How to Organize Your Physical Inventory for Your E-Commerce Business


fulfillment center inventory management

Managing your inventory is something that cannot be done at once. Maintaining the inventory can be daunting when you are handling customer satisfaction, shipping, and every other business operation all by yourself, but it does not have to be. Of course, there are no magic tricks to make it easier. Still, you can give inventory management and physical inventory counting a more organized approach with the help of some processes and systems.


Read on to understand everything you need to know about physical inventory, methods, planning, benefits, and how it can impact your eCommerce fulfillment business needs.


What is Physical 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 taken into consideration. It helps keep the inventory records and financial records in check, forecast the sales and purchases efficiently, and ensure 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.


Types of Physical Inventory


Every organization might not have every type of inventory in its warehouse, and this depends purely on what kind of business you run.


If you are a direct-to-customer (DTC) brand, you will need to keep track of the finished goods ready to dispatch to the customer. Whereas, if you are a manufacturer, you will have a ton of raw materials and work-in-progress products along with the finished goods to be accounted for.


Raw Materials


These are the primary products used in making the finished goods. They can be sellable or non-sellable, depending on your business. For example, you can be a baker who specializes in cakes, which is your finished product. Still, you may also sell your original flour and other ingredients to other bakers, which is a sellable raw material.


Work-in-Progress (WIP)


WIP products refer to the goods that have already been moved from raw materials to an altered product but are not yet finished. These are considered assets that might take a specific time to complete and must be added to the inventory count. An example of a work-in-progress inventory is a car that has already been assembled with all the parts and is waiting to get its painting done.


Finished Goods


These are products that have been manufactured and are waiting to be sold to the end customers. Although finished goods are usually sold to the end customer, they can also become someone else’s raw materials. Say, for example, you own a farm and cultivate wheat and turn it into wheat flour, which is your finished good. But the flour is a raw material for a baker or a restaurant owner. Whether you store your cultivated wheat in a fulfillment center or immediately turn it into flour, you might need to add it into your inventory count.


MRO Supplies


MRO stands for maintenance, repair, and operations. Any tools or equipment you use for MRO or for production of your finished good is also added to the inventory. When it comes to eCommerce bookkeeping, these must be added to the physical inventory accounts, irrespective of whether they are incorporated into the finished goods or not.


Counting Physical Inventory for Your e-Commerce Business


There are various ways to count your physical inventory.


Manual Counting

Manual counting of physical inventory has been one of the oldest ways of keeping inventory up-to-date. It has to be updated every time there is a change in the number or the status/level of the item in stock.


It’s a bit confusing and time-consuming as you have to manually count the items you have on hand and divide it by the number of items sold and what you recently ordered. This might not always be accurate and can affect your balance sheets and the accounting records at the end of the term, as to err is human.


In this digital era, it’s not advised to use manual inventory accounting unless you have a very small business and can manage the inventory without mistakes, which is nearly impossible.

Electronic Inventory Management

There have been significant improvements in supply chain technology, and using an inventory tracking system is your best bet, irrespective of the size of your e-Commerce business. The inventory tracking systems help in keeping the data accurate as the products move through your supply chain. This can help you understand how many current products you have in stock, how many are in production, and their location.


There are many inventory management systems available with real-time tracking available in the market, and you can choose one depending on your order fulfillment needs.


Cycle Counts

During inventory cycle counts, you divide your inventory into manually manageable sections by location, production level, and more.


Usually, if you follow cycle counting for your e-Commerce business, it’s advisable to divide them into high-value, fast-moving, and slow-moving goods. High-value goods are given preference over the goods in demand and might be accounted for frequently just as fast-moving goods (monthly or once in two months), whereas slow-moving goods are accounted for quarterly or yearly. Cycle counting will make the inventory management process relatively easier if you have multiple fulfillment centers across a broad region.


Factors to Keep in Mind While Counting Physical Inventory

  • Any discrepancies in the inventory, such as a lost or stolen item, should be immediately addressed with the help of a stock reconciliation statement.

  • Train your staff to handle the inventory accurately. If you do not have the necessary resources or time to manage the inventory, you might consider looking for a 3PL fulfillment partner.

  • Irrespective of the size of your business or inventory, make use of wireless inventory scanners.

  • Use inventory management software to keep track of your inventory for fast and error-free inventory tracking.

As your eCommerce business grows, it can get challenging to count and track your own inventory, especially if you have multiple warehouses across the globe. You will have to keep updated with every barcode, SKU, product location, and packaging option, which can be time-consuming and tiresome. Choosing a fulfillment partner can take the challenges of inventory management off your back and focus on the other essential business operations. ShipBots offers real-time inventory data management software to help you organize your inventory in a hassle-free manner. Contact ShipBots today to see if we’d be a good fit for your business.