With the ongoing shift toward online shopping channels and Ecommerce, smart retailers are seizing the opportunity to reinvent their supply chain management systems. One of the key challenges is matching their inventory processes to those of the wholesalers who are essential to keeping stock moving. The ultimate goal is to have an accurate inventory count, efficient order management and cost savings. These seven inventory management techniques deliver on that promise. Find out which technique(s) is best for your business.
Factors Affecting Inventory Management
There is no one-size-fits-all solution for wholesale inventory management. Ultimately the strategy will depend on several factors:
- Lead time: The time between placing an order and the product arriving at your storage facility. If products are shipped from overseas, the potential for supply chain disruption and delays is greater than if products are sourced locally. The longer the lead time, the harder it can be to cover spikes in customer demand.
- Sales volume: If distribution is intensive, large amounts of stock need to be on standby to satisfy consistent demand. Where sales volumes are more volatile, businesses will prefer to limit the amount of inventory they keep in the warehouse.
- Seasonality: The same storage capacity may not be required throughout the year, particularly for fashion and food/beverage items. Those Ecommerce retailers who record the bulk of their sales during Black Friday and holiday season might choose smart warehouse solutions to give greater flexibility.
- Carrying costs: Businesses have to accommodate the cost of capital, warehousing, insurance to the bottom line. Where margins are tight, the solution might be to optimize storage space and push for more flexible terms with vendors.
- Inventory type: The nature of stored goods influences the warehouse strategy. Different approaches apply for raw materials, finished goods, or work-in-progress inventory, for example.
7 Inventory Management Techniques
With these in mind, let’s explore the options B2B Ecommerce wholesalers have for their warehouse management.
1. Cycle Counting
This strategy divides up inventory by product category, manufacturer, and so on, in order to identify high-risk and high-value stock. Instead of inventory being tracked on an annual basis, individual product categories are monitored on a continuous basis. Breaking up inventory into smaller batch categories gives a more granular view of stock turnover, but the main purpose is to expose any discrepancies relating to high-value stock, such as theft or spoilage.
Advantages: Eliminates error in stock control and resolves incomplete inventory records.
Disadvantages: It’s a time consuming process and is not the most scalable approach for wholesale businesses who want to grow compared to investing in inventory management software.
2. Pull
Pull distribution prioritizes current demand. The wholesaler orders stock from the supplier according to sales. An analogy would be a wedding planner ordering from a caterer only when guest numbers and dietary preferences are confirmed.
Advantages: Flexible and agile. Pull distribution allows the wholesaler to respond fast to customer demand and support faster fulfillment.
Disadvantages: Pull distribution breaks down when lead times are longer. If you’re waiting for your goods to arrive by ship from China, for example, customers may well find an alternative source.
3. Push
Push distribution, on the other hand, uses forecasting to establish inventory levels. In this case, the manufacturer delivers goods according to the seasonality of emerging trends and it’s why, for example, there’s a turkey for everyone come Thanksgiving rather than a frantic rush to source a supplier.
Advantages: Using a “build to stock” approach ensures that your business has plenty of stock ahead of demand, so customers are not left frustrated.
Disadvantages: Without a sophisticated demand forecasting system, your business could find itself with unsold inventory that then has to be offloaded with a heavy discount.
4. First In, First Out (FIFO)
Usually referred to simply as “FIFO”, First In, First Out aims to eliminate the business cost of obsolete inventory. It’s particularly common where perishable goods are concerned, and is the system used in restaurant storage.
Advantages: The value of your inventory fluctuates continuously according to supply and demand. By focusing on older stock as a priority, the business can keep inventory as close as possible to the real market value.
Disadvantages: From an accounting perspective, FIFO can distort the cash flow picture and give an inflated measure of profits. When FIFO works efficiently, the time elapsed between sale (profit) and supplier payment (debt) is as short as possible.
5. Last In, First Out (LIFO)
With “LIFO”, by contrast, the business can unlock certain tax advantages of moving its most recent inventory first. Because of inflation and the fact that prices typically rise over time, the most recent stock is the most expensive. That means that the cost of goods sold is higher using recent inventory, so the tax liability is lower.
Advantages: Virtually any business that operates in a sector where prices rise in a steady pattern will benefit from LIFO distribution from a tax perspective.
Disadvantages: In terms of logistics, LIFO inevitably consigns older stock to the storage rack for longer. The cost of storing that unsold stock may outweigh the tax advantages of favoring new stock.
6. Just-in-Time (JIT)
The pinnacle of pull distribution is the Just-in-Time (JIT) model, in which the retailer receives goods as late as possible before shipping. That’s great for small businesses in particular where cash flow is a challenge since it reduces warehousing costs to a viable minimum.
Advantages: The business is holding less stock, requiring less space, translating to lower cost. That allows business owners to focus capital on areas that can drive business growth, such as sales and marketing.
Disadvantages: It’s risky. Without a watertight working relationship with suppliers and fulfillment partners, JIT can backfire spectacularly, leaving customers furious and your business having to find warehouse space for returns or canceled orders. With port congestion at an all time high, trucker protests blocking border crossings and the knock-on effects of the pandemic still evident, wholesalers might have to scale back the promises they make customers further down the supply chain.
7. Consignment Distribution
When a business sells on consignment, responsibility for storing the stock is transferred to the retailer, although ownership remains with the manufacturer. Essentially, instead of holding inventory in the warehouse and waiting for demand to trigger fresh orders, the manufacturer simply hands it on to the retailer to sell. It’s common in fashion, white goods and even perishable goods.
Advantages: Selling on consignment gets your product to market quickly and allows you to test the waters. In addition, it reduces warehousing costs to near zero. For the retailer, it removes the upfront costs of keeping shelves full.
Disadvantages: Keeping track of inventory can be a challenge, and it relies on a strong working relationship with retailers.
Boost Your Inventory Management with Zoey
The quality of data and absence of friction throughout the supply chain are crucial to your business success. Zoey partners with third-party specialists to help your business manage complex inventory scenarios and unify the otherwise siloed platforms across manufacturing, storage, inventory management and sales. Find out how to unlock a single, live view of your orders and inventory, reduce errors and improve efficiency by requesting your demo today:
Nick Marshall is a freelance writer from the UK covering B2B marketing, emerging tech, payments and Ecommerce. He lives on a tiny island with slow internet in the French Caribbean, but was formerly an agency copywriter in the UK.
