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warehouse layout design hero

Warehouse layout design best practices

Posted on | by Cin7 team | Leave a Comment on Warehouse layout design best practices

There’s more to running a warehouse than just piling inventory on shelves. The design of your warehouse can make or break your overall operational efficiency.

Warehouse layouts need to be optimized for clear visibility, smooth transfer of goods, and easy equipment accessibility. And no one design will work for everyone.

Most companies use one of three main warehouse layout styles. These layouts address items like the needs of different industries, the warehouse building size and shape, shipping and receiving volume, and budget.

So, what’s the best way to arrange your warehouse? Let’s dive into the options to help streamline your workflow and make the most of your warehousing space.

Here’s what we’ll cover:

What does warehouse layout mean?

Warehouse layout design factors

3 types of warehouse layouts for workflow

Best practices of warehouse layout design

Final step: Choosing a warehouse management system

Frequently Asked Questions

What does warehouse layout mean?

Warehouse layout refers to both the physical structure of your warehouse and the many components within it. A proper warehouse layout also ensures workers have enough space to operate at maximum capacity, leading to a smoother inventory flow with less wasted time.

Warehouse layout design factors

There are several considerations for optimal warehouse design and workflow. You’ll want to consider all of them before deciding on the best space for your team.

Budget

Building a warehouse from scratch to custom specifications is expensive and time-consuming. While hiring a warehouse design expert to create a layout based on your requirements would be ideal, most companies need to work within a more limited budget.

Make sure to conduct a cost-benefit analysis and see which structures and equipment best fit your budget. You’ll also want to take existing warehouses into account. There might be an available warehouse space already on the market that’s a pretty good fit for your business needs. In many cases, warehouses for lease might already include some warehouse equipment like shelving.

Warehouse space needed

When planning your warehouse layout, how you divide the space determines your warehouse’s capacity and ability to store goods. For example, if you need to include office areas and break rooms, you’ll have less space to store and prepare inventory.

To maximize your warehouse’s storage capacity, make use of vertical space by stacking products. You can form clusters of products by grouping and stacking them together — which leads to quicker sorting later.

Equipment needed

To operate at full capacity, warehouse equipment such as shelving, conveyors, forklifts, lifting and packing tools, pallet racks, and safety equipment are required. Forklifts, in particular, are one of the most important pieces of equipment for warehousing operations, and you need to consider this tool’s cost and the space it needs to operate as you design your warehouse.

In addition to the equipment moving around, you’ll need barriers to protect your inventory and workers. Barrier rails work great when combined with mirrors and bollards. After analyzing your equipment needs, you can evaluate the best-suited warehouse layout and go from there.

Staffing requirements

Understanding staffing requirements can help you estimate how many people you’ll need and shift timings.

It’s important to make sure your warehouse’s layout does not impede the movement and productivity of your employees. The layout should also be designed while keeping the future in mind — you should have enough space so new employees, products, and materials can be added comfortably down the line.

Safety regulations

The safety of your employees is a prime concern. While designing your warehouse layout, ensure compliance with safety guidelines according to your local authorities and government.

This helps prevent both employee injuries and legal actions.

3 types of warehouse layouts for workflow

The three most commonly used warehouse workflow layouts are U-shaped, I-shaped, and L-shaped. Each style has benefits and drawbacks; let’s look at them in detail so you can determine the best possible structure for your needs.

The U-shaped warehouse flow

U-shaped warehouse flows are the most popular due to their simplicity and ease of replication. All the inventory is arranged in a “U” shaped semicircle, the middle portion (the bend of the “U”) is used for storage, and then shipping and receiving are performed at the ends of the “U.”

After receiving orders, products are placed in the staging or reception area to be sorted and then placed at appropriate storage locations. Storage locations are split into two categories:

  • Static Storage is for slow-selling products that are more likely to sit on the shelves for a longer period of time.
  • Dynamic Storage is for products with higher demand and turnover.

The “U” shape helps streamline inventory flow and keeps everything separate. By keeping incoming and outgoing shipments apart, the U shape also helps avoid bottlenecks.

Plus, because shipping and receiving are on the same end of the building, employees can swiftly move products between these two stages, and you may need less loading and unloading gear.

However, some people consider this a downside because the proximity of the entrance and exit can lead to congestion.

The I-shaped warehouse flow

The I-shaped warehouse flow is most often chosen by enterprise businesses that have larger warehouses. The I-shaped design offers a clear “in and out” view of product workflow for these bigger companies producing higher volumes.

In this layout, receiving and unloading are on one end of the warehouse, storage is in the middle, and the shipping area is at the opposite end of the building. The I-shaped design allows for a linear flow from receipt to shipment.

From a bird’s eye view, the flow is similar to an assembly line, which both helps minimize bottlenecks and reduces back-and-forth movement.

The most significant drawbacks of an I-shaped warehouse design are that two sets of loading and unloading equipment are needed, and products must travel the complete length of the warehouse. With products being accessed on both sides of the “I,” you may also need a larger operational space for equipment like forklifts.

The L-shaped warehouse flow

For “L” layouts, the receiving and unloading areas are on one side of the warehouse, and the shipping and picking areas are on an adjacent side, creating a 90-degree angle. The remaining space is then designated for storage purposes.

While “L” shaped warehouse layouts are often used to fit an “L” shaped building, that’s not the only benefit. Like the I-shaped flow, the L-shaped flow also reduces back-and-forth movement. It also separates the receiving and shipping areas on different sides of the warehouse to help prevent traffic congestion.

However, the downside of the L-shape is that it requires considerable space to run your operation smoothly, and you’ll still need two sets of loading and unloading equipment.

Best practices of warehouse layout design

Regardless of your chosen warehouse layout, you’ll need to optimize it to ensure efficient operations. Here are some tips you can implement to make the most of your warehousing strategy.

Warehouse mapping

While finalizing the schematics of your warehouse’s design, you should make sure to get the most accurate measurements possible. You’ll also need to label each area of the facility according to its function. Keep in mind that a 2022 survey found the typical company only used 85.6% of its warehouse space.

Each workflow should be established from entry to exit. Once the workflow is designed, you’ll be able to understand how each function connects. After that, you can define the best work processes and train your employees correctly.

Optimizing picking processes

When you adequately plan your picking and packing workflows, you’ll be able to ship the right products to the right customers. There are several picking methods that you can implement to improve your processes.

  • Batch picking consists of picking similar orders in batches, all at once. This method is faster than picking one order at a time, and it allows you to fulfill similar orders that include the same SKUs.
  • Zone picking is when pickers are assigned specific zones and only pick orders from that area. Zone picking is commonly performed one at a time. If an order needs products that are outside a specific zone, a conveyor belt is often used.
  • Wave picking is helpful for warehouses with more significant volumes of products with many SKUs, and combines batch and zone picking. In this method, the picker has to stay within the zone assigned to them, and they are able to pick multiple orders simultaneously.
  • Discrete picking is often used in small businesses with fewer SKUs. Whenever an order is received, the picker retrieves all items for the order from different zones of the warehouse. This is time-consuming because pickers are only able to process one order at a time.

As always, you should select the picking strategy that best suits your business and your warehouse. Whatever method you choose, you should focus on maintaining high picking accuracy to reduce the risk of returns.

Ideally, it’s best to have picking areas close to storage areas — which can dramatically reduce the time spent to select ordered items. To increase the efficiency of the picking process, you can also install conveyors.

Improving warehouse accessibility

It’s crucial to place all necessary tools and equipment in spots that are easily accessible to your warehouse workers. There also needs to be enough space for equipment and staff to move freely along designated paths. This speeds up the order fulfillment process to deliver more quickly to customers.

Streamlining the shipping process

The shipping area is where final packing and preparation for shipping take place. Ideally, you want to keep this area separate from other spaces to avoid mixups. It should also be laid out so that staff doesn’t backtrack to complete steps in the process.

Keep best-selling products near shipping areas and products that don’t sell as well farther away. This helps minimize travel picking time and can be accomplished most easily with L- and U-shaped layouts.

Testing and collecting feedback

After finalizing your layout and warehouse flow, you should make sure to run tests and confirm that everything flows smoothly. Equipment like forklifts and conveyors should also be tested.

Allow the employees who will be handling the equipment to test it out and take their feedback into account. Since your picking team will constantly move around the warehouse, you should also work with them to optimize routes for faster fulfillment and less confusion.

You can optimize your strategy and determine the best possible configuration and processes based on feedback and test results.

Final step: Choosing a warehouse management system

Once you decide on your warehouse’s layout and flow, it’s time to choose your warehouse management system. You’d be surprised how much smoother your day-to-day operations and order fulfillment can become with the right management system.

A warehouse management system gives you a real-time view of your inventory’s performance and helps you significantly optimize your warehouse. In fact, 77% of organizations consider warehouse automation systems a crucial part of maximizing performance.

If you’re interested in implementing a warehouse automation system for your business, contact the Cin7 experts to learn more about how we can help.

Frequently Asked Questions

What is the most common warehouse layout?

The most common warehouse layout is the U-shaped warehouse. This shape is popular because it is easy to replicate and has a simple setup.

The U-shape also helps avoid bottlenecks by keeping shipping and receiving on opposite sides of the same end of the building while storage is in the middle.

What is the best warehouse shape?

The best warehouse design for your business really depends on a number of factors. Budget, inventory size and type, number of orders, safety requirements, and your warehouse space can all affect which is best for you.

U-shaped warehouses are good general designs that work for a large number of situations. I-shapes are great for large order volumes or the use of conveyor belts. L-shapes help reduce back-and-forth movement, which is helpful for large products and controlling traffic flow.

Royal Essence

Great tech and great advice are the reasons why most product sellers can’t hold a candle to Royal Essence

There’s not really any such thing as overnight success. Most of what people perceive as “overnight” achievement is actually a combination of hard work, learning, great advice, and good fortune, sustained over a long time.

But, with that said, when all the right ingredients come together, sometimes the speed of success can be truly staggering.

Paul and Hannah Chamberlain, founders of Royal Essence, know all about the dizzying acceleration that happens when everything lines up just right. Together, the husband-and-wife team have taken a brand that they jokingly call “Kinder Surprise for women” from their garage to a seven-figure international ecommerce business in just a few years.

But, unlike a lot of ecommerce sellers, things were pretty big for Royal Essence right from the start.

“We did a million in our first year, and we’ve averaged 150 percent growth year on year since then,” says Paul.

How did they manage what so many haven’t? For Royal Essence, it started with a great idea, but they’ve managed to sustain their success thanks to trustworthy partnerships, talented advisors – and great inventory management with Cin7 Core.

 

Lighting up social media leads to burning the candle at both ends

Royal Essence’s product is tailor-made for the age of memes, social media influencers, and the rise of Tik-Tok.

They sell mainly scented candles and bath bombs, with a unique twist: each comes with a very welcome jewellery surprise inside — which can be worth anything from $90 to $5000.

Paul and Hannah came up with the idea for Royal Essence when Paul was working as an ecommerce marketing director.

“I’m always trying little side hustles. I saw this one, and no-one was doing it well. I made a few candles in the garage while Hannah was away on holiday, and sent her a photo,” Paul says.

“She thought, ‘Okay, another crazy idea, here we go again.’ But then it took off, basically immediately.”

Hannah says that the results of the first ads they placed for their first tiny batch of candles were incredibly encouraging, but even better was the reaction on social media, where the product was an immediate viral hit.

“We had a pre-sale that ran for two weeks, and the number of orders was just ridiculous. And suddenly I had to make maybe thousands of candles, in that short amount of time.”

“The first six months, we were just trying to keep up. We’d be up at 2 AM pouring candles in the freezing winter,” Paul adds. But it was well worth it. In the first month, they made $10k. Month two was $19K. By the six-month mark, Paul and Hannah’s garage business was making an incredible $70,000 in monthly revenue.

@emmayeyah

these candles are so cool! #royalessence #royalessencecandle #foryou #21st #birthday #2021 #nz #foryoupage

♬ Sunny Day – Ted Fresco

“Paul had a full-time job, so it was basically all me!” Hannah says. “And I was working at a fish-and-chip shop at the same time, two days a week, and did wedding photography on the weekend, so it was pretty full on.”

Adding to the toll taken on their personal lives was the fact that their sheer sales volume meant they suddenly had an enormous inventory to manage — and no good way to do it.

“We had no idea. We were just starting the business. We were completely lost as to how inventory even works,” Paul says.

After a year of struggling with spreadsheets and guesstimates, things came to a head. For the business to keep growing, and for Paul and Hannah to spend less time in the daily grind, they needed an effective inventory management solution.

 

Instant wins from Cin7 Core

All the best success stories start on the shoulders of giants. For Paul, an important mentor was his former boss, who had encouraged him in his side-hustle and now helped as he transitioned to making Royal Essence his and Hannah’s full-time living.

“He’s a good guy. He loves anyone who gets into business,” Paul says of his mentor. “I stayed for a couple of months, while he figured out someone else for my position, and he helped me out. He recommended a Cin7 Core consultant in Adelaide to help us get set up.”

Paul and Hannah’s consultant helped them migrate their data from spreadsheets and made sure their starting inventory information was correct from the start. Right away, Royal Essence felt the impact of accurate inventory tracking. Things that had been excruciatingly difficult — like reordering in time for the next batch of production — were suddenly easy.

“Before Cin7 Core, I was always just guessing – the number of boxes in front of me, what’s going to be used for production that day,” Hannah says. “After Cin7 Core, the instant win for us was we were able to see the big picture. You can definitely see the movement of the raw materials, and I was able to do our reorders in time. That’s a really big thing for a small business, especially because during that time we were growing so fast.”

With Cin7 Core implemented and day-to-day inventory tracking enabled, things were already much better. But that’s only a fraction of Cin7 Core’s capability. For Hannah and Paul’s burgeoning ecommerce business, now selling all over the world, they needed to be able to track inventory on the financial side. For that, they needed a specialist ecommerce accounting partner, and that’s how they found Bean Ninjas.

 

Fast and agile ecommerce accounting

Bean Ninjas is an e-commerce specialty accounting firm, with a very clearly defined target market — seven-figure-plus ecommerce companies. “We consider ourselves tax agents and accountants, but there’s a big advisory piece as well,” director Tracey Newman says.

Ecommerce businesses that sell in multiple markets have a lot of considerations that other businesses don’t, Tracey explains. Merchants charge varying fees depending where the business is located, and the tax compliance requirements can be enormously complex. And when inventory isn’t being tracked accurately, the accounting falls apart. Sellers, already buried under enormous workloads, find themselves faced with compliance and logistics challenges that are impossible to work through themselves. Then, as they try to grow, they’ll often find that cashflow runs short, and banks won’t lend to them because the financial picture isn’t clear. That’s where Bean Ninjas come in.

“Very commonly, successful ecommerce sellers are husbands and wives, or friends, who work out of their own houses. They haven’t really had an opportunity to get data like benchmarking, or advisory services, and there seems to be a big uptake for that all-around advice,” Tracey says.

“One of the things I say to my clients when I’m recommending Cin7 Core is that I really like how Cin7 Core takes a focus on balance sheet, as well as on profit and loss,” Tracey says. “Very few other inventory solutions do that.”

For Royal Essence, Bean Ninjas were able to help on multiple fronts. Using Cin7 Core as the single source of truth for inventory meant that everything could be lined up correctly in Royal Essence’s accounting system of record, Xero.

With Bean Ninjas advising, Royal Essence moved their manufacturing operations overseas, which massively increased their gross margins. With banks now eager to lend, they had the operating capital to expand their ecommerce operations to the UK and Europe.

“Where Cin7 Core really helps these days is with multiple channels, and syncing locations, and ensuring that our accounting is nice and up to date,” Paul says. “We don’t have to stress at the end of the year because our books aren’t correct and we have to spend a month going through it all. Instead, it’s all up to the accountant.”

What’s more, Royal Essence could track their product through every stage of production and sales: from manufacturing, to freighting and landing, to selling and shipping. The increased transparency and reduced workload meant they could grow — and so they did.

 

End-to end transparency: Cin7 Core tracks inventory from production through to sales and shipping

Transparency is the key that unlocks growth for many product sellers. Being able to see what’s happening, and how much it all costs, during all stages of the product life cycle means sellers know exactly how to optimize their supply chain.

Royal Essence has a simple product, with a complex product journey. Materials are sourced from overseas suppliers, and then combined in a different manufacturing facility. From there, the goods are freighted to third-party logistics (3PL) warehouses around the world, where customer orders are processed and shipped.

“It starts from making a purchase order from our two suppliers — the supplier of the actual product, and the supplier of the jewelry,” Hannah says. “Then it goes to be manufactured, and Cin7 Core shows that picture for us. Then it’s assembled, and it even shows when they’re in the container, so we know there’s stock on the water, on the way.”

This entire process is in Cin7 Core, so inventory is always up-to-date. Whenever raw materials are purchased, this is noted in Cin7 Core. When these components go to manufacturing, they’re virtually assembled in Cin7 Core as well, becoming the finished product.

“That helps a lot,” Hannah says. “You can see how much the raw materials cost, and the cost per finished item.We get visibility on exchange rates, so when the product is cheaper to buy, and profit margins on raw materials. We can even see, across different locations in three continents, how much we have, or how much is arriving.”

This visibility means that, unlike many ecommerce companies without a good view of cashflow, the business knows exactly how much it can spend on getting new customers in the door with Paul’s specialty subject: marketing.

“It dictates how much I can spend on marketing, basically,” Paul says. “I need to know what our cost of goods is, what our gross margin is, in order to know how much I can spend. Having the data from Cin7 Core means I can focus on sales, and marketing, and getting more customers in the door.”

@megan00jay

£3000 ring reveal bath crumble!! #fyp #foryou #JDAirMaxYourWay #bathbomb #bathtok #viral #royalessence #imperialcandles #LiftYourDream #reveal #bath

♬ Lofi – Domknowz

 

Cin7 Core’s 3PL sync is the secret to rapid scale

Cin7 Core continues to offer full transparency and visibility even as goods are landed in their destination countries and taken to 3PL warehouses. They’ve got a 3PL in Sydney, which takes care of the Australian market (which still accounts for 70 percent of their business) another in Pennsylvania that serves the US and Canadian markets, and two in the UK.

“When it arrives in our 3PL, our 3PL receives it, and it syncs to Cin7 Core that they’ve received it,” Hannah says. “So we can see the inventory in all different places — some is being manufactured overseas, some is on the water, and some is ready to be sold to consumers.”

The whole system provides an incredible snapshot of a business in motion, Royal Essence says. “Being a numbers guy, I personally love seeing those landed costs, because it’s so hard to calculate without Cin7 Core,” Paul says. “It’s so good that you can just jump into Cin7 Core, search the SKU, and just see it there.”

The system also keeps pace with customer orders, enabling swift and hassle-free fulfilment. As stock is shipped to customers, the 3PLs sync their inventory with Cin7 Core, daily. They also manage stock adjustments when necessary, making time-consuming, laborious manual stock counts a thing of the past.

“I couldn’t stand doing stock-take,” Paul says. “It felt like a waste of time — often just to find out we’d miscounted! It’s so good having someone else do all that for us, and we just do an auto-sync through Cin7 Core.”

This is the secret to rapid scale, Paul and Hannah says. They have the marketing, personnel, and other systems set up, and entering a new market is almost as easy as CtrlC + CtrlV.

“It’s 100 percent repeatable,” Paul says. “We’ve already proven that a couple of times. And we’re about to do it again in the EU, so we’re looking at setting up another 3PL in the Netherlands. We’ve done it before, it’s the same process. We’ve got a team that knows how to use Cin7 Core, and it’s just a matter of copy and paste from here.”

@royalessenceco

What a perfect way to end your bath 🤩 @itskatematee #royalessence #bath #surprise #ringcandle #reveal

♬ Sunny Day – Ted Fresco

 

The transparency provided by Cin7 Core is the jewel in Royal Essence’s crown

With Cin7 Core powering their inventory and acting as the single source of truth for every business process from manufacturing to shipping, Royal Essence has been able to hit milestone after milestone. Even the Covid-19 pandemic, which spelled doom for many product sellers who weren’t ready to move online, didn’t disrupt their momentum. In fact, it boosted their sales by up to 40 percent.

“We feel very lucky. I know a lot of businesses struggled through COVID, but we just got an uplift in sales,” Paul says. “I think everyone was at home and didn’t know what to do with their time and money, so they decided to buy some candles with jewelry in them.”

Paul and Hannah have now set their sites on a number of new markets, aiming to repeat and refine their proven business process in each. Cin7 Core has even enabled them to automate some selling on Amazon, a notoriously tricky platform for ecommerce sellers, but one that offers enormous rewards to those that master it.

“The thing with having software like Cin7 Core — because the UI is so straightforward and simple, it lays it out in front of you as to how to go about things,” Paul says. “Just the accuracy, and detail, and feature set that the product has.”

On the accounting side of things, Bean Ninjas say that in their experience, accurate financial results are the most important thing to get right for businesses that want to grow and prosper.

“There’s an incredible correlation between accurate financial results and almost every other impact in your business,” Tracey says.  “By having knowledge and control from a system like Cin7 Core and making sure you understand all of the moving parts, it has an impact on your cash balance. I’m a little biased but I think it’s one of the most important pieces to get correct.”

Cin7 Core, Tracey says, comes as a huge relief to clients once it’s set up and running smoothly. Things that were tear-your-hair out headaches, time-consuming, or downright impossible become a breeze with the right inventory management system, especially when integrated with best-of-breed financial and sales software like Xero and Shopify.

“Cin7 Core means one less human making mistakes,” Tracey says. “It’s such a relief for clients to have a totally integrated system that produces reports at the end of the month, that integrates directly into Xero, and that gives you meaningful, accurate financial information. I see clients going from confusion and bewilderment before using a system like Cin7 Core, to a much better sense of financial control and process improvement after implementing.”

Royal Essence, with four years of running on Cin7 Core, are in full agreement. They’re thrilled with the visibility Cin7 Core gives them in the day-to-day running of the business, the increased efficiency of operation, and the ability to plan for even greater business growth — because they’re not done yet.

“It’s the transparency for the whole organization,” Paul says. “I’m not in the product side of things, but I can just jump in and see what I need to see. And then it organizes everything for the accountant, so we’re not spending hours and hours. It just saves us a lot of time.”

What Is Cost of Goods Sold (COGS) + How to Calculate It

Posted on | by Cin7 team | Leave a Comment on What Is Cost of Goods Sold (COGS) + How to Calculate It

If you’ve been hanging around the accounting department, chances are you’ve heard the term cost of goods sold (COGS) thrown around a few times. But while COGS is  important, it’s also a concept people tend to misunderstand.

Knowing what COGS is will help you better understand all of the costs associated with your product and your profit margins. In this article, we’ll go over this common accounting term, including what it is, and how to calculate yours.

Table of contents:

What is the cost of goods sold?

Why is it important to calculate the cost of COGS?

How to calculate COGS

Example of COGS

COGS – Key business takeaways

Frequently asked questions

Closing remarks

What is the cost of goods sold?

Cost of Goods Sold (COGS) refers to the cost of producing the goods that have been sold by a business. COGS is classified as an expense account on your income statement, representing the amount you have to recover from each sale to break even before bringing in profits.

COGS is only recognized upon the sale of inventory and is reported in the financial period in which those sales occur. For example, let’s say you have a clothing business with $5,000 worth of inventory. If you sell $2,500 worth of that inventory in the second quarter, you would record $2,500 in COGS. The rest would continue to stay in your inventory account.

As you can see in the example, the cost of inventory sold and COGS match. That’s because the value of your inventory stems from the direct costs of the items that make up that inventory, whether you’ve bought the materials to manufacture the items or purchased them for resale.

It also includes additional charges directly related to preparing products ready for sale, like packaging and delivery charges.

So, if we go back to the clothing store example, the $5,000 inventory number doesn’t come from thin air — the total includes the cost of the fabric, labor, packaging materials used, and delivery fees.

However, note that COGS excludes indirect expenses such as sales and marketing, so the costs associated with trying to sell t-shirts or jeans wouldn’t factor into the overall calculation.

Put simply, COGS equals the direct cost related to producing or purchasing products sold. Beyond that, just remember that the value of your inventory on hand is considered an asset until the inventory is sold.

Why is it important to calculate the cost of COGS?

Most businesses are in it to be profitable, and calculating your COGS is an important step to getting in the black. When you know your COGS, you can work to reduce the costs associated with selling, including the cost of your inventory.

COGS informs a business about the direct expenditures incurred in getting products ready for sale. For instance, if you know t-shirt fabric costs $5/yard, the labor to sew the shirts is $15/hour, and an average of $1 is spent on packaging each item, you can accurately price your t-shirts at a point where you can profit off the sale.

In this case, setting the t-shirts at $15 wouldn’t make you any money. Assuming each t-shirt uses two yards of fabric and takes 30 minutes to make, you need to price the t-shirts at $30 or more before you can even see a small profit.

Seriously, calculating COGS can make or break your business. Here are some of the other benefits of calculating COGS:

1. Helps create a pricing strategy

As demonstrated above, you can determine your selling price by knowing the direct costs incurred in producing or procuring products. Once you know these costs, you can figure out how to price your products to also cover your indirect expenses and earn a profit from the sale. But if you don’t know your COGS, you are honestly just guessing.

Overall, knowing COGS helps you determine how much profit margin you can keep on the products you sell.

2. Helps determine the total expenses incurred in selling products

Your profit and loss statement needs to list all your income and expenditures. By calculating the direct costs you have spent acquiring your stock, you can arrive at the total expenses incurred by including indirect expenses like your overhead, sales, and marketing costs.

You also need to know COGS before calculating your Inventory Turnover Ratio, which can help you make more informed decisions regarding your inventory and cut expenses further.

For example, if you calculate your inventory turnover ratio and find it’s pretty low, you’ll know you don’t need to replenish your inventory as often. That, in turn, means you can negotiate better deals with suppliers to further reduce costs.

3. Compare the market value of your product with your competitors

Determining profit margin by only considering direct costs incurred is an incomplete picture. If your prices are higher than your competitors you may make fewer sales.

If your prices are lower than your competitors, you can still incur a loss since your low profit margin might not cover your indirect expenses. COGS helps you to sell your product at a competitive price, grow sales, and, by extension, earn profits.

Now that you know the importance of calculating COGS, let’s learn the formula to calculate COGS.

How to calculate COGS

Here’s the formula to derive COGS:

COGS = Beginning Inventory + Purchases made during the period – Ending Inventory

To calculate the COGS for a reporting period, start with the value of the beginning inventory. If additional inventory was added during the reporting period, be sure to add the value of any new inventory produced or purchased to the value of the existing stock. Now, subtract the value of ending inventory from COGS sold for that reporting period.

Note, that this is a basic  formula and does not take into account items like returns, discounts, obsolete stock, and the inventory valuation method used. It’s still really useful, however, as shown in our breakdown below.

Example of COGS

Let’s assume that company X uses the calendar year to record their inventory. The beginning inventory value was recorded on the 1st of January, and the ending inventory value was recorded on the 31st of December.

The beginning inventory value was $20,000. During the year, the retailer realized that the business would sell more than the inventory received earlier in the year, so additional inventory worth $7,000 was purchased. At the end of the calendar year, the ending inventory value was worth $4,000.

Now, let’s work out the COGS for the entire year by using the following formula:

COGS = Beginning Inventory + Purchases made during the period – Ending inventory

COGS = $20,000. + $7,000 – $4,000.

Therefore, COGS = $23,000.

The COGS equals $23,000, as calculated. Use this formula to help with production, purchasing, and pricing decisions.

Calculating COGS can also help you calculate your profit for a reporting period and help with decisions to ensure that indirect costs are covered.

Suppose your revenue is $75,000 in a reporting period. Knowing the COGS, you can determine your profit will be $75,000 – $23,000 = $52,000.

COGS – Key business takeaways

The COGS formula can be used at an individual product level to help with decision-making before producing, procuring, and selling that product. It can help you make decisions like how much inventory you need to purchase or whether you might need to focus on marketing a slow-selling product, and it’s useful when tax season rolls around, too.

The COGS for a reporting period is the total COGS for all product sales for that reporting period. It is a vital metric included in your financial statements and used to calculate your gross profit for that reporting period.

Gross profit is a profitability measure that shows how well a business can cover its indirect expenses and earn a profit. The value of COGS will always depend on the direct costs of the products sold and the inventory valuation method used by the business.

Frequently asked questions

What is the difference between COGS and expenses?

COGS is a measure of the expenses associated with selling your goods. In particular, the direct expenses like labor, manufacturing, and materials. It does not include indirect expenses like rent or general office materials.

Is the cost of goods sold the same as profit?

No. The name cost of goods sold gives you a hint that COGS covers some of your expenses. However, you can figure out your profit if you know your COGS. To do that, use the following formula:

Revenue – Cost of Goods Sold = Gross Profit.

Remember, COGS tells you how much your items cost to make and sell; profit is how much you keep after these expenses.

Is the cost of goods sold taxable income?

In general, the IRS allows businesses to deduct some COGS-related expenses. For example, the IRS states you can include some business expenses in your COGS, which you subtract from your revenue to arrive at your gross profit (your taxable income).

If you calculate this way, you are not allowed to deduct those expenses a second time as a business expense!

Closing remarks

COGS is a big part of running a profitable business, and your inventory is a big part of COGS. To keep track of it all, you should invest in a cloud-based inventory and order management system like Cin7.

When you add in an inventory management system, you have a much clearer view of how to address any slumps, slow-downs, or sales. Working with Cin7 can help your business hold onto less while making more. Request a demo today.

Zafino

Mindi Chisholm, CEO of jewelry brand Zafino, found herself facing that exact question in the middle of a global pandemic. Fortunately, with the help of Cin7 and SMB Consultants, Mindi seamlessly transitioned her technology stack in a way that allowed her business to continue to flourish.

After finding and implementing the right solution, Mindi could get out of the day-to-day minutiae of her business, hire new team members, and focus her time on planning the brand’s future growth.

Starting over again

Before Mindi added a dedicated inventory solution to her tech stack, she managed the business herself and used her accounting software, Xero, to handle inventory. As sales grew, she realized that she needed software that could scale, so she turned to TradeGecko and worked with SMB Consultants to help her implement the new software.

Mindi worked closely with Jeff Atizado, CEO and co-founder of SMB Consultants to  successfully implement TradeGecko and pivot from a wholesale business to a successful multichannel retailer.

Unfortunately, Mindi’s excitement about the newly configured inventory solution was cut short. In 2020, shortly after Mindi had set up TradeGecko (later QuickBooks Commerce) to run her inventory, she received the news that the software was going to be discontinued in 12 months.

“[It] was heartbreaking,” she says, “because I put a lot of time and money into that program and then [had to] start all over again.”

TradeGecko’s looming sunset date meant that Mindi now needed to figure out a way to keep her success going while replacing critical software. Still, she chose to look at the bright side: “In starting over again, I was in a better place of understanding what a business system was capable of.”

Given the success of their first implementation project together, Mindi turned to Jeff to help her figure out the best inventory solution for her growing business.

Making the switch to Cin7

SMB Consultants was familiar with Mindi’s business and knew she needed a reliable inventory solution that would enable her to maintain a multichannel business model, expand into new countries, and automate inventory so she could scale without adding excess manual work.

Given these requirements, Jeff recommended Cin7 to replace TradeGecko and began working with Mindi to get through the onboarding process.

Although switching to a new software provider can be daunting for any business owner — and a common excuse not to make desperately needed software changes — Mindi remembers it as a smooth ride:

“Because we’d done all the discovery, Jeff’s team knew all of the key things that I needed to tick off so that when we went and did the workshops, we had those lists all in place. It was very methodical, the way they approached the rollout and the education for me. I was grateful for that.”

Now, Mindi is grateful for something else: the fact that her business is in a position to grow, really grow, through a multichannel presence and that her five-year plan is in good hands.

Cin7 was an even better fit for Zafino, enabling her to reduce manual processes even more and use real-time data to better understand her business.

“[Cin7 has] taken a lot of workload off me because it’s now so systemized and running so beautifully.”

Since making the switch, Mindi’s been able to take on extra staff to manage the day-to-day, allowing her to focus on strategy and growth. With Cin7, Mindi gets real-time visibility into stock levels and sales trends across all her channels.

“I can now step away and go, let’s really climb into my stock, let’s really have a look at forecasting, let’s look at my obsolete stock that’s not moving.”

Instead of spending her time keeping orders flowing and managing the details of inventory work, Mindi says, “I’m working on my business now, not in it.”

Setting the stage for growth

For his part, Jeff considers Zafino a real success story:

“It’s like 10 years of innovation and disruption happened within a couple of years. Because Mindi was able to centralize her inventory, she’s retargeting to different markets and integrating into online marketplaces. Now she’s expanding and moving internationally.”

The guiding principle for SMB Consultants, he says, is to “make it easy for [business owners] to make sure the time they have is spent doing the right things.”

There were a lot of packages that had to work together. After switching from TradeGecko, Cin7 became the central platform keeping Zafino running, along with Pinch payments and Airwallex.

Xero handled the accounting, while Shopify and Starshipit did orders and shipping. With nine stores and an ambition to roll out in other marketplaces, Zafino is now on Shopify Plus.

“If you’ve got a really well-running machine, a well-running system, it just means that when growth comes, you can cope,” says Mindi.

For Zafino, Cin7 is more than just an inventory system. With the help of Cin7’s seamless integrations and Jeff’s implementation insights, Mindi now has a solution that serves as the nucleus of her business. “Literally, every part of my business plugs into Cin7. It’s the hub.”

Now that Mindi’s found an inventory solution that she can rely on, she’s free to look forward and work towards continuing the growth she started during the pandemic. She says, “I know that my five-year plan will be in good hands with the systems that we’ve got currently.”

Discover what connected inventory can do for your brand. Explore Cin7 today.

Automated vs Manual Inventory Systems

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Order management is the process that takes place in a company to get purchases to the customers who have bought them. That process starts the moment items and goods are paid for online; covers their collection from the storage facility along with packing and shipping; and ends when they’re successfully delivered to your customers.

On the face of it, order management is fairly straightforward, and for the longest time, companies carried it out manually, having employees make lists by hand and checking everything off as they went. But as sales companies grew larger and the selling platforms available to buyers multiplied, manual methods became inadequate and automation was introduced. Called an order management system, like any automated system, it streamlines the order management process, which increases efficiency, and eliminates many mistakes.

In this blog, we’re going to explore the benefits of OMS, and show how this digital method trumps the manual one.

 

What is an order management system?

An order management system is software that’s part of the inventory management system (IMS). Programmed with details about a company’s inventory — what it’s made up of and where each item is — it uses these data as a kind of foundation, registering incoming sales and overseeing their fulfillment. It can control all of this for orders coming in from numerous platforms — online marketplaces, social media, apps, and websites, as well as offline brick-and-mortar stores — taking care of them capably simultaneously. And because the software maintains its knowledge of the inventory, it adjusts the data as items are removed or added, giving a company accurate, up-to-date information and complete oversight of everything.

An order management system is especially useful for businesses that deal with inventory, like retailers, wholesalers and manufacturers. That’s the area we’re focusing on here.

 

A breakdown of everything OMS takes care of

  • Sales,
  • Inventory control (maintaining a specific level of inventory in the warehouse),
  • Customer relationship management (CRM),
  • Processing payments,
  • Shipping,
  • Returned goods, and
  • Reporting.

 

Automation with OMS vs. doing things manually

If you’re using a manual system to handle your order management — keeping records on spreadsheets and updating them by hand — and feel it’s working for you, you may think you don’t need to automate. If that’s the case, here are some pointers to take a close look at:

Preorders and backorders

Preordering — a customer putting in a request for an item before it’s in stock — is a well-used marketing strategy. By offering items ahead of time, a company hopes to create buzz for the product; it’s also a way for companies to gauge if there’s interest in a new product. Back orders are, of course, similar in that the customer is going to have to wait for their item to be in stock, but that’s because the company has run out of it.

In both instances, an automated system will maintain the orders in its memory until the items are in stock and the order can be filled. The system takes care of everything, and there’s nothing for employees to do. But if these orders are jotted down by hand somewhere by somebody, they could be forgotten, especially if it takes a long time to get the items in stock.

Real-time visibility

When it comes to inventory, it’s vital for a business to know exactly what it has and where it is at all times. This knowledge informs every business decision made, from buying new stock and storing it to implementing marketing strategies like sales quoting and discounts. An in-depth understanding of inventory and its turnover will also determine whether to expand the business or not.

While it’s relatively easy to log incoming and outgoing inventory on spreadsheets, the more platforms a company sells on and the more storage locations it has, the more complex tracking manually becomes and the more can go wrong.

If you’re going to make the best business decisions, the information you’re working with has to be completely reliable. Which is why an order management system is a good way to go. The automated system doesn’t just give accurate information, it does so in real time on a single screen. That means that anything and everything you need to know about sales flows and inventory levels, irrespective of the number of outlets or storage facilities you use, can be brought up instantly from anywhere.

Stockouts and overstocking

If a company runs out of an item, it has a stockout; if there’s too much of an item in stock, it’s called overstocking. Neither situation is good. With stockouts, prospective customers can go somewhere else and sales can be lost; with overstocking, a business can be stuck holding items that have gone out of fashion or that maybe even go past their expiration dates. Stockouts and overstocking can also throw off the whole order management system.

While a smaller company can prevent these scenarios by making sure they always have the right amount of stock, human error is always a possibility. Mistakes are less likely with an order management system. Automation will keep on top of inventory levels, make sure they’re consistent, and, in the case of items that have sell-by dates, make sure they’re only sent out if they’re still good.

Safety stock

Safety stock is a cushion. It’s a little bit more than you think is needed to cover for the unexpected. Safety stock levels are influenced by:

  • The belief that there will be a sudden rush on the items — like Christmas,
  • The time it takes for the supplier to fill an order for more, and
  • The length of time delivery will take, such as longer for a shipment from overseas.

These calculations can be complex, especially when a large number of items and suppliers are in play. But while an experienced employee is capable of making these calculations, there’s inevitably going to be an element of guesswork involved; guesswork that could result in miscalculations being made and stock running out. An automated system, however, is able to process the information with a preciseness that’s hard for most people to match.

Warehousing

For companies that have more than one warehouse, coordinating them is good business. For instance, if some items sell better from one location than another, more of them should be housed there. Similar items should be stored in that location in bulk. As another example, it may be logistically better to fulfill an order from one warehouse than another. In that case, the items for the order should be routed to that warehouse.

Recognizing situations like this, in good time, is difficult without automation.

Bulk actions

Items that are recalled have to be pulled from storage and sent back to their suppliers, and the customers who ordered them before this have to be told what’s happened and offered something else in its place. Without automation, each customer has to be contacted individually, but an order management system can take care of it with a single action.

Customer satisfaction

Buyers who have had a good shopping experience — measured by the fact that the buyers received the goods they wanted — are said to be satisfied customers.

An order management system helps you create satisfied customers. It automatically monitors inventory levels, reordering when stocks run low and removing them from online channels if items do run out. If an item does run out, the system lets buyers know and offers the option of backordering — placing the order and waiting until the item is in stock. Trying to handle this with spreadsheets and having someone literally look at stock to check how much of it there is is going to lead to disappointed customers.

Scaling

Whatever method is used for order management, it has to be able to cope when the business grows. This might not be the case if operations are carried out manually, but when things are automated, there are very few issues, especially when it comes to order management.

 

Final words on manual vs. automated order management systems

For order management, an order management system, such as Cin7 Omni, with automated features is faster, more reliable, and more efficient. Ultimately, that means it helps to make your company more cost efficient and more profitable.

When you’re ready to switch up to automation, give us a call. Or if you want to know more, schedule a demo with one of our experts. You’ll be glad you did.

How to make improvements to inventory control in 2023

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Inventory is the backbone of retail and manufacturing companies, and managing it as it moves through the supply chain is a crucial task for businesses. From ordering to storing to using inventory in manufacturing processes or shipping it out to customers, there has to be oversight to ensure there’s always enough stock to meet demand.

Managers and company owners have to balance this demand with the cost of both the product and storing it. That’s what inventory control is all about. We’re going to look at the ways good inventory control makes businesses more efficient and put forward ideas to make the system better.

 

Why inventory control is important

More chance of items staying in peak condition

Any stock that’s damaged in storage is a financial loss for your company. Inventory control can reduce or eliminate damaged goods by tracking items closely as they move through the supply chain. When carried out thoroughly and accurately, stock gets rotated through the system faster. This means items spend less time in storage where they could sustain damage, resulting in a higher probability of goods being top quality.

Maintains the right levels

While there always has to be enough in stock to satisfy demand, having too much of any item is not good for the bottom line. Good inventory control finds those correct levels, ensuring they’re maintained while adding a bit more for emergencies – safety stock.

Simplifies audits

When the inventory control is on point, all the information needed for an audit is at your fingertips. This saves a company time and money.

Less waste

Inventory control doesn’t just mean keeping a close eye on stock as it moves through the supply chain and its levels in storage, it also provides data about which items are selling and which are not. This informs buying decisions, ensuring you’re not left holding unwanted stock. Unwanted stock is a drain on resources, both space in the warehouse and finances.

 

Ways to improve inventory control

Create a good floor plan.

A good floor plan in a warehouse makes everything easily accessible and facilitates movement around it, giving a boost to productivity. To achieve this, items that move faster should be upfront, heavy items should be in low shelving, and walkways should be easy to navigate. Signage that’s large and clear needs to be posted everywhere too. It’s how warehouse workers find their way around.

Strengthen relationships with suppliers.

Good relationships come down to communication, and that starts with getting to know the contact person at each of your suppliers. When you have a dialogue, you build trust, something that, in turn, puts you in a position to negotiate better rates, return anything unsold, and turn your purchase orders around faster.

Use a warehouse management system.

An inventory control system keeps tabs on items as they move through your entire supply chain, and a warehouse management system maintains complete oversight over the storage facility. Adding a warehouse management system increases efficiency and reduces errors and confusion.

Conduct regular audits.

It’s important to know that your financial records accurately reflect the stock you actually have. That’s why you have to conduct these audits regularly. Fortunately, your inventory control system makes this relatively easy and painless.

Label properly.

For your supply chain to work as efficiently as possible, every item has to be clearly and correctly labeled. Nowadays that means using barcodes, QR codes, and scanners. These digitized systems also help with real-time inventory control.

Create reports.

Inventory control systems collect and store a lot of data, and the data can be incorporated into reports about your inventory. These reports can contain information that stretches from stock levels to items that are out of stock to items that have become obsolete to financial statements. Configure this information in whatever way you want, but do produce the reports regularly. It will help you keep oversight on your business.

Cycle count.

Basically a quicker and more efficient method for stock taking, a cycle count only involves a small section of the warehouse at a time. It’s usually practiced as a continual process, systematically working from one end of the facility to another, then starting at the beginning again when the process reaches the end. Cycle counting means you don’t have to shut operations down for a few days, as with traditional stock audits that count everything at the same time. In addition to keeping the supply chain in running order, counting a section at a time like this is actually more accurate.

 

Wrapping up

Having good control over inventory is essential for a business to thrive.Cin7 Omni can be a great help. With an array of tools to track inventory and maintain good levels, you’ll have the control you need to have. Our experts are standing by to tell you more and give you a demo. Click here to schedule a time that’s right for you.

What is the B2B2C model? What should you consider in setting up a B2B2C model for your business?

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The U.S. Census Bureau News reported that the retail ecommerce sales for the first quarter of 2022 crossed $250 billion, an increase of 2.4% from the fourth quarter of 2021. It represented 14.3% of the total retail sales. The B2B2C model is the latest addition to the ecommerce scene. Let’s learn some more about the B2B2C model.

You have seen businesses that operate on the business-to-business (B2B) model. You have also seen companies that work on the business-to-customer (BTC or B2C) model. Both the models have been successful in their own ways. Now, a new model is creating waves in the ecommerce market – business-to-business-to-customer (B2B2C). If the B2B and B2C models were successful, why should you involve another business between you and the customer? Let’s talk some more and find out about the B2B2C model.

 

What is a B2B2C commerce model?

A B2B2C commerce model is where one business (B1) involves another business (B2) to sell goods or services to its customers (C). If any of the involved companies use the internet to sell goods or services, it is called the B2B2C ecommerces model. In the B2B model, the businesses sell their goods or services to other companies. And in B2C, the organizations sell their wares directly to the end consumers. The B2B2C commerce model is the culmination of both these models.

So, what was the need to involve another business in the channel?

The market was limited when business was done mainly through physical channels. But with the development of ecommerce, suddenly, the markets became wider and the possibilities for business unlimited. However, it was not possible to have it all without a little bit of assistance. If one company had the product and the other company had the means to reach the consumers, they could join hands to increase the business multifold.

The following figure shows the concept of the B2B2C commerce model:

Figure 1: A visual representation of the B2B2C ecommerce model

The first company provides the goods under its brand name, whereas the other company provides additional services, including lead generation, transport, credit, maintenance, and digital payment services.

In Figure 1, you can observe the following steps happening:

  1. The manufacturer provides goods to the network seller to sell.
  2. The network seller provides customer information and sales platform to the manufacturer in return for annual fees.
  3. The network seller uses the services of a payment gateway to receive payment securely.
  4. The customer buys the goods from the network seller, fully aware that the seller is not the manufacturer.
  5. The customer makes payment and receives goods from the network seller.
  6. The network seller makes the payment to the manufacturer.

This is a classic example of the B2B2C ecommerce model. You might have gone through a similar process when buying goods from sellers, including Amazon, Flipkart, or eBay.

 

How are B2B2C and white-labelling different?

One shouldn’t confuse B2B2C with white labelling. White-labeling is a process where the company manufactures the goods without its brand name and sells them to other businesses. These companies sell the goods under their own brand names. So, basically, the consumers are unaware of the origin of the goods. On the other hand, in B2B2C, the customers know the goods’ origins well.

For instance, some drug manufacturers provide generic medicines to other organizations. These organizations pack the drugs under their own brand name and sell them to consumers. Consumers are unaware that the drugs of two or more brand names come from the same manufacturer. They purchase goods trusting the brand name. This is called white-labelling. And in turn, the brand holder ensures the quality of the goods. On the contrary, if you are buying Nike sneakers from Amazon, you know that Nike is the manufacturer, not Amazon. This process is called B2B2C ecommerce.

 

Examples of real-life B2B2C commerce models

If you think that B2B2C is a concept in its initial stage, you might want to rethink it. Many organizations use B2B2C ecommerce in today’s market. Here are some of the examples:

Intel Inside

Intel manufactures computer processors. Intel has teamed up with original equipment manufacturers (OEMs), including Dell, HP, and Lenovo, for marketing/branding purposes. The synergy brings trustworthiness among the customers and thus increases sales.

Amazon

Amazon is an online platform for trading any type of goods. The sellers can retain their brand name while using the network base, logistic facilities, and payment gateways provided by Amazon. This increases their turnover. In return, Amazon gets fees for the facilities they provide.

App Store

Apple has devised a plan to help its customers download reliable applications and games from an Apple-approved space. It is called the App Store. It ultimately allows Apple to earn more revenue.

Affirm

The US giant Affirm is a financial organization that facilitates the customers in buying goods at present and paying later. Affirm collaborates with men’s and women’s fashion, sports and fitness goods, jewellery, electronics, and furniture brands to assist consumers in buying.

UberEats

UberEats partners with the local restaurants to deliver food to the customers. The customers can enjoy the food served by any restaurant from their homes. The restaurants make more sales than they can do remotely. Uber Eats gets a commission from every delivery they make.

 

What are the advantages of the B2B2C commerce model?

Many companies are morphing their businesses with others to reap the benefits of the B2B2C commerce model. Every organization has something to offer to the other and two organizations would merge depending on their strengths and weaknesses. Although the advantages of the B2B2C model vary in every synergy, here are some of the common ones:

Scaling

The primary goal of any business is to maximize profits, and scalability is a way in which they can achieve their goal. Scalability represents the ability of an organization to increase the output by adding resources. Instead of trying to do everything on their own, companies can adopt the B2B2C model to achieve scalability. They can partner with an existing company already providing the given services to increase growth.

Digitalization

Digitalization is the way to scale your business. You can widen your customer base by taking your business online. However, going online needs additional setup and management capabilities that are not available to everyone. Partnering with other companies specializing in these fields is a way to go forward. For example, instead of selling on your website, you can start selling on ecommerce platforms like Amazon or eBay to test whether you receive a good response. They can give you access to a client base you didn’t have before.

Brand recognition

In the B2B2C commerce model, you can sell your goods with your brand name. As your customer base grows, your brand image grows too. More and more people will recognize your products, and their reviews can bring in more customers. You can take on any competition when your brand value increases.

Cost control

Scaling begs for massive investment. Instead of starting an in-house unit, if you collaborate with another team to provide the facilities you require, you can save on setup and maintenance costs. Moreover, the cost of consumer data collection can be shared by all the relevant parties. Start-up costs, marketing costs, distribution costs, and customer acquisition costs can be controlled drastically by employing the B2B2C model.

Time management

When the manufacturers team up with the maintenance companies, the customers can get faster services. This will encourage the customers to buy from a company that provides faster after-sale services. The same principle applies to the companies that can deliver the products faster.

Customer satisfaction

The customers benefit significantly from the B2B2C models financially and otherwise. The companies can transfer some of the cost-saving to the customers as discounts. The customers also get the facility of dealing with just one company for their multiple needs. So, it becomes more accessible and more straightforward for them. For example, if a customer buys a television from a store and gets the facility of paying in installments from the same store, they would prefer it. Some banks and financial companies provide such facilities to customers in association with the stores or manufacturing companies.

 

What are the challenges to set up a B2B2C commerce model?

If you are a B2B business or a B2C business transitioning to the B2B2C model might take some time and effort. However, once you are done, the benefits are numerous. Marc Benioff, the chairman, and CEO of Salesforce.com Inc. said, “We really see every B2B company and every B2C company becoming a B2B2C company.” Some of the challenges faced by the businesses in setting up B2B2C commerce or B2B2C ecommerce model are as follows:

Identification of area for B2B2C partnership

As a business owner, you should know whether you can benefit from the B2B2C model. Some products are not suited for such models. Secondly, you should determine whether you can cope with increased demand. If you cannot produce more to keep up with the increased demand, you might face embarrassment in your business circle.

There are mainly two types of business integrations – horizontal and vertical integrations. Horizontal integrations mean increasing the capacity of the pre-existing unit and producing more of what you are already manufacturing. On the other hand, vertical integrations involve taking up one or more stages of the supply chain in addition to the existing one.

One of the significant decisions you should be making is the area where the other business can help you. You should identify the area in which your organization needs support. For instance, if you can sell your product with an extra warranty, or you can sell more if you have a logistic partner, or if you need access to customer databases to identify your customers. By identifying a particular niche, you can narrow down on potential organizations that can help you achieve your goals.

Management of inventory

When you sell on multiple channels, it becomes cumbersome to manage inventory in real-time. Imagine a scenario where you have a brick-and-mortar store and sell your goods on multiple ecommerce platforms. If you run out of stock while simultaneously operating on all, and the stock on ecommerce platforms is not updated, you might find yourself in some soup. You might actually sell more goods than you have on hand. Therefore, inventory management is one of the crucial challenge areas of the B2B2C ecommerce model.

The solution – adopt a reliable inventory management software that will help you maintain real-time inventory of all your products. An inventory management software can help you keep real-time stock of all your goods in your locations.

Brand credit

Sharing the advantages always comes with sharing the limitations. When you adopt the brand name, it might also lead to the issues it faces. And, you don’t want yourself marked ‘guilty by association.’ It is advisable to check every aspect of the company before entering into a contract for B2B2C. If the company’s goals are not in sync with yours, you might want to reconsider the association as your brand image is online.

Software compatibility

When two businesses merge, they both must have IT systems compatible with each other to transition without any hindrance. If not, you should hire an IT expert who can assist you in morphing the two systems seamlessly.

Individual contributions

Both the companies should agree on and lay out clear boundaries of contributions towards the achievement of the common goal. The agreements should be reached with mutual consent and followed by all the parties involved.

Legal agreements

In the case of B2B2C commerce, the businesses involved getting access to private information about the other business. There should be clearly defined legal agreements to protect the stakeholders’ privacy and sensitive information. Legal teams representing both parties can work out solutions that are to be adopted for more robust security.

 

Final thoughts on B2B2C commerce model

B2B2C commerce models are the way forward in today’s economy. If the businesses want to tackle competition by expanding their prowess, B2B2C models are the perfect solutions. These models provide customer satisfaction akin to B2C models and growth like B2B models. B2B2C ecommerce models can help you elevate your profitability and margins by combining the best of both worlds.

Automating the B2B2C ecommerce model on Cin7 can help you maneuver the process in a simple way. You can click here to know more about the Cin7 software.

The future of retail is here: How BOPIS is changing the game

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In today’s fast-paced world, convenience is everything. Consumers want to shop when and where it’s best for them, and retailers are looking for ways to meet those demands. One method retailers use to give their customers what they want is “Buy Online, Pick Up In Store” (BOPIS). This strategy, which is gaining in popularity, is being offered by more and more retailers as part of their omnichannel fulfillment process. Let’s examine what BOPIS is and how it’s changing retail.

 

What is BOPIS?

BOPIS is a shopping method that allows customers to purchase items online and then pick them up at a physical store. It is, in fact, a great system that helps retailers streamline their operations while giving their customers a seamless shopping experience. When implemented correctly, BOPIS can facilitate flow as customers go from online to in-person shopping channels, allowing them to have the best of both worlds. By synchronizing and integrating these different channels, retailers can attract more customers, something that will give them a competitive advantage.

In addition to BOPIS, there are three related strategies retailers can adopt to improve their customers’ experience:

  1. Buy Online, Pick Up At Curb (BOPAC) – meaning that customers can collect their online purchases outside a physical store, often without needing to leave their vehicles.
  2. Buy Online, Return In Store (BORIS) – goods purchased online and delivered to a home can be returned to a physical store.
  3. Reserve Online, Pick Up In Store (ROPIS) – items can be ordered online but paid for as they’re picked up at the physical location. The advantages of this method are (a) the customer can put a hold on an item before it sells out, and (b) they can inspect the item before actually paying for it.

 

Impact on retail and ecommerce

It’s fair to say that BOPIS has had a significant impact on both retail and ecommerce. First, it brings more shoppers into the physical store because online shopping has a much wider reach; second, the collection method allows retailers to move inventory faster, a factor that improves the bottom line; and third, the pick-up option is good for order management and inventory fulfillment. It’s a faster process that makes stock turn over in a shorter period of time, and as a result, there’s less chance of items sitting in stores for a long time and becoming obsolete and less chance of stock running out.

 

Benefits of BOPIS

1. Increased sales

One of the main benefits of BOPIS is convenience for the customer. The pick-up option means they can get their item right away without having to wait days for a shipping service to deliver it, something that’s especially important when they buy perishable goods like groceries. For the retailer, BOPIS expands the reach of their physical stores, bringing many more customers into them and increasing sales.

2. Improved inventory management

When shoppers pick their items up directly from the brick-and-mortar store, inventory moves through the system quicker. This increased speed helps retailers keep a closer eye on their stock levels, enabling them to anticipate stockouts or predict obsolescence. Another benefit of inventory moving faster is that it creates room in storage for new products and styles, keeping the store fresh and relevant. All in all, the result is better inventory management.

3. Increased customer loyalty

BOPIS builds loyalty because it provides a positive and convenient shopping experience. Customers can examine items before they take them home, ensuring their satisfaction with the product and trust in your service. Plus, when customers are at the store for their pickup, they could be enticed to look around inside and get something else.

4. Reduced shipping costs

When customers pick up their purchases themselves at a store, there are fewer shipping costs for the business. While they may need to ship the item to the store, moving items in bulk is less costly than individually shipping items to the customer’s home. These savings are increased even more when it comes to large or heavy items since they can be really costly to ship.

5. Improved online and in-store integration

When retailers offer BOPIS, they can integrate their online and in-store operations, creating a seamless shopping experience for customers. By integrating their channels in this way, retailers can also give customers a better selection of products more efficiently at a lower cost. A cloud-based order management system can be a great asset when implementing this personal pickup system. It offers a unified ordering and tracking system, which in turn streamlines the whole process and reduces errors. This helps retailers to keep track of their inventory, manage their orders, and secure payments more efficiently.

 

Challenges to implementing BOPIS

Some retailers may find it difficult to coordinate their online orders with the inventory they have in their stores. Alternatively, a company might find it difficult to find a convenient pickup location for a customer, one that can fulfill the order quickly. Roadblocks like this could be stockouts and delays.

One way around this is to have a dedicated employee, or employees, take care of BOPIS orders. Another is to create a designated area in the store specifically for the pickups, somewhere that’s easy for customers to find and has room for them to line up without getting in the way of anyone else. It’s also important to have an inventory management system that works in real time. The Cin7 Omni system does this as it tracks your inventory in every storage facility you manage and across each one of your sales channels.

 

BOPIS in action

Despite these challenges, many retailers are turning to BOPIS to meet consumers’ needs and boost their bottom lines. Walmart and Target are two of the biggest retailers offering the service, and since doing so they’ve seen their online sales increase. These chains have also introduced technology that makes the process even more efficient for customers, technology that gives them online notifications when their order is ready for pickup and facilitates mobile check-in when they get to the store.

 

Conclusion

There’s no question that BOPIS is revolutionizing the retail industry. It gives consumers a convenient and personalized shopping experience they like, while boosting sales and reducing shipping costs for retailers. The BOPIS method can present challenges for sure, but with the right tools and software, any challenge can be overcome.

If you’re thinking about introducing BOPIS to your online retail business, consider Cin7 Omni software. It’s an all-in-one platform that offers a number of useful features, many of which you’ll find helpful when you introduce these in-store pickup options.

If you’d like to know more, schedule time with one of our experts and be given a demo.

How to avoid being stuck with obsolete inventory

Posted on | by Cin7 team | Leave a Comment on How to avoid being stuck with obsolete inventory

A retailer’s mark of expertise is shown when they stock items people want to buy and have them in the right quantities to meet demand. But this skill is not an exact science. Even with the tracking and forecasting capabilities of inventory management systems, surveys, and knowledge of the market, mistakes are made. Sometimes stock can’t be sold; sometimes it just goes out of style. And then there’s the factor of safety stock, having a little bit extra to make sure orders can always be filled. While it’s important to have safety stock, there’s a limit to the amount of it a company should carry.

The point is that no company wants to end up holding inventory they can’t sell – obsolete stock. This blog is going to explore how companies end up with this obsolete stock, give suggestions to get rid of any you have, and put forward ways to prevent this overstocking from happening in the first place.

 

What is obsolete inventory?

When you’ve ordered a lot more of a particular item than there’s a demand for, or miscalculated the market and added items no one wants to your inventory, you’re left stuck with it. It’s become obsolete because you can’t sell it. Obsolete inventory takes up valuable space that could be used for items that shoppers want. And depending on what it is, it may also need attention, in which case it’ll be taking up your employees’ time without benefit to you.

This situation doesn’t happen overnight. Usually, sales for these items will gradually drop off until they stop altogether. Sometimes it can take years to realize this useless inventory is still there gathering dust; sometimes a retailer may have decided to hold onto something in the hope that they’ll be renewed interest in it at a later date.

 

Reasons inventory may become obsolete

1. Poor inventory forecasting

Nothing is foolproof, but sometimes people don’t use the data available to them as assiduously as they could. They don’t do enough research on past sales histories, market trends, or customer demands to gauge future needs, and they don’t take enough notice of the metrics they do gather.

2. Inadequate inventory management

Sometimes, retailers are left holding excess stock because they didn’t follow the movement of their stock through the supply chain closely enough. They didn’t exercise stock inventory management, which provides details on items they’re holding in the warehouse prior to sales and the number of items that are sold, details that are used to make the right decisions when ordering more.

When it comes to omnichannel sales — sales from several different online platforms and physical stores — keeping tabs on the level of inventory that needs to be held is complex but vital. Every sales channel is different, and a product that does well on one may not sell on another. Guesswork has no place in this model — a company has to have the right goods in the right amounts at the right place at the right time, or they’ll end up with that obsolete stock somewhere.

3. Lack of inventory control

Inventory control describes having a thorough oversight of each item in the warehouse. It differs from inventory management in that it focuses much more on the actual number of each item held in storage, ensures the right levels are there at all times, and keeps on top of purchase orders. If this isn’t done with enough care, overstocking can occur, and there’s a danger of that becoming obsolete.

4. Long lead times

When it comes to managing inventory, the lead time refers to the period it takes to receive a stock item after ordering it from a supplier. Because these lead times can vary, decisions about what to order when can be a bit of a head scratcher. If the lead time is lengthy, a sales company will have to order way in advance of needing the items, and if demand for those items eases off in the meantime, they could become redundant by the time they arrive. They’ll be obsolete stock.

5. Inappropriate products

If bad buying decisions are made, sellers will end up with products no one wants. Conversely, if a company is offering items that can be found everywhere else, there’s a chance they could be stuck with them. Either way, we’re talking obsolete stock.

 

How to avoid ending up with obsolete inventory

1. Do thorough inventory forecasting.

Make the data work for you. Dig deeper into those past sales histories, market trends, and customer demand. A robust inventory management system like Cin7 Omni can do the heavy lifting for you. The software produces reports, insights, and advanced analytics you’ll find invaluable when making decisions about buying new inventory. When you base your buying decisions on information like this, you have a much better chance of having best-selling items in stock and avoiding those slow movers that can end up being obsolete.

2. Automate your inventory.

An automated system tracks your inventory, keeping tabs on its levels in the warehouse and maintaining records of the numbers that are sold. And it will do this in real time. With detailed information like this, there’s less chance of your buying decisions coming back to haunt you.

It’s actually difficult to see how businesses that sell on multiple online channels and physical outlets and run several warehouses can function without an automated system to fall back on. Cin7 Omni’s inventory and order management software connects your warehouses, online sales channels, and offline stores into one automated system, tracking the level of inventory at each place and taking note of what is selling where. It’s how you ensure having what you need where you need it without being stuck with too much of anything.

3. Make sure your teams coordinate with each other.

If the different teams in your sales company work in their own separate silos and don’t exchange information, mistakes will be made, mistakes like bad buying decisions. The way to avoid this is by giving every department access to information like purchase and sales orders. This means the warehouse team working with the purchasing team and the purchasing team working with the receiving team. Likewise, the inhouse teams should be working in tandem with suppliers and shippers. It’s supply chain management.

A cloud-based inventory management system like Cin7 Omni can do the coordination for you. It will send those purchase orders to your suppliers and those sales orders to your customers through one system, and the fact that it centralizes its data means that all departments can access information and be in the know.

 

How to get rid of obsolete inventory

Here are some tips:

  • Throw a clearance sale and sell the goods you’ve been stuck with at discounted prices.
  • Bundle items with similar products and sell at a competitive price.
  • List clearance sales on online marketplaces.
  • Offer customers an incentive like free shipping.
  • See if you can return items to your supplier, if not for cost, at least for a lesser amount.

 

Final thoughts

No one wants to be stuck with obsolete stock, but it can happen. Automating with a system like Cin7 Omni can help prevent it.

To learn more about our software and how it can be advantageous for you, click here to schedule a demo with one of our experts.