You take great pride in your business. You developed a successful business that offers a wide range of homemade products out of your passion for makeup. Your company just introduced new items that are becoming more popular with your customers every day, and of course, you want to be as organized as you can.
Your inventory is crucial to your business. After all, your business cannot exist without inventory. One of your most precious assets is also one of your most expensive ones: your inventory. Your inventory could be a ticking time bomb that costs you more money daily depending on your stock lead times and how rapidly you sell your products.
Even with a warehouse full of inventory and a sales channel full of listings, you can struggle to sell, ship, and receive the fantastic feedback you deserve if your inventory management and fulfillment processes are inefficient. Today, we’ll talk about the value of effective inventory management, outline a successful fulfillment process, and show you how to take charge of both.
Inventory Efficiency: What is It?
Inventory efficiency is the practice of managing your inventory in real-time such that you can meet customer demand while keeping your operational costs to a minimum. It involves having the appropriate items in the appropriate quantities at the appropriate times as effectively and inexpensively as possible. If your inventory management is effective, you’ll always have enough product on hand to meet demand and won’t have any units sitting around in warehouses for too long. By doing so, you lower your operating expenses while reducing the chance of price decreases and product obsolescence. The reverse is poor inventory efficiency. When a retailer’s inventory management is inefficient, they frequently run out of stock, which has a negative impact on their metrics, or they have too much extra inventory, which results in high storage costs and may even cause the price of the product to drop over time.
What Exactly is Fulfillment Efficiency?
When it comes to handling inventory quickly and reducing the amount of time between an order and delivery so that packages may be shipped as soon as possible, this is known as fulfillment efficiency. The whole fulfillment process must be optimized. This includes carefully chosen storage locations, efficient order administration, and more.
Products are physically stored in warehouses until they are sold and shipped to customers. It includes the reception, organization, storage, and tracking of items and can take place anywhere from a garage (a location for smaller businesses like a handmade candle business) to a nationwide network of warehouses (spaces for larger businesses like Amazon and Walmart).
The process of downloading orders from your online store or marketplaces and sending them to the proper warehouse and department for processing is known as order management. This requires the use of an order management tool or multi-channel management software for the majority of online retailers. It’s important to find a listing tool that is compatible with all of the places you sell so that your orders and inventory are always in sync. Strong order management, for example, is critical in processing an in-store pickup or curbside pick-up strategy.
Picking and Packing
Picking and packing entails locating the items for an order and assembling them into shipping-ready packaging. This could include a brief excursion to the spare room or a drawn-out journey into the depths of a warehouse before arriving at a different packing station, depending on the size and location of your storage. You don’t need to worry about this if you’re working with a fulfillment company, but you can still find out what the company is doing to streamline warehouse operations.
Shipping includes how quickly you print shipping labels, how long it takes for orders to arrive at the destination, and how dependable your selected shipping provider is at delivering goods on schedule and to the right place. It also includes how shipments are transported from your warehouse to your customers.
The Significance of Inventory and Fulfillment Efficiency
Efficiency in inventory management and fulfillment offer significant benefits to your business. For a few key reasons, reaching optimum efficiency increases sales, earnings, and customer satisfaction.
- Insight into InventoryIt’s critical to understand what occurs in your warehouse, which things are hardest to locate, which delivery areas are most frequently used, and which products frequently run out of stock. Utilizing inventory management software will give you the thorough information about your goods that you need to manage your inventory effectively. With the use of this program, you can access all of your inventory in one location and keep an eye on overall performance while also gaining the knowledge necessary to expand your company.You could, for instance, do the following:
- Determine trends in demand to help with inventory planning
- To assist in making strategic warehouse decisions, emphasize locational demand
- Keep an eye on shipment times to see how you could make them faster
- Customer DemandMaintaining adequate stock in the appropriate locations ensures that you can always satisfy customer demand without running out of inventory or overselling. Maintaining sufficient inventory to satisfy demand is essential for boosting store sales, preventing customers from switching to your competitors, and fostering a happy customer experience that leads to repeat business and great ratings. It is also necessary for:
- Preserving your position in search results on online marketplaces
- Maintaining your eligibility for market-wide rapid shipping programs
- Preventing stockouts and backorders from leading to late deliveries
- Audience Reach Efficiency in inventory management and fulfillment broadens your audience reach, which boosts sales and profits. Utilizing a network of warehouses to distribute your stock allows you to keep products close to past demand while also being able to satisfy future demand. With this stock distribution, you also expand the areas to which you distribute, which expands your customer base. By speeding up order delivery, fulfillment effectiveness enables you to appeal to the 95% of online buyers who consider expedited delivery to be extremely important. More customers you attract, more conversions you make, more good feedback you get—all of which feed into a cycle of continuing growth—and the more conversions you make.
- Speedy ShippingMaintaining adequate stock in the appropriate locations also supports swift shipping rates. Delivery times increase with the proximity of inventory to customers, enabling you to meet the needs of both your direct customers and online marketplaces with 2-day and next-day delivery options.Using a distributed warehouse network and order fulfillment techniques that shorten the time it takes from receipt to delivery, you can achieve shipping speeds that:
- Make you eligible for expedited shipping programs like Walmart’s 2-day delivery, which will boost your visibility and sales
- Permit you to add banners and tags for quick shipment to your website and marketing materials
- Adapt to the increasing need for speedier shipment
Collectively, these help you become more visible, enhance conversions, and increase your earnings.
- Efficiencies of the BusinessYour business’s overall efficiency is increased through effective fulfillment and inventory management. By employing inventory management software to execute stock takes, sync updates to sales channels, and record data, inventory efficiency decreases the amount of administrative effort required. Efficiency in fulfillment lowers labor costs by simplifying order receipt, selecting, packaging, and shipping. Business efficiency improvements provide you with additional time, money, and resources to put toward expanding your company.
Recommendations for Increasing the Effectiveness of Inventory and Fulfillment
- Market DemandImproving efficiency depends on knowing how much inventory you need and how quickly customers expect orders. In order to estimate product demand and comprehend delivery expectations, market research, sales data, and current buyer behavior are used. After that, order, stock, and ship things in accordance with this data. To avoid retaining more inventory than you can sell, you may need to negotiate your supplier’s minimum order quantities (MOQs).
- Software for Inventory ManagementProcessing orders promptly, reviewing past performance, and determining where you can improve all depend on keeping track of your inventory and fulfillment data. By conducting the labor-intensive work for you, inventory management software improves the accuracy and efficiency of this task. It provides you with an overview of your main inventory area and generates the specific insights needed to manage that pool strategically. Additionally, your sales channels are connected and integrated by inventory management software, which automatically updates stock levels and order information.
- Dispersed Warehouse SitesWhen moving goods from your warehouse to a customer’s doorstep via shipping, you lose a significant amount of fulfillment efficiency. Your merchandise sits closer to your end customers and travels a shorter distance when it is dispersed over a network of warehouse locations. This dispersed fulfillment strategy increases the number of locations you may sell in while enabling you to ship swiftly enough to match sales channels and customer demand.
- Distributing StockEfficiency is also affected by how stock is distributed across and within warehouses. For instance, if you sell cinnamon candles and keep 80% of your inventory at a warehouse in New Jersey, but the majority of your sales come from Vermont, you’re wasting a significant amount of time on shipping. Similar to the last example, if your most popular product—cinnamon candles—is kept in the very back of your warehouse, it takes a lot of time for warehouse staff to find it. Your goods will be routed via an outsourced fulfillment partner using intelligent technologies in accordance with historical demand and the best selection techniques. However, the ABC classification method might also be useful if you handle order fulfillment in-house.Using the ABC approach, you buy, pay out, and keep your shares in the following order:
- 20% of SKUs account for 80% of revenue
- 30% of SKUs generate 15% of the total income
- 50% of SKUs are responsible for 5% of revenue
It’s also important to keep in mind that your warehouse’s overall design might either help or hinder your fulfillment staff. To save time walking back and forth to download, pick, and pack orders, the ideal warehouse layout would reflect the path taken by an order.
- Outsourced FulfillmentAn external fulfillment partner can be helpful if you struggle internally with inventory and fulfillment efficiency. Below are a few popular options for outsourcing eCommerce fulfillment.
Fulfillment for the Marketplace
For example, Fulfillment by Amazon is one of several marketplaces’ own fulfillment networks. With its extensive network of warehouses and quick 2-day and next-day delivery times, FBA is a well-liked fulfillment option for Amazon merchants. While FBA benefits Amazon sellers, anyone selling elsewhere may be hit by their multi-channel fulfillment costs. Long-term storage, bulky merchandise, and repackaging fees are a few other unanticipated FBA expenses for online merchants. Because Walmart carries the Amazon logo, Amazon multi-channel fulfillment is likewise prohibited on some of their sales channels. Marketplace-specific fulfillment companies either have a strong preference for their own marketplaces or don’t support any other channels at all. Thus, especially if you’re a powerful multi-channel seller, you’ll wind yourself putting product into various networks.
Partner for Multi-Channel Fulfillment
For multi-channel or website-only sellers, a multi-channel fulfillment partner offers an outsourced fulfillment service that is more flexible and affordable. The advantages of working with an external fulfillment partner include:
- A scattered network of warehouses that enables you to provide inexpensive, quick shipping throughout the country
- Flexible warehouse space that may expand to accommodate seasonal or corporate demands
- Simple pricing that prevents you from estimating your margins
- Integration with your order management systems and sales channels to handle and modify orders as fast as possible
Fulfillment Partner vs. 3PL
A third-party logistics provider, or 3PL, manages your eCommerce logistics on your behalf. However, 3PLs frequently have fragmented processes where multiple businesses are in charge of different fulfillment phases. Storage is handled by one business, pick-and-pack is handled by another, shipping is handled by another, and so forth. Additionally, they frequently have non-time-sensitive operations, which is not good for eCommerce.
Techniques for Calculating Inventory and Fulfillment Efficiency
You can compare your present performance to previous results and track advancements by calculating your inventory and fulfillment efficiency.
Inventory Efficiency Calculation
Your inventory turnover ratio and inventory conversion ratio can be used to gauge inventory efficiency:
Inventory turnover ratio = sales ÷ average inventory*
* (inventory at the start of a period + (inventory at the end of a period) ÷ 2)
Your inventory turnover ratio demonstrates whether you have enough inventory on hand to satisfy customer demand without exceeding your operations budget. A high figure shows you might not have enough stock, while a low figure suggests you hold too much.
Inventory conversion period = average inventory ÷ cost sold per day
How many days it takes to sell things is shown by your inventory conversion ratio. For instance, if your daily sales are $500 and your cost of inventory is $50,000, that indicates that it will take 100 days to exhaust the inventory you now have on hand. A high number implies inefficient inventory management (if it’s greater than 365, you face the risk of incurring long-term storage fees), while a low number suggests you might be in danger of running out of stock.
Fulfillment Efficiency Calculation
There are many KPIs available for measuring fulfillment efficiency; however, the following is the most useful:
On-time shipping = orders shipped on time ÷ total number of orders shipped
Order cycle time = time between order placement and receipt ÷ total number of orders shipped
These calculations demonstrate how quickly you pick and pack orders, how frequently orders are delivered on time, and how long it takes for customers to receive their products. Your fulfillment operation is more effective the quicker you act.
Efficiency in inventory management and fulfillment is essential for business expansion. By constantly keeping enough stock in the appropriate areas and always completing orders on schedule, they make sure you meet and exceed customer expectations. Improving both doesn’t have to be difficult or expensive. To forecast customer demand, consider sales information and market analysis. To keep track of your inventory and identify inefficiencies, use inventory management software. Utilize a vast network of storage facilities to close the gap between inventory and customers. Distribute supplies among your warehouses and key sites around the nation. If you’re having trouble increasing productivity on your own or you just want the professionals to handle it, outsource fulfillment.
Interested in an inventory management platform that can help your business thrive? Learn more about FTx Warehouse today by contacting one of our specialists to schedule a consultation and demo.