One of the best ways to increase the profits from your ecommerce business in 2017 is to improve your inventory management. Even if you think you’ve got a good system for inventory management, a few tweaks could take your process and profits to a higher level.
If you could predict the timing and amount of your future sales with 100% accuracy, inventory management would be a breeze. The longer you’ve been in business, the more data you have to help forecast your sales in 2017. A good forecast will incorporate your business’s growth curve, market trends that could affect your sales, consumer confidence, and your sales and promotions calendar. But the one thing you know to expect is the unexpected.
Good inventory management won’t solve every problem you will face in the coming year, but it can go a long way to smoothing out the rough patches. Here are 5 ways you can brighten your 2017 with improved inventory management.
1. Set Minimum Stock Levels
If Suzie from Savannah has her heart set on a red polka dot dress, you’ll crush her polka dot-loving heart if you have to tell her you’re out of stock in her size. Worse yet, the manufacturer who supplies your red polka dot dresses sews to order, so it will take seven weeks to get the dress Suzie wants in Suzie’s size. You’ve just lost a customer.
On the other hand, you don’t want to tie up all your cash and warehouse space with red polka dot dress inventory.
There is no perfect solution to this dilemma, which is the constant dance of inventory management – how to have just enough stock but not too much. Minimum stocking levels are a great way to approach this balance. Set a minimum stock level for each item that allows you to order new stock in before you run out. Base your minimum stock on sales data and combined with time needed to acquire new stock.
If you sell about one polka dot dress per size per week, then you need to order when you have seven (or eight) on hand, so the new stock will arrive before you sell out.
2. Understand Your Supply Chain
Before a red polka dot dress arrives on the shelves of your fulfillment warehouse, a number of things must happen. Your supplier needs to order red polka dot fabric to have enough on hand to make the dresses you ordered. Then there’s the time to ship from the manufacturer to your fulfillment warehouse and get the dresses logged into inventory.
An actress wears a red polka dot evening dress on the red carpet and there’s a sudden run on red polka dot fabric, so your manufacturer can’t restock. A series of storms grounds the freight airplane carrying your package and your order is delayed. Any number of glitches can throw a wrench in your otherwise orderly supply chain.
Some events are unavoidable, but understanding all the links in your supply chain can help you stay ahead of the extraordinary events that will sometimes come together to mess it up. At Red Stag, we think this is key to keeping your inventory fresh and moving smoothly. That’s why we work with our customers to help them understand their supply chains. Carrying the least inventory you need in order to turn over the most product is the best practice for inventory management and ecommerce success.
3. Get Flexible with Your SKUs
Even the best inventory management system can’t anticipate every spike in demand. For example, let’s say you sell artisanal plum vinegar by the bottle and you also sell cases of 12 bottles each. You ship 1000 bottles and 100 cases to your fulfillment warehouse and start taking orders.
Perhaps the cases are such a good deal that you sell out more quickly than you expected but you still have 500 single bottles left in stock. The individual bottles have a different SKU from the cases. Orders keep pouring in faster than you can get more cases of plum vinegar delivered to your fulfillment center. What do you do?At Red Stag Fulfillment, we can change the SKUs and convert individual items into cases and vice versa. We find this is particularly helpful when our clients hit a crunch time and there isn’t time to ship more stock in. And we don’t charge for SKU management, so you get flexible inventory management without a lot of add-on charges.
4. Move Zombie Inventory Out!
When your inventory balloons out of control, it costs your business in several different ways. If you have $100,000 in inventory and $70,000 of that is tied up in products that are just sitting on the shelf, that’s a terrible use of your cash. Your carried inventory doesn’t appreciate in value and can even lose value as style or packaging changes make older products difficult to sell.
That’s not the only cost of inventory that sits dead on the shelves, there’s a huge opportunity cost component to cash tied up in inventory. The money you’ve spent this zombie inventory could be more effectively spent on advertising or website upgrades that would boost your sales, and truly move the needle for your eCommerce business.
It’s easy to forget about this inventory since you aren’t at your fulfillment warehouse every day. That’s another reason that Red Stag works with our customers on inventory management. We don’t make money when your stock sits on the shelf either; we want your inventory to turn over quickly so we make money and so do you. Keep tabs on what’s not moving and put zombie inventory on sale. Clear the deadwood from your fulfillment center shelves and you will be more nimble in 2017.
5. Shrink Shrinkage
One of the most frustrating aspects of inventory management is managing the inventory that is no longer there. Shrinkage is a nice way to say damage, breakage, loss, and petty theft: all the reasons that a red polka dot dress size ten isn’t on the shelf, even though your inventory says it should be.
Most fulfillment centers have an allowance for shrinkage. This means that your inventory management system is likely to have ghosts: items that appear in your inventory but aren’t on the warehouse shelf waiting to ship.
At Red Stag, we have a zero-shrinkage policy. Once we log your item into inventory, we guarantee it will be there. If it gets damaged or goes missing on our watch, we will reimburse you for the wholesale price of the item.
Stock that turns over constantly is the lifeblood of a thriving ecommerce enterprise. Inventory management may not be the sexiest part of running your ecommerce business, but it is one area where an investment of time can bring you big financial returns.