As companies evolve, inventory management becomes a significant focus area. Inventory accuracy can be a major cost differentiator, or a cost center, depending on how well or poorly it is managed. Small companies trying to scale should take steps early on so the foundations of success are there. That’s where a 3PL can be very beneficial, helping ecommerce merchants leverage industry leading inventory management procedures.
Here are some of the physical and digital components to excellent inventory management that we’ve learned over the years:
Physical Processes:
Cycle counting: Periodic cycle counting is an important procedure. For startups, an annual cycle count is likely enough. For larger companies we have instituted quarterly or monthly counts. Cycle count results are the key performance indicator of inventory accuracy. Cycle counts can be tricky to time correctly, because you can’t stop the inflow of new orders and the shipping deadlines – but managing the timing is something your 3PL can help you with.
Measurement: We believe “bin accuracy” is the best measure of accuracy. Bin accuracy is the percent of locations whose inventory count is accurate. This is because if all locations have accurate inventory counts, then not only will total inventory be correct, but pick and pack processes will also be efficient. Conversely, the total inventory count of an item could be correct but if inventory counts by location are not also correct, there are likely issues in the picking process. Other possible measurements include “average bin variance” which is the average quantity variance by location across all locations. Or “average item variance” which is the average quantity variance of all items.
Receiving: The put-away or receiving process, is a crucial first step. Outer boxes and inner boxes should be marked with at least the SKU, item description, and quantity. Different SKUs should not be mixed in the same box or jumbled on the same pallet. Merchants and 3PLs need to verify that what was sent matches what was received. Excelsior’s Advanced Shipment Notification process is an optional tool that helps to automate and streamline accountability in receiving: the merchant submits ASNs either in the Excelsior portal or via the Excelsior API, and Excelsior’s receiver will scan incoming packages as the first step in putting them away. This enables visibility to the merchant on which shipments are OPEN and which are COMPLETE (put away into inventory).
Returns and Damages: 3PLs should maintain dedicated storage locations for damaged and reserved items, to keep them separate from available inventory. Clear procedures for processing returns and handling damaged items should be agreed upon, as merchants have different standards of acceptability. 3PLs do not like to store damaged product because it can quickly fill up a warehouse, though it is easy for clients to forget about this. There should be agreed-upon procedures for how to handle damaged products – discard it, ship it somewhere, or fix/repair it, once the quantity hits a certain level.
Replenishment: This is a key process for maintaining bin accuracy (and order picking efficiency). 3PLs should be running replenishment to bring inventory from overstock locations to forward pick locations. For products with expiration dates, the replenishment process is also how 3PLs can institute first-in-first-out (FIFO) logic. The replenishment process can also red flag problematic items/locations for cycle counters.
Digital Processes:
Once you have the underlying physical processes that ensure inventory accuracy in your warehouses, look to digital processes to automate the synchronization of inventory numbers to your sales channels and to aid in demand planning.
Inventory Sync: Startups often run lean with minimal software layers. These companies should check with their 3PL about which channels they can sync inventory to, or just rely on manually setting inventory themselves. For larger merchants with many sales channels, keeping inventory in sync across them all can become a challenge. When a sale happens on one channel, you want the other channels to be aware of it. Plus, if you’re selling with Amazon and using FBA, you’re responsible for maintaining enough inventory so you can quickly replenish FBA. There’s a point at which channel complexity justifies adopting an ERP system. Look for one that can handle inventory syncing to all your possible future channels, and make sure your 3PL can integrate to it.
Excelsior can help both small and large merchants with a variety of inventory sync options. Excelsior can integrate directly with your channels such as Shopify and Magento, or it can integrate with your ERP or other inventory management tools such as Skubana, StitchLabs and EcomDash. For EDI channels managed through EDI vendors such as SPS Commerce, Excelsior can post 846 inventory feeds on an automatic schedule.
DIY approach: For larger merchants with engineering resources, look to utilize your 3PL’s API if they have one available. Utilizing a 3PL’s API can be the backbone of a more sophisticated internal system for multi-channel inventory management and demand forecasting tools that help maintain sufficient inventory levels at all times. With Excelsior, clients can access the Excelsior API to query inventory levels by warehouse as frequently as they need and send the data wherever they need it to go. Clients can also use the API to get inventory transaction data and build a detailed list of everything that happened to a given item.