Retail Replenishment: Importance, Strategies & Best Practices of Stock Replenishment for Retail Businesses in 2023
It has been observed that 88% of businesses have experienced late shipping. In comparison, 34% of businesses ship orders late because the products are out of stock at the time of purchase, an essential element in the eCommerce supply chain that affects consumer loyalty and the entire brand experience. Ineffective stock replenishment significantly influences a retailer's gross margin return on investment (GMROI), resulting in lost sales due to out-of-stock or overstocking expenditures and markdowns. Although meeting customer demand has always been difficult, effective retail replenishment could reduce problems caused by inadequate planning and allocation. It is even more crucial for merchants to have a solid strategy for stock replenishment in retail businesses to live up to the modern customer expectations of inventory availability and quick order fulfilment. Let's identify the main aspects of stock replenishment before moving on to the methods and most acceptable practices of retail replenishment. What is Retail Replenishment for eCommerce Retailers? Retail replenishment, also known as inventory or stock replenishment, focuses on ensuring the business places new orders from suppliers in time to satisfy consumer demand. Retail replenishment may also refer to shifting inventory from reserve storage to primary locations so that it can be utilized to complete orders for retailers, distributors, and manufacturers with numerous inventory storage facilities. Businesses may benefit from effective retail replenishment, including preventing stockouts and overstocking, lowering shipping costs, and increasing consumer happiness. Unfortunately, the stock replenishment process in retail enterprises may be exceedingly complicated despite being crucially critical for firms holding hundreds or thousands of inventory items, partly because things may need refilling at various periods and rates. Companies that sell through many channels and need to manage inventories for each may find the issue particularly acute. In addition, retail replenishment is complicated and dynamic, making paper-based manual procedures quickly obsolete. Due to this, manufacturers, distributors, and retailers are increasingly utilizing technology to improve their organization's overall view of their inventory situation and to automate the replenishment process. [contactus_uth] Why is Stock Replenishment in Retail Important? Stock or retail replenishment is a crucial procedure that directly affects an online brand's capacity to satisfy consumer demand, complete orders, and generate revenue. The following three points explain why retail stock replenishment is crucial for shops: Prevents Stockouts A stockout, or having things that are out of stock at the moment of purchase, is possible if a retailer does not replace inventories properly. Backorders are another possibility, which indicates that an order has a set shipping date for the item. Unfortunately, backorders and stockouts may both make your consumers extremely angry. Having safety stock, a set quantity of backup or emergency inventory on hand at all times is the best approach to prevent typical stockout concerns. This is also a smart move in case of sudden supply chain problems. Eliminates Overstocking A clever retail replenishment procedure may also aid in preventing overstocking of items with expiry dates, such as food and drink or cosmetics, which may become unsellable if left on the shelf for an extended period. Overstocking can harm your bottom line, much like having insufficient inventory does. Dead stock can result from replenishing inventory too soon or without considering seasonality or variations in consumer demand, which raises carrying costs by allowing unsold merchandise to remain on the shelves for an extended period. The economic order quantity (EOQ) formula is an easy-to-use method for calculating the appropriate stock level to maintain and meet order demand, assisting in avoiding overstocking and high transportation costs for retail warehouses. You can more precisely predict how much inventory, including safety stock, you should have on hand by calculating EOQ, which will also help you keep the cost of your eCommerce warehouse to a minimum. Reduces Shipping Costs Consider the scenario where a customer places many orders with you simultaneously. If one item is out of stock at the closest warehouse location for the customer but is available at another location, you would need to send another shipment (sending different items from one order in separate packages, frequently from a different location or at a different time) to fulfil the customer's entire order. Multiple shipments of the same order's contents result in higher shipping costs, significant packaging waste, and perhaps confused consumers. By projecting demand, you may choose how much stock at the SKU level to keep in various warehouse sites based on previous data. 5 Steps for Retail Replenishment Planning Step 1: Have a Thorough Understanding of the Entire Business Retail companies sometimes divide their operations into several categories, with top business leaders only accountable for their particular category (such as inventory allocation, selection, replenishment, and vendor relations) and nothing else. As a result, communication quickly breaks down since one category plan might not consider all other category plans. Bring your category heads together to map out all the critical corporate elements that affect your retail replenishment process to solve this. You'll then need to collaborate to create a unified process that considers the entire product life cycle, from the time an order is placed with a vendor to the time it is made available for sale to the customer, to resolve this issue correctly. Step 2: Compile a List of Distribution Factors Particular To a Given Product The demand must be taken into consideration while making your replenishment supply plans. Demand is merely one of the factors that must be taken into account, as was previously noted. You also need to be fully aware of the precise distribution path used by your goods. Will the seller restock the shop with your merchandise inventory directly? Or will it move from the vendor to the warehouse, distribution centre, and loading docks? You also need to be aware of the demand in each place. While some of these facilities solely service certain retailers, others may directly complete client orders. Be aware that the market fluctuates depending on the type of business and the store's location and that each store may have different plan-o-gram minimums and capacity restrictions. Step 3: Recognize the Particular Distribution Procedure for Each Product Resupply is sometimes referred to as S&OP or sales and operational planning. This is because retail stock replenishment depends on many variables during a product's life cycle. As a result, to handle replenishment in a coordinated and comprehensive manner, you must have a thorough knowledge of every aspect of the distribution (as well as all the channels the product may be sold through). Some distribution-related parameters include: Production TimeTime For Shipment and PackagingLead TimeTime Spent Processing At The WarehouseFulfillment Of Customer OrdersOrder's Distributions Promotions These elements must be taken into account as part of replenishment, along with other activities that occur in a retail company, as well as emotional capabilities and operations. Step 4: Whenever Feasible, Use Advanced Analytics and AI The majority of merchants try to handle retail replenishment manually. To achieve this, they must examine items at the category level and ignore several crucial elements. As a result, this technique is unreliable, unworkable, and results in overstocks, lost sales, and high distribution costs. Leading merchants have realized they need to automate as much as they can. By taking a detailed look at a retailer's merchandise, advanced AI technologies and analytics models created for retail replenishment can produce a unified predictive analysis of every component described above. To maximize GMROI and ensure that consumers can obtain the items they came to your business, replenishment is optimized at an SKU and store level. Step 5: Prepare Yourself to Manage Risks When your system has been optimized for the vast majority of predicted product behaviour, it's time to concentrate on the remaining 20%. Some dangers may be anticipated since they are well known, such as factories stopping production on specific holidays. Such occurrences are readily accounted for, and retail replenishment may be planned around these anticipated risks. However, some dangers, like unforeseen weather events, cannot be anticipated. A contingency plan is a crucial component of a solid retail replenishment strategy. Before creating a contingency plan, ask yourself the following questions: Can you bring inventory from a different facility or vendor?Can you swiftly purchase safety stock and distribute it?Is it possible to relocate your inventory to a new location? Strategies to Optimize the Retail Replenishment Process Models and techniques for inventory replenishment assist companies in establishing inventory slotting best practices, managing replenishment frequency, monitoring inventory flow, calculating the number of items to order, and determining the ideal inventory level to be kept in warehouses for maximum supply chain effectiveness. In addition, these mathematical formulas aid warehouse managers in deciding how much inventory to order at preset times. Let's examine a few of the most well-known replenishment models: Minimal or Maximum Inventory Replenishment or Reorder Point Strategy The min/max replenishment model, called the "routine" technique, initiates refilling operations when a particular product hits a specified minimum threshold. The most significant applications for this are SKUs with consistent throughput and seasonally predictable demand. Replenishment orders are placed in this arrangement when inventory levels reach a certain level (the reorder point). Although this replenishment model's ordering costs are minimal compared to other expenditures, carrying costs are frequently high, and more space may be required for upstream storage and downstream pickup areas. Demand Retail Replenishment Demand replenishment is a simple tactic that benefits many organizations. The only time suppliers restock is when customers ask for it. The store doesn't place another order for a product that isn't selling. This approach makes out-of-stock situations frequent but solely due to client demand. The demand inventory replenishment approach is appropriate for warehouses with constrained picking areas and floor space. It works well when it would be inefficient to devote a lot of space to a single object. The replenishment amount in a demand replenishment process should be enough to complete an upcoming order or collection of orders without leaving behind extra stock. The inventory of a business should be checked often. The best system is an automated one. These systems provide real-time inventory tracking, keeping suppliers and merchants in the loop. Additionally, businesses must be prepared to satisfy shifting client needs. Keeping track of popular goods and maintaining back supply is essential. For the procedure to be effective for the business, meticulous planning is required. To implement this strategy, both a supply and a demand plan need to be established. Top-Off Restocking of Inventory The top-off replenishment approach often operates on a defined timetable or batch releases. It has similar min/max criteria to the min/max replenishment model (by area, line or product). In picking regions or forward pick sites, the inventory for a particular product is "topped-off" to acceptable levels based on the anticipated demand or a change in the number of available staff members. When huge waves or volumes of picking tasks are anticipated, this model performs effectively. It works best when there is a labour shortage or when picking operations are less busy. Interleaving possibilities in active regions are encouraged by a system that initiates top-off replenishment when differences in picking activity or volume are anticipated. Periodic Replenishment Strategy The quantity of inventory required for specific periods (based on demand estimate) is transferred to picking locations in warehouses using periodic replenishment models. Typically, review points are utilized after these periods to determine how much inventory is still on hand. Resupply orders are issued if stock levels drop below the required minimum. If not, they are not reviewed until the following review point. As a result, this model has longer lead times and ought to be employed when there is a sizable product storage area (because inventory is moved in large volumes to picking locations). Conversely, carrying costs are often insignificant compared to ordering costs, and ordering prices are typically unrelated to carrying costs. Suggested Read: What is a Periodic Inventory System? Best Practises for Stock Replenishment in Retail Businesses in 2023 Every shop faces different demands, problems, and obstacles when stocking up on supplies. Standardizing something with so much inherent variability may be challenging. Your replenishment procedure should adhere to the following five recommended practices to control the volatility of inventory levels: Establish Precise Lead Times Source Lead time describes how fast the supplier can complete the order. This procedure aids companies in determining the ideal frequency of replenishment to avoid shortages. Lead time is of utmost importance, particularly for businesses that use last-minute replenishment tactics like Top-Off or Reorder Point Strategy. Internal Business Retail Replenishment Source Internal replenishment of inventory can be transferred between stores( you can read here how to carry out inventory transfer? ), which can alter how inventory levels are balanced. Store A may have strong demand, but store B may not; by restocking store A with items from store B, you may match sales demand while clearing off shelves and spending less time and money. A single inventory platform that provides visibility into inventory across all sales channels and locations is necessary for effective inter-store balancing. ABC Evaluation Source Identify and rank the SKUs in your inventory mix according to how much they contribute to sales. The shop may maximize the width and depth of its selection mix after doing an ABC analysis. This analysis may be very simple for a smaller shop, but as the firm expands, it gets progressively more challenging. Omni-channel retailers use analytics-driven retail inventory management solutions to process the millions of data points and SKUs needed for an ABC analysis. Keep Track and Evaluate Vendor Performance Source Retailers should monitor vendor performance for the best vendor management, similar to how they would analyze product performance. There should be precise, measurable KPIs that can be measured and tracked, such as the total amount of damaged or missing goods or orders dispatched, lead times and delivery delays, stock shortages, and so on. Setting a deadline for reviewing vendor performance is advised. After that, actual deliveries are contrasted with the predetermined KPIs. Inventory Management Software Source For a smaller store, manually maintaining their inventory on spreadsheets is acceptable. However, to control replenishment, they can employ a systematic strategy. However, inventory management's complexity rapidly increases with every new channel, location, and SKU. A "divide and conquer" omnichannel merchants sometimes use strategy to control the expansion of their business. Visibility is limited by segregated channel operations, which causes merchants to be less adaptable and less able to make quick changes. Others have opted for an integrated strategy for managing inventories. For example, retailers can easily spot replenishment opportunities and demands using the warehouse management system(WMS). They can also benefit from inventory balancing and replenishing between stores. Conclusion: Gain Access to Smooth Retail Replenishment with InventoryLogIQ Retail replenishment is an essential part of the retail industry and helps retailers to keep their inventory levels optimal, reducing the risk of stockouts and ensuring high levels of customer satisfaction. Whether through manual processes or software solutions, effective replenishment is critical to the success of any retail operation. Any inventory management system must include effective retail replenishment. It enables suppliers, distributors, and retailers to minimize excess inventory while ensuring they always have the appropriate quantity of stock to fulfil consumer demand. Automated inventory management solutions let businesses more easily handle the challenges of retail replenishment, which boosts profitability while cutting costs. InventoryLogIQ is an inventory management solution for modern brands in India. The technology used by InventoryLogIQ comprises a sophisticated data and analytics reporting tool and integrated inventory management software. You can monitor inventory levels in real-time, establish automatic reorder points and get critical inventory analytics from a single dashboard, such as inventory forecasting tools. InventoryLogIQ puts everything you need at your fingertips to manage inventory and precisely complete orders, allowing you to streamline your supply chain and save time. Retail Replenishment: FAQs What does warehouse retail replenishment mean?Restocking a warehouse's shelves with fresh merchandise from vendors or manufacturing sources is known as retail replenishment. It can also be used to describe how items are moved from storage to choosing shelves. How to increase inventory levels through retail replenishment?To increase retail replenishment, firstly, you need to have a high retail inventory turnover rate, which indicates that you sell products rapidly and must restock frequently, and low days sales in inventory, which indicates that you swiftly sell through your whole inventory. Since they are dependent on consumer demand and market developments, retailers may not always have control over this.However, an eCommerce company may determine when and how frequently to restock their inventory with the use of demand forecasts and data-driven inventory management. Why is retail replenishment important?Retail replenishment (and a planned strategy for how to execute it) is a crucial ability since it enables firms to avoid the costly errors of overstocking, stockouts, and unnecessary shipping expenses. This is in addition to replenishing a business's picking shelves with fresh stock that can be sold. What are retail replenishment orders?Retail replenishment orders are requests made by a retailer to a manufacturer for more raw materials to be placed in reserve storage, allowing the retailer to keep moving merchandise onto picking shelves, through fulfilment, and along the supply chain.
February 03, 2023
What is a Stockout? Reasons, Impacts and 5 Ways to Prevent Out of Stock Situations in 2023
Customers frequently come to your online business looking for a certain item to buy on the spot. They directly search for the product on various selling platforms. You can take advantage of customers that are currently visiting your store by making sure that all products are in stock. However, if the product is often out of stock, it may significantly reduce prospective sales, dissatisfied clients and eventually impede the expansion of a business. Stockouts have a negative effect on a customer's experience, so you should put all of your efforts into preventing them. Stockouts cause disappointment for both you and the buyer who is willing to spend their money and may urgently require your goods. It ultimately results in a loss of revenue and may harm the reputation of your brand. In this blog, we will learn all about out of stock situations and how we can prevent them to provide a better customer experience and never disrupt the revenue chain. What is a Stockout? A stockout, also called out of stock, refers to a shortage of a particular inventory item which leads to sellers not being able to fulfill orders for that item. Stockouts result in not only a loss of revenue but also customers. If there is no indication of when the item will be back in stock and available for purchase, it can be very detrimental to a company. A stockout occurs when demand is more than supply and there is not enough regular inventory or safety stock to fulfill all orders. A stockout may also result from production process interruptions or delays in the supply chain. Due to the greater likelihood that customers may go elsewhere for the items they need, a stockout increases the risk of lost sales. As a result, customer relationships may suffer over the long term. Reasons for Out of Stock Occurrences in 2023 Poor Inventory Management Inventory management is a crucial function for every eCommerce seller. You have a lot of things to take care of while managing inventory. Different sellers manage their inventory differently. Some use FIFO valuation method or FILO for inventory accounting purposes and some use high-end inventory management systems while some use manual counting of inventory to keep track of any changes that are made. Poor inventory management can result in frequent stockouts. Good inventory management can result in better calculations, forecast demand for future purchases and automate reorder requirements. Inaccurate Count of Inventory Inventory items should have a report on the count so that at any time, you will have an idea of the number of products you have in storage and how many orders you can fulfill. Sellers have inventory stored in multiple different locations frequently and those who do not maintain adequate records of their inventory frequently have out of stock situations occur, which leads to an inability to fulfill orders. To avoid this, they can invest in an inventory management system or have frequent manual counts of inventory. You can know more on inventory accuracy here. Inadequate Forecasting and Inaccurate Reporting Business is all about forecasting and taking risks. If you are not forecasting demand to be able to supply products and fulfill orders accordingly, you will lose profit and sales. If you order increased inventory as compared with your demand, then you will be left with wasted stock which may cost you additional expenses to store for a long period as it can become obsolete. Conversely, if you are under order compared to your demand, you are at risk of facing stockouts. Suggested Read: Learn more about Inventory Forecasting here. Incompetent Supply Chain An incompetent supply chain will never deliver your inventory on time and you will face multiple problems, including stockouts, regularly. With them, you have a risk of supplying damaged products to customers, which will always end with customer dissatisfaction, negative feedback, and a loss of business. Delays Caused by Suppliers Especially during seasons of high demand and if you rely mainly on one supplier, they can be put under immense pressure to deliver inventory in a short duration of time which can lead to accidents, delays, and mistakes. This leads to you not being able to get your products on time which can lead to out of stock situations. Lack of Experience and Expertise Purchasing is a very crucial task for a seller to select the right inventory in an adequate amount so they can avoid stockouts and reorder the correct amounts when required. A new eCommerce seller may not forecast the actual upcoming demand and can also lack the resources and experience to know what to do in difficult situations. How Can a Stockout Harm Your Business? Loss in Sales You miss out on a sale when you do not have what a customer is seeking. Lost customers result in a loss of revenue because not having enough stock on hand can result in not being able to fulfill orders. You are in business to make money, not to lose money. Stockouts are primarily the result of ineffective inventory management. Proper inventory counting and demand forecasting are crucial in order to prevent stockouts. Negatively Affects Branding Customer satisfaction may make or break your eCommerce firm because poor customer satisfaction has a negative effect on customers and reflects in their reviews. Customers may submit unfavourable reviews on your website or other review sites if they frequently notice that your product is sold out, which will damage the reputation of your company. These reviews are visible to potential buyers, who can consider your company unreliable. Your bad review gives companies that sell comparable items an advantage since it gives them knowledge of the areas where your brand falls short, allowing them to take advantage of it. Weakens Customer Loyalty How much would it cost to get one new consumer to your online shop? If you run out of an item, not only will conversions drastically decline because there won't be anything to buy, but the consumer is also likely to buy from a competitor who has the item in stock. Additionally, they might make future purchases from competitors. Stockouts can ruin a customer's purchasing experience, making it unlikely that they will ever come back to your store again. Without a doubt, stockouts can have a significantly negative impact on future business expansion. Some customers are eager to sign up for back-in-stock notifications if an out of stock item is difficult to get delivered. This is an excellent tactic to notify and nudge customers to make purchases when things are back in stock. Even so, this does not ensure that any future sales will be converted. 5 Ways to Prevent Stockouts in 2023 Use Inventory Management Software Source It is an all-in-one solution for inventory management for an eCommerce seller. It keeps track of all your inventory items so that you cannot get confused about what you have and what you don't have. It optimizes the inventory space and utilizes it in the best possible way. It also enables automated counts, updates changes in real-time and provides insights into various aspects of inventory, across multiple fulfillment centers. Keep Safety Stock Source Keep extra inventory on hand, as this is another simple approach to guarantee that you will never run out of essential supplies. This is referred to as "safety stock." Safety stock increases your tolerance for supply chain disruptions but it can also be expensive, increasing your inventory carrying costs and reducing the amount of productive inventory you have on hand. Forecast Future Demand Source Companies can reduce the chances of a stockout by strengthening their capacity to forecast customer demand in addition to better supply forecasting. Modern demand forecasting is essential to preventing demand from exceeding supply and causing a stockout, especially around the introduction of new products. Calculate Inventory Replenishment Time Source If customers know that an out of stock product will soon be back in stock, they may wait. If you routinely monitor the inventory levels and conduct stock replenishment to replenish products when levels are low, you can prevent stockouts and, if stockouts do occur, you can more readily let the customer know when the item will be available. Automate Reordering Source In the era of automation, we need to gel with the market and its strategy. Most retail chain stores use the Internet of Things(IoT) to keep a record of inventory and reorder so that they can track their inventory wherever they are. It calculates reorder levels and accurately tells a seller when they should place an order and at what time they will get it. Conclusion: How to Prevent Stockouts with InventoryLogIQ Stockouts can have immensely negative consequences for businesses in terms of lost sales and loss of revenue. There are many ways to prevent stockouts before they occur and with the right approach to inventory management, they can be negated before they even happen. By using technology, enhancing forecasting, optimizing lead times and preparing for unexpected spikes in demand, companies can ensure that their products are always in stock and ready to meet customer demand. Partnering with a renowned inventory management platform like InventoryLogIQ can get you access to all the facilities you need to avoid stockouts. InventoryLogIQ is one of India's premier inventory management companies that uses an abundance of technology to help your business run as efficiently as possible. We have a custom OMS that can forecast demand, provide the adequate MOQs and EOQs that are needed, set replenishment triggers when the quantity of a product is running low and provide real-time updates to inventory levels, across multiple fulfillment centers and 20-plus eCommerce selling platforms. Stockout: FAQs What is a stockout in business?Stockouts refer to the shortage of an inventory item. An out-of-stock situation can arise at any point in the supply chain but it has the most negative effects on store shelves and revenue when it happens right before a client makes a purchase. What is the stockout level?When there is more demand for a product than there is inventory on hand, a stockout occurs and this is known as the stockout level. This typically occurs when product demand exceeds expectations and there is not enough inventory or safety stock to fulfill all orders. How is the stockout rate calculated?The percentage of an assortment that is not in stock is referred to as the out-of-stock rate, which is the opposite of the in-stock rate. The formula is mentioned below:Stockouts = SKUs not in stock ÷ by the total number of available SKUs.
February 02, 2023
Supply Chain Forecasting: A Detailed Guide Including Quantitative and Qualitative Forecasting Methods in the Supply Chain in 2023
Supply chain forecasting is essential for businesses that produce things for inventory. To avoid an overcapacity situation, manufacturers will use material forecasting to generate the quantity needed to satisfy their clients. The projection must also be accurate. Financial catastrophe may result from failure to maintain a precise prediction. Forecasts are created for a corporation's final items, parts, and service components. The production team uses the estimates to develop the quantities, safety stock levels, and purchase order triggers. Therefore, the prediction should be regularly evaluated by management. It must consider information about potential trends and the internal and external environments to provide a more accurate forecast. What is Supply Chain Forecasting? To assist you in making the right choices for your company, whether it be about stock inventories, cargo booking, budget planning, or entering new markets, supply chain forecasting integrates data from the historical supply with insights and understandings about demand. The majority of supply chain forecasting is comprised of supply analysis. It entails analyzing supplier data to determine when you should place orders for their goods, whether they are finished goods or raw components that will be assembled further along the supply chain. Understanding how much of your product your consumers desire during any particular week, monthly or quarterly may be determined by analyzing demand. This is impacted by several predictable variables, like seasons and holidays, and others unforeseeable, such as world events and natural catastrophes. Without a grasp of the future, supply chain planning is all but impossible. So how does an online company go about supply chain forecasting to make more accurate forecasts and judgments, given that an eCommerce logistics supply chain has many moving parts? Businesses of all sizes may employ various supply chain forecasting techniques without hiring a psychic. There is undoubtedly a forecasting technique that suits your demands, depending on the size of your company, the items you offer, and how long you've been in operation. You will discover the significance of supply chain forecasting as well as the most popular qualitative and quantitative forecasting methods in the supply chain in this article. 8 Reasons Why Forecasting is Crucial in Supply Chain Management in 2023 Anticipating demand, supply, and price within an industry is supply chain forecasting. To forecast the future of an enterprise, one must look at the competitors, gather information from suppliers, and examine historical trends. Therefore, a supply chain manager should be proficient in forecasting, which involves a variety of abilities that one should develop throughout their career. Various benefits are mentioned below: Planning Techniques Source Forecasting significantly enhances the scheduling and inventory planning process. A supply chain may stay competitive by tracking historical and present product demand. Seasonal Demand Variations Source Being able to anticipate and prepare for seasonal fluctuations in demand is only one of the many reasons supply chain management needs forecasting. In a similar line, demand forecasting in supply chain is extremely helpful for organizing promotional activities and product debuts, which are both crucial. In addition, predictions supported by evidence need less guessing, which is a relief. Product Demand Forecasting Source In a more general sense, supply chain forecasting enables the prediction of product demand in even the most particular circumstances. But, of course, no business can accurately foresee the future. Still, a company may come as near as feasible by relying on trends and making judgments based on previous and present facts, and a company may come as close as possible. Customer Contentment Source In sectors that focus on products, an understanding of client wants is crucial. Orders with short lead times will be delivered on time if it is possible to foresee client demand. Additionally, this will result in a rise in consumer and supplier trust. Safety Stock Lowering Source Safety stock is, by definition, extra inventory kept on hand as a backup in case a product's demand rises. However, with forecasting, no more precaution is required. This frees up storage space, reduces stress, and saves time. Reduction of Inventory Stockouts Source Demand forecasting in supply chain management is crucial for JIT (Just In Time) systems and purchasing from suppliers with long lead times. In JIT systems, demand forecasting enables products to sit in storage for a shorter time, resulting in less money being lost than if products were to occupy warehouse space for a prolonged time. In addition, demand forecasting in supply chain is necessary for suppliers with lengthy lead times so that you may receive your items on time. Enhanced Shipping Source Every step of the supply chain forecasting process is impacted by supply and demand. For instance, supply chain managers will have more time to guarantee that there are enough workers on hand to ship a specific product if they can estimate the demand for a particular product. Conversely, orders are delayed if there are not enough employees to fulfill them. Similarly, having an excessive number of employees leads to high labor expenditures. Improved Pricing Source By using price forecasting, a corporation regains control. The effects of price changes on a specific supply chain segment can be anticipated and managed appropriately. Suggested Read: What is Inventory Forecasting? Major Challenges in Supply Chain Forecasting Supply chain forecasting planning might be complex for your company due to several issues. These consist of various factors as discussed below: Adapting to Regulations Most of us felt the COVID-19 pandemic's effects on modifying legislation in the previous year or two, mostly overnight. As a result, your short-term projections may have been thrown out the window, for instance, if you suddenly needed to place a sizable order to prepare for decreased shipment frequency because one of your leading suppliers was in an area that was placed under lockdown for a while. Returns of Goods Businesses having an online eCommerce presence have massive potential because of the continued rise in popularity of online purchasing. However, because of rules governing the acceptance of product returns, your sales data may frequently advise you to place orders for goods that will eventually return to your inventory. As a result, you are left with extra inventory. To minimize overordering, many organizations now incorporate returns projections into their supply chain forecasting by employing machine learning and other technology to anticipate a return rate. Trends This week's hottest new product will probably be replaced by something else within a few days due to how we utilize social media nowadays. Due to this, forecasting future demand may be difficult, allowing you to walk a narrow line between sitting on mountains of extra stock and losing revenue because you couldn't keep up with demand from customers due to a shortage of inventory. Seasonality Many businesses continue to make substantial supply chain forecasting mistakes at these times, even if they know when seasonal sales will increase or decrease and have the sales history to support that knowledge. Unfortunately, you fall into this category if you have nothing on your shelves a week before Christmas or are still selling off clearance items in March! Lead Times Among the events that might abruptly cause lead times to lengthen and leave you with stockouts while you wait for things to stabilize are natural catastrophes, pandemics, armed conflict, and trade wars. Database Sets Many companies continue to maintain separate databases for their online and offline transactions. If this is you, merging data from several Excel spreadsheets will take a lot of effort. You may also face poor forecasting and understanding of demand since you are making orders based on insufficient data. Forecasting Methods in Supply Chain Management System Supply chain forecasting is a method for comparing expected future demand to actual past demand. Demand forecasting in the supply chain is used for financial, logistical, operational, and sales planning and decision-making in the future. Instead of concentrating on numerical numbers, businesses analyze and assess the opinion of experienced personnel by utilizing quantitative forecasting methods in the supply chain. These methodologies anticipate short-term or internal forecasting based on departmental heads' summative input. On the other hand, the quantitative forecasting method uses numerical data and focuses on projecting patterns based on previous company data. This forecasting technique is reliable and beneficial for the business's long-term scenario planning. While quantitative data in consumer surveys are utilized to reflect the sales prediction, expert opinion within the firm aids in predicting an organization's internal parameters. Moreover, due to its simplicity and cost-effectiveness, small businesses use qualitative forecasting methods in supply chain. On the other hand, large companies and lean manufacturing are adept at applying quantitative forecasting. How to Utilize Supply Forecasting Methods Forecasting is a dangerous endeavour in and of itself, and the forecaster has a part to play in deciding which technique of demand forecasting in supply chain is appropriate. However, each of these approaches has a clearly defined purpose. Thus it is essential to carefully consider which approach is best given the current economic climate. The situational context of the prediction, availability of historical data, expected level of accuracy, knowledge of the pillars of demand planning, and the forecast's assessed value concerning the business are all crucial when using this approach. Therefore, evaluating them using the given parameters is essential before selecting a technique. Similarly to this, the product's life cycle should be considered. Is the item durable or perishable? Does it stay on the shelves, disappear from the market after being dispersed to the intermediaries, or become outdated? Is the product at its peak of development or growth? Again, having reliable data on these factors will make selecting the best forecasting technique easier. Business managers must collaborate with forecasters/demand planners for forecasting to be successful. This will make it easier to determine the forecast's objective, how it should be understood and applied to the current circumstances, and the tactics and strategy for preventive purposes. Qualitative Forecasting Methods in the Supply Chain The subjective judgement used in the qualitative supply chain forecasting approach is based on the views of both consumers and industry professionals. When there is no historical data, this approach is used. Various qualitative methods in supply chain forecasting are as follows: Expert Judgement The opinions of subject-matter experts in the field are considered to produce accurate estimates. Since it is independent of statistical data, it may be carried out without quantifiable data. Using this simple, rapid procedure, the team often modifies the projection's outcome to match its expectations. Market Analysis A corporate organization may do market research to help with its sales prediction. The company's employees or a research organization contracted to handle it may carry out this strategy. In any case, market research may incorporate techniques like telephone, survey, or in-person interviews, as well as questionnaires. Focus Sessions This is a well-preferred technique for supply chain forecasting in qualitative forecasting methods. It entails an open-ended discussion with five to ten individuals representing a company's target market. A moderator often oversees the participants' turn-taking and asks questions on how they see the brand, goods, slogans, designs, and related ideas. Participants are anticipated to offer thoughtful replies that reflect the viewpoint of the target market. Focus group talks may include rewards, such as money or any similar gesture in the form of free goods. Historical Comparisons This supply chain forecasting technique looks at the past sales of a product similar to the one sold now to project future sales. In addition, it may be used to forecast how a new product or line of items will perform on the market. This is accomplished by utilizing the historical data amassed over time from a comparable product created by the firm or a serious rival. Delphi Approach This supply chain forecasting technique uses an iterative function to integrate market orientation with the opinions of a small group of specialists. The outcomes of these iterated combinations aid in creating the following parallel intersections needed to find a precise forecast. However, expert opinions are acquired separately to avoid the effect of a dominant personality's perspective if a group discussion technique were used. Instead, ideas are gathered, summarised, and presented to the same experts by an outside party. The circle keeps going until a meeting point is reached, and new questions may be added. For long-term forecasting, this approach has proven reliable and successful. Panel Agreement With this supply chain forecasting approach, a company firm's members from all levels collaborate to create its prediction. All participants are free to express themselves because it is an open procedure. However, there may be sentiments of intimidation and the suppression of opinions on the part of the former because it often comprises participants from the lowest level of the organizational hierarchy to superiors. For instance, a sales manager who truly comprehends the market would hesitate to disagree with the president's and vice president’s statements. Ultimately, the panel consensus procedure might not be entirely transparent, equitable, and trustworthy. Quantitative Forecasting Methods in the Supply Chain When historical data is available, the quantitative supply chain forecasting approach is used, and unlike the former, it is objective to the extent that the data are actual. Various methods are listed below: Average Movement This time series approach uses calculations to look at data points by constructing average series from different subsets of the whole data. A sequence of numbers and a predetermined subset size are used in the formula. By subtracting the first number from the series and adding the value that comes after it in the subset series, the forecaster alters the average of the formerly fixed subset. This statistical approach is typically used to cope with changes that last only briefly, including technical, financial data analysis and GDP evaluation. Explicit Smoothing This straightforward supply chain forecasting approach quantifies various conclusions based on the user's preexisting hypotheses, including seasonality. Then, the future is forecasted using an algorithm that uses historical data. In contrast to several other smoothing techniques, it yields a simple conclusion without requiring a certain minimum quantity of observations. Analysis of Regression This refers to a class of forecasting techniques that rely on data from other factors (dependent and independent). It relies heavily on the user's ability to use the data generation procedure. There are two types of linear regressions: simple linear regressions, which compare an independent variable to a dependent variable, and multiple linear regressions, which compare two or more independent variables to a single dependent variable. Adaptive Smoothing Using this supply chain forecasting strategy, a business organization may input several factors to determine every possible outcome from a particular business action or decision. There are also variable and statistical data analyses involved. In businesses with ambiguous quantities, it is typical. Visual Techniques Although a statistical procedure is involved, it is straightforward and helpful for the sales projection. Using this technique, periodic sales data for different years may be visually represented using meeting points created by free-hand line drawing. The minimum is determined by the distance between the line and the facts on the graph. Modelling with Econometrics This has enhanced the regression analysis. It entails doing independent regression calculations using an equation, variables, and data. Meanwhile, economic theories are included in the statistical approach to ascertain how one economic variable affects another. Life-Cycle Analysis This supply chain forecasting technique examines and projects a new product's growth and development rates. The model combines data that various market segments have accepted or rejected, including creators, early and late adopters, early and late majority, etc. The outcome is what is utilized to forecast sales for a new product. Benefits of Demand Forecasting in Supply Chain Management Your operations and the kinds of historical data, if any, that are available will determine the types of forecasting methodologies you apply. Several techniques may be used, including quantitative forecasting, trend forecasting, and qualitative forecasting. To receive the benefits listed below, you can include one approach or a variety of forecasting styles in your business strategy and objectives. Some of the main benefits are listed below: Meeting Increased Product Demand You may plan to enhance manufacturing operations to meet strong demand and prevent eCommerce warehouses from running out of stock by forecasting client purchase habits. In addition, you can switch distribution inventory methods to accommodate high demand so that shop shelves can stock items as you outperform the competition. You can choose which places to ramp up production to meet fulfillment centers standards when you have several manufacturing facilities spread out nationwide. This technique enables you to effectively control distribution and transportation costs and provides additional cost savings for your supply chain. Reducing Inventory Waste The production of surplus goods is one of the most significant and expensive issues supply chain forecasting networks encounter. Products occupy precious shelf and warehouse space as consumer demand declines. You can better manage your inventory levels via forecasting procedures. Surplus inventory demonstrates an uncontrolled supply chain forecasting management system. More than just essential resources are wasted, which causes wasting resources, labour, and money on production. When the old items become obsolete, you will eventually need to divert your efforts towards acquiring products from merchants or relocating things from various warehouses into other storage facilities. Streamlining Data Collection and Inventory Management Systems Other advantages of supply chain forecasting include collecting and exchanging real-time data for improved operations. Every supply chain forecasting department uses inventory management systems to gather, analyze, and share data to reduce forecasting mistakes and enhance logistical capabilities. For improved management procedures, you have greater visibility and transparency with your suppliers, manufacturers, distributors, and retailers along the supply chain. As a result, you can streamline operations for improved inventory management and reduce transportation delays. It's important to remember that every department may contribute to data collecting. This way, a crucial database about client needs and wants can be compiled, enabling you to foresee future purchase trends and adjust your procedures accordingly. Further, it can boost client retention and generate more income. Conclusion: Reap the Benefits With InventoryLogIQ’s Accurate Supply Chain Forecasting Management can deal with the changing market with the use of forecasting. A corporate organization will be able to forecast global supply chain trends that can be controlled to make the market operate in its favour by using reliable historical data or expert views. There are two types of demand forecasting techniques: quantitative and qualitative. It should be highlighted that there are no rigid restrictions on using any forecasting techniques. It may, if necessary, be modified to suit a business firm's specific requirements. A firm may also use two or more forecasting techniques simultaneously. Businesses can use InventoryLogIQ to gather real-time data to gain a detailed and comprehensive view of their inventory in real-time. Companies can use this to optimize inventory, lowering the risk of having too little or too much inventory. InventoryLogIQ has streamlined how firms manage their inventory, from tracking assets to giving real-time information regarding inventory conditions and locations. Some of the benefits you can observe while using InventoryLogIQ include: Boosts Inventory Control A lack of current data might cause inconsistent supply and demand. Improved forecasting inventory accuracy can lead to better business results when real-time data is employed. Real-time stock visibility is provided by InventoryLogIQ, which may also automatically initiate replenishment orders as necessary. Due to fewer stockouts, improved inventory levels and cheaper transportation costs due to products being supplied only when necessary, revenues are enhanced. InventoryLogIQ gives companies real-time access to stock levels, enabling them to respond rapidly to changes in demand and ultimately generate more revenues. Maintains Your Businesses Stock Levels You are compelled to alter your production plans when your inventory levels are low or out of stock, which eventually reduces your manufacturing capacity and raises your expenses. However, keeping extra goods at your warehouse locks in the money and keeps you from investing in your company's more lucrative areas. You can save warehouse space and money on operations by using InventoryLogIQ's supply chain forecasting to determine the ideal stock levels. Plans Production More Effectively One of the most excellent methods to maximize output is to use InventoryLogIQ's platform to collect inventory data and get access to sophisticated analytics to evaluate this data. As a result, you have the chance to accelerate your whole production cycle when you set up your operations based on the anticipated demand. Furthermore, by helping companies create realistic projections for each product line, manufacturers can optimize production planning and promote departmental collaboration with the aid of InventoryLogIQ. While external cooperation offers insights into purchase orders, recurring predictions, and supplier details, internal collaboration assures greater access to historical data and market insights. Improves Your Business Strategies Based on demand forecasting, businesses predict sales and allocate resources. For instance, a firm might raise production if they anticipate greater demand for a specific product. Demand forecasting in the supply chain also aids in risk reduction and improved financial judgement, boosting profit margins, cash flow, resource, and inventory allocation and expanding growth potential. In addition, businesses can lower their operational costs and total spending by using InventoryLogIQ to obtain better visibility into inventory accounting. As a result, all functional and operational strategies can be built based on InventoryLogIQ's supply chain forecasting. Supply Chain Forecasting: FAQs How does forecasting affect supply chain management?To assist you in making the right choices for your company, whether it be about stock inventory, cargo booking, budget planning, or entering new markets, supply chain forecasting integrates data from the historical supply with insights and understandings about demand. Why is supply chain forecasting necessary?By using accurate forecasting, you can make sure you have an adequate supply on hand to meet demand. An inflated inventory and excessive cost are the results of overestimating demand. Many devoted customers won't obtain the things they seek if demand is underestimated. What are supply chain forecasting's aims and objectives?Supply chain management's overarching goals are to add value, develop a competitive infrastructure, take advantage of global logistics, synchronise supply and demand, and track success.
February 01, 2023
What is Stock Replenishment? Importance, Factors That Affect Inventory Replenishment and Best Practices in 2023
Every person involved in eCommerce retail understands how important it is to have the proper amount of merchandise on hand at the right moment. When a business has too much inventory, it runs the danger of items with a short shelf life becoming obsolete or being trapped with unmoving merchandise for an extended period of time. Conversely, when a business has too little inventory, it runs the risk of stock shortages and not being able to fulfill customer orders. Customers may be lost or dissatisfied as a result of either of these situations. In this blog, we will delve into the meaning of stock replenishment, its importance of it, the factors that affect it, the different methods, and the best practices of inventory replenishment. What is Stock Replenishment? The rate at which inventory moves from the manufacturer to the supplier for the activities of storage, picking, packing, and order fulfillment, is referred to as stock replenishment, also called inventory replenishment or replenishment planning. By maintaining efficient order and line-item fill rates, stock replenishment aims to keep inventory moving through the supply chain at an optimum pace. Some noteworthy points about stock replenishment are listed below: This method prevents inventory overstocking, which can be expensive.The objective of a business should always be to keep goods flowing through the supply chain at a cost that is as low as feasible without compromising the customer experience, with raw materials and finished items reordered at the precise moment to ensure optimal inventory flow.Stock replenishment is the method through which businesses attempt to attain that objective, which is frequently aided by inventory management software that automates inventory replenishment procedures.Managing the rate of stock replenishment has typically been difficult since it previously required manually tracking each item of inventory as it travelled through the supply chain using spreadsheets. Sophisticated inventory management systems that monitor and update stock movements without the need for user intervention make automated stock replenishment feasible today. This saves time and eliminates the possibility of human errors. How it Works Stock replenishment works in the following way: A team or set of teams will be assembled to supervise the movement of inventory, depending on the structure of the firm. These teams are often made up of warehouse managers and planners who ensure that the firm always has adequate stock to fulfill orders.These groups can be divided into a range of specializations, with some focused-on inventory ordering methods as the firm develops and changes, and others dealing with the short-term goal of tracking inventory counts.When the counts reach the pre-determined re-order mark, the selected team will contact the necessary supply chain parties to restock the products. This happens with both ready-to-sell inventory and raw materials. Importance of Inventory Replenishment in 2023 Businesses need a robust inventory replenishment plan because it may help them avoid costly supply chain issues like inventory stockouts and overstocks. Stockouts not only result in lost revenue but may also have a significant impact on consumer loyalty and trust in a company. They can also compromise your brand security by allowing competing brands to intrude on any available disillusionment of consumers. Some of the important aspects of inventory replenishment are listed below: Helps Prevent Understocking Understocking occurs when a merchant fails to restock inventory at the appropriate moment, resulting in a shortage of items at the time of purchase. It may also result in backorders, which indicates that an order has a set date for when the item will be ready for delivery. Dealing with understocking and backorders can be quite aggravating for your consumers. The easiest strategy to minimize frequent understocking difficulties is to keep safety stock, backup inventory, or emergency inventory on hand at all times. This is also a good idea in case a supply chain issue arises unexpectedly (which was experienced by many merchants during the COVID-19 pandemic). Helps Prevent Overstocking Overstocking occurs when there is a surplus of inventory in relation to the demand for it. Overstocking can have consequences such as increased storage costs, increased operational costs, and the risk of inventory becoming obsolete. Proper replenishment planning can be done to forecast the demand for future time periods and how much supply would be needed to satisfy it. This will enable firms to keep just the right amount of inventory on hand at all times and avoid overstocking situations. Helps Reduce Operational and Logistical Costs Suppose a consumer places a large order with you. If one item is out of stock at the customer's nearest warehouse but is available at another, you'll need to send a split shipment (sending multiple goods from one order in separate shipments, frequently from a different location or at a later date) to complete the customer's order. Sending products from a single purchase in many shipments raises shipping costs, increases packaging waste, and may mislead customers. Based on past data and forecasting techniques, you can estimate demand and determine how much inventory to hold at the SKU level at each warehouse site. This will help you in decreasing the operational and logistical costs involved in shipping from different locations and the need to do it in the first place. Suggested Read: What are Inventory Costs? 3 Factors That Affect Stock Replenishment Fluctuating Forecasts As all forecasts are based on unverified demand, the figures are certain to change significantly depending on the changing demand of clients. In a different instance, if one of your suppliers went out of business and your organization couldn't get equivalent raw materials in time to keep manufacturing running, prior forecasting could’ve helped you to prepare for the situation and have a backup, but since it is related to an external manufacturer, it may not have shown up in the forecast anyway. Thus, forecasting needs to be done as accurately as possible, covering as many variables as you can in order to offset unpredictable circumstances. Lack of Optimization Warehouse managers and planners frequently disagree over how to best utilize warehouse space. A planner, for example, would want to set aside a certain amount of space for the storage of excess inventory or raw materials. The agreed-upon inventory replenishment strategy cannot be effectively used if the warehouse manager is unable to supply the requested space. This back and forth in different departments can lead to a lack of optimization of multiple processes, which has a direct impact on a company’s ability to replenish planning and manage inventory. Poor End-to-End Visibility When it comes to supply chain efficiency, end-to-end visibility is the name of the game. When you don't supply your manufacturers with reliable, real-time information about your current stock levels, the replenishment process might get delayed. Employing solutions especially built for inventory management and retail execution to encourage better communication between the field and the back office is one strategy to improve overall visibility. Utilizing technology to streamline the process of tracking your data in real-time provides your brand with an invaluable advantage over competitors who are still using generic tools to get things done. 3 Methods of Stock Replenishment Depending on their company strategy, monthly order volume, and nature of items for sale, different eCommerce merchants use various replenishment planning techniques. If your current replenishment plan isn't working, try one of these three successful inventory replenishment approaches: Reorder Point Method To automate activities, most inventory management systems follow replenishment principles.When inventory levels reach the reorder point, replenishment is usually initiated.The reorder point is when stock has to be reordered, taking into consideration current and future demand as well as the time it will take your supplier to give you the new order.There are three stages to manually calculating your reorder point:Calculate the number of days you'll need to meet your lead time requirements.Calculate the number of days in your safety supply.Add your lead time demand and your safety stock to establish your reorder point.You may also use a reorder point calculator to make your life easier. It'll alert you when it's time to order a fresh batch of merchandise inventory. Top-Off Method When you have a lot of fast-moving SKUs in your inventory, the top-off approach is usually the best option.Under this method, inventory levels for a certain product are "topped off" in their corresponding storage facilities during periods of slower demand or downtime, allowing you to have a high inventory turnover rate without running into stockouts situations.During sluggish demand periods, the goods are always replenished at the forward pickup sites, which enhances efficiency during peak periods. Periodic Method Inventory is refilled at regular periods using the periodic inventory replenishment technique. Inventory levels are only evaluated at certain periods or dates, regardless of how low stock levels may have fallen before that. This strategy is primarily employed in warehouses with a lot of storage space.Inventory is refilled at pre-determined periods through the use of the periodic inventory replenishment method. This strategy is perfect for replenishing warehouse inventory. Warehouses can keep products that will last between 3 to 6 months because it has a large storage capacity. As a result, for products held in warehouses, a periodic check/review is adequate and the inventory levels of these items are examined to determine whether they require restocking. There is no need to replenish products if inventory levels are sufficient. 6 Best Practices of Inventory Replenishment in 2023 There are a few things you should consider doing on a daily basis to ensure that you have the necessary inventory/stock on hand whenever you need it. Follow these best practices to ensure that your organization can always refill its inventory as needed: Evaluate Your Forecasts on a Regular Basis Source Involve everyone in this discussion, from your planners to your salespeople, warehouse managers, suppliers, long-term clientele, and others. Ask your colleagues to have their own estimates ready before the meeting and compare them to the factors that influence your company's replenishment plan. In the meeting, devise a reasonable plan to implement if and when your current replenishment technique and prediction are not up to the mark. Accurate inventory forecasting is one of the pillars of strong replenishment planning. Create Stocking Level Techniques That are Successful and Efficient Source Planning of stocking levels differ based on the size and specialization of the company. Therefore, your plan should be tailored to your business' inventory and supply chain demands. If you are starting afresh with your strategy, make sure that everyone involved, especially your long-term clients and suppliers, is aware of your most stringent goals. After that, you can discuss your stocking-level tactics in terms of hard data. Suggested Read: Make the Necessary Technological Changes Source Your supply chain will be optimized if you have the correct eCommerce software system in place. Installing inventory management software, for example, is a simple approach to gaining real-time visibility into inventory levels across several locations, allowing you to make smarter inventory replenishment decisions. You can simply keep track of inventory control, track inventory trends and avoid frequent stock difficulties by employing inventory automation solutions for inventory optimization. Make Effective Use of Replenishment Data Source It is not surprising to learn that leveraging data helps you make better, more educated decisions and is one of the most effective strategies to optimize your stock replenishment strategy. Data from your retail outlets' point of sale may be a good predictor of how your replenishment process will go. Each of your accounts is unique and efficiently managing the data from each will assist you in keeping them all filled to the adequate level. Improve End-to-End Visibility Source Make sure your whole supply chain is aware of your shifting stock levels. Make room in the system for extra information about your fleet's shipment schedules. As you can see, many of the issues in replenishing are centred around a lack of communication, ineffective management, and inaccurate forecasting. Keep your numbers flexible and realistic so that your organization never needs to cope with a shortage or surplus of inventory and make sure that every team has access to all the information that they need. Improve Inventory Management Techniques Source The role of stock replenishment is only one part of the overall inventory management process. It will be difficult to decide when it is time to restock inventory without a suitable inventory management plan in place. Inventory audits on a regular basis, standard warehouse receiving processes and efficient eCommerce warehousing practices may all help you keep track of inventory more efficiently. To avoid large decreases in profit margins, warehouse expenses such as personnel, storage, inventory shrinkage, and depreciation, inventory should be continuously monitored and demand levels should be estimated. Conclusion: Automate Your Stock Replenishment With InventoryLogIQ The stock replenishment process is vital to every company that sells items to clients, whether it is done on a regular basis or on demand. Stock replenishment is more than just a procedure; it may also assist merchants in forecasting demand and supply more accurately by providing a comprehensive view of a company’s worldwide inventory and demand levels. Performance at the SKU/site level is automatically assessed and optimal stock levels may be increased or lowered as needed, allowing for more full-price goods to be sold. Prior to a certain action, such as a promotional event, changes in future stock levels can also be forecasted and structurally described. From manufacturing to marketing, stock replenishment has the power to impact every part of an organization. As a result, it's critical to always look for methods to improve your replenishment planning procedures. One way to do this is to partner with an inventory management solution like InventoryLogIQ. InventoryLogIQ is a leading inventory management solution with an emphasis on using advanced technology. We enable customers to make use of our advanced OMS which can track inventory levels across multiple selling platforms and fulfillment centers and enables the automation of multiple inventory management processes, including stock replenishment. Users can take advantage of features such as automatic low-stock warning alerts, inventory replenishment notifications and much more. Suggested Read: What is Retail Replenishment Stock Replenishment: FAQs Why is stock replenishment important?Stock or inventory replenishment is a key component of inventory management because it assists businesses in always storing the right amount of products in order to meet demand levels. This helps companies reduce operational and storage costs and limits wastage. What are the important aspects of stock replenishment?Some important aspects of stock replenishment are lead time, order capacity, and replenishment intermissions. What is a replenishment period?The term replenishment period is used to refer to the process of replenishing inventory levels of products that are running low on stock in a warehouse and the frequency with which it is needed. What stock replenishment facilities does InventoryLogIQ offer?InventoryLogIQ has a custom OMS where users can set replenishment points to trigger automatic replenishment, get low stock warnings for goods, forecast demand using past statistics and much more.
January 31, 2023
Inventory to Sales Ratio: Definition, Importance, 80/20 Rule and Metrics Used to Calculate Stock Turnover Ratio in 2023
There are many aspects of running an eCommerce business that retailers need to focus on but one of the most important aspects is inventory and having a proper method in place for inventory management. Inventory can comprise a range of products, at various stages of completion, but the most significant are finished goods because those are what are ultimately sold to end consumers and earn revenue for the business. When a business generates the maximum number of sales from the available inventory, it is considered a successful business. The way to measure this success is through the inventory-to-sales ratio. We will go in-depth on what it is, how to calculate it, understand its importance, and how InventoryLogIQ can help. What is Inventory to Sales Ratio? The inventory-to-sales ratio, also called the stock turnover ratio, is a metric used to measure the amount of inventory a company has for sale. This ratio can assess whether a company has too much or too little inventory relative to its sales volume. It can be a helpful tool for managing inventory levels. A high inventory-to-sales ratio may indicate that a company carries too much inventory, which can tie up working capital and lead to higher storage and inventory handling costs. On the other hand, a low ratio could suggest that a company is not carrying enough inventory to meet customer demand, which could lead to lost sales. An ideal ratio will vary depending on the industry and type of business, so it is essential to compare a company's stock turnover ratio with others in its sector. The inventory to sales ratio is a helpful tool for managing inventory levels. Still, it is important to remember that it is just one metric that should be considered when making decisions about inventory. Other factors, such as lead time, customer demand, and seasonality, can also impact inventory levels and should be considered. How to Calculate Stock Turnover Ratio? The stock turnover ratio is a key performance indicator that measures the number of times inventory is sold or used. There are two ways to calculate the stock turnover ratio: Average Inventory/Cost of Goods Sold Source This is more common and provides a better understanding of how well a company manages its inventory. To calculate the stock turnover ratio using the average inventory method, divide the average inventory by the cost of goods sold. Inventory on Hand/Cost of Goods Sold Source This method can be useful for companies with high levels of stock. To calculate the stock turnover ratio using the inventory-on-hand method, divide the inventory on hand by the cost of goods sold. The stock turnover ratio is important because it shows how efficiently a company uses its inventory. A high ratio means that inventory is being turned over quickly and a low ratio means it takes longer to sell stock. A high stock turnover ratio is generally seen as a good thing because it means a company sells its inventory and makes money. However, a very high stock turnover ratio could also indicate that a company cannot keep up with demand, which could lead to lost sales. To get the most accurate picture of a company's stock turnover ratio, it is essential to compare it to other companies in the same industry. This will give you a better idea of what is considered normal for that industry and whether or not the company's stock turnover ratio is good or bad. Why is it Important to Know the Inventory to Sales Ratio in 2023? Provides an Accurate Depiction of Business Performance The inventory-to-sales ratio is a key metric for businesses, indicating how well a company manages its inventory. If the ratio is too high, it may indicate that the company is carrying too much stock and not selling it quickly enough. This can tie up working capital and lead to cash flow problems. On the other hand, if the ratio is too low, it may indicate that the company is not carrying enough inventory to meet customer demand. This can lead to lost sales and missed opportunities. Helps Mitigate Uncertainty It is essential for businesses to monitor their inventory-to-sales ratio and strive to maintain an optimal level. The ideal ratio will vary from industry to industry and even company to company, depending on product turnover rates and seasonality factors. However, as a general rule of thumb, a healthy inventory-to-sales ratio is usually between 0.16 and 0.25. This will help businesses maintain accurate levels of inventory even when unforeseen circumstances arise. (read further under inventory accuracy) Determines the Optimum Level of Inventory A high stock turnover ratio indicates that inventory is selling quickly and efficiently. Ideally, you want a high stock turnover ratio because your inventory is fresh and you're not spending much money on unsold goods. A high stock turnover ratio also indicates that you have efficient ordering and stocking procedures. On the other hand, a low stock turnover ratio could be a sign that you're overstocking or carrying slow-moving items. Either way, the stock turnover ratio helps you determine the optimum amounts of inventory you need to store in order to satisfy demand and reduce operational costs. Compares Your Business With Competitors In some cases, you may want to reevaluate your inventory levels and product mix. You can also compare your company's stock turnover ratio to industry norms to see how you stack up. If your ratio is significantly higher or lower than the average, it could indicate something is amiss. This will help you to understand what needs to be changed and can reduce any competitive advantage that rival companies had previously. Understanding the 80/20 Rule of the Inventory to Sales Ratio The 80/20 rule is a guideline that states that 80% of a company's inventory is typically sold 20% of the time. This rule can help businesses manage their inventory levels and ensure they are not carrying too much stock. The 80/20 rule is based on the Pareto principle, which states that roughly 80% of the effects come from 20% of the causes of many events. The 80/20 rule applies in various situations, including business and economics. Inventory management is critical to any business, as it can directly impact profitability. Too much inventory can tie up working capital and lead to storage expenses and other inventory costs, while too little stock can result in lost sales and customer dissatisfaction. The 80/20 rule can be a helpful tool for managing inventory levels. By understanding that most of the sales will come from a small portion of the inventory, businesses can focus on ensuring they have enough stock of the items that are most popular with customers and can limit the supply of slow-moving or low-demand items. There are a few different ways to apply the 80/20 rule to inventory management : One approach is to keep a close eye on the inventory turnover rate, which measures how often the average item in stock is sold. A high turnover rate indicates that items are selling quickly and may need to be replenished more frequently, while a low turnover rate suggests too much stock is on hand.Another way to use the 80/20 rule is to track the sales of each stock-keeping unit (SKU). This information can help businesses identify which items are selling well and which may need to be discontinued.Finally, the 80/20 rule can also be applied to pricing. By understanding that most sales will come from a small portion of the inventory, businesses can price their products accordingly. For example, if a company knows that 80% of its sales come from 20% of its SKUs, it may choose to offer discounts on the remaining 80% of SKUs to boost overall sales. The 80/20 rule is a helpful tool for managing inventory levels but it is essential to remember that it is only a guideline. No hard and fast rule says precisely how much inventory should be kept on hand. Each business needs to tailor its inventory management strategy to its unique needs and circumstances. What Metrics are Used to Measure the Stock Turnover Ratio? A few different metrics can be used to measure the stock turnover ratio. Let us take a look at the most common ones: Frequency of Sales Source The most common metric is simply the number of times that inventory is sold over time. This metric can be expressed as a rate (e.g., how many times per year stock is sold) or as a percentage (e.g., what percentage of inventory is sold each year) and helps in gauging if a product is doing well or poorly and actions can be taken accordingly. Average Inventory Level Source Another standard metric is the average inventory level, which measures how much inventory is on hand at any given time. This metric is important because it helps show how quickly stock moves through the company and which items need to be replenished at a faster rate than others. It also shows which items are being underutilized and are eating up storage space. Day Sales in Inventory Source Finally, another metric sometimes used to measure the stock turnover ratio is the day's sales in inventory (DSI) metric. This measures the days it takes to sell all the inventory on hand. This metric is important because it can help show how efficiently a company sells its inventory. It also helps companies analyze which parts of their sales strategy are working and which aren't. To calculate the day's sales of inventory, you can use the day's sales of inventory formula: Days Sales in Inventory Forumula = (Average Inventory ÷ COGS), multiplied by 365. All of these metrics are important in measuring the stock turnover ratio. Still, the most important one is probably the number of times that inventory is sold. This metric gives the clearest picture of how quickly inventory moves through the company. Conclusion: How InventoryLogIQ Can Help Maintain the Ideal Inventory to Sales Ratio For Your Businesses Inventory to sales ratio is a useful metric for measuring a company's efficiency in managing its inventory. It provides insight into how well a company is able to turn its inventory into sales, which can help identify potential issues such as overstocking or slow-moving items. By monitoring this ratio, businesses can make adjustments to their inventory management strategies to improve their financial performance and ensure that they are not carrying excess inventory. Additionally, comparing the ratio to industry standards or historical data can provide valuable context for interpreting the results. Overall, inventory to sales ratio is an important metric for businesses to track and use as a tool for making more informed decisions. You can opt to partner with InventoryLogIQ to achieve a healthy inventory-to-sales ratio. InventoryLogIQ provides a comprehensive and intuitive solution that can help you optimize your warehouse operations, reduce costs and improve customer satisfaction. Our OMS software is designed to give visibility into every aspect of your warehouse operations, from inventory management to order fulfillment. We also offer tools to help you streamline all your eCommerce processes and improve efficiency all along the supply chain. InventoryLogIQ helps you take control of your inventory data at geographic and SKU-level to unlock operational agility by enabling you to avoid stock-outs and excess inventory. Our solution helps you be accurate and highly responsive through the following features: Network planner to place fast-moving inventory closest to customers to improve delivery speed and lower shipping costDynamic product segmentation to generate replenishment & liquidation reports to avoid sales loss and free up working capital, respectivelyAI algorithms to generate frequent sales forecasts factoring in seasonality and marketing spend Inventory to Sales Ratio: FAQs What is the goal of the inventory to sales ratio?The inventory to sales ratio helps you understand the amount of available inventory in relation to the number of sales you have made. Its primary goal is to help you to optimize the amount of inventory you have in storage and which products are desirable and which aren't. What happens if your inventory to sales ratio is too high?A higher than average inventory to sales ratio could indicate that you have surplus inventory in stock that is being utilized, which could increase your operational expenses. What is the ideal inventory to sales ratio?Generally, if you have an inventory-to-sales ratio between 0.16 and 1.25, you are doing alright. However, growing businesses can often have higher ratios due to the expanding rate of order fulfillment. How can you improve your inventory-to-sales ratio?You can use the following methods to improve your inventory to sales ratio:- Better forecasting- Improving sales- Reducing prices- Focus on high-demand products- Better order management- Eliminate safety stock and old inventory- Reduce purchase quantity
January 17, 2023
Inventory Level: ￼￼The Ultimate Guide Including Definitions, Benefits and 5 Strategies to Implement a Minimum Inventory Level in 2023
An inventory is the life of any business. It is immensely important in producing and selling products or services. One of the key challenges in managing inventory is determining the optimal level of stock to keep on hand. Having too much inventory can tie up valuable resources, such as cash and storage space while having too little inventory can lead to stockouts and lost sales. Inventory levels refer to the amount of stock a business keeps on hand to fulfill customer demand. Properly managing inventory levels is crucial for the success of any business, as it can greatly impact cash flow, customer satisfaction, and overall profitability. There are many different types of inventory levels and you need to understand them to help run your business cost-effectively and efficiently. What are Inventory Levels? A company holds stocks of products in its inventory, which are its business assets. Hence, inventory levels need to be at the optimum. None of the products can be left unaccounted for or unattended to, as such breaches can cause heavy losses and create confusion over a period of time and across the supply chain. Inventory levels are classified as Minimum level, Maximum level, Danger level, and Average level. Types of Inventory Levels Used in 2023 Minimum Level A business always needs to maintain a minimum inventory level to ensure that a sufficient amount of raw materials are readily available for production to continue without any interruptions. Whenever the level dips below the minimum inventory level, it can lead to a production outage. This may cause a dip in the stock levels and sometimes a business can run out of stocks completely. Based on the demand and consumption rates, and the average production time to produce goods, the minimum inventory level can be easily calculated based on a simple formula. It is mentioned below: Minimum Inventory Level = Average Usage x Average Lead Time (Reordering Level) The minimum inventory level can vary depending on the type of business. However, the following supply chain elements need to be taken into account: Material Type: If there is a standing order that requires a specific type of material, there is no need to keep a minimum inventory level.Purchase Time: This refers to the lead time or the time taken by a business to acquire supplies for the manufacturing process. The time is calculated from the order placement stage to the arrival of the supplies.Consumption Rate: The material consumption rate is calculated based on the trends in a particular industry but also depends on the data analysis of production history over a specific time period.Reorder Level: The stock reordering level depends on the replenishment requirements of the business, which are based on production volumes. This level hovers between the maximum and minimum inventory level and can be easily calculated with a simple formula: Reorder Level = Rate of Maximum Consumption x Maximum Reordering Period Maximum Level While the minimum inventory level has to be maintained at all times to avoid the production process getting affected, the maximum inventory level should never exceed the set level since it can lead to overstocking and raw materials lying idle for an extended period of time. Moreover, maximum inventory levels result in higher storage costs, pilferage, discrepancies in quantities of stock, and other inconsistencies. It is easy to calculate the maximum level using the below formula: Maximum Inventory Level = Reorder Level + Reorder Quantity - (Minimum Usage x Minimum Purchase Time) The reorder level can be arrived at using a simple formula: Reorder quantity = Average Daily Consumption x Average Purchase Time The key factors to consider while calculating the maximum inventory level: Daily consumption of raw materials (on average)Average purchase time required to replenish stocks of raw materialsAvailability of storage spaceReordering quantityCost of holding inventoryRisks involved such as damage, pilferage, materials turning obsoleteFluctuations in raw material pricesShelf life of raw materialsFluctuating consumer preferences Danger Level A business can never afford to have its inventory levels reach the danger level at any time. This is because it means that the stocks of raw materials are running out at a dangerously fast speed. Whenever the inventory levels breach the danger level, the company has to source materials quickly. More often than not, procuring materials from other sources on an emergency basis increases the cost. Danger levels must be avoided at all costs, as businesses need to look for new, unqualified or unverified vendors, which affects the overall quality of the end product. Moreover, ordering on an emergency basis increases the freight cost, leading to an overall increase in inventory costs. It is wiser to calculate inventory levels in advance to prevent them from reaching dangerous levels. The danger level can be arrived at by using a simple formula: Danger Level = Average Consumption x Lead Time for Emergency Procurements Average Level As the name suggests, the average level refers to the level of raw materials available in the inventory at any point in time. The average level is usually consistent and does not vary unless there is a spike in demand or stocks lie unused due to some extraneous circumstances. It can also dip to the danger level if the procurement of raw materials is affected for any reason whatsoever. It is easy to calculate the average level with a simple formula: Average Level = Minimum Stock Level + 0.5 x Order Quantity How to Calculate Inventory Levels for Optimum Usage? Lead Times of Inventory Production The lead times of inventory production can be calculated on reordering delays. While considering the lead times of inventory production, the time involved in processing the purchase order and the time the supplier or vendor takes to accept and process the order need to be considered. If the supplier has a practice of accepting orders only once a week, it is advisable to place purchase orders well in advance (at least four days earlier). The extra four days are the buffer time to cover any delays in supply. The delay in supply is calculated by adding the sum of the supply delay to the reordering delay. Availability of Safety Stock Safety stock can be easily calculated. It is the sum of maximum daily usage x the maximum lead time or the maximum time a vendor takes to effect deliveries. From this result, subtract the average product usage (daily) and multiply it by the average lead time. The formula is somewhat tricky: Safety Stock = (Maximum Daily Usage x Maximum Lead Time) – (Average Daily Usage x Average Lead Time*) * Lead time is calculated as the number of days You Can Also Read: What is Dead Stock & how to Get Rid of Dead Stock Lying in Warehouses in 2023? Demand Forecasting Forecasting demand, also known as demand planning, is arrived at by referring to past data, current trends, and upcoming requirements, all of which help to forecast demand for the future. Accurate forecasting is essential for a business to maintain sufficient buffer stock to fulfill customer orders without having to keep large amounts of inventory lying idle. Forecasting demand is not just about setting a reorder schedule; it is also about using data analysis to help identify set patterns and trends. It helps in adapting to the prevalent dynamic conditions and meeting or exceeding customer demands or expectations. Also Read: What is Inventory Forecasting? Benefits of Having a Minimum Inventory Level Maintaining a minimum inventory level is a common objective for most businesses, as it makes sense. Higher inventory levels mean additional management and higher costs. A right balance needs to be struck between inventory and demand. Here are the benefits of maintaining minimum inventory levels: Reduced Storage Costs Holding stocks for long periods of time costs money. The costs include utilities for space and the manpower deployed to manage the inventory. Moreover, holding minimum inventory helps to pay vendors promptly instead of holding huge stocks in inventory, which will lie idle even after the payment has been made. Simplified Management It is always easy to manage minimum inventory levels, as the time involved in organising and retrieving inventory is reduced drastically. Moreover, the replenishment process is also simplified and is more efficient if the inventory is shortened. If your business has a high inventory turnover rate, holding minimum inventory levels is beneficial in the long run. Increased Cash at your Disposal Having minimum inventory levels leaves you with liquid cash, as acquiring inventory is a costly process. If your business involves expensive products, having heaps of money stored in idle inventory leaves you with hardly any cash to deploy for meeting other expenses. When you replenish inventory levels at almost the same rate you sell your products, the cash inflow matches what you pay for the inventory. More Space Becomes Available Due to space and inventory being inversely proportional, you will have more space by having lower amounts of inventory. Businesses should be concerned with holding maximum inventory levels, as the cost per square foot of shelf space increases if there is any space lying unused. Maintaining lower inventory levels requires less demand for space and helps you manage your inventory levels more efficiently. 5 Best Strategies for Maintaining Stable Inventory Levels in 2023 Implement an Inventory Tracking System Source An inventory tracking system, like a barcode scanner, is useful for manufacturers to track and manage inventory. Your inventory management system can seamlessly integrate with barcode readers to track the products in stock or transit. You can also store and analyse the data to create reports that provide valuable insights into your inventory’s performance and can help to maintain optimum inventory levels. Determine Reorder Points Source A reorder point (ROP) is the minimum stock a business needs to hold in inventory to avoid stockouts and be able to fulfill orders smoothly. The reorder point’s goal is to maintain inventory levels to meet supply demands. Hence, each time the inventory levels hit the reorder point, an alert is triggered to replenish stocks of raw materials for the specific item. The reorder point is determined based on daily sales volumes or the number of product units sold per day. It also considers the vendor’s lead time, which is the time it takes for materials to arrive. The simple formula for calculating a reorder point is: Reorder Point = Lead Time Demand + Safety Stock Use an Inventory Management System Source If you deploy the relevant technology to complement your supply chain at all stages, it ensures that your distribution network operates smoothly and without any glitches. Implementing an inventory management system helps sync SKUs and orders to monitor fulfillment centers, sales channels and inventory levels in a centralised location. An efficient inventory management system helps in tracking and managing inventory levels accurately (that results in inventory accuracy) to save precious time . Communicate Clearly With Your Supplier Source You must make your expectations clear by communicating effectively with your vendors. Efficient inventory management depends on maintaining proper stock schedules. Holidays, power disruptions, transit delays, etc., need to be taken into account to avoid delays in scheduling. The finer details of your vendor’s operations need to be integrated with your inventory management system, as vendors play a critical role in the supply chain. Monitoring your vendor’s performance over a period of time is crucial in achieving the best results. Carry Out Inventory Audits Source Inventory audits, or warehouse audits, may take more of your precious time than you bargained for. However, when a huge amount of inventory is involved, mere manual use of spreadsheets to keep track of it just won’t do. You need to automate and digitise your inventory audits to make them consistent and reliable. You can think of syncing your inventory with a reliable inventory storage system to make it more efficient. Conclusion: How can InventoryLogIQ help achieve a Minimum Inventory Level? Effectively managing inventory levels is essential for the success of any business. By using tools such as monitoring inventory levels in real-time and keeping safety stock, businesses can ensure they have the right amount of inventory on hand to meet customer demand without tying up valuable resources. As you scale your business, you must keep track of your inventory levels, especially when your plans include opening new warehouse locations and selling across multiple channels, which can become pretty challenging over time. InventoryLogIQ is here to lend a helping hand with matchless inventory management and replenishment solutions that enable you to maintain optimum inventory levels and track inventory across multiple locations. InventoryLogIQ is an expert in inventory optimization and management, giving its partners all the tools they require to precisely forecast future demand, determine the reorder levels of products based on various factors, automate replenishment triggers to avoid stockout situations and much more. These are some ways in which we can help your company: Increase Your Operational Capability We assist you in forecasting events and inventory analytics using tools like ABC inventory analysis and others, so you can set up your business appropriately. Reduce Inventory Stagnation In order to prevent bloating of those products in your storage facility, we assist you in identifying things that have been overstocked and have low demand. Boost Sales Velocity We help you maintain optimal levels of high-demand SKUs and spotlight high-demand products. Improve Operations We offer a variety of automations that can improve many aspects of your inventory management procedure. Place Your Inventory Correctly Modern AI and ML algorithms are used by us to make sure the appropriate amounts of inventory are kept in the most appropriate places. Inventory Level: FAQs How do you determine the optimum inventory level?Proper inventory planning and forecasting involve setting a minimum and maximum threshold to ensure that there is never overstocking or understocking. It is calculated as average inventory divided by average sales. What is an ideal inventory level?An inventory turnover ratio of anywhere between 5 and 10 is generally considered ideal for most industries. This indicates that your business restocks its inventory every 1 to 2 months. How can you consistently maintain inventory levels?Some key strategies to manage your inventory levels are listed below:- Streamline your forecasting- Use the FIFO method- Identify low-return stock- Audit your inventory- Use inventory management software- Track your stock levels constantly- Reduce equipment repair times How can InventoryLogIQ assist with maintaining optimum inventory levels?Users can take advantage of our advanced OMS to be able to analyze past inventory and order data across multiple platforms, forecast demand and supply levels for a specified time period, and manage inventory levels across multiple warehouses.
January 16, 2023
What is Lead Time in Inventory Management? The Significance of Having a Short Inventory Lead Time in 2023
In every online and offline retail business, the central focus is placed on researching, manufacturing and delivering products to customers. However, the time taken to complete each of those tasks and all the more granular ones between them is equally important. For instance, if you started creating promotional hype around your brand and its products, but a manufacturing delay causes the items to take longer than expected to be fulfillment-ready, it could disrupt your entire supply chain and worsen your brand image in the eyes of customers. Therefore, a large amount of attention should go towards maintaining and eventually reducing the time it takes from the start to the commencement of important processes. When you take the time to streamline each procedure by cutting out any excess steps, your entire supply chain will benefit and so will your customers. In this blog, we will delve deeper into the meaning of lead time in inventory management, how it is calculated, the factors that affect it, and different types of inventory lead time, 5 ways to reduce it and how InventoryLogIQ can help. What is Lead Time in Inventory Management? Lead time in inventory management generally refers to the length of time between the start of the process of placing an order and the completion of receiving the items in your storage facility. Lead times can differ across industries and the nature of processes being measured, so there cannot be a consistently accepted lead time across the board. Knowing the lead time of various operations gives businesses the advantage of being able to prepare in advance and get everything in order before the scheduled time. This ensures that every process is running at its most efficient capacity in terms of productivity, duration and cost-effectiveness. Lead times are often calculated for different processes at various stages of production or fufillment, pertaining to manufacturing, project and supply chain management and can refer to tasks before, during or after production and processing takes place. How is Inventory Lead Time Calculated? Summary of Steps Involved in Inventory Lead Time Calculation Find the cause of the supply delayIdentify the impediments to reorderingAdd up the supply and reordering delays Example of Inventory Lead Time Calculation The reordering delay must be taken into account as a first step in the lead time calculation. Include the time needed for the manufacturer to confirm and process the purchase order when estimating the total time needed to receive an order from your supplier. Therefore, if your supplier accepts reorders only once every week and you place an order four days prior to the day the order would be approved by the supplier, your inventory needs to last an additional four days. The reordering delay, in this case, would be an additional 4 days. The lead time is the result of adding the supply delay - the amount of time it takes for a shipment to arrive at your inventory - and the reordering delay. According to this scenario, the lead time formula is mentioned below: Inventory Lead Time = Total Days in the Supply Delay + Total Days in the Reordering Delay Your overall inventory levels are directly impacted by lead time. If you have a long lead time, you will have to consider keeping more products on hand in your inventory. Deliveries will also become increasingly more unpredictable with longer lead times, forcing you to place orders largely reliant on demand estimates. Following the calculation of your lead time, if you are not satisfied with the results, you will need to take corrective measures to reduce it. Factors That Affect Lead Time in Inventory Management in 2023 Supplier Lead Time This is the duration of time it takes for a supplier to prepare and ship an order after it is received. Since the lead time of the supplier isn’t really in your hands, it pays to have constant communication so that both parties can be aware of the preferences and desires of the other. It can also be impacted by the pace with which suppliers accept an order and start the groundwork for producing the relevant products. It is important that suppliers have a low lead time so that it can have a positive snowball effect further down the supply chain. Production Duration If the product is manufactured rather than purchased directly from a supplier, the production time will also impact lead time. Even if you do obtain your goods from a supplier, the time they take to manufacture and eventually ship your goods is also a factor because you cannot start to fulfill orders until you receive your order. It is important to have an efficient and timely production process so that products can be received on time and last-minute additions and edits can be made if needed. Transportation Time The time it takes for the product to be shipped from the supplier or manufacturing facility to your business’s storage facility also plays a big part in your overall inventory lead time. Additionally, this is the stage where your products would be the most susceptible to external influences, such as traffic, roadwork, natural calamities and more. Thus, it is important to be ahead of the 8ball and ensure your products are shipped and stored in your warehouse at least 1 to 2 days before the deadline to avoid getting affected by unwanted circumstances. Order Quantity Lead time can be impacted by the quantity of the product being ordered and how much of the product is already in stock. If more units of a product are required for replenishment, it will obviously take more time to manufacture, load and transport, contributing to an increased inventory lead time. Conversely, if orders are small in size and the production timeline is short, it will contribute to a lower lead time. Hence, it is important to plan ahead when it comes to placing purchase orders. Unexpected Increases in Demand Inventory lead time can increase when the supplier or manufacturer does not have the product in stock or when there is unexpectedly high demand for a certain item. If your manufacturer does not have the capability of producing those orders within the predetermined time span, it could increase lead times and cause delays further down the supply chain. It is important to forecast demand and account for sporadic increases in demand for certain items to lower your lead time in inventory management. The Benefits of Having a Short Inventory Lead Time Improved Inventory Management By having a clear understanding of lead time in inventory management, businesses can better plan and optimize their inventory levels for different situations. This can help to reduce the risk of stockouts, as well as the costs associated with carrying excess inventory. Since the time taken for every process is accounted for, every task involved with inventory management can be more efficiently executed and will result in always having the right amount of inventory at the right time, reducing the duration of tasks like picking, packing, and dispatching of orders in the process. Increased Efficiency Across the Board With a clear understanding of inventory lead time, your business would be able to better plan and schedule production, which can help to increase efficiency and reduce costs. In addition, it will help you also account for unforeseen circumstances since you have an estimate of the time it takes to complete specific tasks. This will have a positive impact further down the supply chain and result in boosted efficiency in every facet of your business and its interaction with customers. Enhanced Customer Service A well-managed inventory lead time can also help businesses to provide better customer service. By having a clear understanding of when goods will be available, businesses can better plan for and meet customer demand. This will result in shorter fulfillment times, fewer delays and fewer mishaps and errors. Due to this, customer satisfaction will skyrocket and they will vouch for the experience they had with your company through reviews, online forums and spreading the word among their friends and family. This will increase your chances of generating repeated sales and acquiring potential new customers. Reduced Costs A properly administered inventory lead time can also help businesses reduce costs in several important ways. For instance, by reducing the risk of stockouts, businesses can avoid the costs associated with lost sales and expediting fees. They can also save money by removing unnecessary and additional processes in an effort to cut down on the inventory lead time of each task. It will also enable you to keep the appropriate quantity of inventory in stock, cutting down your purchasing expenses by a significant margin. Increased Flexibility Having a short inventory lead time for each task can also give businesses greater flexibility to respond to changes in demand or unexpected events. Because you have the knowledge about how long it takes to complete certain tasks, you can conduct forecasts and plan ahead more effectively, as opposed to playing the waiting game and being caught off-guard when an unwanted situation arises. Being aware of your inventory lead time will make it simpler to play around with your inventory management procedures so you can find the sweet spot for what works for your business. 5 Easy Ways to Reduce Inventory Lead Time for Your Business in 2023 Reduce Order Volumes by Increasing the Frequency Source Consider ordering lower quantities that will require shorter durations to create and ship as opposed to placing huge orders that will fill your storage for the next couple of months. This way, your inventory gets refilled more regularly and reliably, and you can account for any disparities between items received and the order that was placed. Additionally, increasing your order frequency will allow you to be more prepared and secure your inventory for unanticipated circumstances since smaller orders can be more easily edited to accommodate last-minute changes to certain items. Validate Your Suppliers Based on Their Performance Source Include a lead time clause in the contracts you have drafted with your suppliers. If they deliver items far sooner than you or they anticipated, you can give them a bonus and highlight their productivity. Conversely, if they are late in delivering an order or there are inconsistencies in the products received, they can receive a suitable penalty. This aids in encouraging your suppliers to follow the established inventory lead times and will keep them on the right path. It will also increase transparency by making sure that each party knows their role and responsibilities in detail. Implement Automation for Important Procedures Source By utilizing automations for your inventory management operations, you can shorten the time it takes to pick, pack, ship and fulfill orders. By using cutting-edge inventory management software, you can manage and create purchase orders more quickly, stay in touch with your suppliers at all times and keep track of stock levels without having to worry about manual data entry or human mistakes. They also provide many others perks, such as providing low stock alerts, automating replenishment triggers and sending notifications regarding order and inventory data in real-time, making it convenient for you to keep a tab on all your inventory management procedures from a single digital location. Source Your Products and Services Locally Source It should not be a surprise that inventory lead time drastically increases when your products are shipped from distant vendors. Finding suppliers in different, less expensive countries or regions may seem enticing because of the possible reduction in production expenses but in the long run, waiting for stock to arrive may end up costing your company in a variety of ways, leading to reduced profit margins and negative sentiments among customers. Finding local suppliers might considerably shorten your lead time and will enable you to have multiple backup options in close proximity in case there is a delay with one of them. Get Rid of Unproductive Procedures and Other Bottlenecks Source Eliminating various stages or processes that are not actively required or can be merged with something else that results in a reduction in effort, time, and financial resources while improving on the end result is one of the simplest techniques to reduce inventory lead time. This can entail forgoing numerous quality control checks, reducing the frequency of evaluating the production process' effectiveness, and even eliminating procedures pertaining to the acquiring of inventory. Nothing saves more time than completely ousting or optimising a specific task so it is important to identify which ones are not absolutely essential to the ultimate goal that you are trying to achieve. Conclusion: Partner With InventoryLogIQ to Lower Your Inventory Lead Time Overall, inventory lead time is an important aspect of supply chain management and inventory control that can have a big influence on a company's ability to meet customer demand, manage costs and maintain good customer service. By monitoring and managing lead time, businesses can work to minimize risks and ensure smooth and efficient operations. Inventory lead time can be a critical factor in determining a business's customer service success. Long lead times can lead to stockouts and delays in fulfilling customer orders, which can negatively impact customer satisfaction and, ultimately, the business's bottom line. It is also important for businesses to measure and monitor lead time, using metrics such as average lead time and on-time delivery rate. These metrics can help identify problem areas and allow your business to take steps to improve its lead time and customer service. If you need help with improving your inventory lead time, InventoryLogIQ can be the solution you need. With the use of AI and ML, InventoryLogIQ, a specialised inventory management solution, can assist your company in anticipating demand and preparing for it. We make it possible for our partners to cut back on operational and storage expenses while still maintaining enough inventory levels to meet demand and complete orders. We provide a variety of options, some of which are mentioned below: Tracking Inventory in real-timeIntegrations with multiple marketplacesIn-house OMSTriggers for automatic replenishmentRecommendations on where to place inventory Suggested Read: Why Are the KPIs Important to Track & Monitor in 2023? Lead Time in Inventory Management: FAQs Why is inventory lead time important?Inventory lead time is important because it can affect a business's ability to plan for future demand, manage cash flow and maintain customer service levels. Long lead times can lead to stockouts and delays in fulfilling customer orders, which can negatively impact customer satisfaction and, ultimately, the business's bottom line. How is inventory lead time measured?Inventory lead time is typically measured by calculating the average time between the placing of an order and when it is received. Additionally, businesses may track the on-time delivery rate of their suppliers. How does inventory lead time impact customer service levels?Inventory lead time can have a big impact on a business's customer service levels, as long lead times can lead to stockouts and delays in fulfilling customer orders, which can negatively impact customer satisfaction. How does inventory lead time impact a business's cash flow?Inventory lead time can impact a business's cash flow, as they may need to pay for goods before they are received. Knowing the lead time can help businesses account for these costs and make sure they have the necessary funds on hand. How does inventory lead time impact Just-in-Time (JIT) inventory management?In a Just-in-Time inventory management system, a business must maintain low levels of inventory while still being able to meet customer demand. Inventory lead time is important to JIT inventory management because it helps businesses plan for future demand and make sure they have enough inventory on hand to meet customer needs.
January 12, 2023
Retail Inventory Management Guide: Meaning, Benefits, Latest Strategies, and 10 Best Practices to Follow in Retail Inventory Method in 2023
Inventory is one of, if not the most important aspect of every retail business. It is the means by which you are able to sell products to customers in exchange for monetary compensation and is the key method that businesses use to break even and eventually become profitable. However, it is not advised to just keep unspecified quantities of inventory on hand at all times. Inventory management is crucial to the successful running of any business as it reduces storage costs, operational costs, fulfillment durations, the time taken to pick, pack and ship inventory, and much more. Having a comprehensive inventory management procedure in place will also ensure that your business is running at its most efficient capacity while also enabling you to store the accurate amount of inventory for specific occasions. In this blog, we will discuss what retail inventory management is, its importance to retailers, best practices to follow, and the steps involved in implementing it smoothly. What is the Meaning of Retail Inventory Management? Retail inventory management consists of all the procedures involved in ensuring that your business always has the right amount of inventory at the right time in order to successfully meet customer demand. The ills of improper inventory management can result in overstocking, understocking, confusion relating to orders, and much more, which can cost your business in terms of money, reputation and wasted inventory. Having a detailed store inventory management system is key to the way businesses are able to store their inventory and fulfill orders to customers. Retail inventory management is useful because it provides insights into many different metrics pertaining to multiple aspects of the business. Some of them are listed below: Storage locations of each SKUNumber of units of each productThe success of each item based on demandProfit margins generated by each productThe accurate amount of inventory to storeReplenishment points for specific SKUsDiscontinuation of unsuccessful productsSales patterns according to seasonImportant items to prioritiseInventory data according to each sales channel Primary Benefits of Using a Store Inventory Management System Improved Efficiency Retail inventory management allows retailers to track inventory levels and product data in real-time, which can help reduce the time and effort required to manage stock. This also allows for a better flow of information and products throughout the supply chain. Whenever an order comes in, the first process that needs to be conducted is to locate the relevant product package and dispatch it. If this process can be done seamlessly, it will bode well for the ultimate fulfillment of that product. Increased Accuracy By automating inventory tracking, retail inventory management systems can help reduce errors and improve accuracy in inventory counts. You can also forecast inventory for future sales and set a budget for marketing, product development, and recruiting using the inventory you currently have in combination with previous sales data. This will ensure that products are stocked in suitable quantities for different times of the year and will help your business fulfill orders faster and more accurately. Enhanced Customer Satisfaction By ensuring that products are in stock and readily available, retail inventory management can help improve customer satisfaction. This is because every process relating to order fulfillment, starting with shipping products from the warehouse to delivery to the customer’s doorstep, happens more seamlessly if every process involved is streamlined. This contributes to a positive overall experience for the customer and increases their chances of making repeat purchases and spreading the message to their friends, family, and colleagues. Better Loss Prevention Retail inventory management systems can help retailers identify and prevent inventory shrinkage, which can result in significant financial losses. Additionally, because inventory will always be stored at optimum levels, the amount of inventory at risk of being damaged, becoming obsolete, or getting expired will be significantly lessened, reducing the wastage of money-generating SKUs. You can save on storage expenses and avoid tying up your cash flow with dead goods when you always have the right amount of inventory available. Heightened Data Analysis Capabilities Retail inventory management systems often come with built-in reporting and data analytics tools that can help retailers make informed business decisions. Whether you want to forecast future demand levels for certain SKUs, identify patterns by viewing historical data from previous sales cycles, or ascertain the performance of different types of products, retail inventory management will provide you will all the information you need to never be kept in the dark regarding the success of your business and its inventory. 5 Latest Strategies to Capitalize on the Success of Your Retail Inventory Method in 2023 Utilize an Inventory Management System If you're still performing retail inventory management manually, you may need to upgrade to a dedicated inventory management solution to help automate various important processes. This will not only speed up and optimize operations but will also reduce the time, effort, and mistakes made by doing them manually. These advanced technology-based solutions can conduct a variety of tasks, such as tracking inventory across fulfillment centers and sales channels, providing historical performance data for specific seasons, automating picking and packing, forecasting future demand, and much more. Implement ABC Analysis ABC Analysis assigns value to your items based on their demand by separating them into 3 categories. “A” will consist of your most sold and well-regarded items that need to be replenished on a constant basis, “B” will comprise your more mid-range products that may also be expensive but need to be stocked less frequently such as on a monthly basis and finally, “C” will make up the products that are slow-moving or are seldom demanded and hence they can be ordered only when stocks become critically low. Organising your inventory into these categories will streamline your management procedures and make it easier to identify various products in storage. Assign Minimum Order Limits for Each SKU Minimum order limits are the thresholds assigned to each product to ensure that the minimum quantity of that particular item is always present in storage to account for any unforeseen scenario or unaccounted-for demand. Having these limits in place will ensure that you are always in the position of fulfilling an order, which will prevent customers from having a negative experience. It will also help you capitalize on every order that comes in so you can maintain your profit margins and not let any demand go to waste. The formula to calculate the minimum stock threshold for each individual SKU is mentioned below: Minimum Stock Threshold = (Average Daily Product Sales ÷ Number of Working Days During That Month) x Average Product Delivery Time Strengthen Relationships With Your Suppliers Since inventory is one of the most important assets for any eCommerce and brick-and-mortar store, suppliers deserve to be given the highest importance since they are the ones who manufacture the goods your business eventually sells to turn a profit. Keeping your vendors close and being in their good graces is important for multiple reasons. In addition to making it easier to keep them in the loop about order information, it can also help you be on the same page regarding revisions in product quantities needed, more concisely understanding when orders will be received and taking advantage of bulk discounts, resulting in a more transparent and efficient supply chain overall. Track Relevant KPIs Key performance indicators or KPIs are trackable metrics that provide important insights into particular functions of your business. They are especially important for retail inventory management as monitoring and analysing KPIs such as your inventory carrying cost, demand for each SKU, sales per product category, inventory turnover rate, and more can help you make well-informed decisions regarding restocking your inventory, how much to order for particular situations and assessing the performance of various processes so you can identify any bottle in your store inventory management system. 10 Best Practices to be Followed in the Management of Retail Inventory in 2023 Have Consolidated Records for Important Product Details Source Having the most important information about all your SKUs easily accessible and consolidated together will make locating and packing products much faster and simpler. Products generally come labelled with multiple details, but it is imperative to include a record of the most important ones pertaining to each specific SKU. Some of these details include: Item nameSKU numberBrand informationProduct dimensionsManufacturer detailsTotal costMinimum reorder quantityUnits on handReorder durationEconomic order quantity Assign Scannable Codes to Every Product Source For sellers that sell a variety of products and variations, it can get confusing storing and identifying inventory, especially if it is across multiple storage locations. A simple way to mitigate this and improve your retail inventory management is to assign scannable bar codes to every item in storage and use code scanners to instantly identify products and get their details. This provides a degree of automation and control to your inventory identification procedures and will help keep your storage facility more organized. Integrate Sales With Inventory Data Source Data on sales and inventory can be combined using a retail inventory management system. It will help you determine which products are selling the quickest and which ones are moving slowly in terms of sales velocity. Utilize the product data to choose how much and when to place reorders, as well as when to run specials or discounts. Additionally, doing this will also help tidy up your product records and have all the information pertaining to sales and inventory levels, across storage locations and selling channels, in one place. Conduct Product Checks at Regular Intervals Source To make sure your inventory is accurate, you should periodically count it. To prevent mistakes, account for shrinkage, damage, faults and returns. A retail inventory management system simplifies this process because you don't have to start from scratch; you just need to double-check your data. So, you can concentrate largely on deviations. The complexity, size and type of software solution you employ will influence how frequently counts are performed in your firm. But at the very least, experts advise counting having inventory counts every quarter or year depending on the scale of your inventory. Have a Purchasing Pipeline in Place Source To ensure that you don't fall behind seasonal patterns or run the danger of running out of stock, schedule periods to evaluate your purchase data and arrange orders accordingly. You can configure an electronic system to send reorder alerts based on the stock levels of specific products. These levels ought to include a safeguard that enables normal sales to continue. Check which items are out of stock or nearing reorder points if you're using a manual system, then add them to your shopping list. Prioritise an item’s purchasing plan based on an item's profitability, popularity and lead time. Having a specific process to follow for every purchase will help improve various functions of your retail inventory management. Implement a Specific Stock Receiving Process Source If you have a specific strategy in place, you can check incoming orders and accurately input the commodities into an inventory system during the receiving process. Any product damage or deterioration caused by your supplier during transit can cause issues, including unanticipated stock shortages, payment increments and the accumulation of dead goods. Verify the contents of every pallet you receive against the purchase order details to ensure there are no disparities. Follow up with suppliers regarding any problems. After that, add the items to your inventory count and place them in storage. The simplest method of controlling inventory is perpetual inventory management, which entails counting products as soon as they arrive. Prepare Strategies for Having Special Promotions Source For a variety of causes, such as an economic downturn, obsolescence or seasonal variables, product sales may fall short of expectations. If you do provide markdowns, use restraint while reducing prices and relocating slow-moving merchandise so that space can be made for more lucrative goods. Additionally, plan your advertising approach in advance to make sure you have adequate inventory available that is ready to meet demand. It is important for every business to turn demand into a sale and ensuring that items can be sold, even at slightly reduced prices, will have a positive impact on your retail and inventory management and business as a whole. Have a Strategy for Handling Stranded, Excess and Dead Stock Source Overstocking inventory drains capital and reduces profitability. Dead stock comprises products that are associated with faulty deliveries, transitory damage and low demand during specific seasons. Items that fit this category should be noted and then suitably removed from your storage. Establish a procedure for dealing with dead, excess and stranded inventory and conduct it on a regular basis. Send pullbacks or goods you can return to suppliers for credit, as soon as possible. Make note of any return shipment deadlines. According to their policy, suppliers should be informed and given back damaged or defective products immediately. You can take care of the leftovers by selling them to outlets, recycling or disposing of them or selling them at highly discounted rates, depending on what is the best option for your business. Create a Plan for Dealing With Returns Source Returns are an inevitable prospect for every retailer, regardless of whether they sell offline or online. Without a system in place to handle client returns, you run a higher risk of holding onto unsold inventory or skipping the chance to relist a purchasable item. When a consumer returns an item, examine it to see if it is broken or defective and then send it back to the vendor, fix it or write it off as you see fit. If the item is marketable, include it in your inventory counts and store it suitably. Following a similar procedure whenever returns are initiated will help you quicken and streamline your retail inventory management. Provide Visual Cues to Help Staff Identify Products Source Providing visual assistance to your staff can enhance the ease and pace with which items are able to be identified and prepared for dispatch. Having images of the products alongside their information can be exceptionally helpful for retailers that deal in a variety of items and brands. It gives your staff a discernable sense of the look and characteristics of the item they are looking for and accounts for any inexperience involved in carrying out this task, helping to reduce the scope and frequency of unwanted errors relating to picking, packing and shipping products. Your staff will be better equipped to carry out locating inventory if they have additional assistance in the form of rich content. Conclusion: Streamline Your Retail Inventory Management With InventoryLogIQ Conducting competent retail inventory management should be prioritized by every online and offline seller. Retail inventory management can have numerous benefits for retailers. It can help improve efficiency, increase accuracy, enhance customer satisfaction and reduce losses due to shrinkage. It also provides retailers with valuable metrics and insights that can enhance the effectiveness of every business decision. Additionally, it prevents businesses from making misguided decisions pertaining to inventory replenishment, storage, order fulfillment and much more. Overall, retail inventory management is an essential component of any successful retail business. If you need assistance with improving the retail inventory management of your business, consider partnering with InventoryLogIQ. By giving our partners all the tools they require to precisely forecast future demand, determine the storage levels of each product based on different metrics, automate replenishment triggers to curtail stockout situations and much more, InventoryLogIQ specialises in inventory optimization and management. We are able to support your company in the following ways: Increase Your Operational Capability We assist you in forecasting events and conducting inventory analysis by using tools like ABC inventory analysis and others, so you can set up your business appropriately. Reduce Inventory Stagnation We assist you in identifying items that have been overstocked and suffer from low demand in order to prevent the bloating of certain SKUs in your storage facility, Boost Sales Velocity We help you maintain optimal levels of high-demand SKUs and highlight successful products so you can always keep them stocked. Improve Operations We offer a variety of automations that can improve many aspects of your inventory management procedures. Place Your Inventory Correctly We help you take advantage of modern AI and ML algorithms to make sure the appropriate amounts of inventory are kept in the most suitable places. Suggested Read: What is Retail Replenishment? Retail Inventory Management: FAQs Why is retail inventory management important?Effective retail inventory management is important for several reasons. It helps retailers avoid overstocking, which can lead to wasted resources and financial losses, as well as understocking, which can result in lost sales and disappointed customers. It also allows retailers to track and analyze sales data, which can be used to make informed business decisions. What tools and technologies are used in retail inventory management? There are several tools and technologies that are commonly used in retail inventory management, including computerized inventory management systems, barcode scanners, and point-of-sale systems. These tools can help retailers track and update inventory levels in real-time, count and track products accurately, and process sales transactions efficiently. How can retailers improve their retail inventory management? There are several ways that retailers can improve their retail inventory management practices. Some of them are mentioned below:- Implementing a computerized inventory management system- Training employees on proper inventory management techniques- Regularly counting and reconciling inventory levels- Analyzing sales data to identify trends and make informed restocking decisions- Implementing loss prevention measures to reduce shrinkage What are some of the factors that affect retail inventory management?There are many factors that affect retail inventory management. Some of the more prominent ones are listed below:- Manufacturing costs- Storage costs- Range of products- In-house management procedures- Lead time What are the different types of retail inventory?When it comes to the goods a company might sell, there are five basic forms of inventory. They are listed below:- Bare essentials- Work-in-progress items- Final products- Maintenance, repair and operations products- Packing supplies
January 10, 2023
Amazon Inventory Performance Index (IPI) Guide: Definition, Factors, 5 Simple Methods to Improve Your Amazon IPI Score in 2023
Selling products on Amazon is the dream for many retailers owing to the vast amount of experience and success the platform has had for the past couple of decades. While there are many benefits associated with listing your products on Amazon, such as getting access to their enormous consumer base, utilizing advanced technological features, and generating positive exposure for your business, you do have to abide by a rigid set of rules and guidelines if you want to succeed. One of these thresholds is the Amazon Inventory Performance Index (IPI) score. It is a trackable metric that determines the health and optimization of every seller's inventory and the processes they have in place to manage it. Retailers need to take care of maintaining their Amazon IPI score because they can be penalised if it falls below a certain limit by having their listings suspended, being barred from selling that item, and more. In this blog, we will take a detailed look at the definition, influencing factors, and accepted threshold of the Amazon IPI score and how to improve your Amazon Inventory Performance Index score in 2023. What is the Amazon Inventory Performance Index (IPI) Score? The Amazon IPI Score is a metric that is indicative of the performance and efficiency of your inventory management procedures. Your IPI score is marked on a scale between 1 to 1000 and the current minimum threshold is 450. Any IPI score that is above 450 is considered acceptable and the higher it is, the better your inventory management practices are. It is important to constantly monitor your Amazon IPI score to make sure that it is within the confines that Amazon has laid out. If it happens to dip below 450 for any reason, Amazon will place various restrictions on your account, including suspending your listings, actively lowering the visibility of your products, preventing users from purchasing items from you, and more, until it climbs back up above the minimum figure of 450. The Amazon IPI score is calculated every 3 months and 6 weeks prior to the end of every quarter, so you will be notified of your score and have some leeway to improve it before you get penalized. If your IPI score is above the required limit for 2 score checks in a row, your business will be eligible for various benefits, such as qualifying for unlimited storage space for every product category. 3 Key Factors That Have an Impact on Your Amazon IPI Score Source Amount of Excess Inventory Amazon seeks to make a prominent distinction between using its fulfillment centers to store your products until they get sold, which is acceptable, and using them as long-term storage to let excess inventory accumulate, which is not. Amazon labels products as “excess inventory” if it surpasses the predetermined 90 days of being in storage based on demand forecasts done by your business. A good rule of thumb to follow is maintaining 30 to 60 days' worth of inventory to avoid being penalised on the off chance that the items do not get sold in time. Additionally, Amazon also provides various insights into the current demand levels of certain products and recommends the quantity of inventory you need to sustain it. If you already have excess inventory piling up, the company also provides suggestions to dispose of it. FBA Sell-Through Rate of Your Business Your Amazon sell-through rate indicates how many items are sold to customers in relation to the amount of inventory that you have in storage of that same item. It is calculated by dividing the number of units sold by the number of units you have on hand during a specified time frame. If you have a lower-than-intended sell-through rate, Amazon provides suggestions on how it can be improved to ensure that your products are moved faster and do not take up unnecessary storage space. There is a section called “Improve Sell-Through” that highlights the products that have a low sell-through rate, the specified sell-through rate, the sales rank, the sales data over the previous 90-day period, the available inventory, the age of the current inventory, the estimated storage fees and more. Current Levels of Stranded Inventory Stranded inventory refers to items that you continue to have in storage but cannot be sold due to errors pertaining to the listing, SKU number, returns, or multiple other reasons. In this scenario, inventory labelled as “stranded” cannot be sold to customers, leave the warehouse or continue to have an interactive listing, which results in lost sales and profits. Fortunately, there is a quick fix. There is a “Fix Listings” option in your seller dashboard, so you can just click on it and follow the instructions. To get a more detailed description, you can read our blog on stranded inventory. Just like with excess inventory, Amazon mentions which products and how many units are stranded, whether they have an auto-disposal date, the reason they got labelled as “stranded” and how they can be relisted. How Can You View Your Amazon IPI Score in 2023? The first thing to do is log into your Seller Central, then choose "Inventory" and then select "Inventory Planning" from the drop-down menu to access your Inventory Dashboard, from where you can check your current Amazon IPI score. After that, select the "Performance" tab to get your Amazon IPI score. There are many ways that Amazon makes it easier for your business to raise its IPI score through your Inventory Performance Dashboard. They have been listed below: Recommendations to Dispose of Excess Inventory: Amazon provides various suggestions to reduce excess inventory that can lower holding, storage, and carrying costs. Additionally, it also provides information regarding the items that are classified as excess inventory, the reason for it, the forecasted cost to store it and ways you can reduce it.Suggestions for Stock Replenishment: Amazon will help you identify which products require instant restocking by analysing every SKUs current inventory levels in relation to the demand level it has. Insights to Relist Stranded Inventory: Amazon provides actionable knowledge about stranded inventory to help guarantee that product listings will continue being available. It also provides the list of products and the number of units that are classified as stranded inventory, why they were labelled as such and the steps to follow to relist them. How to Improve Your Amazon Inventory Performance Index Score? 5 Simple Methods in 2023 Increase Your Sell-Through Rate Source A good 90-day continuous sell-through rate which puts you in the "green" zone on the IPI graph is what Amazon wants from all its merchants. Visit the "Inventory Age" page in your inventory dashboard to see the sell-through rate for all of your currently active items. The products with the least sell-through can be identified and you can also see the available suggestions for raising it. By running a promotion to boost conversions, marketing your goods, honing your keyword targeting technique and employing more engaging and higher resolution listing photos, you can raise your sell-through rate to surpass Amazon’s base expectations and eventually increase your Amazon IPI score. Lower the Amount of Excess Inventory You Have Source This one should go without saying - Amazon doesn’t encourage its sellers to endlessly hold unsold goods. For advice on how to handle surplus inventory, go to the "Manage Excess Inventory" section in your inventory dashboard. Amazon might also advise you to put up an "Amazon Outlet" offer in order to sell out-of-season goods and overstock merchandise rapidly. Using these pointers and implementing them to get rid of any excess inventory lying around will not only reduce storage costs and free up excess space but will also have a positive impact on your Amazon IPI score. Refrain From Exposure to Long-Term Storage Expenses Source Take care to ensure you get rid of any goods before FBA's 365-day limit is reached. You will be charged high long-term storage fees if your inventory is more than 365 days old. You can order your merchandise inventory to be removed or even have Amazon dispose of it for you. Paying expensive storage fees doesn’t just reduce your bottom line; it also lowers your Amazon IPI score, so making sure that you are only paying for the inventory you intend to sell plays a big part in streamlining your inventory management procedures and eventually increasing your IPI score. Address Listing Errors Immediately Source Listing errors can prevent customers from being able to successfully and seamlessly purchase your goods, which can have negative implications on your profit margins as well as your Amazon IPI score. Listing errors can also be brought about by penalties imposed by Amazon regarding excess and stranded inventory. If you do get these errors, follow the instructions provided by Amazon to resolve them as soon as possible and if they continue to persist, get in touch with customer support to help rectify it. Make sure to solve existing issues before deleting existing listings or adding new ones. Conduct Demand Forecasting Source Demand forecasting helps with identifying the current demand levels for certain products based on a variety of metrics. You should also take into consideration the possibility of various unforeseen circumstances occurring so you can plan your inventory levels accordingly. It is generally advised to stock enough inventory for the next 30 to 60-day period and always have your flagship items on hand. Keeping the right levels of inventory will prevent items from being labelled as excess or stranded and can help maintain and further increase your Amazon IPI score. Suggested Read: What is Inventory Forecasting? Conclusion: Choose InventoryLogIQ to Efficiently Manage Your Inventory on Amazon and Other Platforms in 2023 The Amazon IPI score is a good way for retailers to understand where their business stands in relation to inventory management. A high IPI score indicates that a seller is effectively managing their inventory and is likely to generate a positive customer experience, while a low score may indicate potential problems such as out-of-stock items or excess inventory that is not selling. Overall, the Amazon Inventory Performance Index is an important metric for you to monitor as it can impact their reputation and sales on the Amazon marketplace. By maintaining a high IPI score, you can also receive many benefits from Amazon, such as unlimited storage across product categories. However, if you have a lower Amazon IPI score, you could be subject to various penalties, such as suspended product listings, lack of exposure for your business and more. Therefore, it is imperative to constantly keep track of it and improve upon it. If you need help with enhancing your inventory management procedures so you can have a high Amazon IPI score, InventoryLogIQ can be the solution you need. InventoryLogIQ provides multiple inventory management tools to help sellers improve the way they order, store and fulfill their inventory. Our platform can integrate with online selling channels like Amazon and Flipkart, and provide detailed metrics into the existing performance of your inventory management procedures. We also utilize AI and ML to automate important aspects, such as setting replenishment triggers, restocking items, and much more. Because of all these tools, we ensure that your business benefits in the following ways: We help lower your inventory storage costs by 40%We assist in increasing the availability of all your SKUs by up to 99%We enable ultra-fast delivery and fulfillment for more than 70% of the demand How to Improve Your Amazon Inventory Performance Index Score: FAQs How is the Amazon IPI score calculated?The Amazon IPI score is calculated based on a combination of factors, including in-stock rate, lost sales and excess inventory. The exact formula for calculating the score is not publicly disclosed by Amazon. What is a good IPI score?A good IPI score will vary depending on the specific product and category, as well as the time of year. However, in general, a score of 450 or above is considered acceptable. How can you view your Amazon IPI score?Sellers can view their Amazon IPI score by going to the "Performance" tab in their seller central account. The IPI score is updated on a monthly basis. Can your Amazon IPI score affect your seller account status?Yes, a low IPI score can potentially impact your seller account status. If your score is consistently low, it may result in your account being suspended or even terminated by Amazon. What is the impact of closed listings on your Amazon IPI score?Their inclusion in your in-stock measure is no longer taken into account, which means it has no direct impact on your IPI score. Your IPI won't increase by removing listings or designating ASINs as non-replenishable.
January 10, 2023
A Definitive Guide to Excess Inventory Including Meaning, Causes, Impacts and Preventive Measures in 2023
There are certain specific circumstances that cause products to be sold slower than businesses anticipate. Some of these include low demand during the off-season, products becoming obsolete, an economic downturn, inaccurate inventory forecasting, and much more. Whatever the causes may be, incorrectly assessing how much inventory you need to order during a particular time period can have severe consequences on the financial and operational capabilities of your company. For instance, if you order too much of a particular product and you aren’t able to sell it within the intended time frame, it could be at risk of expiring, leading to wastage. Additionally, you will have to continue to pay the fees involved in storing those items. Due to these implications, it should be in your best interest to prevent excess inventory from stacking up. In this blog, we will take a look at the meaning, causes, impacts, and preventive measures of excess stock and how InventoryLogIQ can help. What is Excess Inventory? Excess inventory refers to a situation in which a business has more of a particular product or material on hand than it needs or can sell in a reasonable amount of time. This can happen due to a multitude of factors, such as overproduction, changes in market demand, or miscalculations in forecasting. Excess inventory can be a financial burden on a business, as it ties up capital that could be used for other purposes and may not generate any income until it is sold. Additionally, excess inventory may incur storage costs and may be subject to deterioration or obsolescence. Oftentimes, many companies neglect the accumulation of excess inventory and do not perceive it as a negative, which is a vastly misinformed outlook. Your business should only stock important commodities that are able to be sold and can generate a profit so you can make back the money you have spent producing them. What are the Main Reasons for Excess Stock in 2023? Overproduction of Slow-Moving Items One of the most common causes of excess inventory is overproduction, where a business produces more of a product than is currently demanded by consumers in the market. Primary causes for this include a misjudgment of market demand or an overestimation of sales. It is important to precisely gauge the accurate quantities of SKUs that need to be produced in order to fulfill the demand of customers and adapt production to match the demand generated during different times of the year. Changes in Market Demand The market for a particular product or material can change rapidly, and businesses may find themselves with excess inventory if they are unable to adapt to these changes. For instance, if a business is producing a product that becomes obsolete or is replaced by a newer, more popular product, it may have difficulty selling its excess inventory. This is commonplace in industries that constantly introduce new technological features for lower costs, such as electronics, as well as manufacturing and marketing seasonal products, such as Christmas decorations or fireworks. Miscalculations in Forecasting Businesses rely on forecasting to predict future demand for their products and materials. However, forecasting is not an exact science and businesses may end up with excess inventory if their forecasts are incorrect. Factors such as unexpected changes in the economy or shifts in consumer preferences can lead to miscalculations in forecasting, which in turn leads to excess stock being present. Investing in advanced inventory management software can help you successfully identify changes in demand and plan in advance to tackle various unforeseen circumstances. Using Stockpiling of Goods as a Failsafe Some businesses may choose to stockpile various products as a way to protect against potential shortages or price increases. However, this strategy carries the risk of creating excess inventory if the shortages or price increases do not materialize and trends shift in a different direction. While keeping slightly excess stock of highly demanded products is a common occurrence, it should not be a widely adopted practice due to the vast amount of uncertainties that exist in the market. Therefore, you should manufacture and stock the amount of inventory that is needed to get through a particular season. Inefficient Inventory Management Inventory management exists and should be prioritized because it ensures that your business is always primed to fulfill orders whenever it is needed, in the fastest and most efficient way. Poor inventory management practices can also lead to excess inventory. Issues such as inadequate tracking of inventory levels, a lack of attention to inventory turnover, failure to anticipate changes in demand, not placing replenishment orders in time, and much more, are common instances of ineffective inventory management procedures. Negative Implications of Excess Inventory: How Does it Affect Your Bottom Line? Increased Storage Costs Excess inventory takes up space and may require additional storage facilities, which can be costly. Because of limited storage space, excess inventory also reduces your ability to maintain stocks of other items and could cause challenging situations pertaining to order fulfillment, resulting in a poor customer experience. It also lowers profitability by tying up funds in unnecessary areas, such as excess storage, leading to reduced margins on every order. Wasted Resources and Effort Excess inventory may lose value over time due to factors such as obsolescence or damage. This can result in a loss of value for the business. If products are kept in storage perpetually, it could also result in expiry, damage or parts needing to be replaced due to non-usage, which negates the ability of those products to be sold and generate a profit for your business. Additionally, demand for products constantly fluctuates so certain items may not be eligible to be sold until the next relevant season, making them redundant. Requires Additional Resources Excess inventory can lead to inefficient operational procedures, as it may require additional labour to manage and move the excess inventory. The resources put into constantly shifting and monitoring excess inventory can put a financial strain on the business and also result in more time being spent on managing it than on more important procedures, such as preparing other goods to be picked, packaged and shipped. Because of this, the business wouldn’t be able to operate at full capacity, resulting in reduced sales and unhappy customers. Reduced Cash Flow Excess inventory can negatively impact a business's cash flow, as it requires investment in producing and storing the goods without generating any immediate revenue, which is the primary way businesses are able to make back their money and eventually break even. Additionally, items stored for long periods of time can depreciate and lose most of their value, eventually becoming liabilities that companies need to worry about getting rid of rather than selling them to generate profits. Diverts Attention Away From Other Processes Because excess inventory requires dedicated time and effort to manage, resources cannot be utilised in other, more important aspects of the business, such as order fulfillment, replenishing other products, inventory management and more. This creates a volatile environment which could cause other business functions to be neglected, resulting in even more consequences further down the line. 3 Simple Ways to Prevent Excess Stock From Piling Up in 2023 Streamline Your Planning and Forecasting Methods Planning inventory and Forecasting demand for a specified time period is essential to understanding how much inventory you need to keep stock of for that duration. Failing to do so can result not only in excess inventory but also in stockouts of other products, promoting irrelevant products and much more. It is key to invest in advanced inventory management software that can keep track of your historical order and inventory data so you can identify patterns in previous sales cycles to ensure that the right products are stocked at the right time. This will ensure that you do not have to worry about excess stock. Utilize Automation Wherever Possible Using inventory management software and other cutting-edge technology can open the door to the automation of various tasks, which can free up capital and labour, which can then be diverted to other tasks. Procedures such as tracking SKU numbers, identifying accurate products for specific orders, packaging and more, are some of the processes that can be automated. Automations also reduce expenses and your reliance on manual labour, making it faster, cheaper and more efficient. Implement Marketing Strategies Sometimes, it is not always possible to entirely prevent excess inventory from occurring. Due to challenging circumstances, such as fluctuating demand, changes in consumer preferences, natural calamities, reduction in the spending ability of customers and more, certain products are at risk of not getting sold. Thus, it is important to account for this by having predetermined marketing strategies that can push these products if such situations occur, helping you to rid your business of excess stock and ensuring that it gets sold before it becomes obsolete. From Overstock to Opportunity: 5 Tips & Tricks to Deal With Excess Inventory Liquidate Any Excess Stock Source Liquidating excess inventory is one of the most well-known methods of getting rid of it. Inventory liquidators purchase various kinds of stock and resale the items for less money. They specialise in buying unwanted items that businesses are looking to get rid of. They typically purchase goods directly from retailers. The quickest way by far to sell your excess stock is to liquidate it. However, a major drawback is that it isn't the most profitable approach. Typically, a liquidator pays as little for the stock as possible. Additionally, the price of delivering the inventory to the buyer must also be taken into account. Provide Comprehensive Discounts Source A good way of getting rid of excess inventory while also generating a decent amount of revenue from it is to offer them at highly discounted rates. Typically, customers are always on the lookout for exciting deals and if they perceive that they are getting their money’s worth out of it, it will definitely be a success. You can offer various flash sales and clearance drives to generate interest among customers with significantly discounted rates. This will prevent the excess stock from going to waste and also enable consumers to get the product they need at much cheaper rates than they could elsewhere. Offer Product Bundles Source You can provide bundle deals, such as buy one, get one free or buy one and get the second item at 50% off. Additionally, if the products are in sellable condition, there is no requirement to inform that customer that it is excess stock. This will increase brand visibility and create a positive sentiment among customers. Product bundling is a good way to sell more items at once and generate more revenue from every order that customers place. For instance, if you are selling clothing items, you can give customers the option of getting complimentary accessories like belts, socks, watches and more, to add value to their initial purchase while also ridding your business of multiple items. Donate Items to Charity Source If certain items are taking too long to be sold and continue to gather dust and occupy space in your storage facility, it would make more sense to donate them to a charitable organisation so that they can at least be utilised to their fullest potential. Some products may lie idle to the point they become obsolete and risk expiry or severe wear and tear, meaning that they cannot be sold. If you deal in essential and useful items, such as food, clothes, electronic devices and more, you can identify an institution, such as a school, old age home or orphanage that you can give away these items to for no cost. It will help generate goodwill among the recipients and garner a positive reputation among customers. Return Excess Stock to the Supplier Source In some instances, you can sell the items back to the manufacturer, who can then sell them externally for whatever price they choose. If you immediately recognize that certain products may not be sold in the volumes you anticipate, or if products become irrelevant due to changing seasonal demand, you can negotiate a deal with your manufacturer so that both parties can benefit and negate the adverse effects of excess stock accumulating. Keep in mind that sellers can have a variety of different agreements with their manufacturers, with some choosing to pay beforehand, on a per-item basis or in bulk, so identify an offer that would fit with your current arrangement. Conclusion: Streamline Your Inventory Management to Avoid Excess Stock With InventoryLogIQ Avoiding the accumulation of excess inventory should be imperative for every online and offline retailer. The unwanted outcomes, such as increased storage costs, product wastage, financial burden and many others, significantly outweigh any intended positive impacts, such as preparing in advance for the scarcity of certain products and resources. While it does make sense to prepare in advance by forecasting the demand for certain items during particular seasons, it should be done in a systematic fashion and should be backed up with heaps of data. Making uninformed decisions regarding storing additional units of a product or letting excess stock amass is a recipe for disaster. If you need the tools and services to implement streamlined inventory management processes for your business to prevent excess stock, consider partnering with InventoryLogIQ. InventoryLogIQ is a dedicated inventory management solution that uses AI and ML to help your business predict future demand and plan ahead. We enable our partners to reduce their operational and storage costs, while also ensuring that they have enough inventory to meet demand and fulfill orders. We offer multiple solutions, some of which are mentioned below: Real-time inventory trackingMultiple marketplace integrationsCustom OMSAutomated replenishment triggersInventory placement recommendations Suggested Read: What is Dead Stock and How to Prevent it in 2023? Excess Inventory: FAQs What are the costs of excess inventory?There are various costs associated with excess inventory:- Item cost- Storage cost- Labour cost- Transportation cost- Lost profit cost How can a business get rid of excess inventory?There are several strategies a business can use to dispose of excess inventory. Some of them are listed below:- Selling the excess inventory at a discounted price- Donating the excess inventory to a charitable organization- Returning the excess inventory to the supplier - Consigning the excess inventory to a third party to sell on the business's behalf- Using the excess inventory as a promotion or giveaway to generate goodwill How can a business prevent excess inventory from occurring?There are several steps a business can take to prevent excess inventory from occurring. Some of them are listed below:- Accurately forecasting demand for products and materials- Implementing effective inventory management practices- Regularly reviewing inventory levels and adjusting production accordingly- Being responsive to changes in market demand and consumer preferences- Monitoring supplier performance and considering alternative sources if necessary What is the impact of excess inventory on a business's financial performance? Excess inventory can have a negative impact on a business's financial performance, as it ties up capital that could be used for other purposes and may not generate any income until it is sold. Additionally, excess inventory may incur storage costs and may be subject to deterioration or obsolescence, which can further reduce its value. Excess inventory can also impact the business's cash flow, as it may be necessary to invest additional funds in inventory storage and management. How does excess inventory impact a business's customer service? Excess inventory can have a negative impact on a business's customer service, as it may lead to delays in fulfilling orders or a lack of availability of certain products. This can lead to customer dissatisfaction and may result in lost sales.
January 06, 2023