are being transported, several businesses experience clogged supply chains, which cost them money and cause them to lose customers. This can also make journeys longer, more perilous and increasingly expensive than initially anticipated, resulting in overall higher inventory costs. 3 Methods to Lower Your Inventory Costs Avoid Ordering in Bulk Just to Save Costs To get rid of excess inventory, certain suppliers may offer certain promotions, such as "buy one, get one free" or “50% off” if the order quantity is above a certain level. While this may sound attractive initially, going through with it will raise your carrying costs, which will raise the overall cost of your goods and reduce your profit margins. Be careful not to order items in bulk specifically because you receive an enticing offer. To avoid the significant expenses involved in overstocking products, stay true to your initial inventory management approach. Get Rid of Dead Stock Dead stock refers to products that a business has not been able to sell and has been sitting in inventory for a long period of time, often becoming outdated or obsolete. Even while you would want to convert unsold inventory into a profit, if it stays on the shelves for too long, carrying costs would quickly cut into your margins. To save money on storage space and make room for additional items that have a genuine chance of fetching you a profit, make sure to actively track and eliminate the accumulation of dead stock. Streamline Replenishment Procedures You can improve your ability to replenish inventory in the right quantities by using several inventory management strategies and investing in a good software solution. To prevent the probability of stockouts and overstocking from occurring, take extra precautions not to order too much or too little based on the current demand for those commodities. A coherent inventory management software will employ the use of analytics and forecasting to make sure that your inventory levels are always ideal. You can also easily restock your inventory by establishing precise reorder points and getting automated reorder notifications. Types of Commonly Used Inventory Costing Methods in 2023 FIFO (First In, First Out) The FIFO method for inventory costing is based on the straightforward tenet that a company should sell its oldest inventory first and that not all inventory has the same value. This inventory costing approach is frequently used by companies that sell perishable goods or products that can go out of style. Making use of older items before they expire or become out-of-date is a key component of this strategy. However, due to its clarity, precision and simplicity, it is also well-liked in a wide range of other industries. The FIFO approach is also well-liked because it results in better profit margins. The cost of goods sold using FIFO can be calculated using the following formula: Cost of Goods Sold Using FIFO = Cost of the Oldest Inventory x Units of That Inventory Sold LIFO (Last In, First Out) The LIFO method, which is the polar opposite of the FIFO method, is predicated on the notion that a company should sell its most recent inventory first. The fundamental benefit of employing LIFO is that, in terms of accounting, it enables you to compare your most recent expenses to your most recent revenues, raising the value of your inventory while reducing your net income. Since there are rarely compelling reasons to sell newer inventory over older SKUs, the majority of retailers do not opt to adopt LIFO. The cost of goods sold using LIFO can be calculated using the following formula: Cost of Goods Sold Using LIFO = Cost of the Newest Inventory x Units of That Inventory Sold Weighted Average Cost The weighted average cost method averages the cost of all purchased items using a predetermined weighted cost. The inventory value of a certain unit determined using this method is a compromise between the newer and older units of acquired stock. When products are somewhat identical to one another or when it is impractical to assign precise costs to individual products, this strategy is frequently utilised. Since only one formula or calculation is required, it is also among the simplest methods for tracking and costing inventory. The weighted average cost can be calculated using the following formula: Weighted Average Cost = Cost of Goods Available for Sale ÷ Number of Units Available for Sale 5 Types of Inventory Costs Investment Costs Source The initial bulk investment charges needed for physically holding your goods are referred to as investment costs. Purchasing warehouse space is just one example of this kind of expense. The most expensive costs for businesses that are associated with inventory are often investment costs, since it is responsible for getting all the infrastructure in place to be able to store it. There also may occasionally be problems pertaining to warehouse space. Auditing your storage space several times a year is crucial because needing to increase your storage capacity can also result in increased investment costs. Storage Costs Source Maintenance expenses for inventory storage systems are referred to as storage costs. This can cover ongoing expenses like rent, utilities, security and personnel salaries. Remember that if you hang onto merchandise for a long duration, especially if a portion of it has become unsellable, storage fees can soon mount up. Additionally, storing unsellable inventory for too long can quickly affect your bottom line owing to greater expenditures and fewer sales until these products have either been disposed of or donated elsewhere. Tax and Insurance Costs Source The expense of paying taxes and insurance that must be taken into account by businesses is referred to as tax and insurance costs. Avoiding these expenses could have major long-term effects and legal implications for your company. We advise seeking expert advice on this subject because the real costs and requirements may differ based on the type of industry your company falls in, the nature of your products, your yearly sales volumes and more. Additionally, it is best not to skimp on getting good insurance for your products to safeguard them in the case of accidents or mishaps. Improper Budgeting Costs Source Without having a suitable budget or strategy, you run the danger of losing a lot of money when you invest in inventory. You will have the risk of purchasing inventory that you don't truly need, for instance, if you don't calculate how much to purchase before you acquire it. If it remains unsold, it will increase your carrying costs in the future. To ensure that you aren't overpaying for inventory, demand forecasting should be conducted by keeping track of historical order data and putting in place a system to keep track of inventory in real-time so that you can successfully plan for the future. Damage and Theft Costs Source The price of inventory shrinkage brought on by illegal activities like theft and fraud must also be taken into account. Your inventory expenses could be seriously threatened by dishonest staff and malicious customers. Thus it is critical to invest in safety facilities to guard against these dangers. Inventory can also sustain damage while in storage or transit, which entails extra expenses. There is also the chance of your inventory becoming outdated if you have an excessive amount of unsold stock that is near the end of its useful life. Due to the high expense of obtaining and transporting these commodities, your business could wind up losing money on them. Conclusion: Utilize InventoryLogIQ’s Advanced Solutions to Regulate Your Inventory Costs Keeping inventory costs in check should be one of the most important priorities for every company. Since selling inventory is the number one method that a business uses to make their money back and eventually become profitable, maintaining and purchasing inventory cannot have the opposite effect by losing money. If enough attention is paid to regularly monitoring inventory costs, your business can regulate them. There are many procedures that can be put in place to accomplish this, some of which include using advanced inventory management software, conducting accurate forecasting, replenishing inventory on time and storing accurate amounts of inventory to successfully meet demand. If you need assistance with any or all of these procedures, InventorylogIQ can be of service. InventoryLogIQ is an inventory management platform that uses advanced technology to manage every aspect of your inventory, from tracking and managing to recording and forecasting. Some of the ways we can help you regulate your inventory costs are listed below: We provide a custom OMS that can track your inventory and update you in real-timeWe enable automated inventory replenishment triggers whenever a certain SKU is running lowWe offer inventory purchasing suggestions to help you store precise levels of inventory so that it doesn’t go to wasteWe provide accurate inventory forecasting by tracking your historical inventory and sales dataWe help you lower operational and holding costs by optimizing all of your inventory management procedures Inventory Costs: FAQs What is inventory cost accounting?Inventory cost accounting is the process of tracking and recording the various costs associated with inventory, such as purchase costs, holding costs and other expenses. What is the impact of high inventory costs on a business?High inventory costs can negatively impact a business by reducing profitability and tying up valuable resources that could be used for other purposes. What is the difference between holding costs and ordering costs?Holding costs are the costs incurred from holding inventory, while ordering costs are the costs associated with placing and receiving orders for inventory. What is inventory obsolescence?Inventory obsolescence refers to the loss of value of inventory due to it becoming out-of-date or unusable, which can lead to additional costs such as disposal fees in addition to not being able to generate any money out of it. How can technology help reduce inventory costs?Technology can help reduce inventory costs by providing better visibility into inventory levels, automating inventory management processes, and improving inventory forecasting and demand planning.

February 18, 2023
Inventory Flow in Warehouse: Definition, Role, Challenges, Processes and Methods to Enhance Inventory Process Flow in 2023

Inventory Flow in Warehouse: Definition, Role, Challenges, Processes and Methods to Enhance Inventory Process Flow in 2023

Inventory is one of the most important assets of any operational retail business. It is generally how companies can account for all the finances spent on research and development, production, marketing and distribution of products and eventually become profitable. Inventory is constantly shifted and transported throughout different aspects of the supply chain and this movement needs to constantly be running optimally to lower your operational and logistics costs, and increase your profit margins. It also enables you to fulfill orders accurately and swiftly to ensure your customers have a positive purchasing experience with your company. Therefore, certain tactics and strategies need to be implemented to accomplish this and mitigate any risks associated with the flow of inventory throughout the supply chain. In this blog, we will help you understand the definition of inventory flow, the role it plays in inventory management, the challenges associated with it, the processes involved and 5 methods to streamline your inventory flow in warehouse operations. What is Inventory Flow? Inventory flow refers to the physical movement of goods, products and raw materials as they enter and exit a company's inventory and are transported through various operations in its supply chain. It encompasses all the processes involved in acquiring, storing and selling products to customers, from the time of purchase to the final delivery. Inventory flow is a critical component of a company's supply chain management, as it affects the availability of goods, the accuracy of inventory records and the ability to meet customer demand. In a typical inventory process flow, goods are received at the company's warehouse or storage facility, where they are inspected, counted and stored. The company then updates its inventory records to reflect the addition of new products, which can be tracked using a variety of tools, such as barcode scanning or automated inventory management software. Effective management of inventory flow can help your company improve their bottom line and ensure a seamless customer experience. The Role of Inventory Flow in Managing Inventory Product Sourcing The entire supply chain process commences once raw materials are transported to suppliers and they can convert them into finished products that are then transported to their client's storage facilities. Inventory flow also helps companies maintain accurate stock levels by tracking the physical movement of goods in and out of the warehouse. This helps ensure that the company always has the appropriate amount of inventory to meet customer demand. Inventory Storage After receiving a consignment of products from their suppliers, companies need to find the most effective and appropriate ways of storing them so that they can be easily identified and accessed whenever an order comes in. This can involve storing heavier items on lower shelves, grouping similar items together or consolidating products of similar value and price in the same storage space. Whatever storage strategy you choose, it should result in better inventory management by being able to locate an item, package it and dispatch it as soon as an order is confirmed. Order Fulfillment Inventory flow is essential for ensuring that orders are fulfilled quickly and accurately. Order fulfillment involves transporting inventory from the warehouse to distribution centers and ultimately to the end customer’s location. By monitoring the movement of goods through the supply chain, companies can identify bottlenecks and make changes to improve fulfillment processes and hasten delivery speeds, resulting in increased customer satisfaction and a more positive opinion about your business among existing and prospective customers alike. What are the Challenges Associated With Inventory Flow? Inaccurate Inventory Data One of the biggest challenges in inventory flow is ensuring that inventory records are accurate and up-to-date. This can be difficult due to manual errors, data entry errors or the use of outdated tracking methods. Inaccurate data can result in overstocked or understocked inventory, missed sales opportunities and decreased customer satisfaction. Therefore, it is essential to employ the use of an advanced OMS that can automatically keep a tab of all the important information pertaining to your inventory and provide real-time updates whenever there is a change in your inventory levels. This will help mitigate the negative effects of inaccurate data. Logistics Issues The physical movement of goods can be disrupted by transportation problems, such as traffic, weather conditions or unexpected events, which can cause delays in the delivery of goods and impact inventory flow. Additionally, if different parts of your company's supply chain are not integrated and communicating effectively, it can result in disruptions to inventory flow and negatively impact the overall efficiency and structure of your supply chain. To prevent these unwanted issues and negate their adverse effects on your business, you will need to conduct supply chain forecasting and make the necessary preparations to curtail unforeseen challenges that can impact your supply chain. Technology Limitations Reliance on outdated or inadequate technology can also present challenges in inventory flow, as it can limit your ability to track goods and maintain inventory records in real-time, making it more difficult to manage the flow of inventory effectively. This can also extend to other areas of your supply chain, such as the use of outdated delivery vehicles, inefficient receiving and storage techniques, and a lack of communication facilities between various departments. As stated above, using advanced inventory management software, identifying areas of limited productivity and shovelling more funding towards those processes can help streamline your inventory flow and run your supply chain smoothly. The Various Phases Involved in Inventory Flow in Warehouse Operations Receiving Finished Goods This is the first step in the inventory flow process, where finished goods are received from suppliers and checked for accuracy and quality. The received goods are counted and cross-checked with the purchase order to ensure that the correct items have been received in the specified quantities. Storing the Received Items The received goods are then stored in designated locations within the warehouse, known as putaway. This process involves finding an appropriate storage location for the goods and ensuring that the inventory records are updated accordingly. Finding the right storage space can depend on various characteristics of the product, such as weight, dimensions, value and more. Picking the Relevant Products The next step is locating an ordered product, where they are selected from the storage locations and prepared for shipment. This process involves the use of a picking list, which lists the items that need to be picked and the quantity required to fulfill the order. The items are then taken to the packing area for preparation. Packaging Ordered SKUs The picked items are then packaged and readied for dispatch, ensuring that the appropriate security measures are taken to protect the goods during transit. The packaging process also involves labelling the packages with the necessary information, such as the destination and contents. Shipping Dispatchable Items The packaged goods are shipped to the customer’s mentioned location in this phase. This process involves preparing shipping documents, such as invoices and bills of lading, and arranging for the shipment to be picked up by the carrier, from where it is taken to the customer’s city and completed by the last-mile delivery personnel. 8 Methods to Enhance Your Inventory Process Flow in 2023 Use a Warehouse Management System Source A WMS is a software system that helps to manage the flow of goods within a warehouse. It helps to automate processes such as receiving, putaway, picking, packaging and shipping, and provides real-time visibility into inventory levels and locations by sending you alerts whenever changes occur. Additionally, all this information can be accessed through a single dashboard and it can also synchronise data across multiple storage locations and online selling platforms, enabling you to monitor your inventory and order data from anywhere with a stable internet connection and login access. Because of all the functionality it provides, it can ease up the way your inventory flows through your warehouse and supply chain. Implement a FIFO/LIFO Accounting System Source FIFO is a method of inventory management where the oldest items in inventory are sold first. It helps to reduce the risk of obsolescence and spoilage, and ensures that the most recent inventory is sold first. Conversely, LIFO is a method of inventory management that focuses on selling the items that have arrived last, so they can be prioritised. Which one you choose will depend on the nature of your business and its products but implementing either of them will allow you to have a set structure in place when selling your inventory, helping your inventory flow to happen more efficiently. Utilise Batch Picking Source Batch picking is a method of selecting the items needed for multiple orders at the same time, rather than picking each item individually. This method helps to reduce the time spent on identifying products and increases the efficiency of the picking process. Warehouses are generally filled to the brim with a vast array of products in different shapes and sizes, so batch picking can optimise inventory flow by tackling a large number of items at once, which helps in reducing the overall time and effort spent on readying the products for specific orders. Employ the Use of Cross-Docking Source Cross-docking is a method of inventory management where incoming goods are directly shipped out without being stored in a warehouse. This method helps to reduce the time spent on putaway and picking, and increases the speed of the inventory flow process. Because items do not need to be stored before they are dispatched, it also helps save on storage and operational costs, and ensures that items reach their relevant destinations ahead of schedule. This can help free up additional storage space needed for bulkier or more important products. Implement Cycle Counting Source Cycle counting is a method of continuously counting a portion of your inventory on a regular basis to ensure that the inventory records are accurate. This method helps to identify and resolve any discrepancies in the inventory records and ensures that the inventory information is up-to-date. Using cycle counting will ensure that issues can be resolved quickly and will not lead to bottlenecks and confusion further down the supply chain, allowing inventory flow to be consistent and unhindered.  Utilise Barcoding and RFID Technology Source Barcoding and RFID technology help to track the movement of goods within a warehouse and provide real-time visibility into inventory levels and locations. This helps to reduce manual errors and increase the efficiency of the inventory flow process. Additionally, it is quite simple to achieve. All products within your storage facility will simply need to be fitted with a scannable tag after which they will be entered into the system and can be tracked by a barcode scanner using its assigned code which will make tracking inventory a more seamless task. Conduct ABC Analysis Source By employing the ABC analysis method, your business can examine stock utilisation and manage inventory flow more effectively. This strategy divides inventory into three categories - Group A stands for products with a low supply but significant profit margins, Group B includes items that are currently available and priced in a reasonable range and Group C comprises SKUs with a low price range and that are always readily available. By maintaining appropriate safety stock levels that offer flexibility in the event of unforeseen demand variations, your company will be able to control inventory utilisation. Hence, you can maintain productivity, sales and revenue by ordering the right amounts of each group of commodities. Use Just-in-Time Inventory Management Source Quick inventory turnover is a symptom of using the Just-in-Time (JIT) inventory system, which combines logistical understandings and analysis to guarantee that all orders are shipped and delivered in accordance with their demand. Businesses generally buy goods on a per-order basis which helps in cutting lead times, rather than storing products for later use. This strategy necessitates in-depth familiarity with market patterns and variables like weather, geography and political events that might impact the amount of time it takes to deliver goods. If logistical risks are not taken into account, orders could be delayed and customers may become dissatisfied. However, companies that successfully apply the JIT strategy can shorten lead times while also having low amounts of inventory on hand. Conclusion: Take Advantage of InventoryLogIQ to Optimize Your Inventory Flow The seamless movement of inventory throughout the supply chain is essential to your business's success and smooth functioning. Because inventory is one of the most crucial aspects of your business, it is essential to make sure that every facet of inventory management is taken care of, including inventory flow. The flow of inventory can encompass many different processes, from sending raw materials to your supplier to transporting finished goods to your customers' doorsteps. Therefore, your entire business will benefit as long as those operations are running efficiently. The benefits of having a competent inventory process flow are immense from reduced inventory costs to enhanced customer satisfaction. If you need assistance with improving your inventory flow and other aspects of your inventory management process, InventoryLogIQ is the solution you need. InventoryLogIQ is a premier inventory management solution that provides your business with all the tools and facilities it needs to safeguard your inventory and ensure it is managed effectively. Some of the services we provide are listed below: Tracking Inventory Levels We offer detailed analytics for inventory level monitoring to allow for frequent reviews of inventory positioning and to react to changes in the business while maintaining ideal inventory levels. Streamlining Storage Space We provide blue lists that identify unsold or excess inventory, which are presented in a simplified manner in order to save storage space. Bundling Products We help businesses increase sales by locating the ideal products for promotional bundles and combinations by providing insights into every SKU. Segmenting Inventory We enable you to keep an eye on daily demand fluctuation and separate rapidly selling products from sluggish movers that require more concentration and attention. Replenishing Inventory Levels We preside over the success of your items and red-list goods that are getting close to running out of stock, which can be found using reports from retail replenishment planning analytics and can help in preemptive stock replenishment. Inventory Flow: FAQs What is the purpose of inventory flow?The purpose of inventory flow is to manage the physical movement of goods, products or raw materials as they enter and exit a company's inventory. This includes the processes of acquiring, storing and selling products to customers. How does inventory flow impact a company's supply chain?Inventory flow plays a critical role in a company's supply chain, as it affects the availability of goods, the accuracy of inventory records and the ability to meet customer demand. A well-managed inventory flow can help improve the efficiency of the supply chain and positively impact a company's bottom line. How can companies overcome the challenges of inventory flow?To overcome the challenges of inventory flow, companies can use the following methods:- Adopt effective inventory management practices- Utilise technology to improve the efficiency of processes- Continually monitor and assess their supply chain to ensure optimal performance What is the role of technology in inventory flow management?Technology plays a crucial role in inventory flow management, as it helps track the physical movement of goods and inventory records in real-time, reducing the risk of errors and increasing the accuracy of inventory data. What is the relationship between inventory flow and inventory management?Inventory flow is a critical component of inventory management, as it determines the speed, accuracy and efficiency of acquiring, storing and selling goods. Effective inventory flow management helps ensure that a company's inventory records are accurate, customer demand is met and costs are minimised.

February 09, 2023
Merchandise Assortment Planning: Factors, Pillars and Strategies To Consider When Creating a Product Assortment Plan In Retail in 2023

Merchandise Assortment Planning: Factors, Pillars and Strategies To Consider When Creating a Product Assortment Plan In Retail in 2023

The ability to keep prepared and organized may aid a business in achieving its objectives. For example, a firm might use assortment planning to set up product categories based on current market trends and successful items. As a result, sales may be increased by being aware of the best practices in product assortment. In this blog, we define assortment planning and discuss its importance with factors and strategies to consider before creating an assortment plan for your retail business. What is Merchandise Assortment Planning? Offering suitable goods at the appropriate location and cost is referred to as merchandise. A shopkeeper must plan to stock the item the consumer wants in his store. Any retail business' ability to succeed hinges on its merchandise strategy. Merchandise assortment planning is organizing and managing the retail company's inventory of goods in a way that strikes a balance between target consumer expectations and business objectives. Profit maximization, market expansion, and growth may be a company's strategies. Customers usually anticipate receiving a high-quality product that meets their needs. There is a connection between both, i.e., a company may achieve its profit or market share goals when it can stock and advertise the customer-favoured goods. This calls for merchandise assortment planning. When To Consider Merchandise Assortment Planning in 2023? Many eCommerce firms may not always prioritize merchandise assortment planning, especially if they make respectable profits. However, assortment planning is a crucial component of inventory management, mainly when your company deals with the conditions listed below. Proliferation of SKUs Without Supervision and Control While increasing the number of SKUs is crucial for growth, doing so is at the expense of your revenues. Planning your assortment will help you keep inventory proliferation under control, reduce SKUs, and concentrate your spending on the most lucrative products. Surplus Of Outdated Inventory You must consider merchandise assortment planning if you frequently have problems with outdated goods. This will enable you to more appropriately plan your merchandise inventory purchases and steer clear of goods with low demand or poor sales. Periodic Stockouts Stocking out is just as problematic as dead stock. If you frequently run out of specific items, although there is still a strong demand for them, you could organize your selection better so that you don't need to refill stock frequently to maintain sales volume. More than 63 per cent of U.S. retail stores, on average, are accurate with their inventory. While others face problems like stockouts, losing sales due to inaccurate inventory levels, poor customer experiences and even losing qualified sales. Retail business owners can get rid of these problematic situations with a great product assortment plan. You can learn here about What is a Periodic Inventory System? Lack Of Storage Space You might not have enough room to keep all the goods you sell as your firm grows. To make the most of your available square footage, merchandise assortment planning enables you to organize your inventory around warehouse capacity and shelf space carefully. Why Is Merchandise Assortment Planning In Retail Businesses Important? Effective merchandise assortment planning may increase sales and broaden the retailer's clientele. It is crucial because this decides which products a buyer engages with and ultimately purchases. A clothing store would offer different outfits in the summer than in winter. This meets consumer demand and boosts sales. Similarly, complementary products like bottom-wear and top-wear are carefully arranged in supermarkets to entice people to make impulsive purchases. A retailer's most considerable outlay is the cost of purchasing goods and stocking them in the shop for sale. Delivery charges, shipping costs, storing costs, etc., are just a few extra expenditures associated with purchasing goods. Therefore, your costs will easily quadruple if you order the incorrect item. Although conserving money is necessary, having a product assortment strategy is even more crucial. If you don't have well-thought-out assortment planning in retail, you'll frequently find yourself trying to meet customer requests. One of a retailer's most significant responsibilities is serving customers' wants. If you plan everything out in advance, you can utilize the appropriate product at the right time, place, and in the proper quantities. Consider the repercussions if your planning is inadequate. There's a potential that your shelves may be crammed with the incorrect goods, in that case, you'll need to offer steep discounts to eliminate the unwelcome surplus stock. Additionally, if you don't offer the appropriate goods at the correct times, your clients will go to your competitors, and you'll lose qualified sales. The three most essential prospects where merchandise assortment planning is required are discussed below: Serving Customers The shop can help the consumer by effectively meeting his demands if he has proper merchandise assortment planning. Additionally, you will assist the customer without looking elsewhere, focusing more on their convenience. A well-planned retail selection will aid in drawing more and more clients with various tastes into a single store. Retail Budgeting Planning a retailer's selection is crucial since it aids in managing the retail budget appropriately. The business cannot purchase every item in every size, colour, and combination in the hopes that a consumer would walk in and take it. Instead, the merchant can stock the standard sizes, colours, and variety of the most popular or frequently used items while making special sizes, variations, and variants available upon request. For instance, the merchant may maintain the standard-sized shirts worn by most men at a store that sells clothing but may also purchase and provide larger sizes upon request. This will guarantee that most customers lie in standard sizes, and those with unusual sizes are not excluded. Without going over budget and overstocking the business, this weather may establish a budget to buy the stock and keep it appropriately. Preventing Losses The shop may prevent the stock process with careful preparation, which costs the business money. The retailer's business understanding is essential for assortment planning in retail businesses, and the more business acumen a retailer has, the less stock will be wasted. Factors to Consider When Creating a Product Assortment Plann Merchandise assortment planning is something that is influenced by several elements. Thus, a store must consider these aspects before placing any stock orders. Although there may soon be new tools that can assist with retail planning, the shopkeeper still makes decisions based on his business expertise and intuition. The main variables influencing retail assortment planning are the month or season, Suppliers, Shelf Space, and Market Trends. Let us discuss these factors in detail: Season or Time of the Year This is possibly one of the most significant elements influencing merchandise assortment planning. Customers have varying needs depending on the month or the season. For instance, sales of deodorants and fragrances will be high during summer. Still, during the winter months, sales of skin care items such as body lotions, other dry skin creams, and over-the-counter medications will rise while those used during the summer months will decline. Holidays, other celebration days, and festivals impact the sales of specific goods. The retailer must comprehend the environment in which he operates and arranges the selection and stock purchases appropriately. The store has to have a little insight into potential circumstances to realize sale opportunities so that the stock is ready before the customers pop into the store. Suppliers The retailer is undoubtedly the final link in the supply chain. The retailer receives the items from the stockist through an intermediary. While a stockist or intermediary influences not every aspect, most do. Retailers receive merchandise from suppliers, and retailers should constantly be aware of their sources. Some suppliers close by may have catered to the retailer's region, depending on where the store was located. However, each provider will have different pricing and accompanying service. The shop must carefully select a supplier to ensure that the product supply is uninterrupted and that all necessary items are available. Consider several possibilities in the event of a provider, such as a possibility that there may be numerous suppliers but that only a small number of them would have the necessary stock and selection, and fewer of them would offer the merchant the correct service. In a different case, suppliers can be scarce, forcing the retailer to make concessions and abide by the supplier's demands. Any of these scenarios have pricing as a critical component. The shop owners choose the supplier who offers the most significant value, quick turnaround time, and accessibility to various items and product variations. Shelf Space The amount of shelf space that the merchant has available is another crucial element in the merchandise assortment planning process. There may be several suppliers offering a wide range of goods, and the month may be ideal for purchasing the products for sale, but if the shopkeeper does not have enough shelf space, he will always need to request further deliveries. The top stock a merchant may purchase will depend on the available space in the store. Therefore, the shopkeeper must make the most of the area to the best of his abilities and provide a variety of items in tiny numbers with various variations to service most clients adequately. Market Trends Considering market trends is another essential aspect of developing a brief retail while. Multiple factors influence market trends, including current celebrities, market potential, consumer spending power, and consumer preferences. A specific demographic's culture also significantly impacts the market trend. For instance, a particular brand of health food or protein supplement may be in demand; thus, the shopkeeper should ensure he has those products in stock to satisfy client demands. A well-liked film or television programme that has impacted people for an extended period also affects market trends. For example, many recently purchased several accessories featuring Game of Thrones and its linked characters during the Game of Thrones conclusion. Also, for example, during the release of Avengers, most of the public wanted associated movie accessories. That is why culture significantly impacts market trends, which affects product assortment planning. 4 Pillars Of Product Assortment Planning Merchandise assortment planning is supported by the four pillars of customers, employees, technology, and sustainability. Let us find out how these factors act as the pillar of product assortment planning: Clientele and Their Requirements Source The needs of the client form the basis of almost every retail operation. Additionally, the entire retail assortment planning process is driven by client requests. Therefore, it is crucial that the reader evaluates client needs and adjust the shop selection accordingly. The merchant might rely on expertise, market trends, or other elements that impact the merchandise assortment planning. Many more variables can cause change, such as client expectations. The store must improve or modify itself following market demands and client requests. Employees Source Employees make up the other half of retail firms, and consumers make up the other half. Therefore, the shop must maintain a happy workforce to give a pleasing experience to its consumers. When purchasing things in retail, customers are also served, and this is where the staff come into play. If the staff members are happy, they will ensure that consumers are delighted with their visit to the store. Technique and Technology Source The business should always guarantee a customer-friendly and easy purchasing experience. Technology integration is widespread in practically all retail stores. In almost every retail establishment, swipe machines, self-service checkout kiosks, and rapid receipt generators are widely used. Using the software is becoming a standard practice, especially in grocery stores. Most software has also developed a data collection system that aids the retailer in identifying which customers are regulars and which customers spend more on a specific category of groceries. The business can now organise campaigns and send out promotional communications more easily as a result. This helps the retailer understand consumer purchase habits and make the best retail selection decisions. Sustainability Source To remain competitive in the industry and be the best retail outlet, sustainability is crucial. Businesses in the retail industry need to look at the big picture and focus on market trends and customer needs. It is necessary to make sure that the procedure starting with the customer noticing the variety of products in the store and then checking out a specific item is adequately created for the smooth experience of customers so that they revisit the store. 5 Types of Strategies for Merchandise Assortment Planning In Retail Businesses in 2023 Effective merchandise assortment planning strategies increase sales and broaden the retailer's clientele. They are crucial because they decide which products a buyer engages with and ultimately purchases. In addition, seasonal changes may affect the selection. Before creating the ideal product assortment strategy, it is crucial to do in-depth market research on various criteria, including the target consumer group, region, climate, and other customer-based preferences. Let us discuss the various merchandise assortment planning strategies: Wide Assortment When shops want to provide several distinct product lines or categories but with less depth in each area, they employ the comprehensive assortment method. Although it does not offer many goods in each product line, its goal is to increase the diversity of product lines available. A grocery store that offers a variety of products but only carries one or two brands of each kind of product is an example of one that uses the wide selection approach. Deep Assortment The goal of a deep merchandise assortment planning approach is to offer a lot of alternatives for a specific product category. Stores specializing in a few goods sometimes employ a deep assortment approach. For instance, a supplement store focusing on fewer product lines but with great depth and diversity within each product line is likely to provide customers looking for protein powders with a wide range of possibilities. Mixed Assortment To draw more customers from other marketplaces, retailers who employ scrambled assortment methods seek to sell items outside their primary business activities. For instance, a business known for its speciality in smoothies may start offering fresh fruit and packaged foods to reach a more significant demographic, including those who want to create smoothies at home. Localized Assortment A localized assortment approach divides the product mix according to regional factors and local population preferences. This enables the company to meet various regional demands and boost sales. For instance, a retailer of apparel like D&G does not stock the same items in Bengaluru, India, as in Alberta, Canada. This is because people in India have distinct clothing preferences and needs according to climatic circumstances, but those in Alberta need warmer gear all year round, especially in the winter. Mass-Market Assortment Retailers like Walmart and Amazon utilize extensive physical storage facilities to implement mass-market product assortment tactics. To serve a much larger consumer base, they try to appeal to the mass market and provide as many items and kinds as possible. Conclusion: Make Use of InventoryLogIQ's Product Assortment Management Capabilities An effective merchandise assortment planning method makes inventory control more efficient. Making the most of every opportunity allows successful merchandising assortment planning in the retail industry to increase earnings. Businesses must comprehensively understand their inventory counts and turnover rates to achieve this efficiently. Utilizing data automatically accessed by inventory management software helps streamline this procedure. For example, by connecting with POS systems, the programme may deliver immediate and up-to-date information on inventory levels that highlight sales trends and opportunities for the best pricing strategies. An inventory management platform like InventoryLogIQ can assist you in streamlining and optimizing your merchandise assortment planning process using sophisticated commercial software and other tools. With the help of InventoryLogIQ's analytics solution, you can track data and gain the insights you need to predict client demand and adjust your assortment. For example, you can preside over inventory turnover and sales history, examine popular order destinations, and better prepare for holidays and peak delivery periods. Additionally, each merchant's dashboard offers inventory management features to facilitate merchandise assortment planning, such as: Automatic reminders when you reach reorder points to assist you with restockingReal-time visibility into inventory movement down to the SKU levelAnalysis of the optimal inventory allocation among your storage facilitiesTracking of inventory and SKU performance over timeSegmenting products based on a variety of factors Suggested Read: What is Inventory Planning? Merchandise Assortment Planning: FAQs What is the process of merchandise assortment planning?Choosing, controlling, buying, exhibiting, and pricing items in a way that maximises returns on investment, adds value to the brand name by meeting customer wants, and prevents the formation of surplus inventory is known as merchandise assortment planning. What are the key characteristics of a product assortment plan?Location, size, storefront type, consumer demographics, performance, and other factors are examples of similar traits. You could carry out merchandise assortment planning uniformly across all of the stores in each cluster based on these shared traits. Why is retail business merchandise assortment planning crucial?You may split up the budget in a way that will provide each store with a useful selection that supports their sales, fits in their area, and plays to their strengths by planning an assortment.

February 08, 2023