According to a report by Mckinsey, 27% of retailers plan to have higher inventory along the supply chain. The post-COVID times have boosted the eCommerce and D2C industry, and sellers like you are now amping up their stock to match the increasing demand and high competition. But, is increasing the inventory enough if you can’t manage it accurately? You need measuring parameters like inventory accuracy to ensure that you don’t miscalculate any inventory. 

Let’s look at inventory accuracy to understand the concept and detail to see how you can maintain and improve it for your eCommerce business. 

What is Inventory Accuracy?

Inventory accuracy refers to any discrepancies between the actual stock quantity or type of inventory you have and what is recorded. In the context of a physical store, this could refer to the difference between the recorded list and the amount displayed on shelves. In contrast, for eCommerce businesses, it could refer to the recorded inventory and the inventory stored in warehouses of my film and centers or fulfillment centers.

For example, if you have recorded 10 units of a particular SKU, and there are only five present in stock, you will not deliver the right product to the customer in time. Not just this, it will have many other implications that you might not realize immediately. It could also disturb the whole supply chain if this inventory is not accurate and the discrepancy is enormous. 

Why is Inventory Accuracy Important? 

Inventory accuracy is crucial because it could lead to incorrect customer orders, accumulation of debt stock, or even business loss. You might have to face the unfortunate inventory stock situations out where your customers order something, and you do not have it in stock while it is displayed on your website. It could also cause substantial accounting issues as it could lead to inventory shrinkage and throw off your inventory valuation at the end of a financial year. 

Incorrect Inventory Accuracy – Why do eCommerce Businesses Struggle?

Inventory accuracy becomes a concern for eCommerce businesses as not all inventory is visible transparently at all times. So there are higher chances of the inventory not being accurate at all times. Many businesses face unfortunate inventory stock situations out, and customers do not agree to bank orders causing a lot of negative experiences and feedback. A few reasons for incorrect inventory accuracy could be –

Self-Storage

Suppose you manage your inventory yourself and store it in your own house or warehouse. In that case, the chances of incorrect inventory accuracy are high as you do not deploy the most optimum sources of carrying out the processes manually. As the eCommerce group business grows, the inventory also keeps increasing. Therefore, self-storage is not the wisest option to go with. 

No Inventory Management Software

One of the biggest reasons for improper inventory accuracy is the absence of inventory management software. An inventory management software helps you maintain sync between your inventory and orders. This way, you can easily maintain a record of your SKUs and constantly track your inventory to ensure that no product is out of stock. If you do this process manually, it can take you a lot of time and cause many unnecessary errors. 

How to Measure Inventory Accuracy?

Inventory Reconciliation – Physical Counting

Inventory reconciliation refers to comparing physical inventory count with the record of the inventory in hand. This basic process helps reduce the stock discrepancies and also lets you understand why these discrepancies are rising. It is a very deep Jale down into the inventor you have and is usually not suitable if you have a large stock count. You can carry out this process regularly if you have a low SKU count and a lower order volume. 

Inventory Valuation

Inventory valuation refers to the method of inventory accounting. It is done by counting the value you have at hand and then dividing it by the value of inventory that you are supposed to have. This method is not the most approximate as it does not compare every item with your physical inventory but gives you a decent idea, and if it is low, you must contact your team to talk about the sales receipts and records. 

How to Improve Inventory Accuracy?

Outsource to 3PL Fulfillment Providers 

The easiest and fastest way to improve your inventory accuracy is to outsource it to 3PL fulfillment providers. 3PL fulfillment providers will take care of the inventory you sent to them and ensure that they are on track with the incoming orders. This will let off some steam from your shoulders. You will focus on other aspects of your business rather than just managing your inventory and removing any discrepancies.

One such fulfillment provider is Shiprocket Fulfillment. Shiprocket Fulfillment helps you manage inventory and incoming orders and stores stock in its thoroughly equipped fulfillment centers. You can store products closest to your buyer’s location in warehouses across India and deliver products 3X faster with 99% order fulfillment accuracy. 

Upgrade Inventory Management System

You can also improve your inventory accuracy by deploying an inventory management software or system so that you can track your inventory regularly, and it is visible at all stages of the supply chain. This will give you a deep insight into the orders and the stock you have, and you will be able to decide which SKU is most in-demand, and you will be able to remove any discrepancies as you will be checking data in real-time. 

Conduct Random Inventory Checks 

The next step to improve inventory accuracy is by conducting random inventory checks using inventory reconciliation. If you do these checks at regular intervals or randomly, they will give you an accurate picture of the inventory you have in hand and what the records suggest. Try to match these two entities so you can maintain high inventory accuracy. 

Final Thoughts

Inventory accuracy is a very important KPI to track since it tells you about the physical stock that you possess. Situations like inventory stockout can lead to a heavy loss and customer experience, and you might even lose out on customers as they would not receive orders on time. Therefore, constantly keep a check on your inventory accuracy and ensure that your inventory is taken care of at all times.

Inventory management is undoubtedly one of the most crucial aspects of any eCommerce order fulfillment process. The entire eCommerce business depends on your inventory management and can often lead to a negative customer experience if not done correctly. Therefore, managing and tracking inventory efficiently is a skill & you need to know all about it to do it effectively. 

Did you know that 70% of shoppers would shop for an item at a competitor’s online store if it were unavailable? Most shoppers are not ready to wait for even a day for bank-ordered inventory. With increasing competition, you need to ensure that you do not get left behind. You need to optimize your inventory management to further optimize all fulfillment operations like order management, storage, and logistics. 

Inventory reconciliation is one such inventory management component that you need to learn to handle inventory and avoid a stock’s unfortunate conditions efficiently.

With this article, we have briefly explained the concept of inventory reconciliation so you can apply it in your eCommerce business. Let’s get started.

What is Inventory Reconciliation?

How much ever track you keep of your inventory, it is possible that the number of SKUs on the shelf does not match the records. Even though this may seem like a negligible number, it can lead to a massive discrepancy in your overall inventory count.

Inventory reconciliation is the process of comparing physical inventory with the records of the inventory on hand. Even though this process is not very significant every day, it is essential to reduce stock discrepancies and analyze where your inventory control is lacking. 

Imagine you are handling thousands of books in a library; you stop them properly on shelves, take a record of the total number, and then compare it with that on your system. If there is a discrepancy in the number, you have to do the whole process again. And if this discrepancy persists, you might be leading your customers to a wrong expectation. 

Let’s quickly look at the inventory reconciliation process you must follow when matching physical inventory with inventory records. 

Inventory Reconciliation Process

Even though inventory reconciliation may look like a small check to maintain balance, it is not as easy as tweaking the numbers on your system to match the records; it is as complicated as matching a balance sheet with a left and right equivalent to each other. Therefore, it is recommended to follow this process to reconcile inventory and maintain a thorough check. 

Step 1 – Count Physical Inventory 

The first step of the process is to count the physical inventory. This should be done before looking into your actual records. If you look at your physical inventory after looking at your existing records, you will subconsciously try to match them, leading to errors. 

You must run this through two or three times to ensure no errors, and nobody is missing out or miscounting the inventory. This is even more essential if you have split inventory across different locations. 

Step 2 – Tally With Inventory Records 

The next step is tallying the numbers with your inventory records. This does not mean telling the overall numbers but matching each physical inventory with the existing inventory records. This is where you will identify where the discrepancies exist. The difference in both values could be due to missing paperwork, human errors, unlisted items, supplier fraud, or scrap items.

Even though this process is slightly time-consuming, you need to examine all possibilities to identify the cause’s root. 

Step 3 – Check Incoming Deliveries Since Last Reconciliation 

The third step is to look back and see if there were any discrepancies found in the previous inventory reconciliation conducted. Furthermore, look into the delivery and sales records to see if there is any number or an SKU missed out. This will help you explain the discrepancy and also confirm how you can be more careful further on. In most cases, if there are no records like a shipment receipt, signed document, etc., to explain the error, it could be a case of theft or fraud. 

Step 4 – Create a Record 

Creating a record of the discrepancies identified is one of the most crucial steps. This will help you stay informed the next time you conduct an inventory reconciliation. You can do this with an inventory management system or on a simple spreadsheet using Excel. 

Step 5 – Repeat Often

If you believe you need to do inventory reconciliation only once, you are mistaken. You will have to reconcile your inventory whenever you see a new stock to thoroughly check and maintain what is on your shelves along with the records that you store. Hence, conduct inventory reconciliation regularly and maintain thorough records of what you find. 

When Must You Conduct Inventory Reconciliation?

Objectively, you can conduct an infantry reconciliation exercise on any occasion. But we would recommend the following – 

Seasonal Inventory Reconciliation

This means that you conduct the practice of inventory reconciliation every season based on your demand. This means if you sell winter coats, you will run an inventory reconciliation exercise after the end of summer to check if you have ample winter coats for the upcoming winter season. This is most suitable for seasonal products that are not usually sold all around the year. 

ABC Technique

The ABC technique involves segregating the inventory based on the value of the SKUs and the sales volume. You can prioritize the inventory reconciliation practice basis of the revenue and reconcile the inventory based on the category. 

Random

With a random technique, you can reconcile inventory whenever you deem fit. It could be twice a year, once a year, or when you discover a discrepancy. 

Advantages of Inventory Reconciliation

• Avoid stockouts
• Be aware of theft or fraud.
• Stay up to date with your inventory.
• Accurate demand forecasting

Outsource Inventory Management to 3PL Fulfillment Providers

Efficiently managing inventory can be tedious if you do not do it regularly. Since many DTC businesses are coming up in the country, it can get challenging to manage stocks and also cater to other facets of your business with equal attention. Therefore, it is recommended that you also share inventory management with 3PL fulfillment providers like Shiprocket Fulfillment. 

With Shiprocket Fulfillment, you can story or inventory in thoroughly equipped 3PL fulfillment centers located across all major zones in the country. After you send your inventory to us, we will take care of all the processes like inventory management, order management, logistics, and return management. We will handle even tiny components like inventory reconciliation. You can thoroughly outsource a significant chunk of your business and sell peacefully online. 

By outsourcing your inventory management and fulfillment operations, you will be able to deliver 3X faster to customers as your store products closer to them. You can reduce fulfillment costs by up to 20% by reducing the warehouse’s distance and the customer’s doorstep. Not just this, you can also reduce your weight discrepancy issues and ship hassle-free with multiple courier partners. 

Final Thoughts

Even though inventory reconciliation might seem like a small aspect of a vast inventory management chain, it is equally essential as it tells you about the minor discrepancies in your system. Do not take it lightly and regularly perform to ensure that you do not miss out on the little details. 

There is a high chance that your business will scale towards success if its inventory is well managed, with a set of pre-defined key performance indicators (KPIs) communicating the most important trends. Using KPIs and inventory metrics for proper warehouse management is crucial to drive business strategies for ultimate advancement. Otherwise, if not for such a pre-defined set of KPIs, how will you calculate the impact of your functions on the business? 

Such KPIs not only help to encourage collaboration among peers but also increase customer satisfaction and reduce operational costs. Here are the 10 most important eCommerce key performance metrics for your business! 

Important eCommerce KPIs for your Business

Inventory Turnover

You must set a turnover expectation out of your stock, to know how many times it has been sold/turned over in a given period of time. For example, if you expect your stock to be sold within the next 10 days, and it still hasn’t, you need to know a reason behind this. Either you have too much inventory on your hands at the moment or your business is not getting enough coverage for sales. The formula to find out your business’ inventory turnover is – 

Cost of Goods Sold ÷ Average Inventory or Sales ÷ Inventory

Average Days to Sell Inventory

One of the most important eCommerce KPI metrics is keeping an eye on average days taken by the inventory to get sold. Every industry has different expectations in this regard. For instance, a real estate company may be selling 2 residential apartments in 30 days’ time and that may be an accomplishment for them. At the same time, a fashion brand may be selling 200 blouses within 30 days’ time and that may not be target accomplishment for them. Here is how you calculate this warehouse management KPI – 

(Inventory/Cost of Sales) x 365

Average Inventory

You need to figure out how much inventory you have on your hands at a certain time period. Why do you need to do this? Well, what if you receive last-minute order spikes? Or what if you witness a last-minute drop in the inventory and there’s no way to fulfill an order timely? You may lose out on a customer, in this case. Therefore, make sure that your business has enabled a constant flow of goods for timely, efficient order fulfillment. Mentioned below is the formula to calculate this warehousing management KPI – 

(Beginning Inventory + Ending Inventory) ÷ 2

Cost of Held Inventory

Do you know what is the cost of unsold inventory in your warehouse? If you don’t, then you must, even the cost of damaged goods, because that is an expense to the business. Know the cost of storage space, labour and insurance, as well. This will help you set reasonable sales expectations and work on generating demand for your products. 

Out of Stock

Another best KPI for eCommerce success is to keep track of every time your product goes out of stock. This one is so instrumental to get hold of because your customers luck out on spending money on your products due to a stock-out situation. And this is exactly why it is important for you to keep your inventory updated at all times. Because you don’t want your customer support and your brand image to have to go through countless stinker emails, frustrating phone calls from the customers, bad reviews on the social media etc. 

Service Level

You need to know how much stock your business must need to ensure that your customers never face disappointment by facing out-of-stock situations. Therefore, this warehouse management KPI is key to calculate the amount of stock needed to avoid an out-of-stock situation. 

Lead Time

This means the amount of time it takes for a business to fulfill orders. Further, this can be segregated into 4 other parts – Entry Date of the Order, Wish Date of Arrival (of the customer), Confirmed Date of the Arrival and Delivery Date. This variety of performance measurement is important to improve upon your company’s services. If your order will reach your customers in a seamless, timely fashion, your business will only grow. 

Rate of Return

This particular eCommerce KPI enables you to find out the number of orders that are being returned, and how much inventory needs to be restocked. Besides this, you also need to figure out the reasons for these return orders – is it because of a defective product, or delayed delivery etc. Without understanding such reasons, it may be difficult for you to extinguish the problem of RTO from your business. Remember that return orders are expenses for your business, and hence, must be tackled at the roots. 

Accuracy in Warehouse Management

What is present on the shelves of your warehouse must also match what’s mentioned in your books. If this doesn’t happen, you may experience order inaccuracy, untimely deliveries, higher costs and customer dissatisfaction. 

Perfect Order Rate

One of the other key KPIs for eCommerce success is to stay on top of your perfect order rate count. But first, let us know what exactly is the perfect order rate? 

When you tick mark all the delivery boxes to the perfection, like, delivering the product on the promised date, delivering the right product, the right quantity of the product, at the right address etc. – your order rate becomes perfect in this case. This KPI is crucial to keep the customer satisfaction level high. 

Conclusion

To make your business an utter success in the eCommerce industry, you must have complete knowledge of its aspects. From the moment you receive an order from a customer to the instant, it is delivered at their doorstep, all this must be recorded and studied for an optimised, scalable business. The above mentioned KPIs may be intimidating at first, but they will go a long way in ensuring that your business is on top of its eCommerce game. 

eCommerce inventory management is a complicated task. More often than not, if your inventory is not synced with your incoming orders, it can lead to huge blunders and spoil the customer experience due to delayed deliveries and incorrect orders.

Therefore, it is essential to understand each type of inventory and its significance in your e-commerce business. If you are a manufacturer, who makes their products and runs a D2C brand, it is essential to understand WIP or Work in Process inventory. This will help you know the production supply chain and how you can manage inventory better. 

What is WIP Inventory?

WIP or work in process inventory refers to the total cost of unfinished goods currently still in production. It is a common term used in the production and supply chain management of e-commerce businesses that manufacture their products.

If you have a WIP inventory, it is usually considered an asset. It consists of items that are yet to be finished and sold. It differs from finished goods as they are items that are ready to be sold as-is.

For example, if you run a craft store that sells handmade jewelry like earrings, necklaces, bracelets, etc., the WIP inventory would refer to the products that are still under production or assembled by your production team.

WIP inventory is a universal concept that applies to every business size consisting of large product manufacturing businesses or direct-to-consumer businesses that run on a small scale. 

What Does WIP Inventory Include?

Determining the cost of WIP inventory is slightly more complicated than the cost of finally finished goods. As there are many different components involved and many dynamic items, it can get slightly complicated. Here are a few of the terms and calculations you will need to know to determine the WIP inventory.

Beginning WIP Cost

The beginning WIP cost is usually the first step in determining the WIP inventory. It comprises the assets section in the previous accounting period. To determine and calculate the beginning WIP inventory, it is essential to decide on the ending WIP inventory of the last period. The ending WIP inventory is carried forward from the previous period to the new financial period. 

Manufacturing Cost

Manufacturing costs are the total costs associated with the manufacturing of the final finished product. This essentially includes the cost of raw materials, labor, and overhead costs. If other expenditures go into the production process, they will also be included in the manufacturing cost. 

If the WIP inventory is higher in the production process, then the manufacturing costs like raw materials and labor costs will be higher. This will eventually impact the final cost of the manufactured goods. 

The formula for manufacturing costs is as follows – 

Manufacturing Costs = Raw Materials + Direct Labor Costs + Manufacturing Overhead

Cost of Manufactured Goods

The third aspect of determining WIP inventory cost includes the cost of manufactured goods (COGM). COGM refers to the total costs required to manufacture a final product. You can calculate the COGM by summing the total manufacturing cost with the beginning WIP inventory costs. Finally, you will need to subtract the ending WIP inventory, which will give you the final cost of manufactured goods. The formula is as follows – 

COGM = Total Manufacturing Costs + Beginning WIP Inventory – Ending WIP Inventory

How to Calculate Work in Progress – Formula

Once you have all the data mentioned above with you and have calculated your manufacturing cost and COGM, you can determine how much WIP inventory you have. 

The formula for calculating WIP inventory is as follows – 

Ending WIP Inventory = Beginning WIP Inventory + Manufacturing Costs – COGM

Outsourcing Manufactured Goods & Importance of Calculating WIP Inventory

In today’s day and age, you need to have a superior delivery experience along with expedited delivery options. Therefore, it has become essential to outsource your eCommerce fulfillment operations to 3PL fulfillment centers. 

One such 3PL fulfillment company is Shiprocket Fulfillment. Shiprocket Fulfillment helps you deliver products quickly to customers by storing products in fulfillment centers located in significant cities across India. You not only deliver products 3X faster with Shiprocket Fulfillment, but you also save considerable amounts in the shipping costs. Along with that, you get exceptional fulfillment services and 99% accuracy in all of the operations. 

Suppose you are a seller who takes care of their in-house manufacturing. In that case, it is vital to keep track of your WIP inventory, as you will need to continually stay in touch with the numbers that you are sending to your fulfillment center’s warehouse. In case the numbers are not correct, your entire inventory can be mismatched, and you will have to pay a hefty price in the form of a negative customer experience. 

Hence, track your WIP inventory regularly to stay abreast of your inventory count. This will help you process orders faster.

Final Thoughts

WIP inventory is critical for the manufacturing and production supply chain. Make sure you keep a thorough track of it and maintain it to boost your eCommerce assets. For other fulfillment operations and end-to-end logistics and warehousing solutions, you have Shiprocket Fulfillment. 

Imagine one of the products on your catalog catches the eyes of your customer and shortly after, they realize that it is out of stock. What do you think will happen? It is highly likely that the customer will take the business to another retailer. Therefore, it is important for your online business to deck up on safety stock to avoid such an unpleasant scenario. 

What is Safety Stock – A Glimpse 

Storing an extra quantity of products in the warehouse to avoid an out-of-stock situation is called safety stock (also known as buffer stock) for your business. This particular feature helps to keep you in touch with the fluctuating demand for your products. 

Why is it Important for your Online Operations?

Ease of Order Fulfillment

Wouldn’t it be reassuring to have safety inventory stored in the warehouse? Because then you wouldn’t have to fret over having your customers see that out-of-stock sign on the website/online marketplace. And it can be really disappointing for the customer to see that sign because it entails that they won’t be able to purchase the product that caught their attention. Given the current competitive scenario in the eCommerce space, we are sure that your customer will move on to the next brand providing them with similar products. Clearly, this will be a case of losing out on business. Nevertheless, keeping safety stock can help you mitigate it in the best way possible. 

High Customer Satisfaction 

There’s no doubt that your customers will be happy with your brand if they find their favorite product in stock on the online store. And isn’t that the end goal of your business? By keeping sufficient safety stock inventory in the warehouse, you will ensure that you keep coming back for more. This will result in higher revenue and positive word of mouth among the community. 

Smooth Functioning of Supply Chain

Buffer stock is the level of stock that helps to ensure the smooth operations of your business’ supply chain. When you forecast the demand for the coming days/months and store the products accordingly in the storage hub, you’re automatically making sure that there’s no incompletion in the supply chain circuit. You wouldn’t have to wait to source more products in case there’s a spike in demand (or in case of an out-of-stock situation), and hence, this will lead to efficient eCommerce fulfillment for your business.

Compensate In Case Of Inaccuracy in Demand Forecast

There could come a time when your business exceeds your expectations. What if your business receives more orders than what you’ve already predicted? If you already have the safety stock in place, rest assured you’ll be able to handle such inaccuracies in the demand forecast with ease. 

Mitigate Price Fluctuations for Increased Cost Efficiency

The market is uncertain. From an increase in the price of raw materials to the sudden introduction of government policies that might affect your business directly, you must ensure that the warehouse has enough safety stock level to keep you from such embittering scenarios. Moreover, it will help you enable cost efficiency in your business, at all times. 

Choose the Fulfillment Partner that Empowers You to Fulfill Last-Minute Order Spikes with Ease!

The vitality of storing safety stock for a successful business has been established. At the same time, it is also instrumental to partner with a third party fulfillment facility that helps you keep your customers happy and maximize your profits. Shiprocket Fulfillment is a warehousing automation and eCommerce fulfillment solution that can help you enable seamless doorstep delivery to keep your customers happy. Get the best of Shiprocket Fulfillment’s services that comprise speedy deliveries by 3X, free storage space for the first 30 days, no minimum lock-in period, the advantage of shipping products across 27,000+ pin codes PAN India, lower weight discrepancies, and more. You can avail all of these amazing benefits at a reduced shipping cost by up to 20%. 

For a successful business, the need of the hour is to forecast any store-related contingences and contain them with the help of sufficient safety stock. Pick the fulfillment partner that helps you do all of that and more so that your online business sees growth for years to come. 

One out of three businesses has missed a shipment deadline because they’ve sold an item that wasn’t in stock. This is the outcome of poor inventory planning and stocking. Such situations are the nightmare of any eCommerce business. That is why it is essential to have the right data to predict the inventory you will require.

This is where inventory forecasting comes into play. With this article, let’s look at what inventory forecasting is and how it is essential for your business. Along with that, we will also look at how you can conduct it for the best results. Let’s dive in and get started. 

What is Inventory Forecasting?

Inventory forecasting refers to the process of calculating the inventory required to fulfill customer orders that are about to pour in in the future. This essentially means that you will predict the sales and stock up inventory accordingly. This calculation accounts for historical sales data, promotions, external forces that need to be accurate as possible to give you a specific prediction. 

Now, let’s have a look at the benefits of inventory forecasting for your business. 

Benefits of Inventory Forecasting

Inventory Estimation

The primary advantage of inventory forecasting is inventory estimation. It tells you the right amount of inventory to purchase. If you do not get a correct estimate of the inventory required, you might store products in bulk in your warehouse, which will eventually lead to debt stock accumulation. This will be too harsh for your inventory carrying cost, and you will have to pay extra for maintaining this inventory or getting rid of it. With inventory estimation due to inventory forecasting, you can help your cash flow and even reallocate resources for other business areas. 

Avoid Stock Outs

The next advantage of inventory forecasting is avoiding stockouts. Once you have a precise prediction about the sales you are going to make, you do not have to go through the trauma of an out-of-stock order listed on your website. You can optimize your sales of the existing items without dealing with additional stock or lesser stock. You can also delve further into your marketing campaigns and optimize them channel-wise based on the predictions and supplies you have.

Reduces Overhead Expenses

As you have a correct estimate and forecast your sales and the required inventory, you will save up on many overhead expenses required to manage additional inventory. This will also help you save up on labor and warehousing costs because you are better prepared to handle any changes and reduce manual labor. 

Efficient Production and Sourcing

Lastly, with inventory forecasting, you would be able to source inventory better and plan your production more systematically. As you know the production time, receiving times, and the amount of stock you need, you can plan well ahead and stay prepared for the sales.

How is Inventory Forecasting Carried Out?

To forecast inventory, it is essential to know a few variables. Let’s have a look at what they are. 

Forecast period

The forecast period refers to the length of time that will be considered to determine the exact inventory quantities. The right forecast period will depend upon your manufacturing production cycle, turnover rate, and sell-out period. It is directly proportional to the time in which you exhaust your inventory. 

Trends

Trends referred to the change in demand over a fixed period. So you need to analyze your business’s sales trend and identify periods where sales will be high and low. This way, you can locate your peaks and forecast inventory for definite periods. 

Maximum Stock Level

Maximum stock level refers to the amount of inventory you can accommodate for a given SKU. This depends upon the inventory storage space and the funds you have. 

Reorder Point

Reorder point refers to the point at which your stock needs to be replenished. Once you sell your orders, the stock begins depleting. The reorder point is an indicator for you to stock up again.

The reorder point considers the manufacturer’s delivery time, the inventory turnaround time, and the safety stock available.

The reorder point is calculated with the formula that takes into account the reorder quantity for an SKU.

The reorder point formula is – 

Optimal Reorder Quantity for an SKU = Avg. Daily Units Sold x Avg. Lead Time

Best Practices for Inventory Forecasting

The best practices for inventory forecasting help you conduct this exercise efficiently. Here are a few best ways to get you started. 

Track Inventory in Real-Time

Always track inventory in real-time to have the correct number of SKUs in and out of stock. This will help you estimate your inventory better and faster and give you a more realistic number when forecasting inventory for the future. 

Use the Right Software

Using the right inventory management software will help you view the stock levels in real-time and accurately predict future demand. It also gives you several other insights like the most preferred product at which time of the year. Insights like these help you plan better, and you can also optimize your marketing campaigns and forecast inventory! 

Gather Insights

Gather insights from how you have made sales in your past quarters and years. This sales and inventory data can be beneficial in guiding you for your future decisions. With rich insights regarding sales, incoming orders, and order processing times, you can be proactive with your choices rather than reactive.

Conclusion

Inventory forecasting is very relevant for eCommerce businesses today. With the fast-paced nature of eCommerce businesses and the sudden rise in demand for online shopping, your business studies must be equipped with the stock levels. One mistake of an out-of-stock item being sold and delayed delivery can lead to a negative customer experience that can be quite harmful to your business. 

According to a report by Wasp Barcode, over 46% of SMBs either don’t track inventory or use a manual method. These practices often lead to situations like the accumulation of dead stock or a stock out. Both these situations can be harmful to your business as it leads to additional inventory costs that you will have to bear.

Inventory is one of the most critical aspects of any eCommerce business. To run your business successfully, you need to maintain sufficient inventory. This maintenance costs you a considerable amount. Deadstock might be a significant cause for an increase in inventory costs, and you might not be aware of it. Even if you are aware of it, you might not know how to get rid of it. 

Slow-moving inventory, along with deadstock, is a major bummer for a lot of businesses. Don’t worry; we have a few easy tips to get you started with getting rid of dead stock. 

What is Dead Stock?

Deadstock refers to the inventory that is not selling and is accumulating in your warehouse or storage. You may not realize, but you are spending way too much on maintaining this dead inventory. It takes up an ample amount of warehouse space, and you need to allocate resources in maintaining the quality of these. If you sell perishable items like cosmetics, you will be at a loss because they will expire soon.

Having deadstock can be a significant liability for your business; you must understand how you might have accumulated it. Let’s have a look. 

Here is What Causes Dead Stock?

Overstocking

When you begin your eCommerce store, there is a tendency to go overboard with stocking inventory. There are several instances where sellers might purchase more than required as they may expect sales to be high. However, this may not be the case with all products. In such instances, you overstock inventory and pay extra in maintaining the additional pieces.

Improper Inventory Forecast

Another major cause of death stock is improper inventory forecasting. We have stressed time and again the importance of an accurate inventory forecast as it tells you the amount of inventory you must purchase. If you are buying lower than what is forecasted, you will be paying for inventory stock out, and if you are buying more, you might face the threat of handling dead stock.

Defective Products

Often, you get defective products from your supplier, and you have no choice but to store them. This can lead to the accumulation of dead stock for which you pay an additional amount in storage. It is best to eliminate these by selling them in scrap or finding dealers to purchase these products.

Improper Marketing & Promotion

Another major cause for the accumulation of dead stock is improper or insufficient marketing and promotion of products. This eventually leads to low sales, and you do not sell the predicted quantity. It is imperative to promote the product about the inventory you have. Your marketing research must match the product amount and quantity. If you have a low value and higher dose, you must be marketed on almost all platforms and significant target groups. If you sell only a useful product for a small target audience, you must stock the quantity accordingly.

How to Get Rid of Dead Stock?

1. Giveaways

Giveaways are an excellent way to get rid of dead stock. If you sell products for free, customers would be delighted to get the products from you. Nothing excites Indian buyers more than free goods and services. If they trust your brand, you can establish a more excellent bond with them by arranging for giveaways. Tie-up with influencers who are thriving in your field and get them to set giveaways. This will also help you promote your product along with getting rid of dead stock. Even though you will not earn a lot of monetary profit, it will be a solid move for driving brand awareness. 

2. Flash Sales

The best way to eliminate slow-moving or dead stock is by creating urgency among your buyers. Flash sales are a great way to do so. Offer a higher discount than usual for a short period on the deadstock you want to get rid of. Actively promote this sale on all your social media and relevant marketing handles. This will create a sense of urgency in your buyers, and they might be inclined towards making the purchase sooner. 

3. Product Bundles

Bundling products that are usually bought together and selling them as bundles on your website can help you get rid of dead stock faster. If people see more products bundled at a lower price than each product, they will prefer buying it. Along with this, you can also work on complementary product recommendations that will help you promote more bundles simultaneously. 

4. Utilize an Inventory Management System

Making use of an automated inventory management system can help you analyze inventory in real-time. Instead of using a manual process that takes time to update and give you a detailed analysis of your merchandise, an automated system will provide you with real-time results and improv inventory forecasting. This will enable you to make much more informed decisions about your inventory, and you will be able to avoid situations of dead stock and inventory stock-outs. 

5. Synchronize Order and Inventory Management

Using a centralized inventory management system and synchronizing it with order management can help you process inventory and orders in real-time. This will help you analyze stock in real-time with each incoming order. In case you are short on the list, you will be able to order inventory in advance, and if your orders are lower, you can put a strategy for slow-moving inventory sooner. This will help you prevent the accumulation of deadstock, and if at all it persists, you can get rid of it more shortly. You can store your products with Shiprocket Fulfillment and process them much faster with advanced warehouse and inventory management systems in place. 

6. Offer Free Shipping

When you provide offers like free shipping on your deadstock along with your flash sales and giveaways, it prompts users to purchase your product. It can be used as a great promotion strategy to lure more customers to your store. And to offer free shipping, you do not need to spend a lot of money. Shiprocket offers you shipping with 17+ courier partners at the cheapest rate starting from Rs.20/500 gms. 

7. Deploy Targeted Marketing for These Products

Another excellent way of getting rid of the dead stock is by marketing these products extensively. Once you realize that you have a lot of dead stock that you can get rid of, create specific marketing plans and audiences for these products and promote them on search engines and social media. This will help you reach a broad audience sooner, and you will be able to get rid of the stock quicker. 

Final Thoughts

Dead Stock is a giant menace for your business if not taken care of on time. Make sure that you analyze your inventory regularly to see if you have any dead stock. Try using these strategies to get rid of dead stock and run your business smoothly.

The inventory hold for your business is one of the essential capital you have. It is what runs your business, and you need to be aware of its expenses and operations at all times. Even though inventory is essential for your business, it can also be one of the most challenging liabilities if you do not take care of the money you spend on it.

Monitoring your inventory is essential as it can incur many excess costs in storing and processing it. This is what is known as inventory costs, and it is necessary to reduce your inventory cost to run your eCommerce business successfully and profitably.

Let’s look at what inventory costs are, their types, and how you can reduce them for your eCommerce business. 

What are Inventory Costs?

Inventory costs referred to the total costs associated with inventory management for any eCommerce business. These include the sourcing cost, storing costs, processing costs, carrying costs, etc. Since inventory is critical and comprehensive, sellers tend to spend a lot of their capital on managing inventory rather than optimizing it. 

Inventory costs can increase exponentially if the inventory is not moved quickly. The carrying costs can eventually add up and cause considerable harm to your business. Let’s look at the different types of inventory costs and how to reduce them. 

Types of Inventory Costs

Ordering costs

Ordering cost referred to the setup costs that are incurred whenever you place an order from your supplier. These refer to the sourcing costs and the money you spent on procuring the goods you want to sell.

Holding costs

Holding cost is also known as carrying cost and is known as the costs you incur for storing the products before they are sold. These include storage space costs, service costs, financing costs, etc.

Shortage Costs

These refer to the stock out costs and are incurred when you run out of inventory and need to source extra for making sales. This could come off due to destructive production, emergency shipments, etc.

Spoilage Costs

Lastly, spoilage costs refer to the money that you spend when the inventory you have stored is spoiled or damaged. This is mainly applicable to perishable inventory like food, cosmetics, pharmaceuticals, etc.

How Can You Reduce Inventory Costs?

Regular Tracking of Inventory Costs

You are tracking your inventory costs regularly instead of just estimating them. Inventory carrying cost can account for many expenses, including the cost of deterioration, taxes, administration cost, capital, labor cost, etc. Along with this, other hidden costs are usually not taken into account. Regular tracking of inventory costs can help you stay up to date with the total expenditure, and you can optimize your operations and expenses accordingly. 

Regulate the Order Management Process

The order management system and inventory management operations must go hand-in-hand. If the sync between these operations is broken, either your inventory or order processing will suffer. Keep a thorough track of your customers and the ongoing orders so that you can move your inventory accordingly. Also, a sorted order management process will help you forecast demand so you can purchase stock, therefore. 

Handle Excess Inventory

Storing excess inventory can be much more harmful to your business, as you will have to pay more for the storage and handling costs of these products. Your carrying costs will directly be impacted. If you have excess inventory, you can either return it, run sales to sell them off at cheaper prices, or ship them to your different warehouses. This will help you eliminate any excess inventory and save on additional carrying costs. 

Reduce Shipping Costs

Expensive shipping costs also add to your eventual inventory costs. Try to ship with a solution that offers you multiple courier partners so you can ship products faster. With a strong distribution network, you will be able to quickly get rid of your inventory and keep it fast-moving.

Make Data-Driven Decisions

Utilize the data you get from order management and inventory management systems to make insightful decisions. Don’t base your forecasts and decisions on estimates. Analyze the results and information you get from automated system analytics. Apply predictive analytics to see your future predictions and develop innovative solutions to invest in the stock. Come up with techniques to not order too much inventory and also avoid the problems of a stock out situation. 

Conclusion

Monitor your inventory costs regularly to assess where you spend most properly. Gauge weak spots and come up with solutions to tackle any roadblocks that come your way. Spend wisely and optimize your inventory management systems to make sure that you can reduce your inventory costs and optimize operations further on.

When we talk about eCommerce, your inventory is your biggest asset. It defines your business, and how well you can deliver to your customers. And inventory is one of the most critical aspects of any fulfillment supply chain. If not tackled properly, it can soon turn into a liability that can be very difficult to get rid of. Therefore, you need to have systems in place to keep check of your inventory and track its purchase and sale. The key to having a successful inventory management system is balance. But the question is how can you attain it?

Most eCommerce sellers do not track their inventory regularly. This often leads to the accumulation of more than the required inventory or the unfortunate cases of stockouts. Either of these situations can be harmful to your eCommerce business. 

Here are two forms of inventory systems – periodic and perpetual inventory, that can prove to be successful in tracking your eCommerce inventory. Let’s have a look at what they are, the differences between them, and how they can be useful for your business. 

What is the Periodic Inventory System?

When you count, track, record, and value inventory at specific time intervals, it is known as a periodic inventory system. The inventory valuation process helps determine the cost of goods sold or COGS.

It is generally used to maintain a separate account for delivery costs and inventory account. So basically it is the valuation of inventory at specific time intervals which are known as accounting periods.

Here, the cost of goods sold refers to the direct costs that a company incurs while selling goods. This could include raw materials or manufacturing costs.

What is the Perpetual Inventory System?

The perpetual inventory system is the opposite of the periodic inventory system where inventory management is carried out in real-time through the use of an inventory management system that automates the process. Therefore, in a perpetual inventory system, the changes will be recorded with every transaction that takes place on your eCommerce website.

Difference Between Periodic Inventory System and Perpetual Inventory System?

The first major difference between periodic and perpetual inventory management is the time interval at which the inventory tracking and valuation are done. In periodic inventory, it is done after specific accounting intervals and in perpetual inventory, it is done in real-time. 

In the periodic inventory system, inventory data is kept up-to-date using physical counting of inventory and further estimating the COGS using different inventory valuation methods. Whereas in perpetual inventory management, inventory is tracked in real-time and inventory data is centralized.

The Relevance of a Periodic Inventory System

Periodic inventory systems are useful for businesses that are just starting out and do not require a large use of inventory. Small-scale businesses can account for physical inventory and keep track of it with different inventory valuation methods. You can eventually switch to a more advanced system but starting out with a periodic inventory system works well as you do not require to invest a lot into it. 

The periodic inventory system is useful for grocery stores as they have a very large inventory of small products so they can make minor adjustments in their stock over time and also record it physically.

Similarly, in convenience stores and clothing stores, you can run on the same principle and record and evaluate inventory over a specific time interval. 

The Relevance of a Perpetual Inventory System

A perpetual inventory system gives eCommerce businesses a more accurate overview of the stock levels and eliminates the manual processes involved in maintaining an inventory management system. This form of stock management is more accurate and works on real-time data. Therefore, eCommerce businesses can get information much faster about stockouts, low inventory, excess inventory, etc.. It also helps up in freeing time and capital. However, since it works on a centralized inventory management system, it is slightly more expensive than the periodic inventory management system.

The perpetual inventory management system is most suitable for businesses that work on a variety of products and with a very large inventory. Since it gets difficult to maintain product count on a long-term basis, the perpetual inventory management system can be suitable for managing inventory across channels and in real-time. Also, with large stock levels, inventory management systems can eventually lead to a decrease in inventory management costs and you can forecast inventory levels more efficiently. 

Order Fulfillment & Inventory Management

Inventory management can be a tedious task for businesses. With a constant influx of inventory and sales, it can get difficult to evaluate and assess inventory on a regular basis. However, this task can be simplified if you outsource your fulfillment operations to a 3PL provider like Shiprocket Fulfillment. 

Shiprocket Fulfillment works with the best inventory management system to provide you with a completely automated inventory management and warehousing workflow. Once you send your inventory to the Shiprocket Fulfillment warehouses, you can be least bothered about how your inventory is going to be managed. 

But Shiprocket Fulfillment warehouses, you can easily store all your inventory across India and get real-time updates about your stock levels. Eliminate all manual work and rely on 3PL providers for complete inventory management services. This way, you can save ample capital & resources while growing your business. 

Conclusion

Both the periodic and perpetual inventory management systems have their own benefits. However, the perpetual inventory management system is more advanced as it is developed to give you information quicker. Depending upon your business needs, you can select the most suitable inventory management system for your business.