Receiving Inventory Made Easy: 6 Best Practices

Posted on November 4, 2017 by

Successfully receiving inventory requires a well defined system and organized environment

Receiving inventory effectively is the first step towards successful warehouse management. If you screw it up, everything else will be screwed up with it.

This is true in any warehouse or industry, from food inventory management to retail inventory management and even online wholesale – receiving sets the tone for the rest of your operations.

By optimizing your inventory receiving processes, you’ll make it easier to meet your inventory KPIs, reduce your cost of inventory, and streamline your stocktake.

We’ll show you 6 ways you can make receiving inventory efficient, fast, and reliable.

6 Tips for Effectively Receiving Inventory

Optimize Your Receiving Space

Many inventory errors – like miscounts – will usually occur first during receiving.

One of the best ways to reduce inventory receiving errors is by appropriately preparing your dock for receiving inventory.

This sounds obvious, but many companies still force their employees to work in cramped, small spaces without the proper tools or organizational processes for successful inventory receiving.

Your dock should be designed for sorting received inventory and preparing them for storage in their designated warehouse location.

Keep Your Receiving Space Clean and Organized

In addition to having enough room for receiving inventory, the dock space should be well-organized and clean for easy access to the received goods.

Make sure clutter is removed, and all previously received inventory has been placed in storage.

Implement Real-Time Inventory Tracking Technology

Tracking your inventory in real-time will help you catch mistakes before they cause damage further down your supply chain – such as miscounts, missing inventory, or incorrect inventory being stocked or shipped.

Upgrading your Excel inventory management system to something more cutting-edge and combining it with barcode scanners and RFID scanners will allow managers and workers to accurately track inventory, check for mistakes, and quickly correct them.

Monitor Quality Control

A quality control manager is an important fail-safe to negligent employees or faulty technology.

Their job is to guarantee receiving and putaway accuracy. They can watch for mistakes, point out problematic procedures, and reduce the instances of inventory damage.

Unload Quickly and Safely

Your objective should always be to unload received inventory safely while also doing it quickly.

If you’re using forklifts, make sure the machines are receiving proper maintenance. The same goes for power pallet trucks.

Be careful when handling heavy loads by hand. You don’t want to risk employee injury or damaged goods.

You should also consider using conveyor belts to make the process of putting received goods away more efficient.

Verify the Goods Received

To avoid the costly mistake of shipping the wrong items or not having enough to satisfy customer demand, you should always check that the inventory received is exactly what you ordered.

Depending on your cargo, these are the things you should verify:

Quantity received
Description of goods
Product code
Condition of goods
Weight of goods
Temperature (for perishable items)
Batch tracking number
Serial code

Making sure everything is right the moment you receive inventory will save you from a lot of headaches later on.

One Tool for Effectively Receiving Inventory

Receiving inventory effectively means 2 things:

Creating a safe, fast, and organized process for handling received inventory
Accurately tracking your goods from the moment they arrive in your warehouse to the time they are shipped to your customer

What you need to accomplish #1 are the right procedures set forth by management and a few standard pieces of equipment.

What you need to accomplish #2 is something many companies still don’t have – a cloud-based inventory management system.

With this kind of system, you’ll be able to automate reordering to avoid stockouts, improve your stocktaking process to avoid counting errors, and easily operate multiple warehouses with various types of goods.

If you want to test this system in your business, we can help.

Make Receiving Inventory and Other Warehouse Processes Uncomplicated

Our cloud-based inventory management system will allow you to know your stock levels in real-time, generate reports for future forecasting, and integrate with the rest of your business apps for painless accounting. From purchasing to receiving to sales, DEAR Inventory will help your business run smoothly.

Start your free 14-day trial of DEAR Inventory today!

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9 Tips for Better Retail Inventory Management

Posted on October 14, 2017 by

Effective retail inventory management can save you loss revenue and even your business

Retail inventory management isn’t fun.

You don’t get the thrill of interacting with your customers or the excitement of setting up marketing materials for the new brand you just rolled out.

Instead, you get late nights performing your stocktaking process and sorting piles of purchase orders and sales reports.

Although retail inventory management is the last thing you ever want to do, it can make or break your business…

Walmart lost $3 billion in 2013 because they were constantly out of stock.

If they were anyone but Walmart, they wouldn’t be in business anymore.

If you can’t effectively manage your inventory, then you’ll certainly lose revenue and may actually go out of business.

To help you keep your business and grow your revenue, here are 12 tips you can use to improve your retail inventory management.

9 Tips on Retail Inventory Management

Reduce Your Lead Time

You can prevent the kind of stockouts Walmart suffered from by implementing lead time reduction strategies.

The faster your stock arrives, the less you need to worry about not having enough inventory to fulfill your customers’ orders. Making your customers happier, and giving you a competitive edge in the market.

Decrease Product Range

If you’re carrying too many items that aren’t selling, it’s time to narrow your focus.

An overabundance of inventory dramatically increases the cost of inventory because it leads to holding obsolete products that you’ll have to discount, bundle, or donate later. And all that extra stock takes up valuable storage space for products that people do want to buy.

In contrast, a smaller inventory will dramatically decrease your inventory costs, which will help you avoid holding excess inventory. And, you can now enjoy the flexibility to test a few new products if you want, all while saving the majority of your space for your best-sellers.

Automate Inventory Receiving

Efficient retail inventory management begins the moment your stock arrives.

Your warehouse managers and employees shouldn’t have to think about what to do once they receive a shipment.

Either delegate this process to a small group of people who always handle incoming shipments, or if your business is fairly small, make sure your whole team understands the procedures to follow.

Increase Your Rate of Inventory Turnover

Increasing your rate of inventory turnover will make retail inventory management much easier.

First, the more inventory that leaves your warehouse, the less inventory that you need to manage inside your warehouse.

Second, a high inventory turnover rate means you have a clearer idea of what’s selling and what’s not. With this data, you can focus on only stocking items that you know will sell.

Third, a high rate of inventory turnover helps you prevent holding on to obsolete stock, thereby reducing your total cost of inventory.

Loss Prevention Tags

It doesn’t matter how big or small your store is…

Some people will steal from you.

To prevent significant revenue losses like this, it’s helpful to install theft prevention devices like loss prevention tags.

Using these tags on high-end items or in-demand items can help you stop theft before it happens.

Forecast Future Demand

The better you are at anticipating future demand, the higher your sales will be – making retail inventory management much easier.

Instead of worrying about what will sell, you can look at past sales during different times of year and forecast what will sell, and order more of those items and less of others.

But sales reports are only one way to forecast customer demand.

Here are a few other things you can do:

Conduct customer research
Survey customers
Listen to experts in your industry
Listen to your sales staff or other key people in your company
Pay attention to seasonal trends

Hire the Right Employees

Retailers lost $60 billion in shrinkage in 2015.

What was the biggest cause of their losses?

Their employees.

This statistic comes from the US Retail Fraud Survey. Of all the reasons for shrinkage, 38{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3} was cited as “employee theft.”

Any kind of shrinkage will disrupt your retail inventory management, and theft is no exception.

When hiring employees, make sure to check their background, check their references, speak with their previous employers, and foster good relationships with them to avoid creating disgruntled employees.

Set a Consistent Stocktaking Process

Creating a consistent stocktaking process is a huge part of managing your inventory.

It helps you identify problems before they get out of hand, informs your ordering and stocking decisions, and helps you forecast demand.

Unfortunately, many businesses are still using the outdated method of Excel inventory management, which brings us to our final tip…

Use Inventory Management Software

A cloud-based inventory management system will streamline your stocktaking process, automatically update your inventory information based on your purchase orders and sales, and will generate real-time reports you can use for forecasting.

Everything you used to do by hand will be done more efficiently for you.

How can you get this software?

Through our free trial offer below…

Retail Inventory Management Made Easy

From stock levels to order status, you’ll know exactly how much inventory you have and when it’s leaving or arriving your warehouse. All sales will be tracked from your physical store and your ecommerce stores, across all of your locations. We’ll automate your retail inventory management so you can focus more on growing your business and less on maintaining it.

Start your free 14-day trial of DEAR Inventory today!

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3 Ways Excel Inventory Management Hurts Your Business

Posted on September 9, 2017 by

Excel inventory management is good at the start but doesn’t end well.

Excel inventory management is good for one thing:

Running a small business with little growth.

If you’re just starting out or maintaining a small business without trying to expand it, then excel inventory tracking would work fine for you.

If you run a simple 1-4 person operation with little inventory and only 1-2 people inputting inventory information, an excel inventory system will give you what you need.

But if you’re trying to grow your business year after year, release new and exciting products, or expand into new markets and countries, then you’ll need a far more robust supply chain management (SCM) software.

Without a system that can handle increasingly complex orders, purchases, and stocktakes, you’re going to experience serious issues.

3 Problems with Excel Inventory Management

Error-prone

In a study of errors in 25 sample spreadsheets, Stephen Powell from the Tuck Business School at Dartmouth College found that 15 workbooks contained a total of 117 errors.

While 40{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3} of those errors had little impact on the businesses studied, 7 errors caused massive losses of $4 million to $110 million, according to the researchers’ estimates.

Mistakes are easy to make, especially if you’re working with various spreadsheets and multiple people are manually inputting or copying information.

But sometimes the program itself is to blame for mistakes.

For example, a study of leading genomics journals revealed that Excel’s automatic functions were changing the names of genomes without the scientists’ knowledge.

The study revealed that one-fifth of papers with Excel gene lists contain erroneous gene name conversions.

This means Excel itself can cause errors in your reporting, and it can enhance the errors that humans naturally commit.

Lack of Real-Time Reporting

A lack of real-time inventory reports means that you are constantly behind in your inventory tracking.

Stock is being purchased and received, inventory is being sold and shipped, and your numbers haven’t been updated since yesterday.

If you think you have enough stock to cover a sudden spike in sales but find out you don’t, you lose customers.

If your assistant manager forgets a crucial part of your stocktaking process – like updating your data – and today is when you typically make purchase orders, you may order too much and run into the problem of obsolete stock or order too little and experience stockouts.

Even if you can update inventory information regularly every day, it will never be as instant or reliable as a cloud-based inventory management system.

Difficult to Scale

One of the primary reasons for keeping detailed reports is to generate accurate and useful business intelligence (BI).

To accurately forecast the future, you need to gather correct information in the present. Excel inventory management is subpar precisely because it is imprecise in organizing data due to its own flaws, and the errors caused by its users.

While Excel and Microsoft Office may offer BI tools, it requires you to learn how to use those tools and input the data without making mistakes.

According to “A Pilot Study Exploring Spreadsheet Risk in Scientific Research,” most spreadsheet errors don’t arise from mistakes in programming the spreadsheet – they arise from the misapplication of programming logic which is a result of most spreadsheet users having no formal training.

You’re an expert in what you sell, not in using Excel. Because you – like most users – aren’t an expert, you’re going to misuse or ineffectively use the program, leading to unseen errors and costly mistakes.

What’s the Alternative to an Excel Inventory System?

A program that automates the calculation of data and the generation of reports.

A system that keeps an up-to-the-minute account of your inventory.

A software that integrates with your ecommerce and accounting apps seamlessly.

In short:

DEAR inventory.

Leave Excel for the Little Guys – DEAR Is for Businesses Ready to Grow

Through barcodes and RFID technology, you’ll be able to keep your inventory up-to-date with the simple wave of a scanner. Our cloud-based inventory management system allows you to easily manage large and growing product volumes and generates real-time reports on sales, trends, and forecasts. With DEAR inventory, you’ll be able to streamline your stocktake, manage multiple locations, and ditch the outdated and error-prone method of Excel inventory management.

Start your free 14-day trial of DEAR Inventory today!

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4 Reasons Why Batch Tracking Is Crucial for Quality Control

Posted on September 2, 2017 by

Batch tracking will help you maintain high-quality goods

Do you have a traceability system in place that minimizes accounting errors?

Can you verify the history and location of a set of goods in case of a product recall?

Are you aware of which of your products are close to expiring and which aren’t?

If you don’t have a system that can deliver the answers to these questions immediately, or worse, if you don’t have a system that can answer these questions at all, then you need a batch tracking system.

To help you streamline your supply chain and improve your relationships with your customers and suppliers, we’ll help you understand what batch tracking is, why it’s so beneficial, and how you can implement it in your business today.

What is Batch Tracking?

Batch tracking is sometimes referred to as lot tracking, and it’s a process for efficiently tracing goods along the distribution chain using batch numbers.

A “batch” refers to a particular set of goods that were produced together and which used the same materials.

For example, a batch of milk is a set of individual containers of milk that used the same ingredients and has the same expiration date because they were produced together, at the same time.

From raw materials to finished goods, batch tracking allows you to see where your goods came from, where they went, how much was shipped, and when they expire if they have an expiration date.

What are the Benefits of Batch Tracking?

Almost every business uses batch tracking because it offers numerous benefits.

Here are just a few:

Easy and Fast Recall

iSeeCars analyzed new vehicle sales data and recall data from the National Highway Transportation Safety Administration (NHTSA) from January 1985 through September 2016.

They found that the industry average of car recalls was 1,115 per every 1,000 cars sold.

Almost every car manufacturer had recalls, but here’s why being able to recall your products quickly is so important:

In a study conducted by The Relational Capital Group and reported on by The Motley Fool, 87{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3} of survey respondents said they’d be “more likely to purchase and remain loyal to a company or brand that handles a product recall honorably and responsibly, even though they clearly made mistakes that led to a safety or quality problem.”

Which means, consumers understand that recalls happen, but if you do a poor job recalling the product, then you’ll be chastised by your customers.

So, if you’re a car manufacturer, you would want to make sure that you proactively recall any defective vehicle and publicly or privately apologize and do everything possible to appease your customers.

Regardless of what business you’re in, if you want to be able to recall defective products quickly and easily, then you’ll need a batch tracking system that can give you the detailed information you need to identify every defective product within the batch so you can easily trace them down and retrieve them.

Streamlined Expiry Tracking

Quality control is critical if you’re a food wholesaler.

One of the most important factors for maintaining a high-quality food product is knowing the expiration date for every product you sell, and making sure your customers know this information as well.

Batch tracking allows you to automatically know the expiration date of each product and gives you the power to develop a stronger quality control system in the case of any issues like a product recall.

Improved Relationships with Suppliers

Batch tracking software allows you insight into the quality of your finished goods by tracking the raw materials your suppliers are providing you.

This gives you the ability to identify your best and worst suppliers, which gives you greater control over who you’ll purchase your material from.

Fewer Accounting Errors from Manual Tracking

A manual batch tracking system is extremely time-consuming and error-prone.

It’s very easy to enter incorrect data, omit data, misinterpret data, or misplace your data.

An automatic batch tracking system allows you to enter information that is generated across all products within your batch and puts that information at your fingertips if you need to access it quickly, as in the case of a product recall.

How Can You Start Batch Tracking Today?

The best way to start batch tracking is with a cloud-based inventory management system.

This will allow you to assign batch numbers, expiration dates, and serial numbers to your finished products.

But it will also allow you to track the purchase orders and sales of your batches for easy accounting.

And, because this inventory management system is cloud-based, you can track your batches from anywhere in the world.

If you want to do batch tracking efficiently, then consider using DEAR’s cloud-based inventory management system.

The Inventory Management System that Makes Batch Tracking Easy

Effective batch tracking is just one of the many features of our cloud-based inventory management system. You’ll also be able to create product categories, export product data across all your ecommerce stores automatically, operate multiple locations, streamline your stocktake, and generate real-time inventory reports. Everything you need to optimize your inventory management and batch tracking is right at your fingertips with our system.

Start your free 14-day trial of DEAR Inventory today!

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Reorder Point Formula: This Is What You Need to Avoid Stockouts

Posted on August 5, 2017 by

Do you really need a reorder point formula to effectively manage your inventory?

Do you know when you’ll need to order more inventory before selling out?

Have you already experienced a few stockouts and don’t how to prevent them?

Are you relying on your “instincts” to calculate your reorder point?

You can stop being a victim to market spikes and slumps by using a proven, mathematical equation to help you consistently order the right amount of stock each month.

This equation is called a reorder point formula.

To help you improve your business processes, we’ll show you what a reorder point formula is, how to apply it effectively, and how to stop worrying about running out of stock.

By the end, you’ll be empowered with a formula that’ll help you stay on top of demands and streamline your supply chain management by accurately calculating your reorder quantity.

What is a Reorder Point Formula and How is it Calculated?

A reorder point formula tells you approximately when you should order more stock – when you’ve reached the lowest amount of inventory you can sustain before you need more.

Here’s the reorder point formula you can use today:

(Average Daily Unit Sales x Average Lead Time in Days) + Safety Stock = Reorder Point

To make this as easy as possible for you, we’ll show you how to calculate your average unit sales and lead time.

You will need to know your safety stock to make this formula work, but instead of going over that in this post, you can discover how to calculate your safety stock by visiting our post “The Power of Safety Stock Inventory and How to Calculate It.”

For the other two calculations, let’s start with daily unit sales.

How to Calculate Average Daily Unit Sales

Your average daily unit sales is the number of units you sell of a particular item over a specified period of time.

To take that out of the abstract, let’s use an example for the rest of this post to make it easy to understand.

Suppose you sell staplers.

To calculate your average daily unit sales, you would divide how many units of staplers you sold over a specified period of time.

If you sold 100 staplers over 30 days, you would divide 100 by 30.

100 divided by 30 = 3.33

So, your average daily unit sales is 3.33.

Let’s continue this example into average lead time.

How to Calculate Average Delivery Lead Time

The lead time is the amount of time it takes to receive a shipment of stock.

To get the average delivery lead time, you divide your total number of lead times by a set period of time, like 6 months.

In our stapler example, if you place an order every month, your lead time probably varies month-to-month and may look something like this:

January	8 Days
February	11 Days
March	9 Days
April	6 Days
May	7 Days
June	5 Days

Here’s how you calculate your average lead time:

Add up all the days (8+11+9+6+7+5) = 46.

Divide the total (46) by the number of orders placed, which is 6 because orders were placed once a month over 6 months.

46 divided by 6 = 7.67

7.67 is your daily average lead time.

Now that you have your average lead time and unit sales, you need to calculate your safety stock.

Again, we won’t go over that here, but you can easily calculate it using our formula in our other post on safety stock inventory.

For our purposes, let’s assume your safety stock is 20 staplers. Now, we’re ready to use our reorder point formula.

How to Calculate the Reorder Point Formula

Now that we’ve got all the numbers we need for our Stapler company example, we’re ready to plug everything into our reorder point formula.

Remember, the formula is:

(Average Daily Unit Sales x Average Lead Time in Days) + Safety Stock = Reorder Point

So, for our stapler example it would look like this:

(3.33 x 7.67) + 20 = 45.54

There you have it.

In our example, once your inventory gets down to 45 or 46 staplers, you should place an order for more.

This is a simple reorder point formula that you can use for each of your products. There are certainly more in-depth formulas you can use like this one, but the formula we’ve provided should be sufficient for most businesses.

However, just knowing the reorder point formula isn’t enough to streamline your business processes…

Here’s What You Need Next

To streamline your business, you’ll need to improve your rate of inventory turnover, upgrade your SCM software, and accelerate your stocktaking process.

But to make these processes and the reorder point formula work properly, you’ll need some way to track your orders, sales, and inventory levels

An Excel spreadsheet or pen and paper are error-prone methods that are dangerous and costly, especially when your business depends on correct and highly specific data.

If you want to manage your inventory with ease, receive real-time reports, and streamline your supply chain management, then you need to invest in cloud-based inventory management.

Use Inventory Management Software to Optimize Your Reorder Point Formula

Our cloud-based inventory management software will track every item from your supplier to your warehouse and on to your customer. You’ll know exactly how much inventory you have and how much you need, and can check those numbers any time of day, from anywhere in the world. We automate your processes and integrate our software with all your other business systems, ensuring your reorder point formula has the precise data it requires to work properly.

Start your free 14-day trial of DEAR Inventory today!

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The Power of Safety Stock Inventory and How to Calculate It

Posted on July 29, 2017 by

Calculating safety stock inventory is easier (and more beneficial) than you think

What would happen if there was a sudden spike in market demand for your products?

Would you have enough inventory to satisfy your customers?

Or would you have to hang up the dreaded “out of stock” sign?

If you’re unsure, then you probably need to invest in safety stock inventory.

Even if you think you could handle that type of situation, your business is still vulnerable to uncertain shifts in the market and supply chain.

One of the best ways to safeguard your business and satisfy your customers is to have safety stock inventory.

We’re going to go over some of the benefits of safety stock and show you how to use one simple formula to calculate it.

But first, let’s define safety stock inventory.

What is Safety Stock Inventory?

As the name implies, safety stock inventory is a small, surplus amount of inventory you keep on hand to guard against variability in market demand and lead times.

If you’re trying to implement just-in-time (JIT) inventory, then you probably won’t want to invest in safety stock.

But, if you’re like the majority of retailers and wholesalers who use a just-in-case (JIC) inventory strategy, safety stock is critical to your business operations and offers many benefits to your bottom line.

What are the Benefits of Safety Stock Inventory?

Safety stock plays an integral role in the smooth operations of your supply chain in various ways.

Here are just a few:

Protection against unexpected spikes in demand
Prevention of stockouts
Compensation for inaccurate market forecasts
And a buffer for longer-than-expected lead times

You probably noticed that the benefits of safety stock are all tied to mitigating problems that could seriously harm your business.

That’s because without safety stock inventory you could experience:

Loss of revenue
Lost customers
And a loss in market share

With safety stock, you can safely avoid most of these problems.

Of course, despite its benefits, too much safety stock can incur substantial carrying costs, in which case you’ll need to reduce inventory or increase your rate of inventory turnover.

This is why it’s crucial to know how to order just the right amount to safeguard against variability in the market and supply chain, while not ordering too much and risk losing capital over the long-term.

To get it just right, let’s look at how to calculate safety stock inventory using a proven formula.

How Do You Use a Safety Stock Formula for Accurate Calculation?

A safety stock formula is relatively straightforward and requires only a few inputs for calculation.

Here’s the formula we recommend using if you’re just starting out:

(Max Daily Sales x Max Lead Time in Days) – (Average Daily Sales x Average Lead Time in Days) = Safety Stock Inventory

To take this out of the abstract and show you how it works, here’s an example to demonstrate this formula:

Suppose there’s a store in the USA called Harry’s Honey Shop. Harry sells honey that’s imported from Brazil.

On average, he sells about 5 bottles of honey every weekday. On the weekends, he operates a stand at his local farmers market and sells about 10 bottles of honey.

His average lead time to get a fresh shipment of Brazilian honey is 40 days. Although, because of the limited availability of flowers and other environmental factors, it can take up to 50 days to receive a shipment (maximum lead time).

If Harry wants to make sure he always has enough honey in stock to satisfy customer demand, he can use this formula to figure it out:

(10 x 50) – (5 x 40) = 300

If Harry sells about 45 bottles a week (5 every weekday, 10 on the weekends) equaling 180 bottles a month, then with these calculations he would have enough stock to last him about a month and a half.

If Harry orders honey every month, he would have plenty of safety stock. Maybe even too much.

Now that Harry knows how much honey he needs to have, and how much extra he would probably have left over, he can slightly reduce the amount of honey he orders to guarantee a nice buffer in case there’s a spike in demand or longer lead times.

Now, this is a pretty basic safety stock formula that will get you up and running quickly. But, you should never solely rely on basic formulas like these to calculate safety stock.

Use them as a baseline, test them, and expand your calculations with more nuanced formulas to deal with large volumes of inventory, different types of stock, and volatile market demands.

If you want to dive deeper into safety stock formulas, you should check out this excellent article that will help you handle more complex variances, deviations, and variables in your calculations.

How Do You Make Calculating Safety Stock Easier?

A safety stock formula is only useful if you have accurate inventory metrics.

If you don’t have an effective SCM software, a successful stocktaking process, or a proven perpetual inventory system, then you run the risk of having inaccurate forecasts, inefficient stock counts, and error-ridden data.

Before you can optimize your inventory ordering process and factor in safety stock, you should upgrade your inventory management system.

Accurately Calculate Your Safety Stock Using Proven Inventory Management Software

Our cloud-based inventory management software will track all your sales, generate real-time reports on buyer behavior, forecast spikes and slumps in demand, and monitor every piece of inventory the moment it arrives and the moment it’s used or sold. If you want to reap the rewards of safety stock inventory, then you should invest in a powerful inventory management system.

Start your free 14-day trial of DEAR Inventory today!

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Periodic vs Perpetual Inventory: Here’s What You Need to Know

Posted on July 22, 2017 by

Periodic vs perpetual inventory: which is right for your business?

Every physical goods business has to make a choice between periodic vs perpetual inventory.

Unfortunately, it’s hardly an easy choice to make.

On the one hand, you have the manual, inexpensive, tried-and-true periodic inventory tracking system that has been used since businesses have had inventory to manage.

On the other, you have the fairly new, technology-enabled, constantly evolving perpetual inventory tracking system that is driven by innovations in inventory management solutions.

So, which one is right for your business?

To answer that question, we’ll look at the definitions for both, then compare the advantages and disadvantages of periodic vs perpetual inventory.

By the end, you’ll have a clear understanding of what each can offer you, and be better prepared to choose the right fit for your business.

What is Periodic vs Perpetual Inventory?

Periodic Inventory

A periodic inventory management system is exactly what the name suggests:

Inventory is tracked by a periodic physical count of every item in stock.

Essentially, it tells you the beginning inventory and ending inventory within the accounting period, but it doesn’t track inventory on a day-to-day basis.

These physical counts can be conducted weekly, monthly, quarterly, or yearly depending on the size of your business, the quantity of your stock, and the rate of inventory turnover your business experiences throughout a fiscal year.

Periodic inventory is typically taken using pen and paper or excel spreadsheets.

Perpetual Inventory

A perpetual inventory management system is also known as a continuous inventory system.

Here’s how it works:

Perpetual inventory systems track sold and stocked inventory in real-time; they update your accounting system whenever a sale is made, inventory is used, or new inventory has arrived.

All of this data is sent to one central hub that any authorized employee can access.

Through the use of barcodes, POS systems, and RFID scanners, perpetual inventory makes it possible for you to know almost everything about your inventory at any time.

Advantages and Disadvantages of Periodic vs Perpetual Inventory

Now that you know the definitions of periodic and perpetual inventory, let’s look at what each has to offer you and which would make the most sense to use for your business.

Advantages of Periodic Inventory

Reduced Setup Costs

Periodic inventory uses a minimal amount of materials – allowing quick setup on a tight budget. This is ideal for small businesses or startups without much capital.

Minimal Experience Required

Periodic inventory doesn’t require complex devices or technology – allowing inexperienced business owners and managers to start using the system on day one with minimal training.

Simple Record Keeping

Periodic inventory relies on a few simple records:

The amount of inventory currently on hand
The amount of materials purchased
The amount of inventory sold

With only these 3 metrics, a periodic inventory management system can be easily implemented.

Disadvantages of Periodic Inventory

Disruption of Business Hours or Overtime

To manually count inventory, you’re going to need to close down during business hours or pay your employees overtime to come in late.

The cost of lost business and higher labor on a regular basis could outweigh the savings you might receive from this low-tech option.

Increased Risk of Errors

Humans are more error-prone than computer systems.

It’s easy to double-count or miscount inventory, lose files, or perform incorrect calculations based on incorrect data.

Mistakes like these can lead to imprecise forecasting, stock outs, or obsolete inventory. All of which could be mitigated with a perpetual inventory system.

Advantages of Perpetual Inventory

Proactive Monitoring of Inventory Turnover

By tracking inventory turnover in real-time, perpetual inventory makes it possible to order more stock as soon as you get low. This is especially helpful if you practice just-in-time (JIT) inventory.

Manage Multiple Locations with Ease

Perpetual inventory gathers all data into one centralized inventory management system – making it easy to operate multiple locations and stores while tracking the inventory for all of them.

More Informed Forecasting

Perpetual inventory can generate reports on buying patterns throughout the year which allows you to forecast demand spikes and slow periods while optimizing your supply chain around the purchasing habits of your customers.

Disadvantages of Perpetual Inventory

High Startup Costs

Perpetual inventory management systems require a lot of equipment to be installed such as:

Barcodes
RFID codes
Scanners
Computer software
Etc.

This will result in higher startup costs, especially if you have multiple locations. Plus, all your employees will need to be trained to use the new equipment.

Periodic Inventory Is Still Necessary

Even with perpetual inventory, you’re still going to need to undertake some kind of manual stocktaking process to ensure your records are up-to-date and your inventory system is operating correctly.

Should you Choose Periodic or Perpetual Inventory for Your Business?

Let’s make this as simple as possible:

In the choice between periodic vs perpetual inventory, periodic is better if you’re just starting out, sell very few products, or have a small budget.

Perpetual is better for everyone else.

And, if your small business starts to grow, you’re going to want to switch over to a perpetual inventory management system.

Periodic inventory is fine in the beginning, but the insights, increased accuracy, and informed decision-making power that comes from perpetual inventory will help you optimize every process in your business – something periodic inventory will never be able to do.

If you’re currently using a periodic inventory management system and are ready to experience the benefits of perpetual inventory, then we can help.

Experience the Power of a Perpetual Inventory Management System Today

Our cloud-based inventory management software will give you instant visibility into stock levels, allow you to manage large product volumes, and streamline your stocktake. It will even automate your processes, generate detailed reports, and make it easy to operate multiple locations.

Start your free 14-day trial of DEAR Inventory today!

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Just-In-Time Inventory: How to Reap Big Rewards with Lean Production

Posted on July 8, 2017 by

Save time and costs with a just-in-time inventory management system

Just-in-time (JIT) inventory was developed in post-world war II Japan when the country had few resources, little money, and high unemployment.

It helped Toyota become one of the dominant car manufacturers in the world by making every step of the production process as “lean” as possible by eliminating overproduction, obsolete stock, and wasted time.

By the mid 80’s, the concept of just in time inventory was being tested by American companies with excellent results.

In 1983, Omark Industries – which produced chainsaws, ammunition, and log loaders – saved itself an estimated $7 million in inventory carrying costs with its own version of JIT called ZIPS (Zero Inventory Production System).

Use of just-in-time inventory continued to grow through to the 90’s…

In 1999, Daman Products reported in a case study a 97{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3} reduction in cycle times, 50{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3} reduction in setup times, lead times dropped from 4-8 weeks to 5-10 days, and their flow distance was reduced by 90{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3}.

Today, just-in-time inventory can be observed in places like fast food restaurants, where all the ingredients for a burger are kept ready – but a burger is only made the moment it’s ordered, or on-demand publishing, where a master manuscript is kept ready – but a book isn’t printed until a customer order comes through.

To help you fully understand the power and potential of just-in-time inventory, we’re going to concretely define it, look at some of its benefits and drawbacks, and give you some principles and practices on how to implement it into your own production process.

What is Just-In-Time Inventory and How Does It Work?

Just-in-time inventory is simply making what is needed, when it’s needed, in the amount needed.

Many companies operate on a “just-in-case” basis – holding a small amount of stock in case of an unexpected peak in demand.

JIT attempts to establish a “zero inventory” system by manufacturing goods to order; it operates on a “pull” system whereby an order comes through and initiates a cascade response throughout the entire supply chain – signaling to the staff they need to order inventory or begin producing the required item.

While a just-in-time inventory system is not easy to create, the benefits are worth the extra effort.

Benefits of Just-In-Time Inventory

When first trying to implement just-in-time inventory, you’ll notice that you’ll find mistakes throughout the production process which are made more obvious when you try to make your system more efficient.

After some initial trial and error, you’ll begin reaping at least a few of the benefits listed below.

Minimize costs such as rent and insurance by reducing your inventory
Less obsolete, out-dated, and spoiled inventory
Reduce waste and increase efficiency by minimizing or eliminating warehousing and stockpiling, while maximizing inventory turnover
Maintain healthy cashflow by ordering stock only when necessary
Production errors can be identified and fixed faster since production happens on a smaller, more focused level, allowing easier adjustments or maintenance on capital equipment

Even though just-in-time inventory offers high rewards, it also brings with it high risks. If you want the benefits, you’re should know what the potential drawbacks could be.

Drawbacks of Just-In-Time Inventory

The risks associated with just-in-time inventory should be seriously considered before implementing a JIT inventory plan for your company.

Below is a list of problems you may run into when you adopt this policy of lean manufacturing and production.

Stockouts due to sudden changes in market demand when you don’t have excess inventory
Vulnerability to alterations in your supply chain which could disrupt your business operations if you don’t have backup options
More stockouts could occur if there is a breakdown in communication within the business, or between the business and the rest of the supply chain
Lack of control over order fulfillment due to a dependency on your supplier’s timeline – potentially delaying how quickly your customer receives their order
Increased need for planning and precise processes – which, if you don’t setup correctly, could cause a major loss in revenue after only a few errors.

Some of these risks will depend on your industry and the volatility of whatever market you’re serving. But, all of these risks pose serious threats to the longevity and profitability of your business.

However, they’re only risks.

If you think the benefits outweigh them, then let’s take a look at how you can start implementing a just-in-time inventory management system.

How do you Implement Just-In-Time Inventory

Creating and implementing a just-in-time inventory management system will depend in large part on the size and complexity of your business and industry.

Below, we’ve listed some common principles and practices which will give you a better idea of what’s required for a high-functioning JIT inventory system.

Develop a strong relationship with your suppliers – and possibly an exclusive agreement regarding stock quantity and delivery time period – to ensure consistency in your supply chain
Find a long-term supplier for each purchased part who delivers small batches according to your long-term purchasing forecast
Work on shortening the production cycle first to make room for shortening the materials cycle (this helps mitigate the problem of late deliveries when first implementing just-in-time inventory)
Separate your repetitive business from your one-stop orders and develop a special production method for your repetitive orders – using particular machines for particular tasks and processes, separated by order frequency
Institute or improve your quality-control program to manage and solve manufacturing problems that inevitably reveal themselves when implementing just-in-time inventory

These action steps are just some of the things you should consider doing when making the switch from just-in-case to just-in-time inventory.

The actual steps you’ll take will once again depend heavily on your unique business and its needs.

However, if you haven’t already, there’s a crucial first step you will want to take before officially implementing a JIT strategy.

Do This Before Implementing Just-In-Time Inventory

Just-in-time inventory requires a great level of planning and insight.

You need to be able to understand and track customer demands, market trends, and sales numbers.

Essentially, you should know everything possible about your inventory – how much you need to buy, when it will arrive, how often it sells, etc.

Excel spreadsheets aren’t going to cut it if you want to optimize your business processes for lean performance.

To operate an efficient, effective, and profitable just-in-time inventory system, you’re going to need to…

Upgrade Your Inventory Management System to Reap the Benefits of JIT

Our cloud-based inventory management system can deliver up-to-the-minute reports, automate your tracking, and integrate with all your sales channels. You’ll know when you need to order more inventory, what times of year you experience spikes in demand, and how to organize and coordinate the rest of your supply chain.

Start your free 14-day trial of DEAR Inventory today!

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Rate of Inventory Turnover: What It Is, What it Means, and How to Improve It

Posted on July 1, 2017 by

Calculate your rate of inventory turnover to maximize cash flow

Your rate of inventory turnover is a key metric to understand if you want to optimize your cash flow, working capital, and inventory costs.

By calculating your rate of inventory turnover, you’ll have a better grasp on the market demand for your products, on the amount of obsolete stock you may be carrying, and what steps you need to take to sell or stock more inventory, depending on your turnover rate.

In this article, we’ll explore what inventory turnover is and how to calculate it before discussing a few ways to improve it. By the end, you’ll know what your rate of inventory turnover means and how to use that knowledge to increase the efficiency and profitability of your business.

What is the Rate of Inventory Turnover?

The rate of inventory turnover is a measurement of the number of times your inventory is sold or used in a given time period, usually per year.

It signals to your company’s managers and executives – along with your company’s investors – how well you’ve been converting your inventory into sales. It can also tell you how well your inventory is being managed, and whether or not it’s being mismanaged.

Here’s how to calculate your inventory turnover rate:

How do You Calculate the Rate of Inventory Turnover?

There are usually 2 ways you can calculate the rate of your inventory turnover:

Sales divided by Inventory
Cost of Goods Sold (COGS) divided by Average Inventory

Most analysts don’t use the first method of calculation because it can yield inaccurate results. Sales include a markup over costs, which could inflate your inventory turnover rate.

COGS divided by average inventory can give you a more accurate rate of inventory turnover. To calculate your inventory rate, you first need to calculate your average inventory.

Calculating Average Inventory

If you want to calculate your average inventory for a single fiscal year (12 months), you’ll first want to find the inventory counts from the end of each month (in dollar value) and add them all together.

Then, divide your total amount of inventory by the number of months you’re calculating (12 in this example) to get your average inventory for that period.

For example, let’s assume that the past 12 months you had varying inventory costs that added up to $168,000.

Divide $168,000 by 12 months and you get an average inventory of $14,000.

Calculating Rate of Inventory Turnover

Calculating your Cost of Goods Sold is a bit complicated and depends greatly on your products and business. Check out this post to learn more about the general methods for going about this.

For our example, let’s assume your COGS for the past 12 months is $130,000.

To calculate your inventory turnover rate, divide your COGS by your average inventory, which in this case gets us a rate of 9.29. That means 9.29 times out of the year, your inventory completely turned over.

What’s a Good Rate of Inventory Turnover?

Once you know your rate of inventory turnover, you can assess how to improve it.

To know whether your inventory turnover rate is high or low, you’ll want to compare it to your industry’s average.

Here are a few industry averages that might apply to you, as found on market research and analysis website CSIMarket:

Internet, Mail Order, & Online Shops: 9.54
Wholesale: 9.39
Food Processing: 8.23
Miscellaneous Manufacturing: 5.07

For the rest of this post, we’re going to assume you’re struggling with low inventory turnover since high inventory turnover typically just means you need more stock to cover consumer demand. Low inventory turnover, however, can lead to a host of problems.

What’s the Problem with a Low Rate of Inventory Turnover?

A low rate of inventory turnover could mean a lot of bad things for your business:

You’re spending too much on holding costs like rent, insurance, etc.
Goods that aren’t turning over are becoming obsolete in the market
You’re ordering too much stock, too frequently
You may have cash flow problems because you’re tying up too much capital in inventory

In order to prevent these problems from occurring, here are several ways you can raise your turnover rate.

5 Ways to Increase Your Rate of Inventory Turnover

There are many strategies you can use to sell and manage your inventory effectively.

Not all strategies will be applicable or work for you, but try a few and use those that work best for you.

Change your Pricing and Marketing Campaigns

The first thing to try is finding a way to sell more products – since this will not only improve your rate of turnover but also generate cash.

Brainstorm a few new marketing campaigns to find creative and clever ways to engage your target market and differentiate yourself from your competitors.

You might try playing around with your pricing strategies. Don’t just lower your prices – this can obviously cost you quite a bit.

Instead, test various tactics like:

Seasonal sales
Rush delivery service
Flash sales
Different pricing for different customers
Product bundles
Bonuses
Pricing structure ($47 vs. $50, or $49.50 vs. $49.99)

Keep testing until you find something that works, and then replicating and expand on the winning strategies.

Liquidate Obsolete Stock

If you suffer from a low rate of inventory turnover, you may have obsolete stock sitting in your warehouse. This could be due to a couple reasons, such as:

Ineffective forecasting of customer demand
Too much excess stock ordered

Either way, you need to focus on reducing your inventory as quickly as possible, and developing stronger inventory tracking systems so you know in real-time what is selling and what isn’t.

Forecast Customer Demand Better

Analyze every product’s past performance and level of demand in order to predict future sales trends. Pay attention to market changes, product innovations, and new competitors to stay on top of your market.

Redistribute Your Inventory

If you have multiple warehouses, then consider redistributing your excess inventory to a location with greater demand for those items.

This can reduce the need to order inventory in some locations while lowering your stock levels in those that consistently carry too much.

Track Your Inventory to Stay in Control

Through better tracking, you’ll able to know exactly how much inventory you have in real-time, what customer demand has been in the past, and eliminate inaccuracies in your stock count.

And if you’re tracking inventory in multiple locations with multiple warehouses, you need a system that can pull all that data together under one central dashboard so you can generate up-to-the-minute reports on the state of your business.

Tracking your inventory helps you use the other 4 strategies listed here more effectively, and allows you to accurately calculate your rate of inventory turnover.

Ready to Increase Your Inventory Turnover Rate?

Cloud-based inventory management software can automate your sales tracking, let you monitor every item as it moves through your business with RFID barcode technology, and integrate your inventory data into the rest of your business systems such as your ecommerce store or accounting software.

Get started with your free 14-day trial of DEAR Inventory today!

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What is Working Capital and Why Does it Matter?

Posted on June 17, 2017 by Alla

Find the right level of working capital to grow a healthy business

Working Capital is an important financial metric for understanding your company’s operating liquidity (the ability to convert your assets into cash for the purpose of paying the bills). Knowing your amount of working capital can also guide your inventory strategies, leading to smarter buying decisions.

By the book, the definition of working capital is:

Working Capital = Current Assets – Current Liabilities

In other words, it’s the cash you have left over once all payments due to you are collected and your bills are paid.

If your company maintains an inventory of goods that you sell to your customers, the formula can be expanded to:

Inventory Value (value of items for sale and items used to make goods for sale)

+ Receivables from Customers (cash owed to company for sales)

+ Rebates from Suppliers (Discounts for buying a certain value, quantity, or within a certain timeframe)

– Payables to Suppliers (cost of inventory)

= Working Capital.

What’s considered a healthy working capital varies from industry to industry – but in theory it should be as low as possible.

A low working capital is a strong indicator that your company is finding the right balance between what you have on your shelves, the revenue you are generating, the investments you are making in your future, and the debts you owe.

A high working capital can be a sign your business is booming, but it can also mean you’re missing investment and growth opportunities.

Another Insightful Approach

In the business world, working capital is usually measured not by the cash figure of assets minus liabilaties, but by what’s known as your current ratio, which is:

Current Ratio = Current Assets / Current Liabilities

According to Investopedia, your business should aim for a current ratio between 2.0 to 1.2, but this varies by industry; here are some average current ratios for industries you’re likely in, according to CSIMarket:

Internet, Mail Order, & Online Shops: 1.12
Wholesale: 1.29
Food Processing: 1.26
Miscellaneous Manufacturing: 1.55

A ratio higher than 2 is a sign that you’re not properly using your funds – either in the form of carrying too much inventory or not capitalizing on extra cash by investing in growing your business, while a ratio lower than 2 may make it difficult to find the cash you’ll need to pay your suppliers and other debts.

The metric changes as quickly as you make sales, pay suppliers, or increase your inventory – but by understanding how the decisions you make affect it, you can take control of your working capital instead of letting it control you.

Here are some aspects of your operations to consider as you create your working capital management strategy:

Turn Down Supplier Discounts

Just say no (sometimes)! Avoid the temptation to take advantage of supplier discounts when they mean ordering more inventory than you need right now.

Sure, you could buy three times the materials to reduce your per item cost by 75{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3}. But unless you can actually sell that inventory, you risk filling your shelves with stuff that can quickly become obsolete, broken, or buried.

By collecting data to understand your what your customers want and when, you can better decide when it’s the right time to take advantage of these discounts.

Achieve Negative Working Capital

There are two ways to look at negative working capital – one way is a signal of financial distress for a company indicating you have spent more money than you have.

A more positive definition involves a strategy that requires careful thought and planning.

By setting terms of payment with your suppliers that give you enough time to collect from your customers before you pay for the raw materials of the items you sold – you are in essence borrowing cash from your suppliers to free up more money for your day to day operations.

This strategy requires an in-depth understanding of your customer demand cycles to ensure its possible to sell all your inventory and collect from your customers prior to your invoice due dates.

Negotiate your payment terms with your own billing cycle in mind. Be sure to give yourself an overlap period where you have cash payments in the bank, but no invoices due for the products and materials you just sold.

For example, let’s say you made $100 in sales for product X and have collected all payments due from your customers.

You owe your suppliers $50 for the raw goods you used to make product X, but the invoice isn’t due for another two weeks.

Because working capital only factors in supplier payments that are currently due, your working capital is a $100 ahead instead of only $50 – which is what it would be if you had to pay your supplier at the same time you collected payment.

Maintaining a negative working capital balance frees up cash to take advantage of opportunities to spend money on growing your business and reducing debts.

Control Inventory Levels

Inventory reduction plays a major role in achieving an ideal working capital – the less inventory on hand, the less you owe to suppliers, tipping your working capital in your favor.

Take control of your inventory levels by putting your sales and purchasing history data to work helping you predict the optimal levels of inventory necessary to operate.

The goal is to use that data to find the right balance between demand, production, and ordering raw materials or stock.

Order too much and you’ve tied up cash resources in product or materials that aren’t making you money. Purchase too little and now you run the risk of losing sales to your competitors who do have the product available for sale.

If this all seems like an elaborate guessing game, you’re not alone. Learn more about inventory reduction in our earlier post. From “lead times” to “just-in-time,” it covers the basics you need to know to get started.

Find the Balance, Achieve Results

Businesses of any size can find a healthy balance of inventory, taking advantage of supplier discounts, and payment cycles by leveraging inventory management software thanks to cloud-based tools like DEAR Inventory.

Want Better Data to Make Better Decisions?

Experience the tracking and reporting power of modern cloud-based inventory management software by starting your free 14-day trial of DEAR Inventory today!

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