For every successful business out there, stock is the lifeblood of the company. Often neglected, what many e-commerce business owners fail to understand is that taking ownership of your stock and products is what allows, ensures and maintains its ultimate success.
For every successful business out there, stock is the lifeblood of the company. Often neglected, what many e-commerce business owners fail to understand is that taking ownership of your stock and products is what allows, ensures and maintains its ultimate success.
What many fail to discern is that the sales process is largely driven by the result of stock management. Its success and thus, its failure will depend on how well stock is maintained and a proper stock control allows all the other pieces fall in place and create the dream business you’ve always wanted.
The Myths
An accounting system with an inventory control module is enough for managing inventory
Because many e-commerce owners start the business off as a side-project and thus may want to run their business off one platform to seemingly ‘minimize work’, they may choose to run their business end-to-end processes through an accounting module that eventually churns out what they believe are crucial to them: numbers and profits.
Such a mindset however, couldn’t be further from the truth -- Simply because no accounting system, no matter how fantastic they may be at accounting, would have the data of analytical features to precisely manage a company’s inventory.
Too many had adhered to this belief, until it came for the time to expand their business, and they are left scrambling to find a solution to get a sense of their messy stock levels, and by then, even onboarding on the best inventory management program in the market would be a tedious process of onboarding due to lack of paper trails and information.
Sales data is all that is needed for inventory management
Inventory data does not draw information from sales, which only show what products are sold. An over reliance on sales data to accelerate inventory management leads to bad habits in business processes simply because stock drives the sales process, and not the other way round. Sales might bring in the actual, tangible profits, but such is only possible because of proper stock management.
Inventory management is supported by on demand information that is different from any data that can be drawn or interpreted from sales data.
Read also: Understanding e-commerce fulfillment
Using ‘Historic Sales Data’ is the most reliable way of projecting and forecasting future stock planning
Unfortunately, the contrary is true. Using historic sales data is one of the major contributions to poor inventory planning and forecasting because there are other factors that need to be considered, for example, the shelf life of a stock, current holdings on hand or even the moving average cost of a stock, all of which falls under inventory management.
Instead, using the wrong type of data leads to inaccurate safety stock calculations that cause your business to miss sales due to unavailable stock because of under ordering or wastage due to over ordering.
Missing Sales: It’s Not a One-Time Thing
Most e-commerce business operators believe that using their own memory or spreadsheets is enough to keep on top of the stock levels. As a business grows, however, it is simply impossible to do just run these numbers off the back of your head.
Using spreadsheets, on the other hand, is not only a long, painful and unfulfilling process; it is also more susceptible to human errors which then reflects an inaccurate reading of stock levels.
The last thing that you, as a business operator wants, is for a customer to make an order and for the transaction to go through, only to realize that you’ve run out of stock. No one likes to be the one to have to make that contact to inform that customer that you’ve run out of stock.
Now imagine you are a customer seeking to buy a product, and you chance upon a webstore that is out of stock on the product you wish to purchase. Would you wait for the stock to replenish before buying? Or would you continue browsing? Chances are, customers will keep on looking for other options in this competitive market.
Having good inventory management doesn’t just allow you to make one sale; it ensures that you can manage customer expectations without even lifting a finger – a fantastic stock management subconsciously markets your business for you. By always having accurate stock levels, you can sell your products safely without having to worry about you running out of stock because you would never have to allocate or reserve stock using your memory.
Having a good stock inventory thus projects an image of your business that you are a serious player in the market, and gives consumers confidence in your products.
Having good inventory management is free marketing!
Minimizing Cost to Maximize Profits
While the parallel between great inventory management and sales is obvious, there is another factor that is often forgotten, that can maximize profits for you: cost.
Consider an example company with the following income statements, and let the numbers do all the talking.
| Total Sales Income | $125,500 |
| Cost of Goods Sold | $65,500 |
| Gross Profits | $60,000 |
| Administrative Expense | $37,450 |
| Marketing Expenses | $10,000 |
| Net Before Tax | $12,550 |
This company is actually doing really well, with a 10% sales return. However, it can do even better.
If it would have a great stock management system in place, it would never have to order stock and ship them to his location with priority delivery because reordering alerts will come in time to not create time constraints.
This would reduce the Cost of Goods Sold, given that the handling, shipping fees will be reduced by a modest 2%.
It would also have less inventory because he would never over order to reduce wastage, so the holding cost (related to warehouse space) and other costs such as insurance and maintenance are also reduced.
The numbers could look like this:
| Total Sales Income | $125,500 |
| Cost of Goods Sold | $60,500 |
| Gross Profits | $65,000 |
| Administrative Expense | $29,900 |
| Marketing Expenses | $10,000 |
| Net Before Tax | $25,100 |
This clearly shows that small cost reductions in not just Cost of Goods Sold, but administrative fees can give you a great significance in net income, doubling sales return to 20%.
So the company can double its profits just by having a better inventory management.
Read also: Hiring a fulfillment and delivery expert for your e-commerce business
Growing Your Business
Before your business can grow, one of the key considerations is whether or not you can take on the demand of your growing client base. You will need to get a good sensing of what products to order and how much of it to order. By reviewing this information, you will be able to identify accurate inventory trends over time and set your reorder levels scrupulously.
Furthermore, you would be able to identify what are your best selling products, and worst selling ones, maximizing sales and reducing wastage.
Accurate inventory records also means that your inventory staff now has more time to explore other tasks to take on. It allows them to utilize their talent meaningful, because let’s face it – no one’s mission in life is to maintain an error-free spreadsheet.
All these information will allow you to plan and strategize, allowing you to project and forecast the direction you want to take your business.
With proper stock management, you can actively grow your business rather than worry about all the laborious administrative processes that shouldn’t swallow up all your free time that could be better spent.
Streamline these processes, and you’ll find that you have more time to focus on getting investors into your business, securing better deals with vendors and marketing your product to the right clientele.
Remember this: Inventory Management is the art and science of managing your stock so that you will always have the RIGHT product at exactly the RIGHT time in the RIGHT amount, at the BEST possible price!
And a good inventory management software can help you run it smoothly. It is never too early to start using one. And it is especially advised to use good operations as a competitive advantage - and keep in mind that 66% of businesses with an warehouse plan to expand technology investments by 2018, including in proper cloud-based integrated solution for inventory management.
Article written by Elijah Yong, Sales Executive at TradeGecko - an inventory management software allowing e-commerce businesses to handle their stocks, orders and sales while integrating the system with accounting and e-commerce platform builders like Shopify and WooCommerce. If you have any questions, email elijah@tradegecko.com
COMMENTS