Why is inventory so important for E-commerce?
Have you ever thought about “inventory” when it comes to E-commerce? If the answer is no…trust me you are not alone. Who would think that for E-commerce which simply is an internet based business will need the inventory management as much as a traditional brick and mortar business? In fact, inventory management contributes to the bigger impact than we think, it is one of the key components that affects the company’s bottom line revenue.
What is inventory?
Inventory is the amount of the offering tangible products and services to customers, including raw materials used in the production of those products and services. It is classified as a part of the assets of the company on the balance sheet. In E-commerce business, the inventory is mostly full of finished products that are ready to order and be shipped.
More importantly, managing inventory allows company to evaluate the amount of raw materials or finished products that should be restocked and how much revenue the company is making in real time. In order to ensure the expected income, the size of inventory plays a significant role. If the inventory is too big, the company is facing an additional inventory cost that will impact on less revenue. If the inventory is too small, the company is facing the risk of losing potential sales and customers. In addition, the product shelf life should be taken into the consideration as it leads to the inventory turnover ratio, which is how often the company should sell and replace it’s inventory in the certain period.
Can you believe that the typical inventory accuracy is only 60 percent?
Not only for E-commerce business, but inventory accuracy is also extremely crucial for physical stores that sell their products online. Being able to track how many items are sold and how many items are in-stock sounds very fundamental for me when it comes to business operation. It is so surprising that the companies are operating with just 60 percent of inventory accuracy…what about other 40 percent?!?!
There are 6 steps to increase the accuracy in inventory management you should know, if you are, or soon to be an E-commerce business owner.
First is to identify stock items.
All of the raw materials needed to produce the products and finished products, including boxes and other things that required to ship the product out to customers should be counted and identified.
Second is to have the minimum stock level.
The smallest level of stock is required for each item. Whenever the minimum stock is reached, the company will know that it is the time for them to contact suppliers and re-order the products.
Third is to define unit of measure.
This step is important as it can easily save time and also allows the system of inventory management to be more accurate. If all the personnel know that there are 25 shirts in every box, they don’t have to waste the time counting the shirt in each box.
Fourth is to calculate the lead time.
It is useful to know how long does it take, in order to get the ordered items for inventory to be delivered. So that the time frame of each item can be estimated.
Fifth is to understand the product turnaround.
The term “turnaround” in this context is the period of time required for the process, starting from turning stock items to finished products, and to deliver those products to the point of sales. This can help the manager to estimate the right inventory that will be needed, over the certain period of time.
Last but not least is to generate a purchasing plan.
It is a plan that consisted of guidelines for the business, especially when to order stock items that is needed to create a finished products from the suppliers.
From all of those steps, I think it can be beneficial as the underlying basic for the E-commerce business owners to manage their inventory. However, thanks to nowadays’ technology, we have another option that can increase the accuracy of inventory, it is called RFID stock management.
RFID stands for “Radio Frequency Identification”, which allows the products to be tracked in real time, by the use of RFID tags and RFID reader. Not only tacking haw many items being sold, this technology can also help you get the reliable information of the inventory levels and the quantity of the stock items, each model of the items, including color and sized details. In return, it contributes to the increase of inventory accuracy to 13 percent more. Moreover, it also leads to less laborious tasks for the staffs so that they have more time to emphasize on increasing productivity, customers’ satisfaction, and other area of work. This is revolutionary and this is what we need, in order to operate our business more effectively.
