Inventory is the outcome of your business efforts, the products your customers know and love you for, and the goods that earn your profits. This article is a beginner’s guide to understanding how we are seeing inventory in 2022, its categories, and why and how to manage it.
What is Inventory?
Inventory comprises all the goods that are either involved in the manufacturing of the final product or are the final processed items, that are ready to be sold. Inventory items are treated as the current assets on the balance sheet, and these are intermediaries between the manufacturing and order fulfillment processes. Efficient management of inventory leads to higher productivity and profitability, both in terms of net income and increased customer base.
What is the Purpose of Inventory?
Inventory nurtures the retail operations with a potentially continuous supply of materials required both internally (for production needs) and externally (for being purchased as finished goods). Businesses need to effectively manage inventory, by finding a balance in the amount of inventory kept in the warehouses, as to have just enough to meet future customer needs and not extremely elevated amounts that result in huge carrying costs.
What are the Types of Inventory?
The word ‘inventory’ is an umbrella term for an assortment of goods that you use for the product, produce, and sell. There are four main types of inventories: physical inventory, merchandise inventory, digital inventory, and pipeline inventory.
Any sellable good you have on hand that can be counted and weighed in measurements, units, or volumes can be considered physical inventory. It is an asset and usually gets accounted for at the end of an accounting period. When counting physical inventory, every piece of product you have is taken into consideration. It helps keep the inventory records and financial records in check, forecasts the sales and purchases efficiently, and ensures that you always have enough products to meet customer demands. You can either accomplish this with the help of an accounting firm or with a 3PL fulfillment partner with specialized inventory management systems. Physical inventory comprises of:
- Raw Materials The unprocessed materials used in production, either as direct components of the final product or as enablers of the process but not parts of the actual processed item.
- Work-in-Progress (WIP) The partially finished or unfinished goods are yet to be completely processed and sold. Simply put, WIP comprises everything including overhead costs, labor, etc., that exists in the transitional period between the stages of evolution of goods starting from raw materials until they are processed into finished goods.
- Finished Goods Completely processed goods that are ready to be sold and these make up the only inventory that is displayed on your website.
- MRO Supplies Maintenance, Repair, and Operating supplies are the goods needed to put together and sell the finished product. Examples of MRO items include basic office equipment and PPEs etc.
The value of goods that your business possesses, be it raw materials or finished products, is known as merchandise inventory. It is the inventory that the business expects to cash soon. Inventory is the essence of a 3PL fulfillment company, and its total financial value is always accounted for, at the end of a fiscal year. It includes all goods that are under the possession of a company, be it the inventory in the warehouse storage, in transit, in raw material form in the warehouse, or ready to be sold.
Having the ability in terms of necessary technology and inventory tracking systems, for monitoring your inventory in real-time, is known as digital inventory. It involves tracking inventory, collecting information, and updating records in real-time for increased visibility, maximizing dock-to-stock efficiency and enhanced order fulfillment.
By making use of a digital warehouse for 3PL logistics, businesses can keep tabs on the locations of items as well as their sales performance. By making use of digital inventory systems, businesses can also make informed decisions regarding the choice of splitting inventory across 3PL fulfillment centers, future procurement of inventory items, and choosing the best location for eCommerce fulfillment warehouses.
Pipeline inventory or transit stock refers to the finished or purchased goods that are in transit after being packed and shipped by manufacturers or suppliers. This stock is a paid-for asset and it is on its way to being stored at a fulfillment warehouse location or a fulfillment center.
What is Inventory Management?
The essential protocols of organizing, storing, managing, and tracking inventory for optimized operations and enhancement in profits make up the comprehensive process of inventory management. It is a crucial process as it helps businesses through:
- Improved demand forecasting
- Empowering contingency planning
- Enabling businesses to save on storage costs by strategically allocating inventory to warehouses
Why Should I Outsource My Inventory Management Process to a 3PL like ShipBots?
3PL companies such as ShipBots can facilitate you with developing an efficient inventory management system that can leverage real-time data and reporting to make data-driven inventory management decisions for your business. They can also help in reducing the huge startup and fixed costs related to warehousing, logistics, and technology stack related to your inventory. Besides this, collaborating with ShipBots will benefit you in terms of:
- Real-time visual tracking of inventory counts
- Strategic distribution of inventory leads to lower shipping costs and reduced shipping time
- Cohesive view of SKUs and orders through seamless integration with all the major eCommerce platforms and marketplaces
- Proactive reordering to prevent stockouts
- Efficient kitting and product bundling to enhance sales
At ShipBots, we use our customizable inventory management portal to study past trends and enable you to make data-driven decisions. We help our clients effectively forecast customer demand and offer fulfillment solutions at competitive fulfillment pricing. To learn more about how we can help you in achieving an optimized inventory management process, contact us here.