Building a Better Inventory Management Structure

Employees working in warehouse

By guest author Albert Ong

Imagine a business with perfect inventory management: inventory that flows in and out of a warehouse like a stream, sending out orders quickly and efficiently without any delays. Stock would be replenished just at the right time, without the need to carry excess or slow-moving inventory. Alas, that’s not the case for most sellers.

According to a recent survey, 43 percent of small businesses do not have adequate inventory control:

  • 8 percent do not track inventory
  • 14 percent use pen and paper
  • 21 percent still use spreadsheets.

By not tracking inventory, you could easily run out of stock, losing potential customers. Worse, you might end up overselling, which leads to a mountain of backorders, cancellations or frustrated customers itching to drop negative reviews.

In the same vein, overstocking is almost as bad as understocking. Stale, excess and slow-moving inventory ties up capital and warehouse space. Each day these items are not sold, they get in the way of faster-moving items, requiring management and are subject to damage, depreciation and obsolescence.

Today’s customers are harder to please and easier to lose, and fulfillment delays due to stockouts will leave a bad customer experience. The best treatment for overstocking and understocking is a preventative one. Though it’s easier said than done, it all starts with properly tracking inventory, eliminating excess, and forecasting stock requirements.

The Most Effective Way to Count Inventory

Before you can track inventory properly, it’s very important to get accurate inventory counts for each warehouse you manage. Cycle counting is a popular inventory auditing technique. Not only is it less disruptive than traditional physical counting, it also takes significantly less time and labor.

Instead of freezing your facility’s operations to perform a full audit, with cycle counting, you’ll only need to audit a few items in a specific location on specified dates. Cycle counting should be scheduled as often as possible and done at the start of the day before it gets too busy in the warehouse.

If done correctly, cycle counting can replace annual physical audits and improve inventory visibility. If paired with automation tools, such as barcode scanners and a dedicated inventory tracking system, you will be able to project stock requirements effectively and reduce the risks of overstocking and understocking.

Smart Ways to Convert Slow and Excess Inventory

What defines slow-moving inventory can vary by industry, depending on product demand. Generally, if you haven’t sold an item of a particular SKU within 90-120 days, then that SKU should be reordered less frequently than your faster-moving items.

Afraid of stockouts, retailers might end up buying too much inventory, without proper data to inform their purchasing decisions. Sluggish inventory should be dealt with to free up space and allow for more options.

There are many creative ways to sell excess inventory without immediately marking prices down. In fact, liquidators should be your last resort.

Before declaring your items “dead” inventory, first ask yourself the following questions:

  • What is your threshold for slow vs. dead merchandise?
  • Why are these specific items not selling?
  • What can I do to entice buyers to purchase them?
  • Are there ways I can promote these products alongside popular ones?

Perhaps your images and listing content need updating. Maybe you need to help customers find or understand these products better, either by simplifying the purchasing path on your site or by using email marketing.

Another way to create deals is to pair your slow sellers with best sellers through product bundling. Shoppers love a great bargain, so instead of slashing prices, consider bundling them with popular SKUs. Bundling expands your product assortment and allows you to try different combinations. Do some testing to see what works and what doesn’t.

Some buyers might enjoy multi-pack bundles, while mystery or gift bundles can appeal to certain customers. If that doesn’t work, you should consider flash sales and clearance sales. It’s better to sell at a loss than keep dead inventory obstructing your cash flow.

Still, the best solution is to prevent overstocking in the first place.

The ultimate goal is to adopt a leaner approach to inventory and warehousing: keeping only what you need. This minimalist approach not only reduces time spent counting and searching for inventory, but it also cuts down material handling time, such as picking, putaway, palletizing, and other manual labor.

Of course, the prerequisite to this is having the confidence of inventory control and forecasting before you can start eliminating safety stocks.

The Best Way to Forecast and Optimize Inventory

Having more accurate data is the first step for optimizing inventory levels. Sales performance, seasonality and shipping frequency can all help you forecast your stock requirements, giving you vital information in determining what sells, how often, and how much to keep.

But let’s face it: tracking inventory, counting stock, and making projections are all extremely tedious and inefficient when done manually, especially if your goal is to grow and expand on to multiple marketplaces.

It takes a lot of time, patience, and attention to detail when using spreadsheets to calculate reorder points and reorder quantities for every single SKU, while accounting for each vendor’s lead time, just to know the precise moment to purchase inventory.

The more complex the spreadsheet, the higher the chance for error. And when you carry thousands of products and handle orders from multiple channels, the last thing you want is for human error to break the system, directly affecting your reputation on those marketplaces.

This is why 50 percent of high-volume retailers are choosing to invest in more dedicated warehouse automation software, according to Zebra Technologies. When you manage orders from different stores and marketplaces, or when you start multiplying your warehouses, spreadsheets and manual processes will not give you adequate stock visibility or projections.

You’ll need a robust inventory automation software to streamline and optimize your stock levels across all platforms.

If you decide to shop for an inventory management system, make sure it can track your best and worst performing SKUs and determine the best time to reorder. It should be able to manage vendors and purchase orders, while also taking into account your other needs, such as FBA, drop shipping or 3PL integrations.

Only then will you be able to process orders and inventory like a steady stream.

About the author:

Albert OngAlbert Ong is the product marketing specialist at Jazva, a cloud-based multi-channel ecommerce solution that helps merchants fast track their online business. Jazva delivers a suite of enterprise functionalities that high volume B2B and B2C retailers need to compete and succeed in the market.

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