Cash is the life blood of your business. Your business is profitable, but your cash flow is tight. A quick look into the financials would often uncover the same problem…poor inventory management. And that is just the tip of the iceberg. Stock loss and loss of revenue are deeper issues that don’t surface until you realise your physical stock balance don’t match your stock reports.

For many businesses, managing stock is a mundane affair…a month end summary of stock on hand or stock balance report. While others simply deduct sales volume from the last supplier delivery to get an estimate of stock balance. What most businesses fail to understand is stock reporting is not the same as inventory management.

What’s Wrong with Stock Reports ?

Most businesses use some kind of accounting system to manage finances and inventory. The reality is such systems do not record the physical location of your stock under storage, nor does it track the movement of your stock. Accounting systems simply generate a stock report based on stock-in (purchase orders) and stock-out (sales orders).

Such stock reports will typically list your stock balance by product lines. The same report does not tell you how much stock has been sitting idle for how long, nor does it indicate if some of the stock is expired, damaged, returned and unsuitable for sale. It’s simply a mathematical calculation of stock-in less stock-out.

Most importantly, it does not tell you if the reported stock quantities are really physically there.

What is Inventory Management ?

The nature of your business defines what inventory management means to you. We will focus on inventory management for the retail industry – retailers, distributors and ecommerce businesses where it is more complex and challenging to achieve a balanced and efficient stock holding.

Retail inventory is often characterized with a high mix of products, with many product variances like style, colour, size, material and more…mostly sold by pieces, not in bulk, with daily stock movement. Retail products need to be replenished frequently in-stores, and well distributed across many physical locations and ecommerce stores.

The challenge for retail inventory management is ensuring the right quantities of the right product (variance) is always available for sale in the right location at the right time.

Inventory management is how you track and control your business’ inventory as it is manufactured or purchased, shipped, stored, made available for sale, and replenished again. It governs the entire flow of goods — from purchasing right through to sale.

  1. What to purchase ?
  2.  How much to purchase ?
  3. When to ship ?
  4. Which product is fast moving ?
  5. What is the sell out rate ?
  6. Which product is slow moving ?
  7. Which product is over stock ?
  8. How long products have been under inventory ?
  9. Which product to mark down ?

The ultimate goal of inventory management is to make the most efficient use of your business cash flow by recycling cash used for purchasing stock for sale, back into the business again in the shortest time possible.

Simply put, if you sold your entire inventory twice in a month, you made double the profit on the same amount of cash. Inventory management is key to your business finances.

It’s Not Just Numbers

Your inventory is money locked in stock. The physical aspect of your stock is just as important as the analytics of what is selling, and what’s not. Your products must be physically available and ready for sale. Lost or missing inventory is a loss of opportunity and revenue. And it hurts you more than you think.

Let’s say you spend an average of a thousand dollars per month on marketing and advertising, and it results in a hundred product sales per month. So you spend an average of ten dollars per product to drive sales.

Assuming the cost of the product is ten dollars, and it was not available for sale upon receiving a sales order. Whether the product was physically misplaced, lost, not fit for sale or out of stock, it really costs you ten dollars in lost revenue, plus another 10 dollars in wasted marketing cost. That’s double of the product value.

Don’t forget about the unhappy customer who placed the order and didn’t receive the product. Disgruntled customers can harm your business with bad reviews, negative comments on social media pages, leading to loss of confidence from other potential customers. Ouch! If that isn’t enough, marketplaces penalize sellers who fail to fulfill their orers with cash penalties.

Where Is My Stock ?

It is pure business instinct to focus on sales and marketing, and leave small operational issues like a failed order or return order for later. The accumulative effect of poor operational oversight coupled with a lack of standardized processes and inventory management systems, snowball into a much bigger problem — inaccurate inventory data.

Lost or missing inventory could mean you suffered from a myriad of issues.

1. Poor Receiving Process

Stock received not counted against the packing list, creating a mismatch between physical and system inventory.

2. Poor Storage Management

Stock is stored and moved around the storage facility without recording physical locations, resulting in misplaced stock.

3. Inaccurate Order Fulfilment

Sales orders are shipped out with wrong products or wrong quantities, again creating a mismatch between physical and system inventory.

4. No Inventory Management System

Without scanning stock in and out of a dedicated system, inventory data is only as accurate as the human (error) behind it.

5. Poor Return Management

Products returned are not investigated, processed and recycled back for sale with little or no documentation for traceability.

6. Poor Security

Stock lost to pilferage & theft at the point of sale or within the storage facility. Combined this with poor storage management, stock lost is untraceable.

Unless you stock a limited number of products with relatively low inventory levels, it does require management – people with skills, process – experience and know-how, hardware and software to consistently and accurately manage inventory. All of these require time, effort, and investment, plus it attracts higher fixed overhead cost that may be a financial burden.

Benefits of Professional Inventory Management

Who is really accountable for your inventory? Does your store keeper or administrator take financial responsibility for stock lost? If you can’t find answers to these questions, then there are benefits engaging a 3PL (Third Party Logistics) to manage your inventory responsibly.

3PL is a professional company that provides specialized logistics solutions such as storage and warehousing. In recent years, the growth of ecommerce has seen the development of modern warehouses with fulfilment solutions providing storage, pick, pack and dispatch services. Just think Amazon FBA, but operated by a private warehouse that caters to businesses like yours.

But be warned, not all warehouses are the same. It can be a challenge to identify the right fulfilment partner as traditional warehouses are set up to provide bulk storage by pallets, and unable to pick and pack by piece or fulfill small ecommerce orders. And such traditional warehouses operate without proper warehouse management systems.

Beyond storage, a good fulfilment warehouse should provide a range of services that caters for both B2B and B2C aspects of your sales and operations. An indication of professionalism is a service level guarantee for order processing speed, order accuracy and inventory accuracy. In short, your vendor should be faster, more efficient and accurate than what you can manage.

The warehouse should be purpose built for storage with a clean, dry and cool environment. It should be equipped with various shelves and racks configurations, handling equipment and a warehouse management system (make sure it is not MS Excel spreasheets). Look out for an experienced operator that can handle the nuances in your process and operations.

Most importantly, your fulfilment vendor must provide inventory data that actually helps your business and cashflow management, that enables you to make better purchasing and sales decisions, faster. If you had a wish list, it should cover these points. Remember, all this data is only good when it is available in real-time, when you need it.

  1. Inbound Received | for new stock that arrived at the warehouse
  2. Inbound Discrepancy | for differences between what arrived and the packing list
  3. Inbound Damaged | for new stock that was damaged upon arrival
  4. Inbound (Returns) | for products returned after being sent out
  5. Outbound (Bulk) | for B2B orders dispatched; date, products & quantities
  6. Outbound (Ecoomerce) | for B2C orders dispatched; date, products & quantities
  7. Stock Balance | for stock stored in the warehouse, reported by SKU
  8. Stock Movement | summary of stock-in and stock-out by date and SKU
  9. Stock Aging | summary of stock balance by 30, 60, 90 days by SKU
  10. Stock Audit | report of full physical stock count

Still confused with what to look for in a fulfilment warehouse? Here’s a 30-point checklist you can use to find the right vendor that suits your needs. Download the checklist here.

Fulfilment Warehouse Checklist

Use this checklist to understand how a potential fulfilment warehouse operates and if it fits your needs.

  1. What is the minimum storage volume?
  2. Is there a minimum commitment period?
  3. What is the storage rate?
  4. How is storage fee calculated?
  5. Is storage fee a fixed monthly cost or scalable according to what I use?
  6. How do you store small, medium and large sized products?
  7. Is there internal and external security?
  8. How will I be compensated for stock lost?
  9. How is compensation actually calculated?
  10. How is new stock received and processed?
  11. How will I know when there are shortages or damages to new stock received?
  12. How is returned stock received and processed differently?
  13. How soon will returned stock be inventorized back into my inventory for sale?
  14. What is the inbound fee? How is it calculated?
  15. How is stock movement – in and out of the warehouse, tracked and recorded?
  16. Do you use scanners to receive, putaway, pick and dispatch stock?
  17. Are you able to manage inventory by SKU – style, colour and size?
  18. Do you pick, process, pack and dispatch ecommerce orders?
  19. What packing materials are used to pack ecommerce orders?
  20. Are you able to pack different free gifts into different ecommerce orders?
  21. What is the outbound fee? How is it calculated?
  22. What is the cutoff time for outbound orders?
  23. What is the lead time to pick, pack and dispatch orders?
  24. How do you ensure outbound order accuracy?
  25. What is your service level guarantees?
  26. What systems are used to manage inventory?
  27. How do you ensure inventory accuracy?
  28. What kind of inventory data is available?
  29. How can I access my inventory data?
  30. How can other members of my team access the inventory data?