A complete guide to robotics and warehouse management

The word automation was first coined and used by Ford Motor Company then Vice President, Delmas Harder in 1948 when he commented that, “What we need is more automation.”

He realized that there was a need to improve material handling in-between the various production stages to compete in the market with companies like Chevrolet.

Why this is significant is because it was the first time anyone thought of automating a process in a manufacturing unit. This led to the creation of robots that are now used in the manufacturing plants, warehouses, to ease and quicken the processes.

Let’s dive into the history of how the robots came into existence.

History of robotics in warehouses

However, it was not until 1954 that George Dovel filed for a robotics patent when he created the first industrial robotic arm, Unimate.

This robot was capable of moving the materials around 12 feet away within the manufacturing unit. This also earned George Dovel the title – Grandfather of Robots.

It took until 1961 for a patent to be granted due to concerns about laborers losing their jobs.  General Motors was the first company to make use of the first of these robot arms in manufacturing at their New Jersey plant in 1962.

Then came the Stanford Arm in 1969 created by Victor Scheinman. It was technically a first of its kind, electrically-powered, an automated robot arm that could move around accurately. The arm was powerful enough to assemble the Ford water pump by itself with optical and contact sensors.

This marked the beginning of a new era of using robots in the manufacturing process for achieving higher efficiency and improving lead time in the production of items.

By 1990, the use of robots started in households as well with the advent of Roomba robots developed by iRobot. Roomba was a first-generation vacuum cleaning robot that became a huge success.

Since then, there has been no looking back and the usage of robotics has come a long way in a short span of time.

In 2003, Kiva systems started creating AMR (Automated mobile robots) which were used in moving goods around warehouse and distribution centers using a conveyor system or by forklifts.

Kiva robots were so effective that Amazon bought the company itself in 2012 and now uses them across all their distribution centers.

Amazon is at the forefront of warehouse robotics development with 100,000 robots operating in their fulfillment centers across the globe.

Types of robots

As mentioned earlier, there was no looking back once the Roomba robot and Kiva robots were introduced and hugely successful in the market. Various types of robots came into existence that served various purposes.

However, for the warehouse, 5 major types of robots are used:

#1 Automated Guided Vehicles (AGV)

The Kiva robot that we are so familiar with is actually an Automated Guided Vehicle robot. This robot helps in transporting products and materials from one place to another by using magnetic stripes, sensors, or a track embedded in the warehouse floor. They are the best alternative to the manually driven forklifts and picking carts.

#2 Autonomous Mobile Robot (AMR)

AGVs have developed a lot over the years and now they can function without magnetic stripes or sensors. These are known as Autonomous Mobile Robots (AMR) loaded with warehouse maps and the location of all the inventory stored in it.

AGVs also have safety scanners embedded in it such as 3D cameras, lidar, infrared, front and rear sensors, etc. which allow them to navigate without any mishaps following maps and the established routes within the warehouse. These are also known as self-driving forklifts.

#3 Cobots or collaborative robots

As the name suggests, these are robots that work collaboratively with human workers at the warehouse. However, these are quite efficient as they are semi-autonomous mobile robots that can move around a warehouse with their human pickers.

Usually, these cobots follow the human pickers so that they can drop picked items in the bins carried by these robots. This improves efficiency amongst warehouse workers and also reduces or eliminates the effort of physically carrying products.

Cobots have sensors so that they can identify any obstacle or boxes in their way and enable them to navigate carefully through the warehouse. Cobots are picker staff best friends as they can speed up their order fulfillment capabilities.

#4 Automated storage and retrieval systems

Automated storage and retrieval systems (AS/RS) are automated technologies used in warehouses for speedy storing and retrieving of goods. This system consists of multiple technological machines such as shuttles, cranes, carousels, vertical lift modules, unit loads, and mini loads.

Since all AS/RS are computer-controlled systems, they are integrated with the warehouse management system so that it can process order fulfillment as soon as orders are received.  AS/RS systems are used for moving a high volume of loads from in and out of storage.

AS/RS systems save time and effort of picking staff since in this “Good to Person” order picking, the worker does not have to physically move from one place to another to pick items. A mini-load crane, shuttle or AMR retrieve the products as per order and deliver it directly to the worker for packing and shipping.

#5 Aerial drones

We have been fascinated with the idea of drones delivering packages to our doorstep ever since Amazon began this practice. Drones have greater capabilities and we still have not fully explored their usage.

Drones are already being used in warehouses for locating and tracking inventory. They make the work much easier, quicker and can reach any nook and corner easily. In addition, a drone can be easily integrated with your warehouse management system making it an effective technology for tracking inventory and also lifting lightweight products for easy picking and packing.

Drones are autonomous and customizable, and with their cameras and RFID, drones can easily scan products, do inventory checks, conduct tracking, and map inventory.

Benefits of using robots in the warehouse

“To be or not to be” is a challenge faced for the usage of Artificial Intelligence (AI) in the manufacturing industry. Some are uncomfortable with the overall implications of AI taking over manual tasks, but recent statistics of intelligent automation capabilities are gaining attention, and therefore, cannot just be ignored.

“85% usage of intelligent automation will be seen in Supply Chain Management by 2021,” as per an IBM Report.

It is essential to stay globally competent in today’s dynamic market and using robots and artificial intelligence in the warehouse is the way to go! Here are a few of the benefits of using robots in the warehouse.

Reduces manual labor

Robots can take over work that is dangerous or time-consuming and thereby help warehouse workers to stay safe while working in coordination with robots.

Robots also help save time and effort by replacing manual scanning, picking and packing, and inventory counting. Also, it can be a very strenuous activity for the warehouse workers to keep on moving one rack to the other to fetch items ordered by customers. But autonomous mobile robots can perform these physical tasks and help workers to focus more on other order fulfillment tasks that require human intervention.

Improves warehouse accuracy and efficiency

Artificial intelligence helps in reducing human error and improves the customer experience which is the key to success for any business.

Since robots are customizable and can be programmed for a specific purpose, there are few instances of mistakes. Robots are not prone to human error and thus they eliminate wasted time and effort in redoing an incorrect task.

Accuracy in tasks like product scanning, picking, storing, and transporting products positively affects the overall performance of the warehouse. Warehouse robots work with precision and allow operators to automate the most mundane and laborious tasks.

Reduces warehouse costs

As per U.S. Census Bureau data, an average warehouse worker spends almost seven weeks per year in unnecessary motion within the warehouse. The costs of such futile activity costs the industry more than $4.3 billion USD in annual revenue.

Also, robots perform dangerous tasks efficiently in the warehouse, resulting in reduced costs spent on worker’s compensation for safety issues. There are fewer chances of workers getting injured since robots are performing the tasks instead.

The number of workers required in the warehouse also decreases as robots can fulfill most of the tasks with accuracy, creating less wastage.

Efficient picking capabilities

One of the foremost usages of a robotic arm was to move materials from one place to another up to 12 feet away. But with the technical advancements, the robotic arm has now been developed into an autonomous mobile robot that can travel far and wide in the warehouse and pick items automatically.

Some well-known companies like IAM Robotics, 6 RiverSystems, and GreyOrange, have introduced their powerful mobile robotic picking solutions in the market increasing warehouse efficiency requiring limited human resources.

These machines are programmed to travel established routes and they typically carry carts in which the products can be stored and transported to human workers.

Conclusion

We hope this article has helped you understand how robots are changing the supply chain within warehouses. At this point in time, robot technology is just scratching the surface. In the future, robots will prove to be much more useful and advanced as technology advances.

To learn more about Cin7 inventory and order management software and to find out how our warehouse management system can help automate your operations, request a demo here.

Pure Commerce share four secrets that helped their clients achieve record growth in tough market conditions

  1. DEAR isn’t just for sorting your inventory or modernizing your business: it helps you keep your approach flexible

  2. You can afford your own, fully-customized, fully-integrated ERP (if it’s DEAR)

  3. Any product business can benefit from DEAR

  4. A great implementation partner will let you outsource the back-office

“We actually started out as a DEAR customer,” says Filipe Nicolau, owner and founder of Pure Commerce. “We were responsible for changing the entire inventory management process for a clothing company and taking the business online — and DEAR was the go-to choice of ERP. We took that knowledge, and started a business around eCommerce inventory management systems and ERPs, and DEAR was a natural fit.”

Pure Commerce is a DEAR implementation partner and digital agency that specialize in solutions for eCommerce businesses. Filipe has been helping businesses both large and small implement DEAR for a long time now, and he’s happy to recommend the software to product businesses of all kinds.

“DEAR is a.) user friendly and b.) well plugged into eCommerce titans like Shopify,” Filipe says. “Compared to competitors, it’s a tenth of the price, and yet it does everything you need it to do.”

No matter how big your company gets, DEAR can scale to meet your needs.

Clients range from blue-chip companies in South Africa that are running giant warehouses and massive eCommerce stores, to mid-market businesses with five or six shops, all the way to people with just one or sometimes no store,” Filipe says. What they all have in common is they need a proper system to function like an ERP and manage inventory for their eCommerce sites.

“Because of DEAR’s price tiers, the smaller businesses can purchase it just as easily as the blue-chip companies. It’s accessible to all our customers. And no matter what we throw at DEAR, it just keeps being able to do it.”

Any product business can benefit from DEAR

The industry you’re in, says Pure Commerce, doesn’t matter too much: so long as your business is moving product, it can benefit from DEAR.

“We’ve got clients in the clothing sector, in manufacturing, in pottery, in health and wellness — all running DEAR.”

The first benefit of DEAR for many customers is simply being able to tell where all their inventory is. But once that’s established, customers find their other requirements or pain points are taken care of as well.

“When we first started, we used DEAR just to run a warehouse — purely ERP, stock management, goods in and goods out. Not even for financials, just to track stock. That was it,” Filipe says. “But with our business expertise and the functionality offered by DEAR, we can create any system a customer requires.”

Customers find DEAR helpful for syncing inventory through to finances, using programs like QuickBooks Online or Xero, and adding inventory capability to eCommerce platforms like Shopify. They use it for manufacturing, retail Point of Sale (POS) and expanding sales channels, making it easy to add a D2C channel to a B2B business, or vice versa.

“DEAR’s B2B portal is, for a lot of our customers, something they find themselves wanting to add, and it’s super easy to implement,” Filipe says.

Pure Commerce tends to stay away from the accounting and bookkeeping side of things. Their job is to make sure the business elements are all connected up, and they make sure their customers are connected with great accounting teams who know how to make inventory systems work well with financial systems of record.

Get an implementation partner that allows you to outsource the back-office

“A lot of our customers come to us saying they don’t know where to start. They’re starting a business from scratch. Well, we’ve done that ourselves! So we give them a full implementation, top to bottom, and in a lot of cases, it’s really saved their bacon. One client was a clothing company — we helped them get online, and they’re now running an online store and just launching their third physical store.”

For these companies, Pure Commerce functions essentially as an outsourced back office.

“We act as their support team for all things, not only eCommerce, but everything related to DEAR, to the operational side of the business. We’re their go-to.”

Pure Commerce have had great successes among their clients, with a number taken from operating entirely using pen-and-paper to DEAR Systems, using a full modern ERP and software app stack.

“We’ve had companies who were in the dark ages. Now they’re walking around with tablets managing production lines and things like that,” Filipe says.

Other success stories include a blue-chip company that started 2019 with barely any online presence and thousands of physical stores — and we all know what happened next. The Covid-19 pandemic hit, the company was forced to close all its stores.

“We had the CEO call and say ‘Listen, you need to save our bacon. We need to be fully online in a minimum of four months,’” Filipe says. “We launched them all online with one DEAR ERP and stock management system. There’s a massive warehouse in Cape Town, five stories high, that’s running all the company’s brands, all on DEAR. DEAR is keeping track of everything and feeding each brand’s website with inventory information.”

The changes Pure Commerce and DEAR have brought have had huge effects on the company. “It’s definitely changed their lives. They’ve never looked back — they’re pumping out products online and they’re growing day by day,” Filipe says.

DEAR offers incredible opportunities for new directions — for both product companies and their advisors

A lot of consulting companies would be thrilled to find themselves in the same position as Pure Commerce. They have a steady business and happy clients, and over the period of turmoil wrought by Covid-19 they’ve found themselves busier than ever. But they’re not stopping there. Their experience with DEAR means they can now branch out in exciting new directions, quite different to what you’d normally expect from a self-described “outsourced back-office.”

“Last year we used DEAR to launch our own Pure Commerce third-party logistics warehouse,” Filipe says. “A lot of clients don’t have warehousing, so we offer the ability to keep their stock in ours. We have our own DEAR account, which plugs into the client’s Shopify sites, and we pull the orders through to the warehouse. We pick, pack and ship on their behalf.”

All this activity is supporting the growth of Pure Commerce’s clients, as well as Pure Commerce itself. In the last three years, they’ve quadrupled their business. “And it’s primarily due to lockdown, to the pandemic. Everyone has realized that they need to be online,” Filipe says.

You can afford your own custom ERP — if it’s DEAR

Pure Commerce says that any product company can benefit from the features DEAR offers, but the features aren’t the only factor that decision-makers weigh up when considering an inventory management system. The price is also hugely important — but here, too, DEAR is beating the competition.

“The value for money you get from DEAR is amazing. You can get a B2B portal, you can run your POS, your sales channels, integrate into Amazon or pretty much anything else, integrate your accounting systems,” Filipe says.

“It’s a cost-effective system, a one-stop shop that gives customers an ERP and that allows Experts to solve pretty much all your customers’ problems with one system. The unique thing about DEAR is it can be for selling anything — from potatoes, to clothing, to pottery. That’s why it appeals to such a wide range of implementation partners and customers.”

About Pure Commerce

Pure Commerce is a DEAR implementation partner and digital agency that specialize in solutions for eCommerce businesses. Here, they explain how product companies can benefit from implementing DEAR — and the right implementation partner.

About Cin7 Experts

Cin7 Experts experienced with DEAR are an essential part of the Cin7 inventory management community. No matter what kind of product business you’re running, where you’re located, or what you’re trying to achieve, there’s a Cin7 Expert on DEAR who can help you achieve your ambition while saving your money and time.

How to avoid costly SKU proliferation

Imagine the demand for one of your products is through the roof. In response, you purchase more of that product with several variations. Your goal is to capitalize on the popularity of the product by giving your customers choices like color, style, and size.

That describes SKU proliferation. It is the process of adding products or variations of products to your inventory. Each of those variants receives its own unique SKU.

SKU proliferation impacts almost every aspect of your business. In this article, we will describe the pitfalls of SKU proliferation and its implications on your business as well as how to manage it effectively.

A SKU is a unique number assigned to a specific product

SKU stands for stock keeping unit. It is an alphanumeric code assigned to a product that helps easily track and manage inventory. SKUs differ from UPCs and GTINs. SKUs are individual to the business and are used to make purchasing decisions to improve profitability. UPC is a Universal Product Code used primarily in North America and GTINs are Global Trade Item Numbers used throughout the rest of the world and every product has its own distinct code number. Competing businesses that carry the same product will have the same UPC/GTIN but a different SKU.

Here’s how it works. A clothing company might have several variants of the same item including size, material, and color. Each variant is assigned a unique SKU. For example, a medium-sized blue t-shirt can be assigned the following SKU: BLUTEEMEDCF26.

SKUs enable businesses to display similar items to customers based on common features. This is where upselling and cross selling shines – it’s that suggestion just before checkout that reads “frequently bought together” or “you might also like.”

SKU proliferation and its causes

As trends fluctuate and competitors enter the marketplace, businesses strive to keep up with customer demands. SKU proliferation is the process of adding more products (SKUs) to your inventory to meet those needs. SKU proliferation can be considered a byproduct of multichannel selling – customers are used to having multiple choices at their fingertips.

Before we discuss the problems associated with SKU proliferation, let’s explore why businesses encounter this problem in the first place.

1. Technology upgrades

Technology has changed the way we do business. Multichannel selling has forced wholesalers and retailers to carry more inventory in an effort to provide a seamless shopping experience. Without proper sales forecasting, businesses overstock to meet anticipated sales through multiple channels.

2. Faster delivery preferences

Imagine how quickly you would be out of business if every time you sold a product you had to wait for the product to reach your store before sending it to your customer? To accommodate delivery demands, more and more businesses are stashing inventory to dispatch if and when an order is placed.

3. Poor inventory management

Inefficient inventory management leads to a stockpile of unwanted or obsolete inventory, each with individual SKUs.

Problems created by SKU proliferation

As the variety of products (SKUs) increases, so does the complexity of running your business. SKU proliferation disrupts the logistical process, forces rigorous inventory control, and increases costs.

Here are just a few of the larger problems created by having too much inventory.

1. Increase in storage costs

Storage costs are directly correlated to the amount of inventory a business has. The more inventory you keep, the higher your storage costs will be. In addition to the costs of the actual space, anticipate rising costs in utilities, insurance, and staff to manage storage.

2. Difficulties in fulfilling orders

As inventory increases, it can become more challenging to fulfill orders accurately and in a timely manner. Having too much inventory can be confusing, leading to errors caused by similar SKUs or incorrectly assigned SKUs. As a consequence, the wrong product might be shipped, increasing costs and hassles associated with returns and a potentially negative reflection on your brand.

3. Inefficient cash flow

Securing more inventory comes at the expense of something else. Funds allocated towards inventory can decrease cash flow when your business needs it most. According to a US Bank study, 82% of business failures result from poor cash flow management.

4. Increase in order fulfillment times

Having too much inventory slows down the fulfillment process. Overstuffed warehouses create time-consuming efforts to find products and package orders. This is on top of errors that might be caused by too many SKUs.

SKU rationalization is the remedy to SKU proliferation. It is a method of reducing the overall number of SKUs by identifying obsolete or poor-performing inventory. Just keeping your best sellers cuts storage and management costs and improves profitability.

SKU management for businesses

As your business grows, SKU proliferation may seem inevitable. But it doesn’t have to ruin your business. Using SKU rationalization, you can identify those products that are actually making you money and return or “fire-sale” the rest.

Effective SKU management not only saves money but also time. Decreasing inventory will allow you to easily find and package online orders and replace items on the sales floor.

It might seem like SKU proliferation is a good thing. After all, it’s a strategy to ramp up sales while the buying is hot. The catch is its impact on business logistics. Proactively monitoring your SKU base allows you to implement corrective measures to effectively scale your business. It is part of an inventory management solution that enables you to forecast sales and keep up with trends without busting at the seams.

Cin7 was built with modern businesses in mind. Its inventory and order management software offers a cloud-based solution that integrates all your sales channels into a single platform. Cin7 facilitates advanced automation processes creating seamless transactions centered around a positive customer experience.

Ditch the spreadsheets and stop manual data entry. Conquer new markets with Cin7’s inventory and order management system.

Book your Demo now.




The Cin7 quick reference guide to inventory management

In today’s economy, small to medium sized businesses are competing with global conglomerates. Efficient inventory and order management is one way for solopreneurs, entrepreneurs, and small business managers to level the playing field and grow their brand.

Inventory management functionality is what fast-growing businesses need to stay competitive. This article is your definitive guide to inventory management to scale your business efficiently and effectively.

What is inventory management?

Inventory management is the process of ordering, storing, using, and selling business inventory. It is a system that tracks raw materials, components, and finished products to ensure enough supplies are on hand to meet the purchasing demands of the customer.

Inventory management is measured as inventory turnover. It reflects how often your products are sold within a specified time period. A measure of business health is maintaining adequate inventory turnover where your business does not have more products than sells – or excess inventory. Poor inventory turnover leads to deadstock or unsold stock/product.

Retail inventory management

Retail is a general term used to describe businesses selling physical products to consumers. Although not exclusive to retail, inventory management plays a more critical role in this industry over others.

There are a growing number of ways to sell products including the following:

  • Offline. A company uses a physical brick-and-mortar location to sell its products.
  • Online. A company sells its products over the internet using an ecommerce website or marketplace.
  • Multichannel. This employs multiple ways a company sells to its customers including an online store or marketplace or a physical location. Increasingly, companies also use social media sites to sell products. With multichannel selling, each channel operates independently of each other.
  • Omnichannel. This way of selling creates a unified, integrated experience for customers across all offline and online channels. Where multichannel selling operates independently, omnichannel is focused on a seamless experience for the customer.

Wholesale distributors sell products to other businesses rather than individual consumers. This form of selling is referred to as business-to-business (B2B) or B2B ecommerce. B2B selling can include any of the above methods.

Regardless of how a company chooses to sell its products, inventory must be managed. However, inventory management is different depending on the constraints of how products are sold.

Importance of inventory management

Good inventory management is an essential part of running a successful retail business. It provides a seamless customer experience, maximizes profits, and improves cash flow. A company’s inventory management system should optimize fulfillment and avoid shrinkage and waste. Without an effective system in place to manage inventory, retailers risk running out of products during peak demands from their customers.

Good inventory management includes the following:

  • Enterprise resource planning (ERP). ERP software manages key business operations including human resources, accounting, procurement, warehousing, production, marketing, and sales. ERP systems optimized for inventory management help maintain optimal levels of stock by combining the inventory needs of staff, customers, and suppliers.
  • Proper warehouse management. The barcode system, first-in-first-out (FIFO), and last-in-first-out (LIFO) techniques offer a clear picture of present and past inventory available with the company and optimize warehouse functions.
  • Managed sales operations. Sales is a continuous process that depends on manufacturers for goods or services. Efficient inventory management minimizes the risks of unavailability of raw materials needed in manufacturing.
  • Customer experience. Understanding the customer buying journey mitigates risks associated with insufficient stock to fulfill orders.
  • Shrinkage avoidance. Shrinkage results in inventory loss attributed to employee and customer theft, administrative or cashier error, vendor fraud, damage, and spoiling.
  • Cash flow. Inventory levels are key to maintaining a good cash flow that ensures all aspects of the business run smoothly. Excess inventory ties up cash in products that could rather be spent on operations including salaries and other fixed costs.
  • Fulfillment. Product availability is essential for fulfilling orders quickly. A good inventory system delineates where products are along the supply chain.

Types of inventory management

There are numerous types of inventory management systems. Which is best for your organization depends on budget, cost, utility, and accessibility.

Barcode inventory management

The barcode system is an automated and simplified way to manage inventory. A unique number or barcode is assigned to each product. Data points assigned to that number can include information about the supplier, the product, and the inventory or stock. When a product is sold, the barcode is scanned and inventory adjusted automatically. Additionally, management can find key inventory metrics by scanning the barcode to bring up the item on a computer database.

Continuous/perpetual inventory management

A continuous or perpetual system manages inventory in real time, recording changes in inventory at the time of the transaction. It uses radio frequency identification (RFID) to passively identify tagged objects (inventory) for tracking along a supply chain.

Periodic inventory management

This is a manual process used to determine the inventory at a particular time point such as end-of-day or year’s end. This form of inventory management is most time-consuming as it involves physically counting the products on the shelves. Periodic inventory management is used primarily for inventory valuation and accounting purposes.

Inventory management process

Below is the step-by-step method to improve an organization’s inventory management system.

1. Determine the loopholes

Identify actual stock on hand and the inventory requirements for the goods sold to determine if gaps exist between demand and supply, and reasons for those gaps.

2. Analyze spending patterns and consumer demand

Market demand forecasting helps organizations estimate production quantity to determine what is needed to maintain adequate inventory.

3. Evaluate the cost involved

Cost of goods sold includes different expenses like warehousing, maintenance, bulk discounts, transport, and supply chain costs. Each of these needs to be well analyzed.

4. Identify the extent of process automation

It is not possible for each organization to completely automate the inventory management process. However, it’s important to identify those particular areas where automation is possible.

5. Inspect supplier’s performance and practices

The supply chain is critical for maintaining adequate inventory. Identifying any holes in the supply chain or supplier’s performance is necessary. And, if needed, identify additional or alternative suppliers.

6. Classify inventories into various categories

Products must be segregated into categories based on the product type, maintenance cost, customer class, or profit margin.

7. Set objectives for all inventory categories

Set benchmark objectives and goals to efficiently track and manage the performance of all inventory categories. This can identify any issues within each of the categories.

8. Prioritize the areas of improvement

Analyzing goals and objectives allows companies to prioritize improvement needs. Improvement prioritization should be based on the impact of problems identified. Implement a hierarchy to address those areas.

9. Take advice from experts

Designing a proper inventory management system cannot be overemphasized. Employing consultants or experts will ensure the inventory management system meets the company’s needs and stays within their desired budget.

10. Frame suitable inventory management policy

The final step in implementing a good inventory management strategy is consistent and timely evaluation to determine what changes and improvements are necessary to add value and create an improved customer experience. These changes can be based on a number of factors, most notably supply and demand.

Choosing an inventory management system

Which inventory management system is right for your business depends on a number of factors. Here are just a few things to keep in mind.

Timing

There are various signs you have outgrown a standard inventory system including inventory errors and constant over stocking. When you find you’re spending more time on manual, operational tasks than growth, it is likely time to automate your inventory process.

Features

Prepare a list of “must-haves” for your inventory management system. Do you ship orders or use digital packing? Does your company process both wholesale and retail orders? Are you manufacturing your products? All of these affect which type of inventory management system is best for your company.

Support

Customer support is essential for set-up as well as troubleshooting should things go wrong. Support includes phone, chat, and/or email contact. Consider support hours – is the support team available when you need support?

Ease of use

Determine your staffing needs and the technical prowess of your staff. Will the inventory management system meet those needs and ability levels? The system you choose needs to be easy to use as well as transferable between departments.

Integrations

Prepare a list of must-have integrations, e.g., ecommerce platform, accounting, shipping, marketplace, POS, 3PL, etc. It’s essential that the new inventory system integrates directly without requiring additional applications, middleware providers, or software managed by third parties.

Development

Your inventory management system will manage a critical part of your business. Finding innovation-driven software using the latest technology is vital.

Ready for even more in-depth inventory management coaching? Download our complete guide on inventory management here.

Cin7’s inventory management solution for multichannel selling

Cin7 was built with modern businesses in mind. Its inventory and order management software offers a cloud-based solution that integrates all your sales channels into a single platform. Cin7 provides advanced automation processes to create seamless transactions centered around a positive customer experience.

Ditch the spreadsheets and stop manual data entry. Reach new markets with Cin7’s inventory and order management system.

Book your demo now.

Top Five Key Lessons for Automating Your Inventory and Financials

Learn the top five ways product companies and ecommerce specialists can automate their inventory and financials with Catching Clouds: An Acuity Company. 

The Top Five Key Lessons for Automating Your Inventory and Financials: 

  1. Done right, automation actually makes good people even better
  2. To get financial fundamentals right, give them to someone else
  3. You need an expert who knows tech as well as accounting
  4. Look for an expert with a proven track record
  5. Every product seller needs to be on a cloud inventory solution

Not many people start a business because they dream of doing accounting.

But Acuity is an exception — and it exists because most business owners don’t just want to avoid accounting: they’re also pretty bad at it. Acuity, on the other hand, is really good.

Acuity is a specialist provider of outsourced cloud accounting services to eCommerce businesses in the United States. They work with businesses that are selling on Amazon, Ebay, Shopify, BigCommerce, Commerce House, Wayfair, Magento, and many more platforms.

In addition, Acuity has worked with QuickBooks Online and Xero for years. For a while, their eCommerce practice only worked with Xero, but it is now also adding QBO to the mix.

Scott Scharf is chief technology officer and eCommerce practice lead for Acuity. He co-founded his accounting practice Catching Clouds with his wife Patti Scharf, before merging with Acuity in 2021.
“The thing about what we do is, we’re really consistent,” says Scott. “We provide the daily, weekly, and monthly bookkeeping, accounting and controller-level work for eCommerce sellers.”

Automation and 3PLs are the way of the future — and they help your best people do more

Acuity says increasing the level of automation in your company isn’t about having fewer employees. It’s about giving yourself, and your employees, something better to do.

“When we automate accounting, we’re not doing it to remove the person — employee, spouse, whoever — was doing the bookkeeping,” Scott says. “The idea is that you’ve got a trusted person, so put them in a more trusted position.”

The same logic applies to product companies and 3PLs “Having a 3PL means your people can have higher-level tasks. You want those people who might otherwise be in your warehouse managing stock through a cloud inventory tool, negotiating purchasing, expanding your supply chain,” Scott adds. “They’re good employees. They care. You want them at a higher level.”

There will always be manual processes that need doing, and that software will struggle to automate, Scott says. What’s more, the supply chain crisis has changed the game. Where it might have once made sense to have your own warehouse, for many product sellers, it’s simply not worth it. Instead, smart sellers will automate what humans cannot do well, leaving them free to excel in other areas of the business.

“Don’t make smart humans do data entry. Let smart humans do smart human things, and make decisions based on data,” Scott says. “The more you leverage technology and people in the right places, at higher-level positions, the more profitable you’re going to be.”

Every product seller should implement cloud inventory solutions

The first app that Scott recommends for product sellers is, of course, online inventory management. Depending on the company’s ambitions and requirements, he recommends:

  • Cin7 for multichannel sellers with complex requirements and high growth ambitions
  • DEAR Systems for sellers who do their own manufacturing or Bill of Materials product assembly
  • Cin7 Orderhive for pure eCommerce sellers

“I recommend that every product seller, of any size, implement cloud inventory solutions,” Scott says.

Connecting cloud inventory software to other best-of-breed software — like Shopify for eCommerce selling, ShipBob for third-party logistics, or ShipStation for shipping — lets you set and meet customer expectations in the same way a brand like Amazon does. It means a small brand can have the same capabilities as the biggest eCommerce companies in the world, with the added benefit of the personalized service that only smaller companies can truly provide.

“Amazon has set the expectation that customers can get their package in one to three days,” Scott says. “Now everyone can live up to that new standard.”

To get financial fundamentals right, give them to someone else

Getting the accounting right is vital to any product business’ success. Without good numbers, a business can’t know if it’s profitable. That’s where Scott and his team come in. Acuity makes it possible for smaller businesses to have the same accounting clout as a big player. The solution is simple: they take accounting right out of their clients hands.

“I’ve talked to a couple thousand sellers in the last 10 years, and none of them went into business to do accounting or bookkeeping, or to pay bills, sales tax, or income tax,” Scott says. “They’ve got a bigger ‘why.’ And that’s why financials are one of the first things they look at outsourcing.”

Once Acuity takes over the accounting, things get done properly by a team of experts who know how to navigate the byzantine pathways of international eCommerce selling and U.S. tax compliance requirements. To do this, their outsourced eCommerce offering has a team of specialist CPAs, along with a managed services team who can take care of the technical side.

“We’re able to support clients at all kinds of levels, but the main thing is always the same — we take over the financials, move them into the cloud, and we do it right. We update the chart of accounts, reconcile everything correctly, post income properly, post COGS properly per channel, and make sure everything flows together,” Scott says.

According to Scott, modern eCommerce accounting is as much about getting technology right as it is about compliance, reports, and projections.

“Having an accounting advisor that can translate, provide insight and accurate cash flow projections helps a business manage cash better and be more successful,” Scott says.

But without the right approach to tech, business leaders can find themselves lost in a confusing world of half-implemented, half-working apps.

“What some people do, when they don’t understand tech, is they just load an app and then another app and then another app. None of them connect, and all of a sudden they now have to enter data in three apps to accomplish something instead of putting it together,” Scott says.

This can put business owners right off implementing a modern software stack, but nothing could be worse. All they need to get it right is a good advisor.

“If you’re running an eCommerce business, you want an eCommerce accountant that already understands the space and has worked with dozens, if not hundreds of eCommerce companies. You have to go to the right people for the right tech advice — and then you want to leverage it, so you can expand and enhance and build automations so everything flows well,” Scott says.

About Catching Clouds: an Acuity Company

Acuity is an outsourced cloud accounting service provider, specializing in eCommerce. They offer accounting with Xero and QuickBooks Online, and support Cin7, DEAR Systems, and leading eCommerce, 3PL, and shipping solutions

About Cin7 Experts

Cin7 Experts experienced with DEAR are an essential part of the Cin7 inventory management community. No matter what kind of product business you’re running, where you’re located, or what you’re trying to achieve, there’s a Cin7 Expert on DEAR who can help you achieve your ambition while saving your money and time.

Successful Inventory Planning

The bankruptcy of Australian electronics retailer, Dick Smith Group, continues to be instructive. According to press reports, the company’s administrators highlighted poor inventory planning as one of the key reasons for the group’s collapse. “Inventory decisions… were not consistent with consumer demand, and DSG was ultimately left with a considerable level of obsolete and inactive stock, requiring a major write down.”

Ignorance of successful inventory planning tactics is a result of poor business management by both large and small companies.

What does it take to correctly plan the right levels of inventory for your business?

Inventory algorithms

Formulas or algorithms for calculating the optimum level of inventory have been available for many decades and are still the subject of research by mathematicians and operations research scientists striving to improve predictions for all sorts of business activities.

Unless you aspire to be a modern day Pythagoras, these planning algorithms have been incorporated into all manner of software, at a range of costs. Successful supply chain management requires an understanding of the key drivers behind the calculation formulas.

These drivers form the basis of inventory planning algorithms:

Key inventory drivers

Demand

This is the most obvious. Quite simply, the more that customers want to buy from you, the more stock you’ll need to have on hand.

Demand Variance

This statistical term is a measure of “spread” of demand around a mean. The more irregular or sporadic the demand is likely to be, the more stock that is required to be sure of delivering good service. Think of an ice cream seller stocking to cover hot and cold days as an example of sporadic demand.

Lead Time

If it takes two weeks to get a fresh supply of widgets from your supplier. If you sell ten items per week, you need twenty widgets just to cover the lead time for the next shipment.

Lead Time Variance

If you have a supplier that averages two weeks to get stock to you, but can take one or four weeks, then you have to cover for when things arrive later than usual.

Economic Order Quantity

This formula calculates the optimum quantity of stock to purchase each time from specific vendors. This formula takes into account several factors – what it costs for you to place a single order to a supplier, quantity discounts, costs for holding inventory, and costs of stock-outs.

Service Level

Are you wanting to hold enough stock to make sure that customers are satisfied 99% of the time? Or do you want to have sufficient quantities to satisfy them 95% of the time?.

In summary, inventory planning management algorithms consider all of these criteria, and more, to assist you in calculating how much inventory to hold.

The inventory planning process

An inventory planning process is the discipline for determining the optimum amount of inventory for delivering a prescribed level of customer service. The steps required for building the process are:

Segment your customers and your products according to the service level that you wish to deliver. This is done by using one of the most simple but effective of all management tools, the Pareto Distribution, or 80/20 rule. Eighty percent of sales typically come from 20% of your product range and 20% of your customers. Prepare a curve showing cumulative revenue against products or customers and see for yourself. It is these customers and these products that should receive your highest service level of service.

Give lower levels of service to less profitable products. Optimize your inventory investment in this way. Invest in smart people who have aptitude with figures. Invest in software that can manage and calculate required stock levels for your business. Even a mathematical genius could not carry out these calculations for a large business without assistance. One of the great advantages of great inventory and order management software is that it captures point of sale information and transmits it back to suppliers, reducing lead times, and lead time variance.

Make sure your software solution provides advanced analysis and reporting capabilities to help you better understand actual customer demand drivers. It should allow you to monitor your inventory performance by taking into consideration inventory turnover, stock-outs, stock in excess, and stock in obsolescence.

If you found this article helpful, and would like to learn more about Cin7 inventory and order management software, click here to book a demo.

Inventory Planning Best Practices for Smarter Forecasting

Inventory Planning – Inventory planning is the process of determining the optimal quantity and timing of inventory for the purpose of aligning it with sales and production capacity.

As the owner of a growing retail business, an accurate understanding of customer sentiment will help you stock just enough of your hottest products and allocate your cash flow for optimal profitability.

Workforce management firm Altametrix defines inventory planning as the process of estimating future customer demand based on available historical sales data. 

Many experts would have agreed to that definition in 2019, but Covid-19 has proven that even the best plans based solely on historical sales data can be disrupted by unforeseen circumstances. On top of possible global unrest, product sellers also need to factor in supply chain delays and fickle consumer tastes. Making a mistake in gauging the future popularity of a product can lead to obsolete stock if you overbuy, and stockouts if you buy too little.

Not an easy task..

But Cin7 is here to help you shine at forecasting demand. We’ll provide 5 inventory planning best practices here so you can increase your chances of success – increasing profit margins and reducing costs associated with stagnant inventory.

Inventory planning is a process of predicting what your customers will buy, how much they’ll buy and when they’ll buy it.

Whether production planning, inventory management or entering a new market, demand forecasting will help you make better decisions for managing and growing your business.

Here are inventory planning best practices:

#1 Create a repeatable monthly process

Accurate demand forecasting requires a consistent and repeatable monthly process that systematically analyzes previous forecasts and compares them to actual sales results.

Through this process, the data will show when your predictions were right or wrong and what actual market demand has been.

You can sort any “deviations” (when you were right or wrong) from highest to lowest and evaluate the top 20% to determine why you were wrong and how to be closer next time.

By following a monthly process and evaluating your past successes and failures, you will minimize future errors.

#2 Determine what to measure and how often

WIth an inventory and order management system that has robust analytics and reporting can measure virtually anything in your business. To accurately forecast demand, you should focus on the most relevant data points.

Here are a few data points you should consider measuring:

  • Competitor sales data
  • POS data
  • Amount of obsolete stock
  • Frequency of stockouts
  • Shipments
  • Orders

Feel free to add any more relevant data points to the list. Then, depending on your industry and rate of inventory turnover, choose whether to measure those data points on a weekly or monthly basis.

#3 Integrate data from all of your sales channels

If you are a seller with multiple sales channels – a multichannel ecommerce strategy – then you should aggregate all the data from every sales channel for each individual product into a single data set.

Once you’ve done this for all of your SKUs, you’ll be able to see which channels offer the highest ROI for each product and what your shipping and order requirements will be – helping you to make smarter decisions.

#4 Measure forecast accuracy at every level

A study by Gartner found that only 17% of respondents indicated that they conducted forecast demand at the SKU, location, and customer planning level.

This is unfortunate because a primary driver of demand volatility is increased customer requirements.

Mr. Steutermann, the research Vice President at Gartner said, “Customer or sales forecast accuracy should be measured for continuous improvement and accountability. The appropriate place to measure for continuous improvement is in the sales and operations planning (S&OP) review process.”

If you measure demand error down to the customer level, you’ll be able to better understand the source of the error – allowing you to improve your process.

#5 Maintain real-time, up-to-date data

You can’t accurately forecast demand if you don’t have accurate data.

Demand forecasting best practices revolve around access to up-to-date inventory, sales, raw materials and finished goods data.

To make smart forecasts, you’re going to need that data as close to real-time as possible so you don’t calculate demand with any missing data points and so you can continually forecast demand on a weekly or monthly basis with fresh information.

If you found this article helpful, and would like to learn more about Cin7 inventory and order management software, click here to book a demo.

Inventory Control: How The Right Software Can Increase eCommerce Revenue

Inventory control is a massive organizational function and its complexity multiplies as your business grows. This is especially true for ecommerce businesses due to the number of SKUs, competitive landscape and inherent volatility. The pandemic only added to the speed of ecommerce adoption, leaving online sellers compelled to streamline and optimize their business processes.

Using a software solution that organizes inventory control for a successful ecommerce business is necessary, but choosing the right one can be complicated. On the one hand, you have comprehensive solutions that come with the “best-in-class” tag and then there are solutions that offer “functional value.”

While there’s a huge price difference between the two types of inventory solutions, you should not give up on either of their qualities. Therefore, you need to go for the right package that helps your business realize its true potential.

In this article, we will go through various areas where the right ecommerce solution can help online sellers grow their businesses. Let’s begin:

Why Do ecommerce Stores Need Inventory Control Software?

Online selling is easy to get started with, but as time passes, business owners realize that they need to take care of many priorities. These may come in the form of business opportunities, expansion hazards, employee management, marketing plans, target platforms and audience and product life cycles..

With growth, the management of inventory control can become a complex challenge. Most online sellers begin with manual processes to keep inventory in check and then later switch to Excel or Google Spreadsheets.

Spreadsheets provide the required utility in the beginning, but as your operations grow, they become unreliable. Inventory errors start becoming common due to potential duplicate entries, false entries, lack of coordination and collaboration. In order to keep manual systems running, you need to implement stringent working policies and rely on how well your employees comply with them.

The chances of making errors multiply depending on your selling volume, headcount, number of selling channels and SKUs. These errors lead to underselling, overselling and order fulfillment problems.

Inventory Control Challenges Faced By ecommerce Businesses

Here’s an example to illustrate the issues faced by online stores when selling across multiple platforms and relying on manual processes. Consider the case of a pet products store called Mandy’s.

Mandy’s is a fresh startup that has grown rapidly in the last few years. They recently started selling on multiple platforms and bought a second warehouse. Their expansion has contributed to their overall presence. Despite high demand from the market, their business is suffering due to internal setbacks. Upon analysis, Mandy’s found that inventory related troubles were at the root.

Here’s a list of management factors that Mandy’s needs to adopt to be in full control of their inventory:

#1 Know Order Fulfillment Status Across Multiple Platforms and Warehouses

It is critical to know whether your order fulfillment operations are on schedule or not. Processes like order pickup, packing and preparing for shipment turn out to be challenging if you don’t have a clear visibility into your operations. This gets especially challenging when selling on multiple online storefronts, because each of them need to be updated in real time.

Mandy’s found it quite difficult to navigate through multiple platforms like Amazon, eBay and Etsy. Add to that the challenge of managing stock across both of their warehouses. Accurate management of order fulfillment requires constant updates to stock after each order is placed.

#2 Underselling-Overselling, Understocking-Overstocking

Mandy’s started to either undersell or oversell their products due to lack of visibility. It was caused due to mistakes like improper bookkeeping, not performing timely inventory audits, work duplication and data entry errors.

Understocking and overstocking are caused by the same errors and demonstrate that businesses like Mandy’s need proper inventory control through automated software solutions that integrate physical operations with digital record keeping and automated information processing.

#3 Demand Forecasting

Demand forecasting is another area where most growing businesses like Mandy’s struggle. It is nearly impossible to devise insights using spreadsheets since they require you to use formulas every time you want to make sense of data. This leaves no way to be sure of tracking past sales trends and correlating them with current indicators.

#4 Managing Product Pricing And Sales

Mandy’s found that they needed product bundling capabilities which required them to make complex calculations. Marketplaces like Amazon also require sellers to change pricing dynamically depending on their competitor’s activity.

For instance, if a competitor is out of stock, you can increase your selling price without fearing the loss of sales. Conversely, you would need to lower your prices if your inventory has been sitting for long and is nearing its expiration date. This is where dedicated inventory tools come in handy.

#5 Coordinating With Logistics Partners

Logistics play an important role in determining a brand’s success. Logistics operators work under tight deadlines and you need to be ready with sales insights and be ready to ship products at the right time to ensure smooth order fulfillment.

Mandy’s found that returns processing and order tracking requests were consuming a huge chunk of its customer service staff’s time.

Having an inventory management and control system along with API-based integrations with third-party logistics partners can help solve this problem as your customers can track and return orders by themselves through a self-service portal.

Benefits Of Using An Inventory Management and Control Software For Online Sellers

An ecommerce inventory control solution can help address these concerns and help scale your business with the help of automation, standardization and the streamlining of your operations. To get a better understanding of the benefits offered by these solutions, have a look at the below section:

#1 Improved Productivity

Inventory software helps collect data, process information, delegate work and provide reporting. Inventory software can automate order processing, order pickup and packaging, returns processing and reporting analysis.

Your staff members only need to focus on their core work without worrying about documentation or other administrative formalities.

#2 Simplified Inventory Handling And Record Keeping

When using automated solutions, you no longer need to note down each and every transaction manually. You can turn the entire recordkeeping process digital by integrating a barcoding solution with your inventory software. This helps in tracking the exact location of stock within your storage facilities, order pickup and packaging, along with report building.

#3 Minimize Inventory Wastage

These solutions help order the right quantity of each SKU depending on historical demand and current trends. You no longer have to manually track how long inventory has been sitting in your storage facility and if you need to sell it due to expiration.

It will prompt you to clear aging inventory by creating a stock clearance sale, offering discounts or through product bundling. Thus, you can expect minimal inventory wastage as it helps order the right products and clear your stock at the right time in appropriate quantities at the right time.

#4 Improve Customer Experience

Without a dedicated solution, you can often miss delivery deadlines, send out expired products, fail to provide order shipping data and make returns a headache for your customers.

Without software, you aren’t able to confirm orders, may oversell items and wind up dealing with product backorders. With an ecommerce inventory management and control system, you can solve all of these problems and improve the customer experience by offering consumers transparency and control.

For instance, you can track a customer’s order history to identify repeated purchases over fixed intervals. You can send them order confirmations thereby streamlining operations on your end while improving the customer experience.

#5 Offer Visibility To Management

With the digitalization of all processes, insights and resource data, you get a clear picture of how your ecommerce business is performing and if it is facing any bottlenecks.

You can exercise greater control over your sales strategy, order fulfillment, warehousing, cash flow, sales trends, demand forecasting, inventory handling and marketing. Using an ecommerce suite helps unify all teams and orchestrate their efforts in concert to support your company’s growth.

#6 Improve Finances

Last but not least, you gain significant control over financial aspects such as total sales for a given period, taxes, compliance-related filings and all accounting recordkeeping. Software  facilitates inventory audits and plans out your expenses based on historical data. These solutions take the guesswork out of the equation offering a better understanding of your business finances.

How To Find The Right ecommerce Inventory Management and Control Software

Here’s a simple step-by-step overview to finding the right ecommerce inventory management software for your business:

  1. Understand your priorities and the areas where you are currently struggling
  2. Conduct a detailed market survey to get a hands-on understanding of available options
  3. Scrutinize the available solutions and determine the customizations your specific business requires
  4. Analyze the learning curve for your staff members
  5. List third party integrations required and check their compatibility
  6. Check out user reviews to weigh pros and cons
  7. Involve stakeholders and prepare for onboarding

Summing Up

It is evident that ecommerce inventory management software provides you with the ability to manage and scale your operations methodically. In the absence of such solutions, it becomes extremely difficult to operate since you have little to zero visibility of your organization, its expenses and technical difficulties. Meanwhile, your staff continues to struggle with productivity issues due to errors and manual data entry.

The right ecommerce inventory management and control software helps streamline all aspects of your online selling business and increases your bottom line. If you need further guidance on ecommerce inventory management solutions for your business, get in touch with Cin7 now!

6 Questions to Ask When Choosing an Inventory Management System

Gone are the days when inventory was managed through manual stock takes and Excel spreadsheets. Today, various inventory management systems track inventory levels, demand, forecast, etc. When choosing an inventory management system for your business needs, here are a few questions you need to ask yourself to select the right option for your business.

 

#1. What is the Current Size of Your Business?

The first important question is to know what size and stage of growth your business is in. If your business is small, paying a lot of money for an inventory management solution would not be worth the investment. Until your yearly sales are over about $100k, a spreadsheet is enough for your inventory needs. If your projections predict imminent growth past $100k, begin to start looking at inventory solutions.

However, many SMBs having yearly sales between $100k and $100 million find that their inventory complexity is alleviated with a robust inventory solution.

#2. What is Your Budget?

Take your time to define your budget: inventory management systems range from free to six figures. If you know the investment you’re able to make, it’s much easier to refine your search to a few offerings that best suit your budget, size and operational capacity.

With huge variation in price comes a significant variation in quality and capability. So, make sure you invest wisely by doing your homework.

#3. What Kind of Inventory Management Software Does Your Business Need?

You must have a clear idea of your business needs. The mode of operation of each business is different. For instance, if you run a clothing store, the areas you may need help with are going to be different from a restaurant.

The specific needs of the business must be taken into consideration. If you need software that helps print barcodes for your products, check if you can get one that offers you both inventory management and barcode printing.

#4. What Challenges do you Need to Solve?

If you buy an inventory management solution, make sure you know what problems the tool will solve. It’s important to be familiar with successful inventory processes and the challenges that prevent growth.

Knowing the problems you’re trying to solve will make it easier to ask the right questions when choosing an inventory management system.

#5. What Integrations do you Need?

Any good inventory management system like Cin7 will connect with the tools your business uses daily. For instance, multichannel sales through eBay, Amazon and other online marketplaces must be supported so that you can monitor inventory across third-party sales channels.

You also want to connect your accounting software like Xero or QuickBooks. Seamless integration with eCommerce platforms like Shopify, Magento or BigCommerce is necessary for an online store. The right solution will help you manage every product, order and customer in one place and across multiple stores.

#6. Who Will Use the System?

To fit your business and your team’s requirements, it’s essential to know who will be accessing the system. With a cloud-based inventory management system, any employee or business partner can gain up-to-date information without emails, texts or phone calls to double-check orders. The system has it all.

Cin7 is Your Best Bet as Inventory Management Software

With the above six questions at your disposal, you are on course to determine the best inventory management solution for your business. Cin7’s cloud based software can handle all the needs of any company, size or industry.

Our system offers countless more features than any other standard inventory management system. Not only does Cin7 offer inventory management, but it also assists you with accounting, sales, POS, purchasing, manufacturing and eCommerce.

We have proudly assisted thousands of clients from around the globe to move their business forward. Our dedicated service team is always available to help you answer any questions you have.

What Is Amazon’s Inventory Performance Index (IPI) And Why Does It Matter?

Amazon is one of the most customer-centric companies in the world, and this is reflected in almost each of its management approaches. Among them, FBA is a highly successful initiative, and a large number of third-party sellers leverage it. The smaller businesses especially found it very helpful as they could even store their inventory at Amazon’s FBA facilities. Keep reading to discover how Amazon’s Inventory Performance Index may impact your business.

However, Amazon found that a significant number of sellers were using FBA as a storage facility which effectively reduced the total available space. While this was contradictory to Amazon’s outlook of using these facilities for items that are ordered frequently and need to get delivered quickly, it also sabotaged the interests of Amazon, other sellers, and ultimately its customers.

Thus, it came up with an inventory performance index (IPI) in July 2018 to prevent dormant stock from choking its storage facilities. Seller Central is not the easiest platform to manage for most businesses, and it already has a number of metrics to take care of, but this was a needed inclusion.

But this is an important parameter since failing to maintain a healthy score could invite hefty penalties. If you are new to Amazon FBA or simply want to understand IPI better, you are at the right place. We have curated this article to help you understand IPI’s ins and outs in a crisp manner. So let’s get started.

 

What Is Amazon’s IPI And Its Important Parameters

IPI is a score out of 1000 that Amazon assigns to a third-party seller on its platform. It shows how efficiently you manage your FBA inventory, and the higher the score, the better it is. Amazon reviews it every quarter and six weeks before a quarter to remind you to take corrective measures. You need to qualify by scoring a minimum score, i.e., a threshold, which is 450, and it’s up to Amazon’s discretion to make any changes to it.

(Image credits)

Interestingly, Amazon doesn’t declare the parameters of its IPI metric. So there is no sureshot answer on how to improve your IPI score, but a lot of experts have condensed it to a function of:

  1. Sell-Through Rate
  2. In-Stock Rate
  3. Excess Inventory
  4. Stranded Inventory

Let us understand each of these IPI determining factors in greater detail:

#1 Sell-Through Rate

It is a simple metric that tells us how quickly we are selling our inventory. It is calculated by dividing the total number of units sold in the past 90 days by the total number of units held at FBA.

#2 In-Stock Rate

The in-stock rate is given by the percentage of your Amazon ASINs that have been in stock for the last 30 days, weighted by the number of sold SKUs in the previous 60 days. In a nutshell, it describes a seller’s ability to sell without facing stock outages. A high in-stock inventory saves you from lost sales due to product shortages.

#3 Excess Inventory

Inventory that isn’t likely to be sold in the next 90 days due to lack of demand or turning obsolete is known as excess inventory. Even if the product is well in demand but if the stock is higher than 90 days worth of demand, it is considered as excess inventory.

In the past, Amazon has stated that excess inventory is among the top reasons for a low IPI score, and thus, sellers should always maintain a healthy quantity of in-hand inventory. Amazon recommends sellers to either create a sale, match the lowest offer, run advertisements or even create a removal in the worst-case scenario.

 

#4 Stranded Inventory

Amazon ASINs that are not available for selling due to listing issues are known as stranded inventory. Sellers have to use the “Fix listing” option to reinstate the listing which is inactive due to issues like pricing errors, listing errors, ASIN expiration, and bulk upload errors. The percentage of stranded inventory is given by:

What Happens If You Don’t Hit Amazon IPI’s Minimum Threshold Score

These are the main factors that impact your IPI score, and you need to keep them in check on a weekly basis, if not on a daily basis. If you score below the target threshold, Amazon will limit your ability to send any more inventory to its FBA centers and impose a fine of $10/cu ft on all excess inventory sitting on their platform. It will also leave a monthly storage overage fee; on the contrary, scoring above the target threshold for two consecutive score check weeks will provide you with unlimited storage space for all storage types.

Thus, scoring above the target threshold is necessary and beneficial for all third-party sellers. It is noteworthy that only FBA ASIN products fall into this evaluation.

But we would like to bring to your attention that a healthy IPI score is important not only from your Amazon selling business point of view but in terms of your overall business health too. Thus, it is not a very big challenge to ensure a good IPI score as long as your operations are running smoothly as both are interconnected.

Where To Track Your IPI Score

To check your IPI score, simply go to the Seller Central account’s inventory performance dashboard. In case your score dips below the threshold, Amazon will provide you with tips to improve it. You can also decode the factors that might need attention like the storage type and cubic feet utilization, age buckets in days, (estimated) long term storage fees, total units sold in the last 90 days, FBA units sold in the last 90 days, and your (price + shipping) against your competitors’ corresponding figures.

Using these inputs, you can make necessary changes to your operations for securing a good IPI score. Generally speaking, you need to minimize your stranded and excess inventory while maintaining a decent sell-through and in-stock rate.

Tips To Improve Your IPI Score

In this section, we will share a few measures that you can implement to keep your IPI score in a healthy range. Remember, new ASINs will not impact your IPI score until they are 90 days old. Also, if you choose to place a stock removal request, i.e., liquidate your inventory, it will no longer impact your IPI score. So let us get started with the tips that will help you maintain your IPI score above the minimum threshold apart from maintaining a good sell-through rate:

#1 Keep An Eye On Listing Issues

Stranded inventory will result in lost sales despite availability while lowering your IPI score, so it is recommended to monitor listing issues. Make it a point to check your stranded inventory percentage and maintain the proper availability of your best-selling products.

#2 Never Let Your Inventory Storage Tenure Exceed 365 Days In FBA

Having your inventory sit in Amazon’s FBA facility for a full 365 days will invite hefty long-term storage fees. Thus, you should either create a sale or a removal order to avoid paying the additional fees and lowering your score. If required, you can also get it destroyed by Amazon.

#3 Don’t Overstock

It is necessary that you refrain from overstocking when using FBA and that you do not treat it as your primary storage facility. Many new sellers who are getting started with online selling commit this mistake unknowingly, and thus, you should discard any overstocked items through sales or Amazon outlet.

Limitations Of Amazon’s Inventory Performance Index (IPI)

So far, we have covered various aspects concerning the IPI metric, but it too, comes with certain limitations:

  • It is not meaningful enough for multichannel selling as the entire index is native to Amazon. Thus, it would not give you a clear idea of how your business is performing if it is not solely limited to the Amazon marketplace.
  • It can be cost-intensive if overlooked, so new sellers need to be mindful of their IPI score.
  • Lastly, there is no exact formula to calculate your store, so you are completely dependent on Amazon.

Wrap Up

It is evident that Amazon’s Inventory Performance Index (IPI) isn’t something to worry much about if your business is doing well. However, you need to keep an eye on it and make timely adjustments to save yourself from any extra fees or storage limitations.

Is Inventory Evil? 5 Lessons to learn from Tim Cook’s Supply Chain Genius

Apple’s quarterly earnings call on July 26 revealed the company had cash reserves of $232 billion, and even though comparisons to small countries might be a little exaggerated (there’s a little more involved than just a mountain of cash) $232, 000, 000, 000 is still an incredible sum of money.

Having so much cash in the bank allows Apple to invest in things that pay long-term dividends: they are building a beautiful new campus in Cupertino that is part garden, part spaceship, and they are investing heavily in a secret project – supposedly known as ‘Project Titan’ – to build a commercial electric vehicle. So not only can Apple operate comfortably in the present, but it can also ensure its success in the future too.

Apple’s dominant position can in part be attributed to the current CEO Tim Cook. Though the average person on the street may have been surprised by his appointment in 2011, the humble Alabamian had been quietly at the helm of Apple’s operations since 1998. Let’s take a look at a few reasons why Cook’s inventory genius contributed to their cash reserves – and maybe even pick up a few tips on how you can replicate their success.

Is Inventory Evil?

Whether or not Cook actually said this phrase is a matter of debate – I can’t find the source anywhere. But the principle is essentially sound. Money that is tied up in stock left sitting on shelves is a big waste of your cash. If you can reduce both the amount of time you own stock and the total amount of stock you own at any one time, you’ll find your equity increases. “You kind of want to manage it like you’re in the dairy business,” Cook has said. “If it gets past its freshness date, you have a problem.”

Find Responsive suppliers

The first key part of reducing your inventory is getting on good terms with your suppliers. If you can order stock or components as and when you need them, you will be able to bring down the number of days the stock sits on your balance sheet. Part of the risk of using a Just-in-time method can be negated using reporting technology to forecast demand. Apple requires its component suppliers to be as close as possible to its assembly line for the very same reason.

Have a good relationship with your trading partners

Secondly, and this follows exactly the same logic – if you can shift stock to your trading partners at exactly the right time, then you decrease the amount of stock on your shelves. You can reduce the turnaround time for orders using technology such as EDI. Better still, monitor the stock your biggest trading partners currently have – a concept known as Vendor Managed Inventory, or VMI – so that you can replenish goods at exactly the right time. This benefits the whole supply chain too.

Use any wastage

Like Ferraris, Apple’s products are known for looking just as beautiful under the hood as on the exterior. Delving into the case reveals more than just smart technology. Apple is notoriously frugal with components, reusing any wastage in its next line of products, to further reduce old inventory and reduce the cost of new products.

Keep a close eye on costs

Bringing down costs doesn’t necessarily entail using the cheapest components, but making smart decisions at the right time – Cook and right-hand man Jeff Williams once invested over a billion dollars in flash drives, correctly predicting they would form a large part of their future product lineup, simultaneously shutting out competition from an emerging market. While you might not have the nerve (or money) to play hardball like this; taking time to think about the long game can only help make your business leaner and more successful.

Whether you are just starting out or growing quickly, the basic principles of inventory management can put you ahead of the game – and, just like Apple’s Tim Cook, reap the benefits of becoming a supply chain genius.
Find out more about EDI and how to cut inventory and increase your cash.

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Can Reducing Inventory Really Improve Working Capital?

The 1,000 largest American companies would improve their working capital by a combined US$1 trillion if they optimised their inventory and accounts, a recently published report suggests.

The 2016 US Working Capital Survey shows most of these companies are carrying debt instead of improving business processes to maintain cash reserves.

“Once again, low interest rates gave companies a perfect excuse to ignore the hard work of optimizing receivables, payables, and inventory, leaving over a trillion dollars unnecessarily tied up in operations,” said Craig Bailey, director of The Hackett Group. “Instead of focusing on transformation most simply leveraged their future with more loans.”

Top performers in the survey are seven times faster than typical companies at converting working capital to cash. In addition to collecting from customers faster, they hold less than half the inventory than the companies that rely on debt to maintain cash reserves.

For most companies, efficient management is the only way to improve working capital. Large corporations might enjoy the luxury of negotiating cheap loans—an option that will last only as long as the economy cooperates and the central bank doesn’t hike interest rates. The rest of the world needs to cover operating expenses by lowering current liabilities and increasing current assets as much as possible.

Inventory is the linchpin to working capital, especially in general retail and grocery sectors where it can account as much as 70% of current assets. Too much inventory reduces current assets tying cash up in excess raw material purchases or warehousing costs. Too little inventory increases reordering costs, but carrying buffer stock can turn into a liability if a company anticipates more orders than it receives.

“With the globalization of supply chains, inventory optimization has become increasingly tough to achieve,” writes Robert J Bowman. “Companies are liable to find themselves burdened by pockets of inventory and little visibility across multiple locations.”

Generally speaking, getting inventory right includes tying forecasts into sales and operations planning. Bowman writes that corporations should practice “customer segmentation” using statistical modeling and pre-determined service levels to set appropriate inventory levels for each account

This may be an easier proposition for smaller companies than you think. Large corporations with complex supply chains and multiple departments have a serious scale problem. But smaller, nimble companies can take some basic steps to inventory management—using effective purchasing and inventory systems, knowing all stock turnover, applying appropriate controls—that can be coordinated easily across a smaller team.