Why Inventory Management
Imagine a world where you have a few 100 SKUs in your online store and on a a given day, the average sale you can expect is about 10 per SKU. This means that you will need to store at least 10 units per SKU. Life is not that simple as you don’t know which product will sell how much, you don’t know which product will need immediate delivery and which not, you also don’t know the courier charges and will it help you to wait for a few days and send 2 packets together or send them at once. etc.
You will thus need to stock SKUs in your warehouse and also know a lot of details about those products like the weight, the dimensions, amount and location. This will help you to manufacture / procure SKUs as per the demand and will also help you deliver on time.
In today’s ecommerce enviornment, it does not take long for customers to cancel the order and specially on late delivery. Thus you need to ensure that you inventory management system exists and is functional so as to fulfill all the delivery promises made.
Without such a management, you are bound to lose on customers and eventually a lot of business.
Procurement Planning & Inventory Models
The Purchase plan of a company depends on a lot of factors. At the end, the objective is to ensure that the products are delivered on time to the end consumer. Here are the most common models
- Small businesses cannot afford to keep a lot of inventory with them as they don’t know how many products will sell and also they may not have sufficient space to keep lot of inventory. In such cases, they go with no inventory model and ensure that products are procured after the order has been placed.
- Another model that is followed across many ecommerce companies (and this is the most common model) is Inventory light model. In such a case, only a select few products are stored with limited quantity and rest all products are based on the no inventory model. The selection of which product has to be stored is based on current demand, past sales, product promotional campaigns or unique offers.
- The third model, and the most obvious one is inventory based model where all the products are stored. The purchase planning (mostly in terms of units) is done based on past sales, current demands, promotional campaigns and unique offers
Inventory Management Systems
A system that tracks –
- Inventory levels
is an Inventory Management System. Based on how large your business is and how much complexity exists in your business model, you need to decide if you need to maintain this in-house using tools as basic as Excel or go for high end Inventory management applications that contain every business case you can think of.
Key advantages of Managing Inventory
- Timely delivery to the customer (as per the promise)
- Prepare for the future with Procurement Plans
- Easily manage complex cases like Returns and Exchanges
- Set SLAs for each and every step of the business
- Achieve economies of scale and save cost
Inventory management is a must have for every business who has more than 50-100 orders a day. If you are not doing it, start it today.