Accurate inventory management requires a significant investment of time and money.
This is a particular challenge for e-commerce businesses, which often operate with small staffs and tight budgets. But ignoring inventory management is not an option. Without accurate inventory data, you could end up with excess inventory or out-of-stock SKUs. And you could be taking a hit to your bottom line from dwindling inventory without realizing it.
There is no shortcut to excellent inventory management. You need the right software as well as periodic cycle counts and physical counts. However, some adjustments that seem insignificant can greatly improve your inventory planning and forecasting. Here are six small inventory management improvements that could have a big long-term impact.
Use ASNs to ensure accurate reception
A Notice of Shipment, or ASN, is a document you provide to your warehouse to receive inventory. The ASN details the contents of the shipment and the expected date of arrival.
ASNs improve your inventory management in several ways. First, with advance notice of an inbound shipment, the warehouse can free up space on the receiving dock, so put-away is faster. Second, without an ASN, your fulfillment center can waste time trying to track down the shipping owner while your pallets are at the receiving dock. Some 3PLs will return shipments that arrive without an ASN.
But perhaps the most important benefit of an ASN is verifying the accuracy of the shipment. If you ordered 100 units of a SKU from your manufacturer, you can assume that you have 100 in stock once the shipment is ready to be picked. Suppose there was a mistake at the factory and the shipment only contains 80 of that SKU, your inventory is instantly disabled. So, you need a receiving inventory to start with an accurate inventory.
Stop underperforming SKUs
The 80/20 rule says that you will probably get 80% of your income from 20% of your product line. Getting rid of underperforming SKUs will simplify your inventory management and reduce your overhead. Low-turnover items hurt profitability by tying up capital in products that don’t generate much revenue and potentially incur long-term inventory costs.
You don’t have to discontinue every low-selling SKU; some high value items may move slowly but generate big profits. And you might want to keep certain products in your lineup because they complement your top sellers. But discontinuing products that don’t pull their weight can free up your team to develop new and better items.
Get rid of dead animals
If you use first in, first out (FIFO) order fulfillment, you rotate your inventory, so the oldest inventory is moved forward and used to fulfill orders. Yet, even if you strictly follow first-in, first-out for order fulfillment, you can end up with dead stock. Animal carcasses are commodities that do not or cannot be sold. It could be an outdated style, last year’s release, or just a box that has been sitting on the shelf for so long that its condition has deteriorated.
Returns sometimes contribute to dead stock. If you don’t have a clear policy on how to handle returned items and what to do with returns that can’t be sold as new, these goods can pile up in a corner of the warehouse.
There are several ways to dispose of dead animals:
- Sell it to a dealer.
- Offer it to your customers at a reduced price.
- Create a separate website to sell seconds, returns, and flawed merchandise.
- Donate it to charity.
- Throw it.
You reduce your losses if you can resell your deadstock, even at a steep discount. And, even if you have to dispose of it, you save. Paying for warehouse space for products you can’t sell is not good inventory management. Additionally, some fulfillment companies charge higher rates for long-term storage of items that stay on the shelf for six months or a year.
Identify the root causes of shrinkage
Shrinkage is the industry term for lost or damaged products in the fulfillment warehouse. Shrinkage can occur due to theft, misplaced stock or mishandling of products. Most 3PL contracts include a shrink allowance, which means you have to pay a certain amount of warehouse loss.
Shrinkage can skew your inventory count. If you think you have an item on the shelf that has been lost or damaged, you may have unexpected backorders and customer service headaches. Measures such as warehouse employee training and better security can reduce shrinkage. If you’re experiencing shrinkage of more than 1%, it might be time to switch 3PLs.
Inventory management is complex and you probably won’t solve all the problems overnight. But small actions to improve your process can bring big rewards over time.