With the holidays just around the corner, retail stores are ramping up to prepare for the busy gift-giving season. But it’s no longer just the bricks-and-mortar stores that need to prepare for the holidays– according to a study released by Shop.org, online holiday sales are expected to grow 13-15% in November and December over last holiday season, to as much as $82 billion. For many new and small eCommerce businesses, the holiday season is the perfect time to grow sales and launch new product lines, but all too often they don’t have the resources in place to handle the influx of transactions. Not only do online retailers need a fully stocked warehouse in preparation for holiday sales volumes, they also need eCommerce integration software to connect their back-end system with their online site.
Companies in a product-oriented business usually struggle to manage inventory at optimum levels. There’s a constant tug-of-war going on between the need to have sufficient product to fulfill demand, and the desire to avoid the very costly pitfalls associated with overstocking.
This issue is often tougher for small business owners, trying to manage inventory without senior management expertise and sophisticated tools at their disposal. Additionally, without professional purchasing personnel, a business owner is more prone to the pitfalls of “deals” – buy more when the price is good, without relating that to the question of how long the “more” will sit on the shelf, or how much slow-moving or dead stock actually costs.
To help with this issue, here are 3 really useful inventory management reports that can help the small business owner in making better decisions about inventory levels, what to purchase, and more particularly what to get rid of.
1. Inventory Ranking Report
This type of report ranks your products in descending order by gross margin generated over the past year (or other appropriate period), and compares the profitability with the holding cost. It’s really useful to see which products are occupying more space in your warehouse and more value on your balance sheet than is justified by their contribution to profits. While you have to factor in other criteria in deciding on products to cut or reduce, this at least gives you an objective starting point for your evaluation.
2. Inventory “Hits” Report
The word “hits” brings back memories of Top 40 charts to this old codger, but in this case we’re not talking music. The word “hits” here means the number of times over the reporting period that the item has appeared on an invoice, and this is again compared with the holding value and costs, to identify products that appear very infrequently while constituting a significant chunk of inventory on hand. Ideally this should be used in conjunction with the ranking report.
3. Daily Average Sales Reports
These type of reports will show average daily sales (in units) over different periods, for example, last month, last quarter and last year, usually side by side. This helps to uncover trends. A common flaw in some software is that these reports only show items that have sales in the periods in question – ideally we should see all items that have either been sold, or that remain on hand, and their current inventory levels and value. This can help identify products where reorder levels and purchasing policies should be reviewed.
Hopefully your Inventory accounting software will support this type of reporting, even if via 3rd party reporting tools.
This post outlines functionality one should expect from Electronic Document Management Software in the realm of Inventory and Accounting ERP Software.
All businesses must store information in some form or another, and for most this means a large number of paper documents, stored within filing cabinets, boxes or piled on desks. However, more and more businesses are beginning to use technology to better manage their operations, store data and eliminate the need for paper in the office. This is where document management software comes into play. Not only does this software help keep information safe, it also eliminates the need for physical storage space and reduces the amount of time filing and retrieving important documentation. Document management software can be used in conjunction with other systems in a multitude of industries including: health care, transportation, higher education and insurance.
How do I calculate my true cost (“landed cost”) of products? This is a question we frequently hear, and it’s based mainly on three areas of uncertainty:
- What costs should I take into account?
- What if I only get the true costs on invoices long after the shipment arrives?
- How do I apportion these costs across multiple items on the same shipment (and deal with currency exchange rates)?
Although proper landed cost tracking software will be able to do the calculations for you, let’s take a quick look at each of the above questions, and try to demystify the Landed Cost Formula.
1. What costs should I take into account?
Beyond the obvious – the price I’m paying the supplier of the products I’m purchasing – the basic rule of thumb is to include all costs directly incurred in getting those purchased products into your warehouse. This would typically include, at a minimum, freight costs. For imported products, there’s often duty and brokerage costs. Others include insurance, storage costs, purchasing agency commissions and other regulatory fees.
2. What if I only get the true costs on invoices long after the shipment arrives?
With factors like freight, that’s often the case. In order to calculate a true landed cost at the time you receive a shipment, you’d have to use estimates for many of the non-supplier costs. For so many business reasons, it’s critical that you have a very clear idea of likely costs before you incur them, so any well run business should have no real problems coming up with estimates that are very close to the actual costs. Then the key is to have a good process for reconciling the actual bills (when they arrive) against the estimates you’ve used – something that a good ERP Inventory Accounting Software system should facilitate.
3. How do I apportion these costs across multiple items on the same shipment?
The best approach to apportion a cost factor over multiple different products on the same shipment is to use the calculation method that most closely mirrors the way that cost is constructed. For example, duty is usually very simple, as it’s a straight percentage of the value – so that’s how you’ll apply it, using the appropriate percentage(s). Freight would typically be pro-rated based on either weight or cube, depending on how the carrier charges for transportation. And it is of course important to factor in currency exchange rates, because it’s not uncommon for importers to be incurring costs in two or more currencies. For currency conversion, assuming you have not hedged currencies, the guidelines say to use the exchange rate on the date of receipt of the goods.
Example of a Landed Cost Formula:
Facts for 100 Widgets received as part of a shipment:
- Supplier cost: $25 per unit
- Duty applicable at 2%
- Freight cost for the entire shipment was $1,200 – and the widgets represent one quarter of the shipment by cube
In this case the formula for each unit would be:
$25 + (2% X $25) + (($1,200 X 25%) / 100) = $28.50