Sunday, 29 December 2013

E-commerce Inventory Management : Basics

When you initially start you can maintain all of your inventory in your basement, search for it when an order comes up and package yourself and send it over. If you have a drop ship model, you need to inform your vendor about how much inventory you need, procure from them and send it your customer. But, as your business grows you cannot do this manually. You need to maintain a warehouse to store your inventory and service your customers from there. Amazon has more than 100 warehouses, they call it as distribution centers, world wide.

The following section is relevant when you have a warehouse (or multiple warehouses) where you have to store your inventory, process them and fulfill your customer orders.

What is Inventory Management ?
You have great e-commerce business, thousands (if not hundreds) of customers and they order thousands of items from you. You need to fulfill those customer orders and need to give them good customer experience. If you send them your order after a week or so, there are more chances that they do not come back to you.

At the same time, you want to increase your profits and reduce the cost of maintaining the inventory, reduce and remove the inventory that no body wants, efficiently manage the inventory in the given space you have, efficiently process the orders you get. All of this needs understanding, planning of how things work in e-commerce warehouses. The science (or best practices) behind efficiently maintaining your inventory is nothing but what we call as inventory management.

What is inventory here ?
When we say inventory, it is the product items that are available for your customers to order on your website. It could be a book, or Harry Potter DVD, or a bicycle. Inventory here does not include the tools (such as fork lifts, blades, scissors) the associates working in warehouse use.

Why we have to do it ?
As we were talking about it earlier, we need to manage inventory to effectively satisfy our customers in a cost-effective manner. It reduces the operating cost of maintaining the inventory as well.

Inventory costs
When we procure inventory it has cost associates with for processing (not the inherent cost of inventory but the cost of managing it). Here are some of the inventory costs we have to keep track of.
  • Cost of procuring the inventory.
  • Cost of storing the inventory (space)
  • Cost of processing the inventory (stow, pick, pack, ship)
  • Cost due to damages, deterioration, depreciation
  • Cost of obsolete items
  • Cost of the safely keeping them
Types of Inventory
 Depending on what you are selling, you will have different types of inventory you need to deal with. Here are some of the examples.
  • Groceries
    • Groceries are perishable, easily damageable and require high cost for maintenance because your warehouse or transportation vehicles need to have mechanism to reduce the waste due to perishing of the products. Example, they need to maintain enough refrigeration, ventilation or sun light. If you own a business like Amazon Fresh, you need to make sure you specially handle such inventory.
  • Hazardous Materials
    • If you deal with hazardous materials you need to follow government regulations in that area, and have processes to safely handle them. You need to worry about how can we reduce the damage as much as much possible, in a worst case scenario. You also need to worry about people who deal with such inventory and have them protected. 
    • Usually if you maintain hazardous and non-hazardous materials, you should keep them separated in storage as well as processing.
  • High Value items
    • If you are selling precious metals, stones or any other high value items -- you need to be careful in making your products safe from theft. You may have to implement a secure gate way for people touching , transporting those items. Even one item lost is worth hundreds of dollars.
  • Liquid items
    • They need to specially packaged to avoid any leakages.
  •  Special handling items
    • Some items need some sort of preperation for storing, shipping the items. Examples TBD.
In the up coming articles you will learn about how to plan, process and optimize the inventory handling.

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