The advantages of utilizing an inventory management system

Rfmobi Store
14 Sep , 2022

What's at the center of every successful product-based ecommerce venture? It's not your website or your social media strategy that's the problem; it's your inventory management system.

Your order volumes will grow as you expand your ecommerce firm into new sales channels and markets, but so will the complexity of fulfilling orders from numerous sales channels. If you're still manually maintaining your inventory, you'll eventually reach a point where it becomes unmanageable. Manual inventory management comes with a slew of drawbacks. Everything takes time, from processing orders from each sales channel independently to performing frequent manual stock inspections so you can adjust your stock levels across each platform. And you'd be better off using that time to grow your company. Because of the time it takes to reconcile this data, there may be a lack of insight into real-time stock levels, lags in reordering when stock levels are low, and hence stockouts and lost sales. Not to mention the possibility of human errors leading to issues such as overselling, which can result in dissatisfied consumers, lost marketing money, and reputational harm, as well as your suspension from some markets. Another danger is missing out on lucrative sales since listings are not instantly reactivated when the product is back in stock.

Implementing an inventory management system to automate the tedious labor for you is the answer.

There are several advantages to automating this crucial aspect of your organization. We'll go through the primary advantages of automating your inventory management and the influence it can have on other aspects of your organization in this post.

What exactly is inventory management?

Inventory management is an important aspect of your total supply chain since it helps you to track your items' purchase, storage, and sale at any time.

You'll be able to check your stock levels at any given time at a precise, granular level once you know where each product is located.

When you can automatically track how much stock you have and where it is, inventory management goes from a difficult, manual task to a key component of your business's development plan.

You may use this information to predict inventory planning and automate the reordering process, producing even more efficiency in your stock management process, once you've established correct inventory details across all sales channels. You can follow those items from your supplier, into your warehouses (down to the precise shelf), through the fulfillment process to the buyer, and back via the returns procedure after they've been purchased.

What is the significance of inventory management?

Inventory management ensures that you never run out of a product by keeping track of stock levels throughout all warehouse locations and inventory cycle phases (physical stock on hand, stock sought from suppliers, and stock booked in open orders). At the same time, by projecting demand based on consumption data, it can assist prevent overstocking and understocking. It also aids in the faster and more efficient processing of orders, saving you time and money.

Furthermore, utilizing an inventory management system helps you avoid overselling, which can hurt your business's reputation. Finally, an inventory management system may assist you in making better stock level decisions and increasing overall business efficiency.

The Advantages of Using an Inventory Management System

Using software to automate a critical company activity like inventory management has a slew of advantages, including:

Automated inventory management

Automation might be one of the most significant advantages of an inventory management system. Automation eliminates the possibility of human error, saves you time, and assures that you don't make mistakes. Once a set of rules has been established, this is a system that can do repetitive activities with minimal manual assistance. This not only gives you real-time inventory visibility, but it also updates your stock count when a sale is made. This functionality is essential not just for accurate forecasting, but also for providing a positive client experience by preventing overselling. Automated inventory management also provides real-time visibility into where your goods is located, which is critical if you store merchandise in several places such as a warehouse and a physical store, or if you sell via multiple channels.

Forecasting inventory for holiday and peak season readiness

Because of precise demand forecasting, when order volumes grow significantly due to holidays or events throughout the year, such as a large marketing push from an influencer, the quantity of inventory you have will stay up with demand. Historical and seasonal data may also be used to figure out if there are any sales patterns that necessitate stock level modifications at different periods of the year.

Overselling and stock outs should be avoided.

Overselling is a key issue for ecommerce organizations in the early stages. When you don't keep track of your inventory accurately, it's simple to run out of things without realizing it, resulting in stock outs. Not only would your consumers be less likely to return, wasting marketing budget and client acquisition expenditures, but you may also be banned from some markets. An inventory management system keeps track of orders and inventory across all of your sales channels at the same time, letting you know when it's time to restock.

Costs of running an online firm should be reduced.

Advanced inventory management reports show you exactly what you have in stock, so your warehouse personnel doesn't waste time hunting for stuff that isn't there. This ensures a flawless select, pack, and ship procedure, allowing you to complete more orders as quickly as feasible.

Another strategy to save money is to avoid ordering excessive quantities of a product with low sales volume. You'll have a clear picture of the items your consumers are buying thanks to reliable data and insights reporting.

More accurate inventory planning and forecasting

Any successful firm relies on accurate reporting and data. A software system that interacts with all of the marketplaces and sales channels you sell on, as well as shipping and third-party logistics (3PL) providers, will guarantee that all information is correct and that your business is visible in real time. This will enable for improved corporate decision-making, more accurate inventory forecasting and planning, and hence reduced waste in terms of expenses associated with retaining unsold product or stock held in the incorrect places.

Increasing supply chain efficiency

When it comes to the supply chain, unexpected obstacles are common. Retailers and ecommerce enterprises can more successfully implement a supply chain diversification plan if they have an inventory management system in place. If you have several suppliers, you lessen the chance of extended product wait periods if one of them fails to deliver on time. You can plan ahead of time for a certain time period, such as peak season, to order the correct amount of goods from a supplier and avoid problems.

Easily add additional selling channels

Want to test a new sales channel, such as a marketplace, to sell your products? Adding new channels is easier with an inventory management system since it consolidates your inventory management into a single area, allowing you to keep a real-time view of your inventory even if it's being sold in numerous locations. When your merchandise may be sold in numerous places at simultaneously, features like real-time inventory sync and forecasting become even more important for inventory control.

Techniques for Inventory Management

When it comes to inventory management, there is no such thing as a one-size-fits-all solution. One of the most appealing aspects of this system is the ability to select from a number of inventory management approaches. Choose the one that best fits your company's structure so you can concentrate on generating development.

Set up par levels

Periodic Automatic Replenishment levels are also known as par levels. These enable you to specify a minimum amount of inventory that must be kept on hand at all times. It's time to restock when your stock levels reach this level. This helps you to strike a balance between the usual demand rate for particular goods and the danger of overselling. Individual par levels will vary, but you may determine them using a reorder point method that takes into account your typical daily sales volume, as well as the lead time and safety stock number for each product in your inventory.

First in, First Out(FIFO)

The FIFO (First In, First Out) method keeps track of how inventory is booked and subsequently despatched. This might help you reduce outmoded inventory and track the value of your stock. Leaving items on the shelf might result in price disparities between market and stock prices. The FIFO method makes aligning your pricing and reducing the impact of inflation much easy. It's also one method for handling items having an expiration date and reducing their storage duration.

First Expired, First Out(FEFO

The First Expired First Out (FEFO) method is a version of FIFO that involves transporting things closest to their expiration date first. This method, which is popular among firms selling perishable commodities like cosmetics, medicines, food, and drink, assures that you'll rarely have unsaleable or expired products in your inventory. To function well, this strategy must be combined with an inventory management system that can track expiration dates.

Just in Time(JIT)

JIT (Just in Time) production is also known as lean manufacturing. The idea is to boost efficiency while lowering expenses by only ordering and getting product when it's needed. JIT lowers your dependency on warehouse storage while simultaneously lowering inventory holding expenses. This method is often used by eCommerce companies that make personalized items. It's not for everyone, though, because it leaves a very limited margin for mistake, which might lead to problems with order fulfillment.

ABC Analysis

Demand for various items is rarely uniformly dispersed over your whole inventory. You may account for this using the ABC Analysis approach, which divides your items into three categories: A, B, and C. This can be determined by their demand, worth, or cost-effectiveness. You may prioritize the ordering of certain things that you've recognized as a priority by dividing your stock into distinct groups.

Develop a contingency plan

If the previous several years have taught ecommerce firms anything, it's that you need to be ready for everything. An unexpected increase in internet sales as a result of a global epidemic that forces physical stores to close? Due to a cargo ship obstructing one of the most important shipping routes, supply chain issues have arisen. Would your firm be able to withstand a sudden sales boom that you couldn't meet, or a client demand for items that you couldn't supply? Mitigation methods, such as alternate suppliers or the flexibility to shift operations to various sales channels, are critical to a company's existence.  

Control overstock and dead stock.

Dead stock refers to things that have been removed from sale to customers but are still taking up precious storage space and incurring additional expenditures. These items are out of stock because they may be obsolete or do not meet consumer expectations for quality.

Surplus inventory occurs when there is an excess of inventory, which results in dead stock. When you don't have enough information into your sales and inventory levels to effectively anticipate your stock levels, you'll end up with surplus inventory. So that surplus inventory does not build up, an inventory management system with real-time visibility helps you to predict when and where to transfer items across multiple markets or sales channels. This is especially crucial when selling on the marketplace, because slow-moving stock kept by the marketplace might result in higher stock holding charges or fines.

Inventory management KPIs

You should keep track of crucial company KPIs to enhance workflows and inventory planning. Here are some of the most important KPIs to monitor:

Stock rotation is measured by the inventory turnover rate. This metric indicates how many times inventory is sold and replaced in a certain time frame.

Formulas and examples for calculating inventory turnover

The period between placing a purchase order for stock replenishment and receiving the items from your supplier is known as lead time.

Why is an inventory management system required?

An inventory management system, as previously said, can help you streamline the entire back-end ecommerce process. Rather of manually updating each sales channel with stock levels, you can simply sync them all together and let the inventory management software do the rest.

When a consumer purchases an item from one of your selling channels (such as Amazon or eBay), the item is automatically subtracted from your stock levels across all platforms. This means you'll never have to worry about overselling again, and you'll have more time to focus on other aspects of your company.

Adding an inventory management system to your ecommerce technology stack

One of the most significant characteristics to consider when picking an inventory management system is how easy it is to interact with the other ecommerce platforms you use. To assist you operate your firm, you have sales channels, CRM systems, customer support software, and 3PL and fulfillment suppliers. The more integrations an inventory management software can enable, the better for your ecommerce business's effective operations.

Linn works inventory management system characteristics

The advantages of utilizing an inventory management system are self-evident. However, choosing an easy system with all of the necessary capabilities to help you expand your business is critical. Linnworks inventory management software connects and automates your ecommerce operation utilizing a variety of innovative capabilities, allowing you to maximize every income opportunity.

Update inventory in real-time

You can adjust your inventory levels the second an order is processed thanks to real-time, detailed data. Linnworks provides a single dashboard where you can see all of the information you need regarding particular product stock levels. This helps you to manage your sales across all channels with ease, knowing that you know precisely how much stock you have and where it is.

Reporting and insights

You may enhance your prospective sales by gaining insights into prior sales or seasonal trends. To better understand your selling habits, forecast demand for certain items utilizing reporting tools and inventory indicators. This type of information allows you to make smart decisions that will help you stay ahead of the competition.

Demand planning

Forecasting demand for certain items may appear to be akin to predicting the future. However, with the correct inventory management system, it's not nearly as difficult. When it comes to demand forecasting, there are a variety of methodologies to select from, including time series and casual forecasting. The good news is that with demand planning and comprehensive inventory management software, you can successfully control your stock and optimize your profits.

Prevent overselling

Monitor real-time consumption statistics across all of your selling channels to stop overselling in its tracks. You'll get an accurate view of your stock levels if you synchronize your orders and inventories. Optimizing your inventory management in this way lowers the danger of overstocking and underselling, which improves the customer experience and helps you keep your marketplace reputation.

Streamline the purchase order (PO) procedure.

It makes a significant difference to keep solid ties with your suppliers. By saving crucial information about each of your suppliers in one one spot, you can rapidly streamline your inventory management. Apply fast availability criteria to make educated judgments about whether goods need to be reordered. Streamline the process by picking a list of items and having Linnworks produce purchase orders to refill products to minimum or optimal stock levels automatically. For maximum convenience, track and manage the whole chronology of individual POs from a single central dashboard.

Inventory tracking

Even if you carry items in many locations across the country and globally, know exactly where your inventory is. This cuts the time it takes to manually trace individual items around your supply chain in half. Inventory tracking also allows you to save shipping costs and supplier lead times, allowing you to keep stock levels low and cut warehousing expenditures.

With the correct inventory management software, you can completely transform your firm.

When you use the appropriate ecommerce inventory management software, you can cut expenses, boost profits, and increase efficiency all at the same time. Automating your inventory management gives you more time to focus on marketing and growth while also providing you with complete visibility into your sales and stock movements, allowing you to recognize sales opportunities and address supply concerns before they happen.

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