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What is Distributed Inventory? How It Works & When To Consider Adopting Distributed Inventory Systems Using Multiple Fulfillment Centers?

What is Distributed Inventory? How It Works & When To Consider Adopting Distributed Inventory Systems Using Multiple Fulfillment Centers?

Every owner of an online store aspires to reach as many clients and geographical areas as feasible. All businesses prioritise expanding their markets and selling to consumers all over the nation. The eCommerce industry is constantly changing. Online goods and services sales are predicted to exceed $5 trillion globally in 2022 and $6 trillion by 2024. Retailers have flocked to online commerce in record numbers as they continue to follow customer demand. An estimated 12–24 million eCommerce sites exist worldwide, and new online retailers are opening up daily to remain competitive in this industry. As a modern online store owner, one must continuously change tactics and procedures. Distributed inventory is one of the most effective techniques to guarantee maximum reach while remaining competitive. You might assume multiple warehouses will make order fulfilment by a 3PL more complicated. However, there are numerous benefits to working with a single 3PL with various locations. Being close to your consumers is one of the most crucial factors to consider when choosing the site of your fulfilment centre. Using a single fulfilment facility can make it nearly hard to effectively reach the vast majority of your clients as they probably don't all live in the same area. The fulfilment centre nearest to the consumer will immediately complete the order when a customer places one on your website instead through distributed inventory management. Let's examine distributed inventory in more detail and see if it is the ideal inventory and transit management system for your business. What Is Distributed Inventory Management? Distributed inventory is an order fulfilment methodology that physically stores merchandise in multiple warehouses to be closer to more consumers to reduce shipping distance and time. In a distributed inventory model, a company spreads its inventory among many carefully chosen warehouses or fulfilment centres, holding a portion in each one (depending on where its customers reside). Most retailers must work with a third-party logistics provider, or 3PL, to distribute inventory in this way because it is not feasible for one company to handle one (or more) fulfilment centres. Compared to self-fulfilment, outsourcing saves time and spares you the expense of purchasing the staff, infrastructure, equipment, and supplies required to run a fulfilment centre (such as renting a warehouse or buying property). Although a 3PL's fulfilment network can enable your company to use the distributed inventory approach, you must first understand how it works to decide if it is appropriate for your company. With less shipment distance, transit time, and shipping expense, orders can be picked up, packed, and dispatched from the fulfilment centre that is most convenient for their final destination. How Does Distributed Inventory Work? A producer or supplier stores its products in a centralised warehouse under a traditional inventory model. After a consumer puts in an order, it is processed for delivery at the hub and then delivered to the customer. When a customer places an order, the warehouse or fulfilment centre closest to them has all the items in stock or can fill the demand for the least amount of money and will prepare and dispatch the order. When there is an unexpected spike in demand for a particular product, these fulfilment centres can also assist others in the network. Any inventory management system's main objective is to ensure the proper amount of inventory is available at the appropriate location and time. The precise amount of inventory required in a specific place is challenging to predict, but machine learning and artificial intelligence are increasing the predictive data process. The widespread use of this technology makes it feasible for inventory distribution to be as precise and customer-focused as possible. Retailers generally work with a 3PL (third-party logistics provider) to set up a distributed inventory system to accomplish this goal. Together, they determine the retailer's primary consumer base and what those customers want. Then, depending on the amount and location, the optimum way to distribute inventory can be determined using predictive analytics and purchase history. When To Consider Distributed Inventory Management System? An eCommerce seller might benefit significantly by distributing their inventory around several fulfilment centres, a practice called distributed inventory. Working with a 3PL with numerous warehouses allows you to benefit from their experience and knowledge without paying the high up-front costs associated with setting up your infrastructure. If you experience the problems stated below, you should consider hiring a 3PL to obtain the benefits of distributed inventory system. Your Products Are Heavy In Weight When a shipment is heavier, it will cost less to ship since it will go farther or via fewer delivery zones. Your products will probably be more accessible to your clients if you have distributed inventories. You will be able to cut back on shipping expenses, which can quickly mount with heavier shipments. You Deliver A Lot Of Orders When your business is just off the ground, a single warehouse can be all you need because it will probably be too expensive to run out of many fulfilment centres. However, it will be more cost-effective to distribute your goods around fulfilment centres if your business grows to the point that shipping expenses outweigh the price of extra warehouse space. You can deliberately pick locations close to your consumers by using numerous warehouses. Because orders will be transported from a nearby location, keeping inventory close to your customers can reduce shipping expenses. Similarly, rather than keeping inventory for every item you sell, sending only your most well-liked or best-selling products to different warehouses might make sense. By doing this, your less popular products won't take up warehouse space and hang about collecting dust without selling, saving you from having to pay for storage. Not All Of Your Consumers Are In The Same Region Not all of your clients are concentrated in one region of the world. Where your consumers reside ultimately determines where your fulfilment centre should be situated. This is because orders are delivered more quickly and inexpensively when your packages travel a shorter distance. Therefore, it's advisable to determine how many customers might profit from an additional warehouse before investing in one. You Want To Provide Inexpensive 2-day Shipping Consistently Consumers today are used to expecting two-day delivery when they order online. A large number of fulfilment centres enables quicker delivery. When a customer buys something online, the order is instantly filled from the warehouse that is closest to the customer. This could allow your business to provide Prime-like service with quicker delivery times to fulfil client expectations. Top 10 Advantages Of Distributing Inventory Through Multiple Fulfilment Centres in 2023 Source A distributed inventory model presents several possible commercial benefits. Benefits range from tactical to strategic, and they can enhance a company's profitability and client pleasure. Capability for High-Volume Orders Shipping expenses that exceed warehousing costs are likely to be encountered by retailers looking to expand their companies. The most economical course of action in this situation is to manage activities from many fulfilment centres. Utilizing strategically positioned warehouses is a wise approach to managing inventory because top-selling things may be stored and shipped from different warehouses. At the same time, less-favourite products don't have to sit around at the company's expense. High-volume online retailers can also benefit from better inventory management since 3PLs with numerous warehouses often have their inventory management software for efficiency and transparency. Distribute The Risk Natural disasters and other calamities frequently hinder shipping companies from reaching the fulfilment facility or cause delays while in transit. Some of your orders may eventually be affected by a flood, wildfire, hurricane, earthquake, snowstorm, or other natural disasters. You will have backup inventory in other locations if you divide your inventory among different geographic areas. It can be preferable to be safe than sorry to avoid delays or lost inventory. Shipping of Oversized and Overweight Products More warehouse and truckload space is typically required for larger and heavier goods, which adds to the already high cost of these spaces. Retailers can cut storage and delivery expenses by using distributed inventory because their products will pass through fewer shipping zones and are less likely to get trapped in warehouses. While there isn't a single best strategy to handle inventory and shipping management, retailers considering order volume and regional market location can make better 3PL provider selections. Distributed inventory can boost eCommerce conversion rates and hasten business growth with a thorough cost-benefit analysis and knowledge of market geography. Reduced Costs For Shipping and Transportation Goods are situated closer to clients in a distributed inventory scenario, which lowers transportation costs. This is crucial for overweight and oversized products because they cost more to ship over long distances. Customers may receive some of these savings through cheaper (or even free) Shipping, or the savings may be kept as profits. Reverse Logistics Gets Simpler A company has to handle the process of either throwing away the products or adding them back to inventory when a consumer wishes to return something. Those who take advantage of distributed warehouses can reduce the cost and effort associated with these reverse logistics operations. Accepting returns in any place is the ultimate objective. Less Delivery Across Borders International markets offer sellers a wealth of opportunities, but Shipping across borders has several drawbacks, including higher costs and customs issues. Working with nearby warehouses or fulfilment facilities is an efficient way to lessen or eliminate such problems. Faster Order Shipping Today's customers anticipate their items to be delivered within a day or two, making quick delivery even more important. You'll be closer to your clients by distributing your inventory and may complete orders faster. You can opt to store your inventory close to your customers' locations and deliver the goods the same day or the next day using 3PLs like Inventory LogIQ. Minimize Issues Of Damaged Products Products are less likely to be lost or damaged in transit because they do not have to travel as far. Savings are generated for the business that makes those products as a result. Improved Inventory Management Organizations that supply their scattered warehouses can better manage the inventory in their structures when combined with knowledge of product demand and client location. As a result, they can operate with less excess inventory than companies that adopt a centralised strategy. Opportunity To Expand Into Other Markets A company can enter new markets by being able to send more goods at less money via new locations. Ideally, you would have established a distribution hub before attempting to make sales in the region. Challenges Faced In Distributed Inventory Management A distributed inventory strategy has numerous benefits, but there are also some drawbacks that businesses should be aware of. One is cost, particularly for new businesses looking to expand. Different locations frequently result in higher costs, whether from investing in more fulfilment centres or outside logistics companies. For this strategy to succeed financially, businesses must also have excellent inventory forecasting capabilities. Another element to think about is management. It may be necessary for some firms to collaborate with many 3PLs, which can make partner and customer relationship management more difficult. Working with many vendors could also necessitate the usage of diverse technology by the organisation, such as order management systems. Success depends on effective communication and standard performance measures, which should reduce these problems. Lastly, it might be challenging for businesses to overcome inventory management obstacles and possess all the inventory intelligence necessary to support a thriving distributed inventory environment. For example, working with 3PLs requires excellent demand planning and supply chain analytic skills to prevent carrying too much or too little stock. Conclusion It may be necessary for some firms to collaborate with many 3PLs, making partner and customer relationship management more difficult. Working with many vendors could also necessitate the usage of diverse technology by the organisation, such as order management systems. Success depends on effective communication and standard performance measures, which should reduce these problems. Lastly, it might be challenging for businesses to overcome inventory management obstacles and possess all the inventory intelligence necessary to support a thriving distributed inventory environment. For example, working with 3PLs requires excellent demand planning and supply chain analytic skills to prevent carrying too much or too little stock. Benefits Of Partnering With WareIQ & Inventory LogIQ For Better Distributed Inventory Systems in 2023 By cooperating with WareIQ, a 3PL partner, eCommerce enterprises who don't want to manage warehouse management can streamline supply chain management. Self-fulfilment is time-consuming and expensive, requiring a lot of effort, training, certifications, resources, safety precautions, and other costs that make it unattractive. On the other hand, WareIQ's supply chain management professionals know how to optimise operations and stay current with emerging supply chain trends and technology. WareIQ processes orders for numerous eCommerce firms through its extensive network of fulfilment facilities distributed around the nation, allowing businesses to concentrate on marketing, product development, and other activities. Inventory LogIQ is WareIQ's AI-based eCommerce inventory optimization tool that enables efficient inventory planning & regional utilization via distributed inventory and smart inventory placement across fulfilment centres and warehouses located across the country. How Inventory LogIQ enhances your inventory control and distribution system is as follows: Improved Inventory Control Inventory LogIQ gives you the data you need to manage inventories without even visiting the FCs where your products are stored. For example, you may set up automated reorder notifications to ensure you never run out of stock and that all product inventory levels are tracked in one place. Distributed Inventory With the help of Inventory LogIQ, you can smartly place inventory across FCs/warehouses closer to your customers and with WareIQ's shipping partners, you can deliver your items to clients faster and economically. You can reduce your fulfilment expenses by sending orders from facilities close to the customer. As a result, higher customer satisfaction and repeat purchase rates can be anticipated with lower shipping costs and quicker fulfilment. Order Management With automated order processing and real-time order visibility via the WareIQ dashboard, you can keep consumers informed while quickly accessing order management analytics and fulfilment performance. Distributed Inventory FAQs (Frequently Asked Questions) What does distributed inventory mean?Distributed inventory refers to the idea of splitting up shipments of merchandise that needs to be supplied to retailers. To meet the retailer's needs, these shipments are dispatched individually. Inventory can be transported to all the locations where it is required by splitting it up into numerous shipments. What challenges does distributed inventory face?Extra locations frequently result in higher costs, whether from investing in more fulfilment centres or outside logistics companies. For this strategy to succeed financially, businesses must also have great demand forecasting capabilities. What is the purpose of a distribution centre?A building that stores and ships goods is known as a distribution centre. Warehouses and fulfilment centres are other names for distribution centres. A distributed inventory strategy uses numerous warehouses or distribution facilities across various regions. A single distribution centre controls everything that comes in and goes out in a consolidated inventory strategy. What does distribution management mean?Controlling how things are transported from a supplier or manufacturer to the point of sale is referred to as distribution management. It is a general phrase that covers a wide range of operations and procedures, including supply chain management, inventory management, warehousing, and packaging. When To Consider Distributed Inventory?When you encounter any of the following circumstances, distributed inventory should be considered. - 1) The Weight Of Your Products Is Heavy2) You Fulfill Many Orders3) Your customers are not all located in the same area.4) You want to offer affordable 2-day shipping consistently.

November 29, 2022

What is Inventory Valuation? Importance, Objectives, Methods, and Challenges in 2023

What is Inventory Valuation? Importance, Objectives, Methods, and Challenges in 2023

When you become an eCommerce seller, inventory becomes your biggest asset and a majority of your capital investment goes into procuring it and storing it until it gets sold and starts to recover your expenditure. The value of the assets of any business provides insight into the financial condition of that business. A business is believed to be in good condition if its balance sheet shows that it has more assets than liabilities. It can be calculated if the business has kept records of every asset, sale, order, profit margin, liability, etc.  In terms of business, these records are referred to as inventory valuation. The most important aspect of calculating inventory is knowing how much your inventory is worth during a financial time period like a quarter or fiscal year. It impacts the cost of goods sold (COGS) which ultimately determines the overall financial health of your business.  In this guide, we will review the critical aspects of inventory valuation, the different methods used, and how to control inventory. What is Inventory Valuation? Inventory valuation is a term used for calculating the value of inventory a company has during a particular time period. Inventory is a prime asset of an organization and to record it in the balance sheet, it needs to have a monetary value. This value can help you measure your inventory turnover, which will help you to plan your purchasing decisions. It is based on the total costs incurred to acquire the inventory and get it ready for sale. You can find out yours by evaluating your cost of goods sold (COGS) and ultimately, your profitability. The most widely used inventory valuation methods are WAC (Weighted Average Cost), FIFO (First-in, First-out), and LIFO (Last-in, First-out). [contactus_uth] Why is Inventory Valuation Important for Businesses? The cost of goods sold (COGS), gross income, and the monetary worth of inventory remaining at the end of each accounting period are all affected by how a company conducts inventory valuation. As a result, inventory valuation has an impact on a company's profitability and prospective value as shown in its financial accounts. A few points that stress the importance of inventory valuation are listed below: Impact on the Cost of Goods Sold If the volume of goods sold is high at the end of the period of calculating inventory valuation, the total cost of goods sold will also be higher which means that most products from the inventory have been sold. Alternatively, if inventory has a lower valuation, holding costs will increase which will also lead to a higher overall cost. As a result, it has a significant impact on the profit levels reported. Impact on Multiple Records If the inventory valuation is not calculated correctly and on time, the errors may be recorded repeatedly for the next quarter/fiscal year. Because of the incorrect ending balance in the first period, it will be carried forward into the beginning inventory balance of the next reporting period, causing multiple errors in reported profits in two consecutive quarters or years, because of which, the balance sheet will not tally as more assets will always be shown. Impact on Loan Ratios If a business owner wants to take a loan for their business, the lender will base the loan on the company valuation and after passing it successfully, a restriction on the permitted proportions of current assets to current liabilities may be included in the loan agreement if a business has received a loan from a bank or lender. The lender has the option to cancel the loan if the entity fails to satisfy the target ratio. Inventory valuation is important because inventory is often the major component of the current ratio. Impact on Income Taxes When the balance sheet is involved during company valuation, the amount of income tax paid can be affected by the inventory valuation method used. The LIFO (Last-in, First-out) approach is widely used to lower income taxes paid during periods of rising prices. LIFO matches current sales and current costs of those sales with historical sales. If the production costs of an item increase due to inflation, the cost of goods sold is increased under LIFO, which creates a higher cost of goods sold tax deduction and thus, a lower taxable income. What Are the Objectives of Inventory Valuation? The term inventory refers to products that are for sale. It covers raw materials, semi-finished items, and finished goods. At the end of each fiscal year, inventory valuation is performed to determine the cost of goods sold and the cost of unsold inventory. This is critical because any excesses or shortfalls in inventory have an impact on a company's production and profitability. There are various reasons to evaluate inventory. A few of them are: To Evaluate the Capital Invested in the Business You must have spent a lot of capital on your business, like most other retailers. Some of that money must have been spent on fixed assets like stores, warehouses, furniture, computers, etc., and most of it on assets that are variable in nature. Getting the value of fixed assets is a relatively simple task but knowing the monetary value of inventory is much more difficult so this is where inventory valuation can help.  To Get the Sales Velocity of the Company If you operate a small eCommerce business, it is much easier to conduct inventory valuation but when you provide the data of a specific time period in your balance sheet, it shows how many items you sold in that certain time period. This can give you an idea of how smartly you rotate your money on buying and selling your inventory.  To Determine the MOQ and EOQ When you evaluate inventory at the end of an accounting period, you are able to figure out how many products you have sold during that period so you know how much inventory you need to keep in stock to avoid overstocking and understocking. You can calculate the economic order quantity (EOQ) to get the ideal order size and the minimum order quantity (MOQ) so that you have an idea of the least amount of money you will need to spend on procuring inventory. To Get Help in Taking Valuation-Based Loans When a business owner wants to expand their business by adding more products to their selling list, listing the available products on multiple selling channels, and arranging for storage in multiple warehouse locations, it requires a steady amount of investment. Most of the time, sellers take loans to invest in infrastructure for expansion. So for that purpose, banks demand access to the balance sheet to check the inventory valuation of the company to determine if they are eligible for the loan or not. To Determine the Gross Income As your inventory is stored with the ultimate goal to sell it and generate revenue, inventory valuation can easily show you the money that has been invested, earned, and is held up in procuring it.  To determine the gross profit, match the cost of goods sold with the revenue of the accounting period. Cost of goods sold = Stock at beginning of the accounting period + Purchases – Stock at the end of an accounting period. The equation shows how inventory valuation influences cost and ultimately, the gross profit. To Reflect the Financial Position of the Business Inventory after closing is considered a current asset. The financial status of the business is determined by the value of the shares while filling out the final balance Sheet. Overvaluation or undervaluation can show a false image of a company's working capital and overall financial position. To Show Any Gaps Between Assets and Liabilities An asset valuation tells you about the total value of assets you have at the end of a particular time period. When you have a strong idea about the figure of the valuable assets in your business, you can compare it with the liabilities and implement processes to reduce them such as extra warehouses, removing non-performing assets, getting rid of useless supply chain partners, etc. 4 Most Prominent Inventory Valuation Methods in 2023 Source First-In, First-Out (FIFO) This strategy works with the idea that the first inventory purchased should be sold first. The remaining inventory assets are then matched and marked as the most recently purchased or produced assets. Because it is simple and easy to implement, it is one of the most commonly used inventory valuation methods by eCommerce sellers. The FIFO approach gives you a higher value of remaining inventory, a lower cost of goods sold, and a higher gross profit if there is inflation. During inflation, when prices rise quickly, the FIFO model fails to provide a realistic picture of the costs. It also does not provide any tax benefits, unlike the LIFO technique. Last-In, First-Out (LIFO) As the name suggests, this inventory valuation method works on the idea that newer goods are sold first while the older inventory remains in stock. Businesses rarely adopt this strategy since older inventory can increase holding costs and become obsolete over time. The business suffers a big loss as a result of this. The LIFO method is used at a time when eCommerce businesses expect inventory costs to rise over time because of price inflation. Businesses’ declared profit levels can be reduced by transferring high-cost inventory to the cost of goods sold which enables companies to pay less tax as a result of this. Specific Identification Method Every item in your inventory is recorded using this inventory valuation method from the time it is stocked until the time it is sold. It is typically reserved for large items that are immediately identifiable and have a wide range of features and costs associated with them. The ability to trace each item individually using an RFID tag, stamped receipt date or serial number is the most important prerequisite for this system. While this method provides a high level of accuracy in inventory valuation, it is limited to valuing uncommon, high-value items that require these extra procedures. Weighted Average Cost Method Under the weighted average cost method, the weighted average is used to determine the amount that goes into the cost of goods sold and inventory. The weighted average cost per unit is calculated as follows: Average Cost Per Unit = Total Cost of Inventory Goods / Sum of Total Units in Inventory The above inventory valuation method is mainly used to determine the cost for the total sum of units that are indistinguishable from one another and when it is difficult to track the cost of individual items. It can be used to calculate inventory valuation by very niche businesses though it does not provide the actual valuation of a business. What are the Challenges of Inventory Valuation? Determining the Total Cost of Inventory Use COGS for calculating the cost of your inventory: COGS = Inventory at starting + Purchases – Inventory left Therefore: Inventory left = Inventory at starting + Purchases – COGS The value of Inventory at the start and end of an accounting period may not be as simple as it appears. Anything you can't sell for MRP due to damage, obsolescence, or even shifting consumer tastes must be marked down and valued properly. This makes determining the total cost of inventory a challenging affair. Determining the Amount of Inventory Left This is more challenging than it appears. If a business has products in transit, it must decide whether or not to include them in the inventory valuation. Many businesses keep track of goods using a periodic inventory system. Companies use this technique to evaluate inventory after each accounting period. A perpetual inventory system, on the other hand, tracks every purchase order and sale, and updates inventory to reflect those transactions regularly. Adding Other Related Costs When you evaluate your inventory, you do not only add up the costs of the products you have but also the costs of procuring it like the transportation cost, inventory holding cost, delivery cost, insurance cost, packing and picking cost, etc. Even electricity that is utilized to store your inventory can be added to your inventory valuation. Adding the exact value of these expenses with the ratio of remaining inventory can be a challenge for a seller. It is nearly impossible to determine the actual expenses that occur due to the leftover inventory and the further expenses to keep it safe and fresh for as long as possible. Calculating Depreciation Depreciation is also a big factor that affects your inventory valuation. With time, inflation not only surges but object values also depreciate. Most of the time, electronic items depreciate when the latest and updated versions come into the market. For example, if you are selling a mobile phone and after a period of a few months, the same company launches a model with more features at the same price, the product sales of the older phone will reduce or stop entirely so ultimately, the company will have to sell it at a lower price. Valuating Damaged Products Products after they occur damage are difficult to monetarily evaluate. A seller cannot command its actual price. They can try to sell it as a refurbished product during sales or sell it to a second-hand dealer like Cashify. The same thing happens with perishable products after a specific duration because storing perishable products is more expensive than the incomes they fetch in a highly competitive market space. Some perishable products demand special warehousing facilities like temperature control, special containers, etc. Identifying Stock Discrepancy The stock discrepancy is the difference between the physically available stock or inventory and the current inventory that is recorded in the system. To run a successful business, maintaining accurate stock is important but inventory discrepancy is a common scenario in real-life eCommerce operations. When it comes to inventory valuation, the stock discrepancy is a big hurdle. To find out the inventory valuation, you should have an accurate figure for your inventory. If there is a disparity in the count, sellers need to find the mismatched amount of inventory by calling the manufacturer, rechecking old bills, etc. and after that lengthy process is done, the seller may not be able to account for those missing items so it can go to waste and cause differences in the final valuation. Valuing Seasonal Items The value and pricing of seasonal items change over time. When a season ends, the manufacturers also start offering heavy discounts and when sellers take advantage and procure items, the price of the same product will vary compared to the price it was bought at the beginning of the season. For example, if you are a garments seller and you sell coats during winter but the weather doesn’t get as cold as you expected which results in lower demand for coats, you will have to store all that inventory till the next winter which can damage the products or make them obsolete as newer designs are introduced in the market. If you always keep a record of your inventory with the help of inventory planning through inventory management software, you may not find any challenges during inventory valuation. How to Choose the Right Inventory Valuation Method in 2023 and How Can Inventory LogIQ Help? When choosing the right inventory valuation method, there is no absolute formula. It depends on the purpose of doing it and the type of inventory. A few things to note about choosing the right inventory valuation method are: FIFO generates the highest gross income at the present time while LIFO generates the least and WAC is somewhere in the middle. Assuming a normal inflationary scenario in which supply costs rise over time, FIFO generates the greatest taxes, while LIFO generates the lowest with WAC again in the center. It minimizes the consequences of inflation and deflation by matching recent income with recent costs. When you or your customers want to know the cost and selling price of each unit, Specific Identification is the logical solution. People who buy and sell art may be curious about how the price of a certain piece altered from the year it was last purchased to the year it was sold. LIFO, FIFO, WAC and Specific Identification are the most common inventory valuation methods. Some of the others which are used according to the preference of many sellers are: First-In, Last-Out (FILO): Seller sells the firstly stored items at last.First-Expired, First-Out (FEFO): Seller sells the earliest-expiring inventory first.Highest-In, First-Out (HIFO): Seller sells the highest-cost inventory first.Lowest-In, First-Out (LOFO): Seller sells the lowest-cost inventory first. Conclusion After getting this detailed information on inventory valuation, you must have gotten an idea of how it is helpful in the growth of your business. It is important for you to partner with a company that provides inventory management services by using the best procedures and the most advanced technology. We at Inventory LogIQ provide our partners with the count, location (warehouse or transit) as well as monetary value of their inventory. We help you know the actual value of your inventory through different inventory valuation methods, handled by experts.  InventoryLogIQ is an AI-driven inventory optimization platform, that allows multi-channel brands to stop losing revenue on out-of-stocks, release cash from overstocked items, and accelerate shipping speed. Inventory LogIQ provides the actual figure of your inventory valuation as well as the value of each and every item that is available in stock through our custom SaaS solution - IMS (Inventory Management Software). To achieve better results in inventory valuation at the end of the financial period, Inventory LogIQ can help in: Inventory planningSmart inventory placement across multiple warehousesLIFO and FIFO methodsExperts to handle every procedureDeciding MOQs and EOQsAlerts for replenishment when moving towards out-of-stock situations Inventory Valuation FAQs (Frequently Asked Questions) How is inventory valuation calculated?Inventory values can be calculated by multiplying the number of items left in hand with the price of a single item. What is the inventory valuation formula?The formula for inventory valuation of a company is equal to the figure of its assets subtracted from its liabilities. Anything that has a monetary worth, such as real estate, equipment or inventory, is considered a business asset. Which is best for the inventory valuation method in 2023?When it comes to inventory accounting methods, the FIFO approach is most commonly used since it provides the most accurate picture of costs and profits. What is the objective of inventory valuation?The primary goal of inventory valuation is to determine the company's actual income and true financial situation. Why should inventory be valued at its cost price?Items in inventory are often valued at their cost rather than their selling prices because of the cost principle which says assets, liabilities and equity investments should be recorded on any financial record at their cost price.

November 29, 2022

What is Inventory Analytics? Meaning, Types, Inventory Analytics Metrics, 5 Benefits of Inventory Data Analysis for Your Business in 2023

What is Inventory Analytics? Meaning, Types, Inventory Analytics Metrics, 5 Benefits of Inventory Data Analysis for Your Business in 2023

It is supremely important for every eCommerce business to have an idea about their previous performance, whether it was strong or weak, to understand the factors that contributed to those results so they can either replicate it or mitigate it in the future. The main way to do this is through inventory analytics which helps retailers analyze a variety of metrics such as high-demand products, low-demand products, storage costs, and much more. In this article, we will go into depth about inventory analytics and understand the types, metrics, and benefits. What is Inventory Analytics? Inventory analytics studies inventory to estimate the quantity of a product a company should have on hand. Companies may decrease expenditures and enhance operational efficiency by managing inventory levels. Inventory analytics provides crucial insights into product management, allowing organizations to implement cost-effective solutions and improve operations. Companies cannot track items efficiently as they move through the supply chain without a robust inventory data analysis. This can lead to inconsistencies, low supply levels, and backorders.Inventory analytics aims to quantify essential performance metrics, allowing businesses to monitor and adapt management approaches in real-time.Managers may enhance their decision-making by incorporating inventory data into their daily activities.Inventory analysis ensures that you have the proper quantity of inventory on hand, lowers your operating expenses, and encourages improved demand forecasts. Types of Inventory Analytics Thanks to inventory data analysis, inventory management has become more advanced and demand forecasting can be done in an efficient manner. Inventory analytics may also reveal information about client behaviour, product performance, and channel performance. There are different types of inventory analytics, depending on the values provided by the data. These are classified as below: Descriptive Inventory Analytics Descriptive inventory analytics reveal the status of inventory in a descriptive way. This method is the simplest to implement, with major inventory management platforms supplying predefined descriptive statistics straight away. Analytics include system information, such as the number of items in stock and price per unit. The descriptive analytics stage provides visibility into inventory levels across the supply chain.End-to-end reports reveal the location of inventory in the supply chain.They can demonstrate how the stockpiles of raw materials, intermediate products, and final products cover sales.People learn to think in terms of value rather than just units. And they begin to realise how stocks at all levels pile up to satisfy the same levels of demand. Diagnostic Inventory Analytics Diagnostic inventory analytics explain the reason behind a trend that is occurring. Principle cause analysis is a diagnostic process, which is necessary when presenting information to make decisions.  For example, simply knowing that a firm grew month on month is not useful. Leaders must understand why there was this increase, in order to apply the lessons learned to other operations or products. Diagnostic analytics assists in identifying and understanding shortages and overstock.It urges managers to look beyond overall inventory value. It distinguishes between healthy and unhealthy inventory by displaying the inventory quality.To do this, the organisation needs comprehensive inventory objectives but these targets do not need to be accurate.Simple procedures are generally adequate to establish the appropriate minimum and maximum stock levels. Predictive Inventory Analytics Predictive inventory analytics attempt to forecast the future pattern of inventory. You can use these tools to plan ahead of time and make changes as needed.  For example, machine learning is all about leveraging automation to learn from historical data and predict future patterns. Professionals can employ predictive analytics to look at seasonal needs from the prior year or they can use past knowledge of why something occurred.Predictive analytics can alert you to potential shortages and hazards associated with slow-moving or outdated stocks.Algorithms can inform planners if stockpiles are approaching the end of their shelf life by combining data on inventory and demand.They can issue alerts if inventory levels go dangerously low, resulting in lost sales very quickly. Prescriptive Inventory Analytics Prescriptive inventory analytics is a highly sophisticated approach to inventory data analysis. These numbers will tell you precisely what should be done. A correct prescriptive analysis with relevant data may be able to help you determine the different stock levels to meet different sizes of orders. With the relevant data, inventory management analysis systems may estimate the quantities of an item necessary to meet 90% of requests in three days. Prescriptive analytics can give suggestions for methods to improve inventory efficiency.Such a suggestion should originate from the planning system.Inventory analytics should be able to suggest solutions that a standard planning system cannot, such as "move additional products from location A to location B to reduce the risk of expiration."  8 Important Inventory Data Analytics to Keep Track of in 2023 Once you’ve been acquainted with various inventory measurements, you need to understand how to get value out of them. It's critical to keep track of your inventory statistics on a regular basis so that you can include them in making appropriate decisions. There are various measures that should be utilised to assess performance and find opportunities for improvement. They are listed below: Gross Margin Returns on Investment (GMROI) GMROI is a straightforward ratio used to assess the profitability of your inventory over a certain time period. It calculates a retailer's gross profit for every dollar of goods acquired. The formula for figuring out your GMROI is: Gross Margin / Average Inventory Cost Any GMROI ratio less than 1.0 indicates that a firm is losing money for every dollar invested in inventory. Anything above 1.0 indicates that a company is selling things for more than it cost the company to acquire. It should be noted that this is not a measure of bottom-line profitability, because only COGS is included as a cost, not total spending. However, this provides a clear indicator of how lucrative your inventory is, based on current pricing points and purchasing practices. Average Fulfillment Cost Per Order Average fulfillment cost per order tells you how much it costs to choose, pack and ship each order. There are numerous costs to consider when looking at the full retail fulfillment process. Examine the following expenses to determine overall fulfillment costs: Receiving, storing, and controlling inventoryStandard or customised packagingPick and pack labourPostage and shipping labels Shipping supplies and expensesOutfitting and assembly (if applicable)Returns management procedure The cost of fulfillment varies depending on whether you complete processes in-house or work with a 3PL according to their pricing model. Total Units in Storage Real-time monitoring of inventory analytics accounts for all of your items across all fulfillment locations and can assist you in calculating total units in storage or total inventory. This number is continuously changing, as you sell and reorder units, add new goods, and process returns. The more SKUs you have, the more careful you need to be about storage expenses, overstocking, and the amount of capital locked up in inventory. Many organisations overpay for storage they don't need, raising their inventory holding expenses needlessly. Inventory Reconciliation A procedure for inventory reconciliation can help you eliminate stock inconsistencies and better understand why they exist in the first place. Inventory reconciliations should be performed on a regular basis to verify that you are tracking and documenting value fluctuations due to outdated inventory or shifts in product demand. Here's a quick rundown of the processes to correctly reconcile inventory: Examine your physical inventoryContrast the physical count with the inventory recordsExamine the most recent inventory deliveries and shipmentsDetermine if there are any inconsistencies Inventory reconciliations must be scheduled at regular, preset periods to ensure consistency and inventory accuracy. Backorder Rate A backorder occurs when a sale is made but the merchandise for the order is not yet available. This slows down order fulfillment and shipment, as well as last-mile delivery. The item is then supplied to the client at a later date since it is not in stock. Backorders can arise for high-demand items. However, frequent back-ordering might result in poor consumer satisfaction. The backorder rate of a corporation is the percentage of orders made that will be delivered at a later date owing to a lack of available inventory.  It is calculated as follows: (Number of Undeliverable Orders/ Total Number of Orders) x 100 A high backorder rate can indicate an unusual shift in demand, a lack of safety stock, or manufacturing delays. Inventory Turnover Ratio Source The inventory turnover ratio calculates how many times a corporation sold and replenished (i.e., turned over) its inventory during a certain time period. Because a high turnover rate is related to selling a lot of items, inventory turnover may really confirm the efficiency of your organisation. The following formula is used to determine turnover: Inventory turnover ratio = [cost of goods sold average inventory] A benchmark inventory turnover ratio of 2 to 4 is good for analysing the findings but keep in mind that it might vary depending on your business. A ratio within this range indicates: Your logistics, both incoming and outgoing, are optimised.You are replenishing inventory that corresponds to your sales cycle.You are receiving new goods on schedule, based on manufacturing and warehouse receiving lead times. Inventory Shrinkage When actual inventory levels do not match inventory records, it is referred to as inventory shrinkage. This might be due to a variety of circumstances, such as theft, shipment damage, or inventory accounting problems. Shrinkage is an inherent challenge for retailers but understanding the scope of the problem can help them gain better control over their inventory. Choosing and sticking to an inventory valuation system may promote consistency and accuracy, saving a lot of hassles during tax season. Here is a formula for calculating the rate of inventory shrinkage: {(Recorded Inventory – Actual Inventory) / Recorded} x 100 Inventory Carrying Costs Carrying costs encompass all charges that are connected with retaining or storing acquired and unsold finished goods and items. Common carrying costs include storage, labour, and insurance but they can also include opportunity and inventory depreciation costs. Carrying costs account for around 30% of overall inventory expenses and the exact costs vary depending on a variety of factors, including the number of total SKUs being stored and your typical inventory turnover rate. To get an understanding of how carrying costs are calculated, sum up all of your inventory expenditures and divide the total by your current inventory value to obtain a percentage of how much you're really spending to keep inventory. The formula is as follows: (Storage Costs + Employee Salaries + Opportunity Costs + Depreciation Costs) / Total Value of Annual Inventory What are the Benefits of Inventory Data Analysis? Achieve Optimum Levels of Inventory Stock visibility increases when you do frequent checks of inventory levels and other related indicators like total units in demand, cost of storage, etc. A comprehensive picture of stocks generated from these systems can help you in determining the number of stocks that are required to be ordered currently and the approximate time for reordering. You gain better control over your firm by retaining just enough inventory to fulfill client demand while avoiding excess or stale products. Reduce Wastage of Inventory To create a supply network that can be regarded as continual, you must account for all the purchases and sales occurring in your setup. Reduce writing off and writing down inventory in order to boost a company's inventory value and revenue. Consider establishing programs and checks that will assist you in tracking critical inventory data and making better inventory optimization decisions by utilising automation. Reduce Costs Associated with Inventory As your inventory is likely to hold 30-50% of your working capital, a lot of money is invested in it. A proper analysis can help to judge the reasons for high costs at different levels with respect to inventory. Based on the facts, you may take corrective action to improve your bottom line. Reduce the Amount of Backorders Too many backorders reflect negatively on your company. To ensure an optimal stock level, you will need data and clarity on your inventory levels at all times, to make informed and calculated decisions based on real-time data. For example, studying patterns such as previous season data might help you forecast future demand and thus, stocks to be maintained based on seasonality factors. It will also cut stockout expenses and backorders. Accurate Forecasting of Inventory Levels Dead stock is frequently the consequence of incorrect inventory forecasting, which is why an inventory analysis system is essential. A reliable inventory analysis and reporting plan will collect data on all of your SKUs, which will ultimately increase forecasting and reordering accuracy. Furthermore, this information can be utilised to modify prices and increase revenue. What Inventory Analytics Services Does Inventory LogIQ Provide? InventoryLogIQ works with eCommerce businesses ranging from startups to enterprises to handle everything from storage and inventory management to effectively, and precisely enable the availability of the right inventory at the right time. An inventory planning system can track each client's inventory conveniently, including stock availability, pallet ID numbers, serial numbers, and expiration dates. eCommerce clients of InventoryLogIQ can access this data in real-time, allowing them to manage their warehouse, inventory, and shipping operations in a hassle-free and convenient way. InventoryLogIQ, our AI-enabled inventory optimisation SaaS platform performs an in-depth analysis to gauge the health of your inventory at 3 levels: business, sales share category vs geographical zone,and individual SKU. It considers critical parameters such as inventory turnover, days of inventory on hand, geographical inventory share, etc. as part of its inventory analytics services. Our inventory management software also provides measurable inventory analytics that will help in demand forecasting and can help you ascertain how much inventory you need to keep of each product during a certain time period. Inventory Analytics: FAQs How can inventory analytics be used for inventory management?Since inventory analytics provide insights into measurable and quantifiable data, it helps businesses better determine inventory levels needed for the future, based on past performance of supply and demand. They can also analyse the highs and lows of previous periods and what caused them. How can you efficiently keep track of inventory levels?- Prioritizing inventory- Tracking product information- Auditing inventory- Analyzing supplier performance- Practising the 80/20 inventory rule- Being consistent in how the stock is received- Tracking sales- Ordering restocks yourself What is the 80/20 rule in inventory management?It is an unofficial rule that suggests that 80% of a company's profits should be met by 20% of their products How can InventoryLogIQ help keep track of your inventory analytics?InventoryLogIQ's AI enabled inventory planning and management platform keeps track of every important metric of your inventory grouped by product type, manufacturer, age, and much more to help give you an insight into every aspect of every product in your inventory catalogue to help you make more informed decisions and smartly place inventory in correct locations.

October 31, 2022

What Are the 10 Inventory Management KPIs? Why Are the KPIs Important to Track & Monitor in 2023?

What Are the 10 Inventory Management KPIs? Why Are the KPIs Important to Track & Monitor in 2023?

Inventory management refers to ordering, storing, and making the best possible use of a company's inventory. Inventory typically consists of raw materials, components, and finished products. Inventory management optimizes inventory levels (also known as inventory optimization) to avoid situations of overstocking or understocking. Materials Requirement Planning and Just in time inventory systems are critical inventory management systems. A good way to organise inventory is through key performance indicators or inventory management KPIs to be able to understand how your business stacks up based on these predetermined factors. We will be discussing inventory management KPIs in more detail including types, methods, importance, and benefits. Read along. What are Inventory Management KPIs? Inventory management KPIs are linked with inventory management supply chain metrics. It consists of various mathematical ratios compared against the established norms, which vary by industry, functional area, and the KPI itself. The variances between the actual and the benchmark ratios identify any disparities and help determine which areas of inventory management need improvement and which processes are successful.  KPIs ideally contribute to achieving the organization's goals - whether it is growth strategies or profitability targets. KPIs need to be smart, measurable, achievable, relevant, and timely.  10 Prominent Inventory Management KPIs to Track and Monitor for Your Business in 2023  Inventory Turnover Ratio This inventory KPI ratio is measured as the Cost of Goods Sold divided by the Average Inventory Value. The inventory turnover ratio measures the number of times the inventory is sold, replaced, or turned over in a year which helps businesses determine what products are successful and need constant replenishment and what products are being underutilized and taking up precious space in the warehouse. Customer Satisfaction Levels Inventory management KPIs such as this can be measured through customer feedback like when the customer assigns a score between 1-3 or 1-10 for their satisfaction level for the product or service they have purchased from your business. It is a subjective score, based on customers’ individual experiences but it can be analysed to see if there is a recurring theme of positive or negative feedback and measures can be taken to move forward accordingly. Inventory Accuracy Ratio This inventory KPI measures the number of items in stock versus the number of items showing as per official inventory records. This fraction is divided by 100. This KPI, Inventory accuracy measures the accuracy of warehouse record-keeping and identifies any disparity in the numbers, which helps companies determine if there has been any damage, breakages, theft, counting error, or any other factor that has caused it  Inventory to Sales Ratio This inventory-to-sales ratio KPI measures the total value of the inventory and analyses the organisation's sales performance. When these ratios are high, it is a cause for concern because that means there is overstocking of inventory occurring and there is a danger of the inventory becoming obsolete due to the low sales figure which can lead to increased storage and operational costs. Suggested Read: Benefits of Inventory Data Analysis Order Cycle Time Order cycle time is the time it takes to prepare and place an order with your supplier. The greater the frequency of orders being placed, the lower the stocking costs. For instance, in the case of a Just-in-Time inventory system, inventory is not stocked but repeated orders are placed in small quantities, which results in minimum inventory holding and capital costs.  Out-of-Stock Items This inventory KPI measures the effect of out-of-stock SKUs. Even one out-of-stock item can reduce customer satisfaction and have a snowball effect further down the supply chain and can affect repeat sales and lead to poor customer reviews. eCommerce stores should avoid out-of-stock items to the maximum extent possible by implementing an inventory management system where items running low on stock are automatically notified to the management so that they can be replenished instantly. Carrying Cost of Inventory There are four components to the carrying cost of inventory: Capital costs: These costs are measured as the sum of the following three costs:Cost of the stockInterest in the working capital financeThe opportunity cost of the capital invested in inventoryInventory service costs: This covers all costs, including costs relating to the inventory management system, hardware depreciation, and inventory handling.Storage costs: This relates to the warehouse rent or interest on the mortgage and regular maintenance costs such as lighting, heating, and air conditioning.Inventory risk costs: This cost deals with the loss of inventory value due to shrinkage or obsolescence. Demand Forecast Accuracy This measures the gap between forecasted demand and actual demand. The more accurate the demand forecast, the higher the efficiency of inventory usage and turnover will be. This will lead to lower stockouts and lower inventory carrying costs. Many enterprises use planning system resources to help get a correct estimation of demand so that the optimum level of inventory can be stored. Supplier Quality Index This measures the percentage of the supplier’s total quality cost to the purchase price. This goes beyond just securing a low-cost supplier or getting bulk discounts on orders. It also includes the costs of communicating, transacting, resolving problems, or switching suppliers. A proactive and collaborative approach with suppliers is required to maintain a high level of the supplier quality index which will lead to higher-quality goods being delivered at a faster pace and at cheaper prices. Labour Cost Per Item Labour cost per unit itemises and collates all costs related to the labour used in managing inventory. This includes order receipts, packing, and dispatch of items ordered to the end customer. It also includes the costs of labour involved in receiving, unpacking, and storing the various items of inventory from suppliers in the warehouse. A lower labour cost per item means that businesses are running efficiently and effectively. 5 Methods to Choose the Best Inventory KPIs for an eCommerce Business Source Refrain from Using Vanity Metrics Oftentimes, many third-party KPI tools prompt businesses to choose KPIs that showcase their business to be more efficient than it actually is. These inventory KPIs are called vanity metrics because they give businesses a false sense of security that everything is all and well when in reality, it may not be. You should focus on choosing inventory management KPIs that paint an accurate picture of your business operations, even if it exposes a harsher reality because it will enable you to make the necessary improvements to those processes. Stress on Answering Business-Related Queries It is important to focus on your business and the strategy it employs. While focusing on choosing inventory management KPIs, you need to opt for ones that will give you clear insights into the actual successes and failures of your business strategies so that you can tweak them and make improvements wherever they are needed which will lead to long-term success. Always Keep Customers in Mind While choosing inventory management KPIs to focus on, make sure you choose some customer-centric ones so that you get an idea of where you are going right, in terms of positive feedback, so that you can continue to implement those processes and where you are going wrong, in terms of issues and complaints, so that you can sort them out instantly and avoid other customers having a similar negative experience. This will help your business increase its overall customer satisfaction levels and will lead to more sales and repeat customers. Track and Analyse Trends Analysing trends in your past performances through inventory KPIs will give you a vast amount of insights in terms of the success and failures of your business. You can check which products had the highest demand, during which time of the year, and whether you were running a promotion or ad campaign to enable that high demand. Conversely, you can analyse when there were slumps in sales and track the similar factors which may have led to it so you can avoid repeating those same errors in the future. Similarly, you can analyse trends in the market for similar products, price points, and business types. Don’t Bank on Statistics Alone While pure statistics and numbers play an important role in ascertaining key points about the success or failure of a business, you need to analyse some inventory management KPIs that focus on the human aspect of your business. While those KPIs are still quantifiable, they help you gauge a more accurate idea of why certain things were successful and others weren’t. Customer behaviour is an underrated trait and businesses that can successfully analyse it will often come out on top. Why Are Inventory KPIs Important to Measure in eCommerce? Tracking and measuring inventory management KPIs is important because, without inventory, eCommerce businesses could lose vital customers. Inventory KPIs also ensure that eCommerce businesses know when to restock items and maintain the optimum stock levels. Prevents Poor Customer Satisfaction It enables eCommerce stores to provide adequate customer satisfaction. Stock-outs leave a bad taste in the customer’s mouth and negatively affect online feedback and reviews provided. Avoids Overstocking and Understocking Inventory KPIs help eCommerce stores maintain optimum inventory levels, avoid high finance costs due to overstocking, and prevent stockout situations. This ensures a healthy cash flow for the business. It also enables planning for Just in time inventory or a drop shipping model, which helps an eCommerce business avoid both excess stock and stockout situations.  Assists in Framing Return Policies Proper return policies ensure return customers. When eCommerce stores do not have a favorable return policy, it does not bode well for them. It helps businesses in finding the right balance between offering returns and maintaining their profit margins. Helps in Building the Right Brand Image  Inventory KPIs facilitate efficient inventory management practices, boosting customer satisfaction and leading to positive feedback and reviews which will lead to other customers giving your business a chance because they have a positive perception of it.  Prevents Exploitation From Competitors Poor inventory management systems and improper inventory KPIs will lead to customers opting for competitors who may offer various incentives such as cheaper rates or free shipping. Measuring inventory KPIs will help businesses keep pace with their competitors to avoid losing out on customers to them.  Conclusion Inventory management is the very heart of an eCommerce store's success. Inventory management is a critical task for eCommerce merchants. It’s a good practice to track and control inventory orders, analyse the process and keep up with the usage and storage of readily available stocks. Without proper solutions for inventory management, no eCommerce technology is sufficient. For any eCommerce website, it is a challenge to manage multiple product lines or various product categories of different brands. Using inventory KPIs to maintain safety stocks to prevent stockout situations, find the right balance of inventory to maintain optimum inventory levels, put together the correct kitting offers, analyse past purchases to predict future patterns in stocking levels and be smart with the storage of various SKUs in the warehouses will help deliver the optimum performance at an organisational level. If you need assistance with finding the right inventory management KPIs for your business and inventory management as a whole, InventoryLogIQ can definitely help. InventoryLogIQ is unlocking next-level inventory planning for modern brands by Unlocking operational agilityAvoiding stock-outs & maximising salesPreventing inventory bloat Inventory Management KPIs: FAQs What are some of the best inventory management KPIs for your business?Some important inventory KPIs are listed below:- Inventory Turnover or Days on Hand- Average Days to Sell Inventory (DSI)- Average Inventory- Holding Costs- Stock-Out- Service Level- Lead Time- Rate of Return How can inventory KPI accuracy be measured?Inventory accuracy can be calculated by counting the products available in your inventory, dividing it by the official recorded inventory count and multiplying it by 100. What are the 5 SMART criteria that KPIs should abide by?SMART is an acronym for Specific, Measurable, Assignable, Relevant, and Time-bound. All of these factors help to improve your business performance. How can inventory KPIs be monitored?KPIs can be tracked and measured using a variety of online tools such as Google Analytics.

October 28, 2022

Inventory Optimization 101: Definition, Importance, Challenges & 10 Best Practices to Optimize Inventory in Supply Chain in 2023

Inventory Optimization 101: Definition, Importance, Challenges & 10 Best Practices to Optimize Inventory in Supply Chain in 2023

Inventory plays a vital role in generating revenue for eCommerce businesses. Because it is such a valuable resource, it is in the best interest of retailers to have practices in place to make the best use of it to avoid wastage and higher costs involved in storage. This is where inventory optimization comes into play, to be able to streamline inventory management to get the most out of it. In this blog, we will be discussing the meaning of inventory optimization, its importance, challenges, and 10 strategies to implement it. What is Inventory Optimization? Inventory optimization refers to a series of best practices that allow an organization to use the least amount of capital while maintaining an optimum level of inventory that has a high turnover rate. It forms a part of inventory management that depends on the supply and demand scenario that is faced by the organization. Inventory optimization in supply chain management helps control stock quantities by employing real-time data-gathering tools and processes to keep track of your stock. It facilitates investment management set against your business goals and supply targets and also empowers better demand forecasting. [contactus_gynoveda] Key Elements of Inventory Optimization in Supply Chain Management Inventory Optimization in supply chain management involves the following elements: Forecast Demand Forecasting accurate inventory demand is crucial for your sales cycle as incorrect predictions can affect the supply and sales numbers. Therefore, you need to consider the following numbers for proper analysis of the upcoming demand. Supply and demand numbers in the previous periodAccounting sales dataFeedback and suggestions from your sales personnel A correct demand forecast can do wonders for your inventory optimization. It can save you from stockouts and prevent you from missing your sales targets. Suggested Read: What is Inventory Accuracy? Analyze Inventory Levels Overstocking can freeze unnecessary amounts of your capital and understocking can lead to missed sales targets and a dip in revenue. That’s why analyzing inventory levels is a critical part of inventory optimization. This analysis further helps you draft an inventory policy for your organization. You can categorize products based on their consumption and demand. As a result, you can replenish the fast-moving products more frequently and in larger quantities and refill the slow-moving inventory less regularly. In addition, you can avoid a stockout due to sudden demand surges by frequently analyzing inventory levels. Check on Inventory Storage Optimized stock storage is a necessity for smoother operations. A robust inventory management system helps you be ready to consistently meet customer demand and nurture business growth. You should often check the inventory levels to calculate the reorder point and order quantities. This monitoring enables you to convert the numbers into actual orders. Briefly, it helps you ascertain when to replenish the stock to avoid missing the demand-supply gap. Why is Optimizing Inventory Important in eCommerce? Inventory Optimization holds a high value and can be a game-changer for players in the eCommerce industry. This line of business is highly dynamic, volatile, and prone to sudden changes in demand, thus profoundly influencing the supply of products. Here are a few factors as to why inventory optimization in supply chain management is critical for eCommerce businesses: Mitigates Recurring Costs Overstocking leads to frozen capital that does not bring immediate profits and may even result in the occurrence of losses. Conversely, understocking leads to lost sales. In the eCommerce industry, volatility adds to financial losses. You can reduce your supplier lead time when you have accurate information about your stock levels. Effective inventory optimization can highlight the recurring flow of expenses relating to purchases, transport, logistics, and many more, thus helping you curb them and avoid any probable losses. Provides Access to Faster Delivery Inventory optimization in the supply chain assists businesses to monitor their warehouse and SKU performance. As a result, you have relevant knowledge about the inventory presence across locations which helps you allocate merchandise where it is needed. For instance, if the demand for product A is more in Delhi, you can allocate its bulk quantities to be stored in a warehouse close by. This promotes timely and faster delivery and adds to the customer experience. Additionally, because inventory placement is organized, it takes less time to locate inventory, package it and send it out for delivery. An advanced WMS such as the one offered by InventoryLogIQ can automate these processes to make life easier for you. Suggested Read: Factors to Consider While Allocating Inventory in eCommerce Stabilizes Inventory Levels Inventory optimization gives you complete visibility of the existing stock levels and their locations from the moment they arrive at your warehouse till they are dispatched and delivered to the end customer. Such insight also informs website users when a product is in stock, out of stock, or taken off the inventory list. This tool empowers you to track your website orders more efficiently and can result in fewer lost sales and greater customer satisfaction. Enhances Customer Satisfaction Every customer expects an accurate and timely flow of information from eCommerce companies. If their desired item is out of stock, notify them as to when it will be replenished. Inventory optimization helps you gather this data regularly and make it available to the customer. It provides critical insights into customer behavior, and preferences and, thus, enhances their experience with your brand. Automated inventory management also keeps a tab on the flow of merchandise flow and when replenishment is required. This information can be synced to the online website, thus enabling customers to receive transparent information and enabling them to make the right purchase decision. Prevents the Occurrence of Overstocking & Understocking Inventory optimization helps in forecasting future demand based on historical data to assist in avoiding overstocking and understocking situations so that just the right amount of inventory can be stored to be able to fulfill orders, mitigating the wastage of time, inventory, money, and other resources. Both overstocking and understocking are counterproductive to your capital inflow and can adversely affect your business results. Challenges of Inventory Optimization in Supply Chain Procedures Supply Chain Disruptions Many factors such as global health crises, natural calamities, or even disruptions within the organization such as the wrong product being packed at the warehouse, the product incurring damage while in transit or the failure of a machine during can manufacturing, can cause an interruption in the supply chain. It increases the pressure on businesses to enable effective inventory optimization to keep it secure from unforeseen adversities. Reacting to Unstable Consumer Demand Your business must be ready for volatile customer expectations and sudden demand surges for some products. Sometimes, requests for a particular item escalate overnight and only a few players in the market can supply. This is a big challenge for inventory optimization because inventory forecasting sometimes cannot predict sudden surges and falls in customer demand for various products. This is why it is imperative for firms to keep some buffer stock aside to have a safety net for similar situations. Maintaining Frequency of Order Fulfillment Challenges in operational functions and supply chain management can constantly disrupt your inventory optimization procedures. While you may try to fulfill customers’ expectations, your stock level depends on the sales targets, the need for a stock refill, and pushing out existing inventory at the earliest. Each process needs to be optimized so the chances of it causing a disruption to the overall supply chain are minimized. 10 Best Strategies to Optimize Your Inventory in 2023 Utilize Supply Chain KPIs You can only improve what you can monitor. Deciding and implementing KPIs for your supply chain can keep track of your logistical performance and highlight deviations for you to work on. There are multiple KPIs so you need to determine which ones would be the best to track the performance metrics of your supply chain, based on the goals you want to achieve. Some common supply chain KPIs are inventory turnover rate, fill rate, inventory days of supply, and much more. Use ABC Analysis ABC analysis utilizes the Pareto principle, which opines that 80% of the results are determined by 20% of the causes. Therefore, it is effective to categorize your inventory into A, B, and C classes depending on their consumption value within a fixed period.  The three categories are as follows: A: Products with the highest consumption value or salesB: Products with medium consumption value or salesC: Products with the lowest consumption value or sales Each of these categories is based on SKU profitability and enables different restocking strategies for other products. For instance, if you sell washing machines worth Rs 25,000 each and a cover worth Rs 250 for each piece, you will stock them differently as per their values. Organize Slow and Obsolete Stocks (SLOB) Slow inventory is the gradually-moving stock that doesn’t get sold frequently. Obsolete inventory is the merchandise that has reached the end of its product life cycle. These products may not have been dispatched from the storage unit in a long time, which can be anywhere from a year to much longer, depending on their perishability. This dead inventory is a grave situation that indicates poor inventory management. These two versions of the stockpile in your warehouse demand your attention for inventory optimization in supply chain management. First, your records must highlight the inventory that hasn’t moved in a while or moves rather slowly. These stockpiles must be attended to by either discarding them or selling them off at discounted rates. Dealing with SLOB has some advantages: It creates more space for the faster-moving itemsIt reduces your cost overheadIt increases working capitalIt brings in surprise revenue from sudden sales at discounted rates to customers or vendors Accept Shortages of Low-Demand Products It is impossible to serve every customer that comes to your door successfully because to do that, you will need to keep 100% stock for all products, which will be financially and logistically unviable. The only solution is to accept that being short on some low-demand or slow-moving products is good for the long-term profitability of the business because they often cost more in terms of storage and logistical fees than what they are worth. It is a small price to pay to ensure that you are always stocked with high-demand products. Shorten Lead Time Lead time is the waiting period between order placement and receipt from your supplier. For example, if you ordered a batch of products from your supplier today and it arrives five days later, your lead time will be five days. Lead time calculation helps in business forecasting and affects the strength of your supply chain. When the lead time is higher, your supply chain is not as strong as it should be and your inventory cannot be optimized properly. Therefore, shorten it as much as possible to reduce carrying costs, streamline your logistical functions, improve productivity and replenishment speed, avoid stockouts and optimize inventory. You can reduce lead time by: Signing a contract with your suppliersIncreasing your reorder speed by ordering more frequentlyShare your sales information with the suppliers to alert them of an incoming orderEmploy inventory management software for better optimization Use Proper Forecasts Knowing how much to stock up on a particular product is as important as knowing when to do so. Predicting inventory levels can help you decide how to push sales through flash discount schemes or when to acquire more space to store your existing and incoming stock. Besides, you need good forecasting tools to understand the nuances of safety stock and reordering. Safety stock is the buffer you keep in hand in case of sudden demand surges or any other emergency. To calculate the safety stock you need to consider the following numbers: Maximum daily usageMaximum lead timeAverage daily usageAverage lead time Safety Stock = [Maximum Daily Usage x Maximum Lead Time] – [Average Daily Usage x Average Lead Time] Your reorder point must ensure proper utilization of existing inventory levels without allowing overstocking or understocking. Here is how you can calculate it. Reorder Point = Lead Time Demand + Safety Stock Reduce Uncertainty in Demand and Supply Keep a closer tab on your incoming and outgoing inventory by employing diverse automation and skilled manpower. Conduct regular audits and streamline warehouse receiving and dispatch processes. In fact, integrating your SKUs with inventory management software can enable inventory optimization through timely and accurate tracking and updates. It gives you access to the following features: Real-time visibility of your stock levelGenerates alerts for restockingGives suggestions on bundling options for a similar variety of productsChurns out analytical reports for business intelligence Centralize Your Inventory Keeping your inventory according to demand figures is a good strategy that optimizes operations and saves expenses. Also, strategically distributing your stock at one centralized location like an inventory hub, warehouse, retail store or any other type of storage facility is financially viable as well. In this case, only the storage facility is centralized, not the sales operations. You may have multiple stores across the county to sell your products but an  SKU at one location to replenish your shelves. It helps streamline all your crucial supply chain functions under one roof. It enhances inventory visibility and reduces storage and logistical overheads. As a result, it is suited for businesses that don’t operate in too vast and distant geographical locations. Automate Replenishment of Inventory Automation can help you integrate all your storage units and warehouses and monitor their inventory levels, sales channels, fulfillment centers, and delivery locations. It enhances your visibility and productivity with a constant flow of accurate data. There is a software solution to suit the needs of every business. Robust inventory management software regulates the inventory flow from your warehouses and alerts you when a product needs replenishment or is about to become obsolete. They also give you analytical reports of inventory to observe the logistical performance. Limit the Number of Available Products Having a highly diversified product range does not guarantee success. However, if you keep a limited number of product offerings, you can better optimize your inventory and deliver enhanced value and a productive experience to your customers. Apple is one of the best examples of properly utilizing a limited number of products. Their limited product range has been enough to lure queues of customers and generate massive amounts of sales. Conclusion: How Can InventoryLogIQ Help With Inventory Optimization? Inventory Optimization in supply chain management is crucial in influencing your business outcomes. Two supportive factors can alter the game for your business: cutting-edge technology and a team of experts. InventoryLogIQ is an inventory optimization & smart placement program from WareIQ to help brands accelerate sales, lower operation expenditure, and offer Prime-like speed. We have been sharing Inventory Optimization Plan with our key customers like BlissClub, TCNS Clothing, Piramal Group, Future group, Wingreens etc. with the objective to improve Inventory Turnover Ratio and improve regional utilization. Plus, you get the support of our team of industry experts who have revolutionized the way the supply chain operates. Inventory Optimization FAQs Why is inventory optimization important?Inventory optimization allows for a significant reduction in overall expenditure while increasing profit margins due to smarter use of inventory and storage. How can inventory be monitored?Inventory monitoring can typically be done through 2 methods:Cycle Count: This refers to counting a limited sample of your inventory to compare with digital records and make sure it is accurate.Physical Count: This is a more time-consuming process that involves the counting of every unit of inventory by hand to make sure that there are no discrepancies between the physical count and the inventory records. What is multi-stage inventory optimization?A multi-stage inventory optimization process recommends the optimum inventory levels at every stage of the supply chain by optimizing inventory levels in different locations. How can InventoryLogIQ help with inventory optimization?Our highly advanced inventory planning and optimisation platform, InventoryLogIQ conducts and automates various inventory optimization processes such as providing real-time updates to inventory levels across fulfillment centers and selling channels, intelligent inventory placement that suggests the best storage facility for each unit of inventory, forecasting demand levels based on historical & real time data, providing automatic replenishment triggers and much more.

October 28, 2022

Inventory Allocation 101: Definition, Pros, and Cons & Factors to Consider While Allocating Inventory in eCommerce [2023]

Inventory Allocation 101: Definition, Pros, and Cons & Factors to Consider While Allocating Inventory in eCommerce [2023]

Inventory is the key asset of any eCommerce company to be able to transform an order into a delivery. One of the main ways to ensure that this process is carried out efficiently is proper inventory allocation. This enables companies to place the appropriate amount of inventory at every step of the supply chain process, to mitigate shortages and unforeseen circumstances. We will be discussing what inventory allocation is, inventory allocation methods, reasons for companies to employ an inventory allocation strategy, and factors to consider when making that decision.  What is Inventory Allocation? The process of strategically optimising and tracking the levels of inventory that an eCommerce company maintains across its entire distribution network (including multiple sales channels and fulfillment centers is called inventory allocation. Let us look at a typical, growing eCommerce company that sells its products across multiple online channels, including Flipkart, Amazon, Shopify (etc.), and needs to allocate its inventory to each channel based on the volume of orders received. To achieve the shortest possible delivery time, the eCommerce firm will use multiple fulfillment centers and warehouses to fulfill orders. Given this scenario, the firm must utilise various inventory allocation methods to fulfill orders based on the optimal mix of products, customer orders, and warehouse locations. An optimised inventory allocation exercise ensures that the correct inventory levels are maintained at each fulfillment location, so customers’ orders are delivered at the earliest possible time. Sudden increases in demand such as during a flash sale, are also built into the calculations. 2 Types of Inventory Allocation Methods Let us look at the two most prominent inventory allocation methods that are used: Manual Inventory Allocation As the name suggests, if an eCommerce firm uses physical spreadsheets, and inventory ledgers and analyses data manually for inventory allocation, it is referred to as manual inventory allocation. Unfortunately, not only is this method time-consuming but it is also prone to miscalculations, errors and other inefficiencies. A primary concern is that when a business grows, the problems multiply rapidly and manual inventory allocation can often compound those problems by creating more mistakes which can have disastrous consequences.‍ Tech-Enabled Inventory Allocation Most modern inventory allocation methods are enabled by eCommerce firms investing in the latest technologies that seamlessly manage and track their inventory and its movement across their entire distribution network. By using electronically-captured data and the deep insights they offer, this method of inventory allocation is done in real-time and maintains high levels of inventory accuracy and efficiency while being easy enough to use. Businesses primarily employ inventory management software that consists of all the above features which help businesses automate their inventory allocation procedures.  Advantages and Disadvantages of Inventory Allocation Advantages of Inventory Allocation Avoids Overstocking The perils of overstocking are many, often with disastrous results which can be especially pronounced for eCommerce startups or small firms. To begin with, overstocking causes overutilization of warehouse space clogs up invaluable cash flow, and increases carrying costs. Additional problems include high insurance premiums, rent, and labour. Problems of expiry dates, damage, and pilferage/theft also start cropping up for inventory that stays on the shelves for long periods of time without being shipped out. Inventory allocation helps prevent overstocking by making businesses aware of the optimum amounts of inventory they require. Helps in Order Fulfillment Conversely, very low stock levels cause their share of problems. Firms would run short of inventory and be unable to capitalise on customer demand. Even worse would be the issues of sudden stock-outs, especially when you may have already confirmed customer orders. All this would drive your customers to your most feared result, i.e. you would lose them to competitors who provide more efficient service.  About 3/4th of today’s online customers would be unlikely to return unless their orders are fulfilled within 2-days. Efficient inventory allocation would eliminate such problems by helping firms ascertain the exact amount of inventory they would need. Assists in Understanding Buyer Behaviour A huge benefit of efficient inventory allocation is that it helps to understand the buying behaviour of your customers. By tracking data, clustering them into ACV-cohorts, and analysing stock movement across important parameters, firms can learn much about their customers' buying habits and preferences. Ultimately, this enables management to make better business decisions. Disadvantages of Inventory allocation Lack of Proper Usage Poor inventory allocation methods that are not tailored specifically to your business can set you up for failure. Therefore, the goal is to make the correct and informed decisions to be able to efficiently manage and allocate inventory, not just to simply adopt an inventory allocation process to be up to speed with the rest of the industry. Struggles to Adapt Oftentimes, companies are led by pure profitability and only maintain high-profit and high-demand items. If customers decide to change their preference suddenly, you could be left with dead stock. You would be precariously placed since you would not have left enough warehouse space or invested in SKUs for other customers (that offer less profitability). Why Should eCommerce Companies Have an Inventory Allocation Strategy? We live in an age of information and as you would have heard, knowledge is power. Awareness about your inventory requirements, broken down by locations, nature of products and other factors, the type of SKUs, customer clusters, and their preferences, and a deep understanding of buyer behaviour gives you this knowledge. With it, you can improve your decision-making through timely and informed decisions while also forming the bedrock of optimising your supply chain.  Modern eCommerce firms are prone to fluctuating inventory levels which is an underlying result of selling across multiple channels and different locations. Using modern inventory management software and technology enables eCommerce management teams to stay ahead of the curve and maintain close working relationships with their 3PL partners and fulfillment teams. After all, an effective inventory allocation strategy will reduce operating costs, maximise inventory ROI and successfully satisfy customer demand. Let’s look at the 4 key reasons to have an inventory allocation strategy: Prevents Overstocking Firms often adopt the easy way, i.e. to stock more inventory than they expect, just in case they fall short. However, that is often counterproductive to company profitability and cost-efficiency. On the contrary, overstocking drives up inventory carrying costs, requires larger warehousing facilities, requires more labour and higher insurance, and creates problems of pilferage and dead-stock – the list is endless.  Optimising your stock levels by following a robust inventory allocation strategy based on comprehensive data analysis, demand trends and SKU movement is the way to go to prevent overstocking. Avoids Overselling A robust order pipeline is an aim for all eCommerce companies. However, it requires significant study and projections based on analysing the correct parameters. Overselling leads to backorders and results in a poor customer experience, delayed shipping, price fluctuations, etc. The correct inventory allocation strategy to prevent overselling is for it to stem from your demand analysis. Therefore, it becomes imperative to maintain data about seasonality, promotions or sudden changes in the ecosystem (e.g. a competitor going bust and their orders suddenly shifting over to you). This prepares firms to stock the correct inventory levels (with requisite safety buffers) based on past trends and future growth projections. Optimises Management of Multiple Channels Modern retailers have adopted an omnichannel strategy to satisfy changing customer preferences and demands. However, along with its advantages, it also needs an efficient omnichannel inventory allocation strategy to tackle stock level oversight, order returns, reorders, and stock forecasting problems.   Using inventory management systems that track the demand and supply of stock across an omnichannel network is of great help. Popular eCommerce platforms offer direct, API integrations with your MIS to help you track inventory movement from a centralised dashboard, across multiple platforms, which makes the entire inventory allocation process faster and more efficient. Assists in Scaling Business Operations Extending the point above, it will become impossible to scale if eCommerce firms don’t implement modern tech stacks and processes that enable better decision-making to run the business. However, this can be daunting, given its costs, knowledge requirements, and time constraints. Therefore, eCommerce firms can partner with 3PLs (third-party logistics companies) to take care of the rising need for order fulfillment and inventory management. A 3PL brings significant capabilities across an extensive network of fulfillment locations, logistics capabilities, and technology – these are must-have features as a firm begins its journey of growing its customer base and expanding its services. 4 Factors to Consider While Allocating Inventory in eCommerce in 2023 You may sell hundreds of SKUs via an omnichannel sales network or use multiple warehouses for order fulfillment. You could be a niche brand selling to a limited number of customers or an eCommerce startup just getting started with limited monthly orders. You may even be a behemoth fulfilling thousands of daily transactions across the globe. Establishing a solid inventory allocation policy is the cornerstone of achieving supply-chain efficiency and successfully servicing your customers, regardless of your status. Let’s look at the key factors to consider during inventory allocation: Demand for Inventory Perhaps, the most important tool for an eCommerce business, especially a growing one, is the demand forecasting function. It creates a ripple effect throughout the organisation whereby you can make well-informed decisions around production, promotion, labour, and much more. While it is true that you will unlikely ever achieve 100% accuracy with demand prediction, if you set up the correct procedures and use advanced tools and technology that are available, you should have an accurate enough handle on your sales patterns. Adopting a data-driven methodology will enable firms to make sound inventory allocation decisions and accurately predict the amount of inventory required to be stored across their warehouse locations and how much must be allocated to different sales channels, depending on demand. Strong demand-forecasting techniques also consider promotion-led demand, flash sales, seasonality and other temporary peaks and valleys in demand that will directly impact inventory allocation. Availability of Inventory Evolving customer preferences have meant that delivery times are an increasingly important element for a business to differentiate itself from the competition. Studies show that customers rarely return to an online platform if their order fulfillment experience isn’t satisfactory.  A crucial part of this is achieved by ensuring that the correct mix of inventory and supply is maintained at shipping destinations closest to the customers’ addresses.  Modern inventory tracking software is a useful tool that ensures accuracy and visibility. These highly sophisticated systems allow you to aggregate demand patterns across channels and locations, thereby allowing you to aggregate the appropriate inventory levels that must be maintained at every warehouse location. In turn, this helps in setting reorder levels, organizing transportation, hiring labour (both full-time and part-time), and negotiating rates with suppliers, to name a few.  Additional benefits include not having to urgently fulfill orders from warehouses further away from the delivery address due to a stock-out at the nearest one. eCommerce firms typically use automated stock-tracking systems that let them seamlessly connect to vendors, suppliers, and other supply-chain stakeholders via a centralised cloud-based system. Therefore, all critical data points like SKUs, channel throughput, inventory availability at fulfillment centers and customer details are available holistically and easily.  Availability of Warehouse Space Another important factor to keep in mind while planning your inventory allocation is the available warehouse space, the cost of renting it, and operating costs.  eCommerce firms partner with 3PL firms so that they have access to their vast network and resources of warehouses, on-site teams, transport fleets, and modern operating systems. Based on your requirement, storage fees will vary from a fixed fee per pallet, square meters allocated, according to SKU, the transaction (etc.) The simplicity of Order Fulfillment As mentioned earlier, an efficient inventory allocation process shortens order delivery times; simplifies logistics and saves costs.  To ensure the shortest possible delivery times, you must minimize the shipping zones a parcel needs to travel to reduce last-mile delivery costs and the time taken to deliver it. This is achieved by maintaining sufficient stock levels at all warehouse locations across the entire network of warehouse/fulfillment centers that you operate. For example, suppose you anticipate an uptick in sweaters and warm clothes in northern India just before the onset of winter in November, you should allocate additional inventory there so that they can be delivered faster and with minimal distances travelled. How Can InventoryLogIQ Help With Inventory Allocation? InventoryLogIQ can assist clients with inventory allocation by deploying their significant capabilities in the field. Let’s look at some leading ones: Automating Inventory Allocation ‍With its modern automated technology, InventoryLogIQ provides its users with a centralised dashboard that gives clients a bird’s-eye view of the entire operation, across all platforms. This provides a detailed and accurate view of inventory movement, including tracking at the SKU level, cluster viewing broken down by sales channels, unit type, storage locations (etc.). This is a critical tool in managing your inventory allocation.  Streamlining Inventory Management Today’s eCommerce firms adopt a multi-channel sales approach – this naturally includes multiple fulfillment centers, on-site teams, and various vehicular fleets. This could get tricky and result in disastrous consequences if not handled properly. Challenges like stock fluctuation, intra-network movement, re-order levels, etc., are naturally amplified due to this multi-channel sales network. The levels of automation that today’s 3PLs such as WareIQ can bring, thereby reducing human error and ensuring real-time visibility and communication, have become a strong tool for clients. Forecasting Sales Patterns 3PLs use highly sophisticated data-analytics systems that can record and mine massive amounts of data every second. This comprehensive data analysis generates deep levels of insight that enable management teams to make more informed and effective business decisions. Detailed reports that provide in-depth information at both the macro and micro levels of client operations and metrics that outline the best practices of sales-based inventory allocation help clients immensely. Channel throughput and efficiency, stock turnover, fast/slow-moving products, etc., are some key data points in determining sales patterns. Advantages of an Elaborate Fulfillment Network Today’s eCommerce firms mostly use an omnichannel sales strategy. With its elaborate and extensive network of fulfillment centers, InventoryLogIQ allows clients to leverage the strength and resources of this network in fulfilling their orders. Reduced shipping costs, faster delivery times, and inventory splitting are some of the associated benefits. Conclusion Today’s eCommerce companies operate in a fast-paced, highly competitive,and complex eco-system that spans international borders. They deploy an omnichannel sales and distribution network and several fulfillment centers and employ huge teams to manage their inventory. Therefore, firms must use a data-led and technology-enabled inventory allocation system that considers all the numerous variables that affect it to come up with a winning one. InventoryLogIQ provides commercially certified solutions, professional services, barcode scanning, and technology such as an advanced IMS (inventory management software) to assist businesses in better understanding and controlling their assets, inventory management in the supply chain, and industrial processes. These solutions are quickly implementable and cost-effective, saving your time, money, and effort. We offer extensive knowledge and capabilities in all eCommerce-related requirements, from inventory allocation to order distribution.  Inventory Allocation: FAQs What is the goal of inventory allocation?The main objective of inventory allocation is to ensure that the optimum amount of inventory is available to fulfill orders across every channel. This is done by determining the demand and the amount of inventory needed to fulfill it. Why is it important for businesses to allocate inventory?It is important for businesses to allocate inventory so that they can avoid stock-out or overstock situations and they can efficiently manage storage space and operating costs. What factors can affect inventory allocation?The factors that can effect inventory allocation include:- Inventory demand- Inventory availability- Warehouse space How can InventoryLogIQ help with inventory allocation?InventoryLogIQ has a custom IMS that can group and organize your inventory in efficient ways, across fulfillment center locations and sales channels to avoid stockout & overstocking situations. We also assist in demand forecasting to determine how much inventory is needed for each sales channel.

October 28, 2022

ERP Inventory Management: Features, Importance and 10 Indicators When Your Business Requires an ERP Inventory System [2023]

ERP Inventory Management: Features, Importance and 10 Indicators When Your Business Requires an ERP Inventory System [2023]

Businesses in the wholesale sector that have mastered the art of inventory management have long held the top positions. This is because inventory management knowledge reduces waste, saves time and resources, and ultimately boosts profit margins. To manage inventory, data is essential. Furthermore, to maximise profit, it is necessary to have accurate data, regardless of the process involved, including purchasing, shipping, warehousing, customer satisfaction, or any other activity. Inventory management has become more straightforward in modern times. Thanks to ERP inventory management systems, the business owner may now easily access a large amount of the necessary data. ERP inventory management gives businesses a competitive advantage. These ERP inventory management solutions are used to manage tasks related to inventory, finances, and other elements of enterprises. Accurate order fulfilment is not enough to differentiate oneself from the competition. For example, customers blame retailers for delayed delivery 41% of the time. Therefore, whether your company uses an internal staff or a third party for delivery, it is your brand's responsibility to ensure that customers receive their goods on schedule. In addition, your company may improve last-mile delivery, increase warehousing efficiency, and inventory optimization by implementing and utilising an ERP inventory management solution. This article discusses the importance of ERP inventory systems and the qualities to look for in an ERP inventory management system. By the end of the article, you will be able to determine when your business needs one. What is ERP Inventory Management? Enterprise resource planning (ERP) is the process of centralising and integrating several essential corporate tools and activities. A comprehensive approach to business is intended to be provided by this integration and centralization, where one workflow informs another. For instance, companies that combine their inventory forecasting and ordering processes can more efficiently manage their inventory levels. Businesses may manage their business activities from a single platform using ERP inventory management systems. The management of inventory, finances, operations, planning, and logistics are typically addressed. ERP solutions enable firms to manage complicated inventory procedures across the entire organisation using real-time data. While all ERP modules are housed on the same platform, each function operates as a standalone piece of software. This has the advantage of allowing data to be shared between modules, which will facilitate rapid and straightforward calculations with greater inventory accuracy. Small enterprises can get away with only one or two standalone software products. However, this quickly turns into a management nightmare for many larger firms. Businesses can invest in a single platform rather than numerous distinct software packages to manage their inventories. This additional efficiency and synchrony are also beneficial to many medium-to-large-sized companies. What are the prominent features of an ERP Inventory Management System? Features of ERP systems are designed to enhance business operations. An ERP inventory management system's assistance with order quantity calculations is one of its core capabilities. This aids companies in timely and cost-effective planning and order replenishment, preventing stockouts and other expensive effects of improper inventory control. Your stock levels, real-time inventory, and reorder points may all be viewed, calculated, and automated with the aid of an ERP. For instance, when data indicates that demand for a particular SKU has risen to a specific specified level, inventory products might be automatically ordered. Similarly, an ERP system might detect and resolve problems with a surplus or automatically place sales orders when purchasing costs are low. The capabilities offered by each ERP inventory management system will differ slightly. However, the most common features include: Automation ERPs automate time-consuming, repetitive business operations, such as data entry, to save time and lower errors. This works because users place information into an ERP system accessible throughout the enterprise. And those data power very effective, clever, automated procedures. As a result, when automation performs at its peak, a significant amount of time and money is saved. To code and create automation rules in an ERP system, however, you almost certainly require a system administrator. A Solitary System Two of an ERP's primary functions are integrating processes across departments and eliminating needless data silos. ERPs assemble information from several internal departments to produce a holistic view of operational, financial, business, and customer data. Accurate reporting, insights, and superior company decision-making are all supported by this business intelligence. Management and Data Reporting ERP systems mobilise data and offer valuable insights to improve decision-making. Real-time reporting that is incredibly accurate enables operational improvement, cost reductions, and enhanced services all around. Data will be compiled by an ERP and shown in charts, graphs, and reports. Supply chain Administration The management of the supply chain is a crucial feature of ERP systems. This includes managing logistics and distribution as well as tracking demand and inventories. In addition, ERPs gather information about the supply chain to recommend optimal transfer and purchase orders. Accounting and Financial Administration Like standard accounting software, an ERP will provide financial data tracking and analysis for all business accounts, budgeting, and inventory forecasting needs. Additionally, specific systems might provide revenue recognition, multi-currency support, and tax and asset management. An ERP is made to assist organisations in planning, spending, and decision-making that is organised and optimised. Customer Relationship Management (CRM) To include customer data in reporting and decision-making, many ERP systems link with CRMs. For example, to build a prospect-reachable database, ERPs will mobilise information such as contact details, prospect status, serial numbers, and order histories. The marketing and sales teams may then focus on leads that are likely to convert, optimise lead times, and develop more decisive campaigns. Manufacturing Administration With the aid of product planning, procuring raw materials, and production monitoring, ERP systems assist firms in increasing the productivity of their manufacturing processes. To assist in managing your inventory planning processes, an ERP will gather and store precise data on your bill of materials, shop-floor controls, distribution planning, product tracking, and more. Why is ERP Inventory System Important For eCommerce Businesses in 2023? Source ERP inventory management helps firms run and streamline their operations productively and economically. Businesses can manage finances, operations, and inventory all in one location with the help of ERP inventory management, which lowers the chance of errors and increases productivity. Additionally, by leveraging exact real-time data, ERP helps business executives make strategic decisions. Using ERP inventory management solutions within a firm has numerous advantages, some of which are listed below. Planning Inventory Replenishments is Simplified When ERP inventory management solutions are used, managing inventory is a million times simpler. In addition, business owners can precisely plan replenishment orders using such inventory management software. Systems for managing inventory assist in classifying components, making ordering the correct quantity at the right time simpler. Fewer transactions are needed, and inventory management is improved and made more precise. Regulation of Surplus Inventory Business owners may easily access any excess inventory with the help of ERP inventory management. It provides a 360-degree perspective of the complete inventory and explains the precise reason for the overstock. Additionally, this speedy discovery of the excess prompts the business owner to act with greater urgency and determination, saving precious resources that could be used to purchase inventory. Increased Effectiveness One of its key benefits is that an ERP inventory management system increases efficiency at every stage. Utilizing a single, centralised system allows for automation and avoids double handling, leading to increased productivity. Increased production and earnings result from increased efficiency. Reduced Costs Every business owner knows the importance of reducing costs to boost profit margins. Systems for managing inventory part of ERP make sure to do that. Such technologies not only minimise human work but also eliminate the requirement for business owners to buy or invest in different resources or systems because they combine so many services into a single solution. Accurate Data Gathering and Reporting ERP systems ensure that the correct data is always available to business owners on time. ERP inventory management solutions enable quality data collection with real-time updates on consumers, available stock, and pending orders. Additionally, customised inventory records and sales data can be produced by ERP systems, enabling a business owner to analyse operational performance and plan for expansion continuously. Enables Business Growth ERP inventory management solutions were built primarily to maximise earnings while minimising costs. Automating almost every aspect of inventory management reduces the need for manual labour. ERP inventory management solutions offer the ideal setting for business owners to advance their enterprises, whether it is to expand locally or worldwide. Typical Inventory Issues That an ERP Inventory System Can Address in 2023 A business may experience issues if inventory management is not practised. However, the most typical inventory problems can be resolved by switching to an Enterprise Resource Planning (ERP) system. By using an ERP inventory system, you can prevent the following situations: Overstock Inventory It is advisable to stay away from carrying too much inventory while selling seasonal goods. A surplus of inventory can raise costs and decrease liquidity. However, you can experience an inventory deficit if your projection is excessively pessimistic. You can quickly evaluate historical sales data and past seasonal trends with an ERP inventory system, which can help your organisation establish realistic safety margins. Inventory Deficits (Out-of-Stock) Both excess and shortages of inventory are expensive. For instance, insufficient stock during peak sales can hurt your company if your products have a high-profit margin in a crowded market. The "par levels" (also known as minimum inventory thresholds) that can be set by ERP inventory software for each product can be adjusted year-round. If a product's inventory falls below the predetermined par level, the inventory management software promptly sends out a request for further orders. A purchase request can be sent out automatically using an ERP inventory management system in conjunction with the appropriate automation software. Dead Stock For the uninitiated, expired products used once and then forgotten about are referred to as dead stock or on-hand. Dead stock is detrimental since it costs money on two different fronts. The initial cost of the things you sold cannot be recovered.Every day a product is left unused, the prices of storage (warehousing) rise. An ERP inventory system can assist in keeping track of all information pertaining to the product's acquisition, production, expiration, and insolvency. For example, when equities expire, the system can send alerts to inform users. Inventory Movement Knowing when to place a new order or make things again is made more accessible by inventory turnover. It takes a long time to calculate your inventory manually. 46% of SMBs track their inventory manually or don't track it. During this process, it's important to monitor: Count cycleOrder cycleDelivery cycle In addition to requiring a long time, human error is highly probable. Your business can continue to function normally even as you order and maintain products if you can automate this process. This process will be simpler to accomplish if ERP consulting is used. Things To Look for In A ERP Inventory Management System  For retailers, there isn't a universal inventory system. However, all firms should consider a few factors while shopping for an ERP inventory management platform. A company must first hunt for a tool whose price won't exceed its spending limit. For improved accessibility, they should also search for a cloud-based solution with a user-friendly user interface. It's also crucial to look into the software vendor's support choices to ensure that assistance is offered in case of a system malfunction. Finally, a competent ERP application will automate order management, warehousing, and inventory management processes. Basic requirements for ERP inventory systems include: Multiple-channel Inventory Control Retailers employ multi-channel inventory management to track merchandise sales distributed throughout numerous outlets and stored in various locations. This can apply to traditional retail, e-commerce, and wholesale. Retailers will benefit from software with multi-inventory management functionality in several ways, including: Managers can quickly save time by finding the required information by providing centralised data about purchase orders and inventory levels across all sales channels and warehouse locations.It is possible to improve inventory forecasting by identifying inventory needs, establishing reorder points for replenishment, and avoiding issues like low stock levels or full stockouts.Making it simple for customers to shop for products where they choose, whether on your website or at your physical store, will improve the customer experience. Stock Monitoring and Warehousing Inventory available on multiple channels increases sales reach. However, if shops can't locate the goods they require to satisfy orders, they won't be able to meet demand or increase earnings. Due to this, effective warehousing techniques are essential for all businesses, whether giant corporations with numerous warehouses or small companies with a single storage facility. By optimising procedures, an ERP with a warehouse management system assists businesses in avoiding issues like delayed order fulfilment or missing product: Warehouse design maximises retailers' storage by instructing warehouse managers to arrange inventory and store popular goods in convenient locations that make it easier to fill orders.Finding things in the warehouse and packaging them for transport and delivery is easier by picking and packing.Receiving and storing materials make it easier to receive new shipments of goods and to arrange items in suitable locations inside the warehouse. Managing Invoices and Purchase Orders When consumers decide what they want to acquire, effective purchase order management starts and ends with that decision. This procedure can be streamlined with a robust ERP system with invoicing capabilities and a point of sale (POS) connection. It automatically produces invoices and emails them to clients when they place orders. In addition, by combining billing and order management, the ERP may be updated automatically, directing the warehouse staff to start processing the order. When Do You Need an ERP Inventory Management System? Here are ten indicators that your business may be ready for an ERP system; if any of these apply to your operation, get ahead of the game and begin your search. Increased Customer Complaints You don't want further client complaints. An increase in complaints is frequently a sign that orders are not being processed effectively or that the quality of the items is declining, and good customer service is essential. An ERP system instantly provides the data your customer service staff needs to help solve problems. Inability to Deliver on Schedule Delivering deadlines are missed, including a lack of visibility into capacity, inappropriate or ineffective scheduling of resources (including people and machinery), and improper supply chain management. An ERP system will provide a finite scheduler and capacity planner, ensuring everyone knows what is needed and when. So if your business frequently misses deadlines, you are likely ready for one. Product Quality is Deteriorating A drop in quality and a rise in returns could be signs of a communication issue inside the company, an inefficient workflow, subpar supplies, or inaccurate paperwork. An ERP system should offer traceability for a company to pinpoint the underlying causes of quality issues, create preventative measures, and engage in continuous improvement. Unawareness of Your Potential The scheduling system is strained when too many operations need to be manually calculated. An inventory planning and scheduling tool facilitates effective resource use and should consider real jobs, projected staff absences, and scheduled maintenance. In addition, your sales staff will be able to securely sell unused short-term capacity when they are aware of your genuine spare capacity, reducing downtime and increasing profitability. Producing Incorrect Quotes or Estimates Unexpected increases in labour and material costs may go unnoticed in a manufacturing organisation without an accurate data flow, rendering a work unprofitable. As an alternative, you will be less competitive if you overquote. For you to know precisely what your margins are when a quote is sent out, an ERP system makes sure that the most recent expenses are used in estimates. No Stock Visibility Gaining orders frequently depends on knowing what stock is available to promise. Delays happen when there isn't centralised exact knowledge of what's in the warehouse. In addition, it is a waste of time to go out to the warehouse to check on stock because inventory is always available with an ERP system. Delay in Procurement The information that purchasing departments receive determines how effective they are. For example, they will frequently miss the delivery deadline if they don't know when the material is needed. On the other hand, ordering supplies too early can result in an extended period of time where cash flow is held in stock. Your procurement staff can place just-in-time orders for the material since an ERP system informs them of what is needed and when. Unaware of Your Business Productivity It is crucial to have reliable historical data when dealing with narrow margins to prevent losing money on fiercely competitive jobs. This data is accurate and readily available with an ERP system, allowing management to identify areas inside the business where costs or turnaround times may be higher than anticipated. Excess of Spreadsheets Spreadsheets have long served as the information storage method for many manufacturing organisations. Where there were previously only a few spreadsheets, as a firm expands, the number of spreadsheets in use increases as well, with various departments utilising their own. Using several spreadsheets is a significant sign that your business is prepared for an ERP system. These spreadsheets, and frequently other systems as well, are used to gather and retain valuable data. Still, because they cannot be thoroughly analysed, it becomes progressively challenging to produce any useful information from them. With an ERP system, such data is compiled and kept in a single system, making evaluation considerably simpler. Business Unable to Expand Nobody has the time or energy to concentrate on the firm's strategic development since everyone is too busy chasing information and finishing daily responsibilities. Even the idea of trying to discover answers among that data is daunting, so let's not think about any more information! But it becomes much simpler to prepare for the future when an ERP system is in place to control the information, generate insightful reports, automate business operations, and lessen duplication. Conclusion The industry's approach to inventory management has undergone a revolution thanks to ERP inventory management. ERP inventory management is also very efficient and cost-effective. It is currently utilised by businesses to simplify inventory management. They support decision-making processes and are accessible across a variety of platforms. ERP inventory management reduces errors in addition to increasing earnings and efficiency. Businesses that have chosen to use this technology benefit, while those still resisting changes are losing behind. Inventory LogIQ is one such ERP inventory system to improve upon your supply chain from three angles: reduce your excess stock while maintaining availability at speed for your customers by sharing the following actionable insights: Red List (to avoid out-of-stock situations)The list that highlights SKUs (bestsellers) that are likely to go out of stock soon and need replenishment taking each of the FCs/warehouses into considerationThe list that recommends a minimum order quantity (MOQ) for ordering at the Location / SKU levelBlue List (to avoid excess inventory pileups)The list of SKUs to focus on for liquidation, where you are holding excess inventoryReal-time BI tool on your key Inventory health metrics and SKU classificationReal-time view on the right Network design to meet your Regional Utilization  goals ERP Inventory Management FAQs (Frequently Asked Questions) What is ERP in inventory management?A system called enterprise resource planning (ERP) inventory management enables companies to handle all facets of their operations, including finance, planning, logistics, and inventory, on a single platform. What distinguishes inventory management from ERP?ERP is a general word that covers how businesses connect various workflows and operations. A company's techniques for managing inventory, such as product tracking, tagging, and forecasting, are referred to as inventory management. ERP can be used for other business operations or only inventory management. How might inventory management be aided by ERP software?The tools firms employ to streamline numerous inventory activities are centralised by ERP software. Making it simpler for managers to find the required tools increases efficiency and saves them time. For instance, forecasting aids retailers in avoiding inventory issues like stockouts and shortages. Retailers can shorten lead times by adopting features like inventory management and warehousing.

September 14, 2022

What is an Inventory Management System? Types, Benefits, and 10 Techniques Used in Inventory Management Systems in 2023

What is an Inventory Management System? Types, Benefits, and 10 Techniques Used in Inventory Management Systems in 2023

Inventory is constantly changing. Sales, refunds, new receipts, and even damage and theft influence your inventory levels throughout the day. Therefore, the inventory management system is the most crucial part of a successful retail or wholesale organization, notwithstanding their difficulty. As your business grows and the amount of inventory you handle grows, it becomes challenging to manage inventory effectively. Using technology will make things easier for you and your employees. That is the reason any retail firm needs an inventory control system. A lot of people associate inventory management with retail applications. However, inventory management systems are used in various industries, including manufacturing, utilities, healthcare, education, government, and more. It simplifies and consolidates the process of regulating inventory movement and maintenance so that the proper inventory quantity is accessible at the right time and in the appropriate condition. What is an Inventory Management System (IMS)? An inventory management system or IMS is a system that combines technology, i.e., hardware and software, with processes and procedures to oversee the monitoring and maintenance of stocked products, whether they're company assets, raw materials and supplies, or finished goods ready to be sent to vendors or end customers. A complete IMS includes the following components: A method for identifying each inventory item and its information, such as barcode labels or asset tags. Inventory control systemHandheld barcode scanners or cell phones with barcode scanning applications are examples of hardware equipment for reading barcode labels. Inventory management software includes the capacity to analyze data, produce reports, estimate future demand, and more.Labeling, documenting, and reporting procedures and policies. This should incorporate a proven inventory management strategy like Just in Time, ABC Analysis, First-In-First-Out (FIFO), Stock Review, etc. 4 Basic Functions of Inventory Management System Modern-day IMS aid in the profitability of your company. You might be squandering money on inventory without even realizing it if you don't have a system. You may be buying too much or not enough. You can be wasting money counting and valuing your goods. You might also be wasting money by not knowing where your inventory is. Primary Functions Of the Inventory Management System include- Tracking An inventory management system's primary function is to keep track of your items and supplies. When you buy inventory, you need to track when you bought it, when you sold it, and how much you have on hand. It also tells you where your inventory is. This is especially critical if your list is used in many departments. A supply of rubber, for example, may move through manufacture, shipment, and storage before ending up in a warehouse in a distant location. You can track how inventory travels through your firm with the help of a sound system. Avoiding Redundancy Duplicate orders can quickly lead to an overabundance of inventory. When an item isn't where it should be on your storage shelf, and you presume you're out of stock, you make a new order. An inventory management system prevents duplication by alerting you that you already have the item in stock somewhere else. Inventory Valuation An inventory control system can inform you how much you pay for inventory at different times of the year. For example, an inventory control system can track those values and calculate your average cost even if you purchased the same item several times at various prices. This might assist you in determining selling prices and profit margins. So, inventory valuation is a big function. Counting You won't have to pay staff to count products if you physically use an inventory control system. Based on the data in your system, you'll always know how much you have. This can help you save a lot of money on the payroll for inventory workers. How Do Inventory Management Systems Work? Source Inventory control systems, such as inventory management applications, include several features that assist businesses in managing various sorts of inventory. For example, inventory management applications are often used with barcode tagging to identify inventory assets, and information about each item is recorded in a central database. Barcode labels act as inventory trackers, allowing users to get information about an item from a computer system, such as the item's price, the number of units in stock, the position of an object within a warehouse, and so on. The best inventory control applications are mobile-friendly, with companion apps that let users track and manage inventory while moving about a facility or from one location to another. There are a variety of inventory monitoring apps for smartphones, some of which are only available for mobile devices. In contrast, others feature desktop software that allows users to track inventory from any platform. There are also several inventory management apps created exclusively for warehouse managers. Look for features like trigger warnings when inventory levels hit pre-defined criteria, re-ordering capabilities, and analysis and reporting to support functions like forecasting when looking for inventory management software. 8 Benefits Of Inventory Management System Any effective business's inventory management system is what goes on behind the scenes. It's the art and science of balancing supply and demand in a company - managing the supply chain always to have enough stuff to earn a profit. For small enterprises or big retail or warehousing operations, using an inventory management system offers several advantages, including: Automation Automation is one of its most significant advantages of it. Automation eliminates the possibility of human error, saves countless hours, and assures you that you do not make errors. Once a set of rules has been established, this system can do repetitive tasks with little manual assistance. This gives you real-time access to your inventory levels and instantly changes your stock count when a sale is made. This functionality is essential for accurate inventory forecasting and a positive client experience by preventing overselling. Automated inventory management also provides real-time visibility into where your goods are located, critical to keeping stock in several places, such as a warehouse or multiple retail locations. Making Informed Decisions Having enough inventory on hand affects every aspect of a company's capacity to create profit. Through various built-in reports, the Inventory Management System allows users to make educated decisions based on real-time data from the program. In addition, the Inventory Control System will provide you with the resources to effectively estimate future sales by providing you with a picture of previous sales performance. Demand Forecasting Because of precise demand forecasting, when order fulfillment volumes grow significantly due to holidays or events throughout the year, such as a significant marketing push from an influencer, the quantity of inventory you have will stay up with demand. Historical and seasonal data may also determine if any sales patterns necessitate stock level modifications at different periods of the year. Boost Productivity and Efficiency By reducing the amount of time spent on routine and complex tasks, the Inventory Management System will help increase efficiency and productivity. Users may easily report, search, and input data and manage inventory using the Inventory Management System's user-friendly interface. Boost Sales and Purchase Order Accuracy Using a sophisticated Order Management System, you can improve the accuracy of sales and buy orders. In addition, users may reserve available goods across various locations with Dynamic Inventory to guarantee that client expectations are satisfied. Management Inventory of Multiple Locations When a firm develops into many locations, the owner must be able to keep track of inventory levels at each site. Using Dynamic Inventory's robust multi-channel sales fulfillment business model, users may monitor inventory levels across various locations. Attempt to Avoid Running Out of Stock. Use our Low-Stock Alerts to get alerted when items fall below a certain threshold, ensuring that you don't run out of stock. In addition, users will now get access to our Low Stock report, which displays all goods that require replenishment, allowing them to prevent running out of stock. Reduce Risk by Managing Product Recalls Accurately Users may trace the exact location of items using Lot Numbers, Batch Numbers, and Serial Numbers in the Inventory Management System. This capability comes in handy if you need to enable a product recall for a batch of things. Types of Inventory Management Systems Inventory management systems integrate all parts of an organization's inventory operations, including shipping, purchasing, receiving, warehouse storage, turnover, tracking, and reordering, into a single technological solution. The fact is that an efficient management system takes a holistic approach to inventory and empowers organizations to use lean practices to optimize quality and performance along the supply chain while ensuring the appropriate quantity of stock at suitable locations to deliver the promised services. The two inventory control systems available and most frequently utilized these days are. Perpetual Inventory Management System is one of the most common management systems.The second one is called as Periodic Inventory System Two technological types of inventory management systems utilized to assist the entire inventory management process are-  Barcode Systems Radio Frequency Identification (RFID) Systems. You must invest in a vertical inventory management system to meet your company's unique requirements. Finally, we can also divide IMS into industrial sectors. These are further classified into- Manufacturing Inventory Management Warehouse Inventory ManagementRetail Inventory Management Organizations must have correct inventory knowledge to be competitive. In addition, making judgments regarding future purchase and distribution duties might be difficult, if not impossible, without knowing what is in storage. Therefore, a comprehensive approach is required to decide how, where, and when to arrange merchandise. Now that we've covered the foundations of inventory control systems and how inventory control systems function in general let's talk about the types of inventory control systems. Perpetual Inventory Management System When inventory goods are acquired, sold from stock, relocated from one location to another, chosen from inventory, and destroyed, a perpetual inventory management system automatically updates inventory records and accounts for additions. Sub certain businesses prefer endless inventory control systems because they provide up-to-date inventory information and manage minimal physical inventory counts. Permanent inventory systems are also favoured for inventory tracking since, when correctly maintained, they provide reliable data regularly. This inventory management system is most effective when combined with a database of inventory amounts and bin locations updated in real-time by warehouse employees using barcode scanners. Perpetual inventory management systems come with several drawbacks. To begin with, these systems cannot be maintained manually and need specialist equipment and software, resulting in a higher installation cost, particularly for firms with many sites or a variety of warehouses. In addition, maintenance and improvements are required regularly for perpetual inventory management systems, which can be costly. Another disadvantage is that recorded inventory may not represent actual inventory as time passes since frequent physical inventory counts, which are required even when inventory trackers are utilized, are not performed. As a result, mistakes, stolen products, and wrongly scanned things influence inventory records, causing them to differ from absolute inventory counts. Periodic Inventory System Periodic inventory systems do not maintain inventory daily; they allow businesses to know the beginning and ending inventory levels over a certain period. Physical inventory counts are used to track inventory in these inventory control systems. When physical inventory is finished, the purchasing amount is transferred to the inventory account, and the cost of the ending stock is modified. Organizations can use LIFO or FIFO inventory accounting methods to calculate the cost of ending inventory or another way; keep in mind that beginning inventory is the previous period's ending inventory. The use of a periodic inventory method has a few drawbacks. To begin with, when physical inventory counts are done, routine company operations are almost halted. As a result of the time restrictions, personnel may rush through their physical counts. In addition, because periodic inventory systems do not often employ inventory trackers, mistakes and fraud may be more common due to the lack of continuous inventory control. When adopting a regular inventory management system, it's also more challenging to pinpoint where inconsistencies in inventory counts arise because so much time passes between counts. Finally, periodic inventory control systems are better suited to smaller enterprises because of the required quantity of labour. Barcodes Inventory System In a barcode inventory system, things are given unique barcodes. A barcode is scanned when a product is purchased, and data is sent to a central database. When choosing a product, the warehouse worker scans the barcode. The scanner then informs the employee if they have chosen the correct item. It also logs the activity in your IMS, allowing you to keep track of stock levels more precisely. Assisting you in keeping real-time inventory track, enhancing picking speed, and also helping in inventory accuracy. Barcodes may contain much information that your inventory management system can utilize. A barcode, for example, can carry information such as a product's name, weight, measurements, and warehouse location. However, for efficient choosing, you would often not use a barcode to retain such detailed information but rather a unique string of numbers merely to ensure the correct item is selected. Barcodes connect the data obtained while picking and packaging to your inventory management system. So, when the barcode is read, it informs the picker that they have selected the correct item and your inventory management system. Then, in your live inventory tracking, reflect the revised value. On the one hand, it makes life easier for your pickers and reduces mis-picks. But on the other hand, it provides a precise real-time live inventory count. Radio Frequency Identification (RFID) Inventory Systems Inventory management systems that employ radio frequency identification (RFID) use active and passive technologies to track inventory movements. Fixed tag readers are used throughout the warehouse using dynamic RFID technology; RFID tags pass through the reader and record the action in the inventory management software. As a result, active solutions are best suited for businesses that require real-time inventory management or where inventory security is a concern. In contrast, passive RFID technology necessitates portable readers to track inventory movement. The inventory management software records the data from a tag when it is read. Passive RFID technology has around 40 feet, while active RFID technology has a reading range of about 300 feet. RFID-enabled businesses had a 95% inventory accuracy rate. RFID inventory management solutions come with several drawbacks. For starters, RFID tags are far more expensive than barcode labels. Hence they are often utilized for higher-value items. RFID tags have also been reported to cause interference, mainly when used in many metals or liquids situations. Transitioning to RFID equipment is extremely expensive, and your suppliers, customers, and transportation providers must all have the necessary equipment. Furthermore, RFID tags contain more data than barcode labels, causing your system and servers to become overburdened with data. Manufacturing Inventory Management System This is the method you'll need if your inventory is focused on linking bills of materials and work orders together. To run a manufacturing firm, you'll need to keep track of your job and the supplies you'll need to supply or make it, which necessitates a sound inventory management system. These are the characteristics you'll require: Tracking of materials Levels of inventory (parts and finished products)ERP/maintenance software connection for automated reordering Warehouse Inventory Management System  The goal of warehouses is to find out where an item is located. Although maintaining an accurate inventory count of on-hand products is critical, it is also crucial to guarantee that you can find an item quickly in a warehouse scenario. Software-based warehouse inventory management solutions are frequently employed to optimize fulfillment center processes. You'll require the following features: Support in several locationsSystem for advanced barcodes (with QR, among other standards)Order picking assistance Shelf and bin tracking system Retail Inventory Management System It's critical to have adequate stock in a retail firm to keep things running smoothly and financially. Supplies must be reordered before they run out to maximize sales opportunities while avoiding buying too many things that will not be sold. As a result, a sound IMS is necessary to maintain your inventory balanced and in line with your business objectives. These elements are a must-have for ensuring proper inventory levels. Order choosing assistanceReordering is done automatically.Support for barcodingForecasting inventory How to Choose Inventory Management System in 2023? Knowing what you have on hand is the first step in correctly managing your inventory. Depending on the type of your business and the number of things you're dealing with, you may go as straightforward or as elaborate as you like. A simple logging system may be sufficient for specific firms, while a computerized arrangement is superior for others. Consumers should consider a few things before deciding on a periodic and perpetual inventory management system technique, as well as a barcode or RFID tagging strategy. What is the size of my company?I work with what sort of inventory?Is there enough money in the budget for a new management system?What type of deployment approach should I go with? After you answer these questions, going further from here will let you dive deeper into concepts to focus on Inventory Management systems. Manual Inventory Record Keeping A stock book where you track transactions could suffice if you don't carry many different things or don't move many each day. List the types of items in one column, and write down the sales in another. This shows you how many of each item have been sold at a glance. You may accomplish this in a physical notebook or on a computer with a rudimentary spreadsheet. This is the most basic method of inventory management, and it works best when just one or two-person input data and only a few specific things need to be tracked. There are a few manual logging ways to consider. For example, each sort of merchandise may be tracked using tags, cards, or tickets, which you can record into your log when they sell. You may also determine how much was sold by comparing sales receipts from your cash register with delivery receipts. Computerized Inventory Management System It makes sense to bring the speed and usefulness of computers, tablets, and smartphones to inventory management today when most of us are so accustomed to using them. In addition, small business owners will typically profit from a more automated inventory monitoring system. You may spend significantly less time inputting data and obtain far more meaningful information than if you did it manually, with little to no learning curve. There are several sorts of computerized systems, ranging from tracking inventory through the warehouse and production process to those better suited to retail applications. Some even integrate with your accounting software, automatically updating cash flow figures and income estimates. You can read more in detail about retail warehouses here. Point of Sales Systems Your cash register is part of a system that maintains track of your inventory and rings up sales, and calculates the appropriate change using this system. POS systems are particularly useful in controlling inventory and supplies in retail establishments, taverns, and restaurants. With each sale, you'll get an updated, real-time picture of where things stand, and you'll be able to see at a glance which goods are selling and should be reordered and which aren't and should be lowered to move. In addition, other information, such as consumers' email addresses or mobile phone numbers, can be entered during a transaction and useful to your marketing efforts. If you're thinking about utilizing a POS system, find out what kinds of reports it can generate and how simple it is to use to keep track of your inventory. You want to be able to quickly add new products to your list and create alerts for items that are about to run out. The software, cash register, receipt printer, bar code scanner, and credit card reader are all included in most POS systems. Start simple and add on as you need it if you can't afford a full-fledged plan. There are also POS programs for your smartphone that are both free and affordable. 10 Techniques Utilized In Inventory Management Systems Small businesses frequently have cash flow issues, influencing stock levels, resulting in stock outs and dissatisfied consumers. If too much of this, the company may go out of business. Inventory management system solutions come in handy in this situation. Business managers may retain ideal inventory counts, eliminate human error, save money for physical inventory stock, and more with the correct inventory control procedures. Let's take a look at the most popular inventory methods. These are highly effective methods for improving inventory control in firms. Minimum Order Quantity (MOQ) The smallest amount of stock that suppliers are prepared to sell is the minimum order quantity (MOQ). If you can't meet the minimum order quantity for a product, you won't be able to buy it from that source. Suppliers use minimum order numbers to improve earnings while eliminating inventory and "bargain shoppers." The minimum order quantity is determined by the entire cost of your inventory and any additional charges you must pay before making a profit. As a result, MOQs help wholesalers stay profitable and maintain steady cash flow. Economic Order Quantity The economic order quantity (EOQ) formula helps you balance the expense of keeping goods on hand with a supply chain that satisfies consumer demand. Start with the following information to determine the economic order quantity: The pace of demand or the number of goods moved in the previous year (quarter or month, etc.)The cost of the things you'll need to order during the sales period to fulfill demand.The expense of storing merchandise at a warehouse (also called the holding cost) Understanding a product's EOQ is critical for determining inventory optimization and reorder quantity. Just In Time Inventory Management Just-in-time Inventory management comprises producing what's wanted when required, and in the amounts demanded. Many organizations employ a "just-in-case" inventory management approach, which involves keeping a modest amount of inventory on hand in case of demand increases unexpectedly. Just-in-time inventory (JIT) management aims to establish a zero-inventory system by manufacturing Goods to Order. It operates on a pull mechanism, which means that when an order is received, it initiates a chain reaction across the supply chain. As a result, employees are notified that inventory must be ordered or that the required items must be manufactured. A just-in-time inventory management system has several advantages, including: Visibility of Inventory that is less old-fashioned, outdated, or spoiltEliminating storage and stacking while optimizing inventory turnover reduces logistics costs and waste production and increases efficiency.By lowering your inventory, you may save money on insurance and rent.Since manufacturing takes place on a smaller, more concentrated scale, identifying and correcting production problems is faster.Keeping a healthy cash flow by only ordering products when it's essential FIFO and LIFO FIFO and LIFO accounting systems are used to value inventories and report profitability. First in, first out is the acronym for first in, first out. An inventory accounting system states that the first items in your inventory leave instead. Thus it would help if you always got rid of your oldest stock first. Last in, first out is the acronym " last in, first out. It is a way of inventory accounting that states that the final goods in your inventory are the first to leave, implying that you get rid of the most recent stock first. You must always utilize the FIFO rule when running a food business or dealing with perishable goods. You'll wind up with outmoded inventory, which you'll have to write off as a loss if you don't. When it comes to non-perishable homogenous commodities like brick or stone, LIFO is a fantastic strategy since you won't have to rearrange your warehouse or rotate batches because they'll be the first ones out anyhow. Reorder Point Formula The reorder point algorithm tells you when it's time to replenish your inventory. You'll be notified when you reach the lowest quantity of inventory you can maintain before needing more. By employing this strategy to order the right amount of stock every month regularly, you may stop becoming a victim of market ups and downs. ABC Analysis Source ABC inventory analysis divides your inventory into three groups based on how much it costs to store and how well it sells. A-Items: The most popular items that don't take up a lot of room in your warehouse or cost a lot of money. B-Items: Items in the middle of the price range that sell often but cost more to store than A-Items. C-Items: The rest of your inventory, which accounts for most of your inventory expenditures, has the smallest impact on your bottom line. By determining which goods you should refill more regularly and which items you don't need to keep as frequently, ABC analysis helps you save money on working capital. ABC analysis improves inventory turnover and lowers outdated inventory. Batch Tracking Lot tracking is another term for bat tracking. It is a method for effectively tracing items along the distribution chain using batch numbers. Batch tracking allows you to identify where your items originated from, where they went, how much was sent, and if they have an expiration date, whether they are raw materials or completed things. This inventory management system has several advantages, including: Supplier partnerships have improved.Simple and quick recallExpiration tracking has been simplified.Less accounting mistakes due to manual tracking Lean Manufacturing System The lean manufacturing system is also known as lean manufacturing or lean production. This technique is well-known for boosting customer value and eliminating waste without losing efficiency. It attempts to prevent anything in your production process that generates waste or limits your capacity to make a valuable product, it contributes to inefficient and inconsistent processes. The following concepts are shared by all lean manufacturing systems: The highest valuable product is delivered to the consumer through lean production.It outlines the actions and processes necessary to create useful products.It goes through a procedure to ensure that all of your value-adding stages run well, with no bottlenecks, delays, or disruptions.Products are created on a just-in-time basis, which means that resources are not stored and consumers can get their purchases in weeks rather than months.Lean thinking and process improvement are key to the company's culture. 6 Sigma Six Sigma practitioners use statistical models to gradually develop and optimize a company's production process until it reaches the Six Sigma level. Most commonly, this is accomplished through the use of a five-step method known as DMAIC, which stands for define, measure, analyze, improve, and control. The DMAIC processes user data and quantifiable objectives to generate a cycle of continuous improvement in manufacturing operations. DMAIC is important for improving existing processes, but Six Sigma also employs DMADV to build new processes, products, or services. DMADV is an acronym that stands for define, measure, analyze, design, and verify. It serves as data and extensive analysis to assist you in developing efficient procedures or a high-quality product or service. It uses extensive training and specialized projects, as well as realistic statistical analysis, to help your organization save a lot of money. Lean Six Sigma Lean Six Sigma combines Six Sigma and lean manufacturing to build a comprehensive system for eliminating waste and reducing process variation to simplify production and improve product output. Lean Six Sigma largely uses Six Sigma processes as the system's backbone to generate targeted improvements in production. It also combines several lean tools and approaches to decrease wasted processes and procedures. Consignment Inventory Source Consignment inventory is a commercial arrangement in which a seller or wholesaler known as a consigner agrees to provide their products to a consignee, most commonly a retailer, without the retailer paying for the items in advance. The co-signer retains ownership of the products and pays for them only when they are sold. As long as suppliers and retailers are ready to share the risks and profits, this is a win-win situation. Low inventory carrying costs, direct-to-retailer delivery, and access to new markets benefit vendors. Retailers benefit from reduced risk, greater cash flow, and a cheaper total cost of ownership. Partner with InventoryLogIQ for the Best Inventory Management System You can plan your stock levels and know when to place a purchase order for extra products using a proactive inventory management system. You may better manage your cash flow by projecting your inventory demands into the future. Prevent sales from being lost due to stockouts and backorders. eCommerce fulfillment businesses have never needed to plan more. Inventory management and forecasting aid in developing a robust supply chain that can withstand interruptions. You don't have to deal with the difficulties of inventory management systems across numerous sales channels. Request assistance from your third-party logistics provider or seek an inventory optimisation software like Inventory LogIQ. Inventory LogIQ optimizes the distribution of inventory across fulfillment network, that can help in maximizing sales, reducing holding costs and improving regional share of demand fulfillment. These solutions are implemented quickly and operate cost-effectively, saving organizations time, money, and effort. InventoryLogIQ's extensive knowledge and capabilities in inventory forecasting, product segmentation, and easy plug & play integration offerings enable us to solve all of our clients' inventory control and management problems. Inventory Management System FAQs What factors influence inventory costs?Rent, insurance, security fees, power bills, refrigeration, and any other maintenance or storage-related charges may be included, depending on the type of business. Essentially, the higher the carrying costs, the more products a corporation must store. What are the critical factors for inventory management systems?Raw Materials, Work-In-Process (WIP), Finished Goods, and Maintenance, Repair, and Overhaul (MRO) are the four categories of inventory most typically employed (MRO). When you know what kind of inventory you have, you can deploy best practices for inventory management systems What are the characteristics of an effective inventory management system?An easy-to-use interface that doesn't require significant training, support, or documentation are among the system's criteria. Automation for inventory management business operations to eliminate manual procedures. A secure database that gives accurate, real-time information. What is the definition of inventory turnover?The inventory turnover ratio is a measurement of how rapidly your company's inventory gets sold. It's an excellent way to gauge the strength of your company's sales volume and performance by comparing it to industry norms. Knowing your inventory turnover rate may provide you with a lot of information about how your business handles inventory, sales, and expenditures. How do I know when it's time to restock stock?Calculate reorder points manually or using the software included with your inventory management system. Inventory LogIQ leverages advanced AI-ML algorithms to ensure you have the right inventory level for the correct SKU at the right location. Inventory LogIQ avoids stockouts for the same through auto-replenishment triggers when the stock falls below the set reorder point. When to Upgrade your Inventory System?• When you need more flexible solutions to avoid stockout situations• When you wish to improve your inventory accuracy • When your inventory costs are growing • When your growth is becoming slow or stagnant due to excess inventory pileups or bloated inventoryYou can check out InventoryLogIQ's IMS if you are an enterprise business or even if you are planning to scale.

August 26, 2022

What is Inventory Planning? Importance, Challenges, and 5 Best Methods of Inventory Planning for eCommerce Businesses in 2022

What is Inventory Planning? Importance, Challenges, and 5 Best Methods of Inventory Planning for eCommerce Businesses in 2022

The eCommerce industry's ethos is placing products in storage in optimal quantities so they can eventually be sold when an order is placed online. There is a lot of strategic supply chain planning behind every successful eCommerce firm, especially regarding inventory planning and management. Inventory is the most valuable asset for eCommerce sellers. With good inventory planning, you can fulfill orders by efficiently forecasting demand and enhancing the customer buying experience. When inventory planning is done correctly, it helps online sellers save money and time and streamlines their entire eCommerce supply chain. Customer expectations will be constantly met, and enterprises will remain prosperous. If you struggle to plan your inventory, you need to identify the tactics and tools that will help you improve your inventory planning operations. What is Inventory Planning? Inventory is the greatest asset of an eCommerce business, whether it is a retail, wholesale, or manufacturing unit. If we set aside store management and human resource expenses, sellers invest considerable capital in inventory planning. Inventory planning is when an organization determines the optimal quantity of listed products concerning time and other factors. Inventory planning is an essential component in the supply chain management of eCommerce that involves demand and inventory forecasting to determine optimal inventory levels across each SKU that needs to be maintained in any period to avoid loss of revenue due to stockouts or excess inventory pileup situations. It is an integral part of a company’s supply chain management strategy alongside order management, accounting, warehouse operations, and customer management.  Inventory planning is unavoidable since it allows businesses to run continuously. Low inventory levels can result in unfulfilled orders, which ruins a brand’s reputation. On the other hand, having too much stock is detrimental to a healthy cash flow and stifles corporate growth because money held up in excess inventory cannot be spent in other parts of the company. It entails anticipating demand and determining how much inventory to order and when to order it. This allows businesses to meet demand while also lowering costs. In other words, by keeping the correct amount of inventory in the right place at the right time, organizations can lower their overall storage costs, improve inventory planning and control and ensure that there is always enough stock to fulfill demand (whilst avoiding obsolete surplus stock). The Importance of Inventory Planning Increases Sales Sellers can stock up on products that appeal to their target demographic, increasing sales and revenue. During seasons of high demand, they will have enough inventory available to fulfill as many orders as possible. Improves Cash Flow Practicing inventory planning ahead of time might help eCommerce sellers to avoid problems like having too much capital locked up in their inventory. They will be able to keep inventory moving while also freeing up cash to reinvest in the company. Utilizes Storage Holding inventory costs a lot of money; if it is a perishable product and needs special conditions and temperature, the cost instantly multiplies. So here, tiny storage space can cost more than the business receives in profits. Inventory planning takes care of inventory space and utilizes it to the best of its ability.  Forecasts Demand Better demand forecasting helps to make better and more informed decisions about inventory planning and revenue generated in the future. Placing an order during high demand can cost more than procuring it during price slumps or discount periods. It not only assists a seller in meeting customer demand but also in making better financial decisions that affect profit margins, cash flow, inventory allocation, warehousing, staffing, and overall logistics spending. Improves Customer Satisfaction Customer satisfaction is the best selling point. Buyers are always choosy, but they will be satisfied if the seller has the right products at the right time. People often pay more to get a better experience and quality products. They are more inclined to return to the same seller if they can count on getting the things they need and want. Satisfying these desires will help them get a positive outlook on your brand, which will reflect in their feedback Minimizes Overstocks and Stock-Outs Inventory planning aids retailers in avoiding overstocking or understocking. It aids in the optimization of inventory storage and precise control over each item. Overstocking can hold up business capital for an extended period. In contrast, understocking can disrupt the supply chain process, resulting in more expensive procurement and an inability to fulfill orders. What are the Challenges of Inventory Planning? Managing Huge Amounts of Data When a seller runs flash sales, their sales velocity increases, and they store much data obtained from buyers. This data is instrumental while running campaigns, checking for follow-ups, and sending personalized offers and benefits according to customers’ gender, last purchase, amount they spent previously, etc. Managing this useful and colossal data is a challenging task. It needs a good inventory management application that stores data and takes care of qualified leads by marking them as prospects. In the absence of a cohesive view of the past, current inventory levels, and any other essential sales data, sellers may flounder in the dark regarding inventory-led decisions. This is why implementing a real-time inventory tracking system is non-negotiable.  Finding Reliable Data Real-time data is required for a smooth and efficient supply chain process. However, information is frequently not maintained in a meticulous manner, especially when it is done manually. It is distributed throughout several systems even when it is kept track of. This makes it challenging for merchants to consolidate all the data to get a complete picture of their inventory. A real-time inventory tracking system guarantees that sellers have reliable data as they expand into new sales channels and further develop their distribution network. Various inventory apps make it simple for online retailers to keep track of their inventory. InventoryLogIQ not only stores the seller's inventory at their preferred domestic fulfillment sites, but the seller also gets access to inventory data via a single dashboard. That way, sellers can save the time and effort associated with updating many spreadsheets while reducing human error. Developing Inventory Management Software Customers have high expectations for the speed with which their orders are processed and shipped. However, getting bogged down in planning and managing inventory can harm supply chain efficiency. There is no surprise that more and more modern merchants are turning to Inventory Management Software to help with their inventory planning requirements. Inventory management software can help eliminate time-consuming manual tasks and increase inventory accuracy. It is common for online firms to use inventory automation to automate inventory planning processes that are time-consuming and prone to human mistakes, such as the pick up of incorrect inventory and inventory shrinkage. For the smooth running of operations, a seller needs an inventory management system. This requires a substantial one-time investment for developing an IMS and technical staff must be employed to manage it. This becomes a hurdle for small and medium-scale sellers. They are already short on capital and have narrow profit margins to compete with established eCommerce giants. Third-Party inventory planning software can help them with their requirements. Instead of investing in their inventory management software, working with a third-party logistics (3PL) supplier like WareIQ can save time, effort, and money. Lack of Trained Resources The warehousing process will likely slow down or fail if the employees are not appropriately trained. Sellers must equip personnel with knowledge of the newest procedures, data analytics, distribution metrics and technology involved in supply chain management to bring value to inventory planning. However, investing in training and technology implementation can be costly and time-consuming. Though many online firms have team members who oversee logistics, it is a commonplace for online brands at all phases of development to collaborate with a 3PL that can provide the technology, data, and knowledge needed to plan and manage inventory efficiently. Best 5 Inventory Planning Methods to Consider in 2022 Now that we’ve discussed the challenges, benefits, and fundamentals of inventory planning, let’s talk about how to actually implement it. There are a handful of inventory planning methods. To consider the right one depends upon your products, business type, and processes involved. The Work in Progress Model (WIP)  Merchants who deal in partially finished items, finished goods, or goods-in-transit should use this model. This inventory model emphasizes inventory holding, and there are three reasons for this: Purchasing raw materials in bulk saves money and lowers per-unit costs.It helps avoid stockouts and provides precautions against demand uncertainty.It encourages holding inventory to reduce the chances of price hikes of materials and labor. The Self-Consistent Inventory Model Economic Order Quantity (EOQ) The economic order quantity (EOQ) method determines the best inventory quantity to order. It considers product demand, unit pricing, and holding costs to assist sellers in figuring out how much to order.  The goal of EOQ is to assist sellers in determining the number of products that will allow them to meet demand without overordering and inflating their holding costs. To make this strategy work, a seller should have a firm grasp on the following: Order costs – Expense per merchandise orderDemand rate – Units sold during a particular time periodHolding costs – expenses involved in holding the product The EOQ formula is : EOQ = Square Root of [{ 2 (Order Costs) X (Remand Rate)} / Holding Costs ] Minimum Order Quantity (MOQ)  The minimum order quantity (MOQ) estimates how much inventory a seller should order at any given time. This is perfect for sellers that wish to be careful with their ordering habits or who want to maximize their cash on hand while avoiding excessive inventory spending. There is not a set formula for MOQ, but a seller can calculate the correct MOQ for their eCommerce business by: Calculating Demand: It considers the seller’s historical sales data and current patterns to determine how much inventory they will need.  Being Aware of Holding Costs: Calculate the costs of storing a product. Keeping small and minuscule objects in a warehouse will be less expensive than keeping them in a climate-controlled setting. Knowing the Breakeven Point: Calculate how many products are needed to sell to reach the breakeven point before buying the product. Determining MOQ: The criteria listed above will assist sellers in determining the proper minimum order quantity for their products. FIFO or LILO First-in, First-out (FIFO), and Last-in, Last-out (LILO) are supply management methods in which products purchased first are sold first or vice versa. An ideal formula for retailers who sell perishable products, FIFO requires keeping track of the purchase date of each product and dispatching inventory according to it. The main motto is to monitor the expiration dates of perishable products. Structure the stock in the warehouse in such a way that makes it easy to implement FIFO or LILO. Setting Reorder Points Reorder points are crucial tools in inventory planning since they assist the store in avoiding stockouts. Product demand, sales velocity, order lead time, and safety stock levels determine the optimal reorder point. Calculating the reordering point requires two components: Safety Stock: (max daily orders x max lead time to get it) – (average daily orders x average lead time to get it)Lead Time Demand: the average number of units sold daily x the lead time of a product  To determine the reorder point, add lead-time demand to safety stock. Use the following formula: Reorder Point = Safety Stock + Lead Time Demand  Just-in-Time (JIT) Model Just-in-time ordering is an approach in which items are ordered just when required. Because it allows a seller to avoid sitting on too much stock at any given moment, this strategy can help them save a lot of money on holding expenses. It requires trustworthy supply chain management. Sellers will need a quick ordering process and dependable vendors who can deliver products on schedule for JIT to succeed. Here, the idea is to decrease waste and increase efficiency by ordering products as per demand and never prematurely. Conclusion: Inventory Planning with InventoryLogIQ A retail business that makes smart inventory decisions in advance will almost certainly succeed. The main problem is monitoring bulk orders while carefully monitoring data and upcoming inventory trends. Without adequate inventory planning, substantial consequences might arise, ranging from increased transportation costs to catastrophic stockouts and shipping order delays. InventoryLogIQ can help you save money on inventory planning. It provides the tools, experience and support you need to make smarter business decisions and grow your organization faster, from inventory planning to real-time inventory management. Be a part of our sophisticated Warehousing Management System by partnering with InventoryLogIQ while maintaining control and visibility over your multi-location inventory across the nation and supply chain. With our inventory planning platform, brands experience 80%+ regional utilization & 40% lower holding costs. Inventory LogIQ achieves this by utilizing the following: AI-based Algorithms for Product Bundling Recommendations: This generates rich insights in the form of minimalistic reports, which help businesses identify the product bundling strategy aimed at improving the sales of non-moving products and free-up working capital locked in slow-moving inventory. Ultimately, this helps in inventory liquidation and reduction in storage space required.Product Segmentation Tool & Planning Engine: This allows you to segregate your SKUs as per their performance and helps you enhance your product-level sell-through focus. Furthermore, with automated replenishment triggers, you will never miss out on any sale by stocking the right SKU at the right time.Sophisticated Fulfillment Network Planner: Our network planning engine analyses the regional buying patterns and enables you to optimize your fulfillment network so that you can place inventory closest to your customers and unlock speedy deliveries for a significantly larger share of regional demand. Inventory planning FAQs How to develop an inventory plan?To develop an inventory plan, understand your reorder points, the time taken to order products and any potential impediments. When you have a plan in place to receive essential goods fast if needed, set up a broad refill schedule for things you'll use frequently. What are the 3 primary inventory management techniques?They are:The pull strategyThe push strategyThe just in time (JIT) strategy How does InventoryLogIQ help in inventory planning?InventoryLogIQ, an inventory planner helps in smart inventory placement using an ML-based prediction engine. It helps eCommerce & D2C brands to forecast inventory & optimize stocks for warehouses by enhancing regional utilization. What is an inventory strategy?An inventory strategy is a method for ordering, managing and processing products in your warehouse on a daily basis. Inventory management is an easy task for a small business but as your volume grows, you'll require a strategy. How is Excel useful for inventory planning?Excel spreadsheets can be an intelligent approach to start tracking inventory management when you're short on resources. It's also an easy-to-use solution for getting you up and running with a simple method to manage inventory. What is the difference between inventory and stock?Inventory contains both finished goods and components that make up a finished product, while stock is the supply of finished goods that are ready for sale. To put it another way, all inventory is in stock but not all stock is inventory.

August 26, 2022

What is ABC Analysis For Inventory Management? Benefits, Limitations and Best Practices to Effectively Carry Out ABC Analysis in 2022

What is ABC Analysis For Inventory Management? Benefits, Limitations and Best Practices to Effectively Carry Out ABC Analysis in 2022

Recent studies show that inventories hold over $1.1 trillion in cash or 7% of the U.S. GDP. This indicates that more money than you could make from sales is sitting in your warehouse.  The majority of businesses today struggle with adequately managing their inventory. After all, when juggling a variety of consumer requests, keeping the ideal inventory quantity can be challenging. However, you can manage your goods effectively with a robust inventory control system. Inventory management helps companies have the right amount of merchandise on hand. As a result, many sectors, including eCommerce, manufacturing, logistics, retail, and other enterprises that deal with inventory, place it at the top of their priority lists. ABC analysis is one of those several inventory control strategies. What is ABC Analysis For Inventory Management? Inventory management teams utilise ABC inventory analysis to divide their stock into three groups, A, B, and C, according to the "value" or "importance" of each group to their particular organisation. Managers can direct their attention and resources toward controlling stock which is more important by using the very straightforward ABC analysis. To ensure they carry the ideal levels of the appropriate goods, they may also modify their inventory control procedures for each category. A system for controlling inventory is utilised in the ABC method of inventory control; this system is used for materials and throughout the distribution management. It is often referred to as SIC or selective inventory control. In the ABC analysis approach, inventory is split into three groups, A, B, and C, in order of decreasing value. The things in category A are the most valuable, followed by those in class B, which are less valuable than A, and those in category C, which are the least useful. Management and control of the inventory are essential for a firm. They assist in keeping their expenses in check. The ABC analysis enables management to concentrate on the highest-value things (the A-items) rather than the numerous low-value products (the B-items), which helps the firm regulate inventory. Read our blog on inventory accuracy to understand how to achieve high inventory accuracy for operational efficiency in 2022. How Does the Pareto Principle Relate to ABC Analysis? According to the Pareto principle, commonly referred to as the 80/20 rule, 80% of results are brought about by 20% of the inputs. Vilfredo Pareto, an economist from Italy, saw that just 20% of the pea pods he planted produced the majority of the peas in his garden, which led him to develop the concept that bears his name. More crucially, he discovered that 20% of the population in Italy held 80% of the country's land, which led him to detect a similar ratio. Since then, the Pareto principle has altered how economics is researched and how we comprehend how the world's resources are distributed. The Pareto Principle, which states that typically 20% of an organization's inventory accounts for 80% of its value, is the basis of ABC inventory analysis. Using this knowledge, leaders can make well-informed decisions.  The application of Pareto's Principle to rank and prioritise particular inventories over others is one way it contributes to ABC analysis. By organising your goods into three categories, ABC analysis simplifies inventory analysis and empowers you to make more strategic choices. ABC Classification of Inventory The ABC analysis is one of the most popular inventory management techniques. Based on the degree of value any item has within a firm, the ABC analysis divides it into three categories (A, B, and C). Businesses may better prioritise their inventory, streamline processes, and make informed decisions by classifying their inventory using ABC analysis.  The ABC classification of inventory, as the name implies, divides inventory into three main categories: Segment A- Goods falling under category A are the most valuable and essential items. About 20% of all products comprise segment A products, which generate 80% of your company's income. It is regarded as a niche market with few products but high sales. Segment B- Products in category B are somewhat more expensive than those in segment B. However, it controls 30% of the product market and generates 15% of the income. In addition, although more items are in this category, they are less valuable. Segment C- Products falling under category C are numerous but less effective at bringing in money. Comparatively to categories A and B, sector C has the highest stock ownership at 50% but only produces 5% of the revenue. Why Utilize ABC Method of Inventory Control? Despite having many stock-keeping units (SKUs), most enterprises have not been able to grow or expand their businesses considerably. Businesses must deal with a wide range of additional inventory management difficulties. Lack of stock information, a poor management system, trouble managing personnel, a lack of space, and other issues might be problems. This issue is resolved through ABC analysis. It can help businesses in inventory optimisation and streamline their inventory management. Let's examine the 5 benefits of ABC analysis in inventory management. Analyze Industry's Demand for a Product After manufacture, each product passes through four stages: dispatch, growth, development, and decline. After a certain point, the product's demand in the market starts to decline as it reaches its actual value. You might refer to it as a product's life expectancy rate. Additionally, a product's lifespan is determined by the customer's demands. ABC analysis aids businesses in determining client wants. Businesses often overestimate the product demand and end up stocking up on excess. ABC analysis ensures that you know what your customers desire so you can ban that dark room from your firm. Due to this, you will be able to efficiently and successfully manage your inventory. You will only place orders for what your consumers desire, neither more nor fewer than is necessary. It's essential to remember that if a product's demand suddenly increases on the market, the product's decline will be further postponed. Enables Supplier Negotiations Using ABC analysis helps negotiate a reasonable price for a product with a supplier. Watch to discover how. For instance, if you are negotiating with a supplier for a product in the A category, you are aware that you must make the most significant investment possible since it brings in the most money for your business. You can entice the provider with any additional benefits from your end if they are reluctant to make you a reasonable offer or accept your offer. Perhaps a form of agreement that you will purchase the following shipment of items from the same vendor. Consequently, you'll get a reasonable price that suits your needs and save more money on items in the A category, resulting in more advantages. Enhanced Customer Service When you don't know the precise amount of inventory you need, you may overstock on items that won't even be useful to you. Then, instead of stocking up on things your clients might want, you fill up on useless items. You may utilise ABC analysis to determine precisely what your consumers desire or are seeking. Consequently, you will be able to meet client needs and grow your business. As a result, you'll spend less on things you don't need and concentrate on buying something that will make you money. Additionally, you will cut down on inventory expenditures that you could be squandering on products that don't appeal to your target market. Goods Manufacturing Manufacturers may enhance their cycle of stock renewal by using ABC analysis. It enables them to make things based on their yearly cost rather than randomly. As we have already explained, what frequently occurs is that we often anticipate demand. This presumption causes the manufacture of unnecessary commodities stocked in the warehouse where they will sit for the longest. Consequently, your items are ruined while in the warehouse, which is the greatest nightmare any business owner can have. Manufacturers may use ABC analysis to determine the value of their items so they can produce just those in high demand and less those in low demand. Warehouse and Supply Chain Management The ABC analysis inventory control method is used to enhance a company's stock count cycle. For instance, commodities in Category A of the ABC analysis are tallied every three months, those in Category B are counted every two years, and category C products are only computed once a year. Doing this means you no longer entirely disregard your inventory status or waste too much time monitoring it. When you have A category items that bring in excellent revenue, you want to regularly check to ensure they are always in stock, if not in plenty. You frequently refuse to concentrate on the condition/status of your warehouse in terms of stocks when you don't know what your items are worth or imagine they are worth. This might result in goods running out or stock waste. These are some of the powerful advantages of ABC analysis that business owners shouldn't give up. Limitations of ABC Analysis For Inventory Management. ABC analysis is not a one-size-fits-all inventory management solution despite its inventory management and maintenance advantages. The usage of an ABC analysis is impacted by the unique consumer demand patterns, classifications, systems, and difficulties each firm faces. The focus on the financial worth of inventory and the sizeable amount of time and discipline required to use the approach are two drawbacks of ABC analysis. Here are some more difficulties: Parameter Instability According to ABC analysis, managers frequently allocate up to 50% of items to a new category every quarter or year. Since organisations sometimes don't become aware of the changes until there is a demand issue, the necessity to reevaluate might waste time and harm customer happiness. Limited Pattern Consideration The traditional ABC approach will not consider elements like new product launches or seasonality. For instance, the lack of a prior customer base may explain a new product's low sales volume. When demand is changing or unclear, ABC analysis will produce inventory inefficiencies since it provides a relatively static view of demand. Low Information Extraction Information from the ABC class might not have all the statistics or detail required to make educated decisions. High Resource Consumption An unpleasant outcome of ABC analysis is bikeshedding, which is the practice of giving excessive weight to unimportant matters. Staff members may add their ideas or seek variations since ABC analysis is simple to understand, turning it into a resource-intensive process rather than a time-saving instrument. Value Blindness ABC analysis bases a product's essential judgement on its sales volume or usage frequency, yet some goods may defy this paradigm. A retail display item could, for instance, sell very little yet draw a lot of consumers (who will buy other things) because of its novelty. In the aerospace industry, a particular component for a plane could not be utilised frequently and have low market value, yet it might provide a crucial safety role. System Incompatibility ABC inventory analysis does not adhere to widely accepted accounting rules (GAAP) and contradicts conventional costing methods. Running numerous costing systems will increase labour expenses and inefficiencies. Issues Of Under or Oversupply There is a chance of running out of Class B or C products since the ABC analysis looks at dollar values rather than the volume that moves through inventories. However, the inverse can also take place. If you repeatedly order low-class things without reviewing them, you can end up with excesses that build up in your inventory. Loss Risk Just because B and C products aren't as valuable as Class A ones don't imply they are worthless. One of the ABC analysis's shortcomings is that surplus stocks are constantly at risk of deterioration or damage. As a result, routinely uncounted or unmonitored merchandise might be stolen. Mandatory Standardization The ABC technique can only be effective if all components are subject to mandatory naming, storing, rating, and monitoring standards.  Arbitrary Categorization Classifying items relies on the manager's expert judgement without established parameters or consensus criteria for each group. As a result, this method may be entirely subjective. Business Restrictions ABC analysis is not helpful for businesses with an equal yearly consumption value of inventory items by type. For example, a firm that offers identical versions of goods like candies, nails, or socks might be unable to arrange stock according to the Pareto Principle. High Resource Consumption Employing more people or purchasing specialised equipment will be necessary for businesses with many inventory products to manage their inventory using ABC classification. How is the ABC Analysis For Inventory Management Carried Out?  The most straightforward strategy to adopt ABC inventory management is determining if it will work for your company first. By addressing insightful queries, avoid making a lot of assumptions. Make all essential preparations for a smoother execution as soon as you decide to move forward. 5 steps to carry out ABC analysis for inventory management are as follows: Examine Your Present Setup To use ABC analysis, you must determine whether your present system can function well under the ABC methodology. For example, you may need to redesign your whole inventory management system if your existing setup does not enable you to give some things more priority than others. This may be costly, time-consuming, and generally annoying. You must ensure that your inventory cost and consumer demand data are correct before you can begin employing the ABC method for inventory control. This is because cost and demand are crucial factors in defining each item's utilisation value; without this information, you won't be able to differentiate between which things to put in category A and which to put in category C. Determine Values It's time to begin determining how each item benefits your company. This is how: 1. Select the time frame for your study. You can only look at sales for the most recent month or quarter. Still, many organisations choose to utilise annual consumption value, which examines the volume and cost of goods sold throughout the previous year. 2. To get the consumption value of each item, multiply the quantity sold by the cost per unit. Units sold times price per item equals usage value. 3. Add up each product's unique consumption numbers to get the worth of your overall inventory. Product utilisation value from item 1 plus item 2 equals total inventory value. 4. Arrange the items (in your Excel spreadsheet or other application) according to the highest utilisation value to the lowest usage value. 5. Divide the product's inventory value from the overall inventory value, then multiply the result by 100 to determine each item's cumulative worth. You should now know what portion of the cost of your entire inventory may be allocated to each item. (Product Inventory Value / Total Inventory Value) x 100 is the cumulative value. Remember that while most inventory planning allows for manual calculation of these values, any inventory management software that supports ABC analysis ought to be able to calculate these values for you automatically. Determine The Parameters The Pareto principle, which essentially states that the bulk of any effect arises from a relatively small share of the causes, forms the foundation of ABC analysis. When applied to ABC analysis, this suggests that the majority of the overall consumption value of your inventory is assigned to A goods. At the same time, B and C items account for a smaller portion of that value. The specific amount of inventory items and consumption value allotted to each category is up to you. Your values should, however, typically fall between the following ranges: Items A comprise 10%–20% of your inventory and represent 60%–80% of your yearly consumption value. B products, which makeup 20%–30% of your inventory and represent 20%–30% of your yearly consumption value C goods make up 50%–70% of your inventory and 5%–15% of your total sales. Arrange Inventory Items You may organise your stock goods into groups based on the criteria you predetermined in advance if you know how much each item in your catalogue contributes to the overall utilisation value of your company. So, if you were to examine sales volume over the previous year, you would group the things that accounted for the largest share of your yearly consumption value into category A. Until you reach the value threshold for category A (60–80% of your total value annual consumption), you will keep adding things to category A. After that, you would keep adding stuff to category B until you reached 20%–30% of your yearly utilisation value. Finally, the objects that are left would all belong in category C. Measure and Re-Assess After following the steps mentioned above, ABC analysis is formally integrated into your inventory management system. However, it doesn't end there. Your items will inevitably evolve. A vendor in the supply chain can decide to transport your products at a higher cost overnight. For some products, your manufacturer could reduce the unit price. The demand may increase or decrease. Your goods' proportion of the value of your entire inventory will vary due to these adjustments; therefore, you'll need to modify your ABC categorization to reflect those changes. However, the last thing you want to do is use an old categorization to classify an item that is currently an A-level item as a C item. Therefore, be careful to review your ABC method periodically. Suggested Read: When your Business Requires ERP Inventory Management System? Best Practices and The Most Effective Approach For Applying ABC Inventory Analysis Applying ABC method of inventory control consistently and reviewing it frequently yields the most outstanding results. The following are some of the best practices to follow while doing ABC analysis in your company: Categorise Inventory Items in a Simple Way It is essential to keep your ABC analysis categories straightforward to simplify your inventory management. Your teams should have no trouble identifying which goods fall under a particular category immediately. For instance, popular categorization techniques include using the product's cost or frequency of sales. Specify Classification-Based Labour Levels A labour level, or the number of hours spent working on a particular inventory class, should be allocated to each categorization. Naturally, higher labour levels should be assigned to a classification if it has a more excellent value or influence on the company. Review Each Class Separately Each categorization should be evaluated following the guidelines established by the original ABC analysis. This entails a unique set of KPIs, performance evaluations, and a strategy for reordering or offloading any excess inventory. You may learn more here about inventory management KPIs Review The Categories The initial ABC study considered several product categories and the company's current state. It's crucial to review the existing categories and, if required, reclassify when inventories and markets change. Consider sales changes by product and class, new industry rivals, and consumer trends. Conclusion A company may effectively assess the worth of its products by using an ABC analysis. Large volumes of inventory may be managed with this straightforward method, which also determines how many resources should be devoted to each categorization to maximise profits. The inventory management procedure may be made even more efficient by using specialised software. For example, a platform for inventory management may gather vital product data, monitor specific product levels in real-time, and boost order processing effectiveness. Inventory LogIQ is one of advanced inventory planning, and management tools for small, medium and enterprise eCommerce businesses. It enables businesses to leverage hard data and rich insights to streamline the inventory planning operations. A brainchild of WareIQ, which is backed by leading global investors includingY Combinator, Funders Club, Flexport, Pioneer Fund, Soma Capital, and Emles Venture Partner, Inventory LogIQ has intelligent inventory planning capabilities that allow you to manage any change in the market, experience a new & better way of managing your inventory operations.  ABC Analysis For Inventory Management FAQs (Frequently Asked Questions) What is the inventory management application of ABC analysis?The value of inventory items is calculated using the inventory management approach of ABC analysis based on their significance to the company. Inventory managers classify things according to how ABC prioritises them based on demand, cost, and risk data What does inventory ABC classification entail?Inventory management teams divide stock items into three categories depending on their "value" or "importance" to their organisation using the ABC inventory analysis (also known as ABC inventory classification) approach. What is the primary goal of an ABC analysis?The goal of ABC Analysis is to assist organisations in deciding how to allocate resources to maximise outcomes. Items that belong to the same category should be analysed using ABC analysis (inventory, customers, documents, etc.)

August 15, 2022