Inventory Forecasting 101: Methods, Formulas & Examples
Combat the $1.75 trillion lost annually in sales and costs for retailers worldwide through inventory forecasting.
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Roughly 2.14 billion online shoppers made purchases worth a combined total of US$ 4.9 trillion in just 2021.
Small, medium and large e-commerce sellers have therefore seen the rise of intricate supply chains within their own businesses that include all the processes vital to the smooth provision of goods and services to their clients.
As such, e-commerce supply chain management strategies have emerged to help digital merchants streamline their activities and add value towards their customer experiences.
Learning about the supply chain and management techniques in the industry today may accordingly help you streamline business activities and achieve further heights in the future.
E-Commerce supply chain refers to a series of logistics processes involved in running an online store. It covers activities such as the procurement of raw materials, manufacturing of finished goods, inventory management, warehousing, order fulfillment and last-mile delivery.
In more particular terms, goods and products flow across the supply chain from sellers (or suppliers) to buyers, payments move from buyers to sellers, and information is exchanged along the way at nearly any point due to the online nature of the business.
Ultimately, the goal of maintaining an efficient supply chain is to deliver quality products to purchasers while creating superb e-commerce customer experiences, and supply chain management plays a key role in this.
Supply chain management (SCM) in e-commerce involves the management of the flow of resources and information among stakeholders along the supply chain.
It recognises that the cumulative efforts of different entities, such as vendors, manufacturers and couriers, are pivotal to building a reliable supply chain, and that a missing link might break the entire chain and adversely affect how or when the goods reach their end-users.
E-Commerce supply chain management is therefore concerned with running a supply chain in the most efficient and effective way possible. There are numerous techniques and strategies to help you achieve better efficiency, productivity and profitability in managing your supply chain.
Before you can understand the different strategies of e-commerce supply chain management, you must first grasp the basics of how a supply chain works.
As mentioned, supply chain management for e-commerce focuses on the overall flow of products, resources and information between different tiers of suppliers and buyers. This flow, also known as the e-commerce logistics process, consists of five key stages and actors.
The supplier procures the raw materials needed to create the products, and delivers them to a factory or manufacturing plant for assembly. In some cases, the products themselves may be assembled already, and have no need for further fabrication processes.
Either way, these materials or products that are brought into the business are called inbound goods, and they will soon head towards the e-commerce warehouse.
As the second step of the e-commerce logistics process, the warehouse is where inventory is stored and managed until the time comes for them to reach their new owners: your customers!
Keeping track of inventory plays a significant role at this stage of the supply chain. Inventory management software can be used to enhance visibility into your stock in the warehouse, such as how much goods you have, where they’re located, and when to re-stock.
Once a purchase has been made on your e-commerce store, congratulations! The products purchased then move from the warehouse to the fulfilment centre, one step down the line of your supply chain, closer to your hopeful customers.
A fulfilment centre is where your goods are packaged and shipped, though in some cases the warehouse can serve as a fulfilment centre as well.
The carrier in the form of a courier service such as FedEx, DHL or UPS then takes your package for delivery to the final destination.
While you can handle e-commerce packaging internally, these courier services usually offer different packaging options you can choose from to keep your products safe and secure throughout the journey of e-commerce transit to your customers.
Customers are the last actor involved in the e-commerce supply chain.
Under normal circumstances, customers receive your products, enjoy them, and both of you end up satisfied.
However, you must still prepare for the possibility that purchasers will return your products for whatever reason (defects, issues, and sometimes even e-commerce fraud).
Reverse logistics — the process by which the purchased goods are returned to the seller — is therefore something that should be taken into account as well.
E-supply chain management underpins the important structure of every product-based company and contributes significantly to the success or failure of your business.
In fact, 79% of companies with high-performing supply chains achieve greater revenue growth than the average counterparts in the same industries. Having optimised their supply chains, the costs involved are reduced by 15% as well.
Sounds good? Let’s see for yourself what are the benefits that effective SCM can bring to your e-commerce.
Today’s customers have higher expectations and less patience with e-commerce sellers than before.
A report by McKinsey & Company, for example, shows that 90% of online shoppers expect their goods to arrive in 2 to 3 days. Nearly half of them will switch to another shop if delivery takes too long.
But there are so many things that can go wrong in an e-commerce supply chain — delayed shipments from vendors, holdups in manufacturing plants, stockouts in the warehouse, and the list goes on.
The risks of delay are everywhere, and they could strain your relationship with customers when they realise. With the right SCM strategies in place, however, these risks can be minimised, allowing for faster shipping times and happier customers.
Every year, retailers across the globe lose some US$1.75 trillion in sales and costs as a result of mismanagement of inventory. The culprits of this are overstocks, understocks and preventable returns, much of which can be attributed to a lack of visibility into a business’s online and offline inventory.
Effective e-supply chain management, which involves tracking, managing and forecasting inventory based on historical data and projections, enhances transparency across the supply chain and reduces such losses.
To give a few examples, you can achieve the following with improved inventory accuracy:
You’ve probably heard about the fact that customer retention is 5 to 25 times cheaper than acquiring a new customer, but how could you make customers come back to you for a second, third or even fourth time? The trick is what we call the customer experience.
Looking at it from a logistical perspective, keeping products safe and intact during e-commerce transit, real-time shipment visibility, and perhaps most importantly, timely delivery are some ways to keep your purchasers happy.
On the topic of e-commerce delivery, a report by Oracle even found that 13% of customers would never return to an online store if the goods aren’t delivered to them on time. Just so you know, you could be losing a handful of customers if your SCM isn’t done well.
As discussed, customer satisfaction is both an intangible benefit and the end goal of running a reliable e-commerce supply chain.
To help you excel in SCM and optimise your business operations for better efficiency, 8 tips and strategies for e-commerce supply chain management are explained below.
Your vendors stand at the very beginning of the e-commerce supply chain. Any delay in inbound logistics would accordingly have a domino effect down the road. It’s therefore advisable to work with suppliers who are reputable, credible and reliable.
The best practice is to look for suppliers who provide on-time delivery, prompt response to enquiries and quality customer support.
If the current vendor is causing holdups in your supply chain for whatever reason, talk to them to see how the challenges can be overcome, or consider switching to a more capable supplier.
Manually keeping track of inventory is often inaccurate, if not unreliable at all. How frustrating would it be for both you and your customers if they make an online purchase at your e-commerce site only to find out that the product is out of stock?
To this end, inventory management software can help increase visibility into your stock along different parts of the supply chain and in multiple locations if you are an omnichannel retailer.
It ensures that you can always meet your customers’ needs and perhaps even forecast their demands for future purchases.
Similarly, a warehouse management system (WMS) provides transparency with regard to your storage space. It gives you a quick view of crucial information such as warehouse capacity, current orders, and product life cycles, among others, at any time.
Analysing your warehouse’s current capacity and how it’s structured may also help you create a better layout for it, hence improving the space’s capacity and productivity.
Gone are the times when your warehouse had to be managed using only manual labour. Given the advancements in technology, adopting e-commerce automation to reduce labour costs and possibly even challenges caused by human errors is now a viable option.
A case in point is Amazon’s warehouse and fulfillment centers, where autonomous mobile robots instead of employees carry packages around, and outbound goods are efficiently scanned and boxed by systems, not humans.
If substantial automation in the warehouse is too huge an investment for your online retail business, consider using smaller yet more affordable technologies to effect concrete and positive changes.
An example is gloves with screens and scanners that can identify products by their barcodes, hence streamlining warehouse operations and boosting workforce productivity.
These automation technologies, however small and simple, can help employees keep track of their activities on the supply chain and handle shipments much faster than by the human hand.
The number of orders you handle every day directs how much profit you can expect to eventually make. As such, increasing this number can help your e-commerce business expand, and voice enablement is one method to achieve the said increase.
Similar to wearables that can help employees increase work productivity, applying voice-directed and speech-recognition systems in the warehouse can speed up work processes and cut down on labour hours.
As an added benefit to optimising your supply chain management, voice technology can even be used to collect and analyse warehouse data and help you conduct more expeditious inspections and necessary repairs.
Speaking of automation technology, specialized information and management systems can be adopted to upgrade your operations even further.
On top of inventory and warehouse management systems discussed earlier, order management systems such as that of QuickBooks Commerce provides a suite of features that help you track your order fulfillment process.
Enterprise resource planning (ERP) technology can also provide assistance with managing accounting and human resources matters.
Fulfillment costs are no joke, and handling all orders with your company’s own resources may not be the most cost-effective option. Furthermore, storage and distribution requirements may go beyond what can be handled internally as your business grows.
That’s why many e-commerce businesses use third-party logistics (3PL) services.
Outsourcing the order fulfillment process to 3PL providers not only reduces costs and transit times, but also frees up more time and resources for you to focus on other aspects of your business that need to be prioritised and improved with more urgency.
That being said, working with a 3PL company to alleviate challenges within the supply chain may not be the best solution for every business, but at least you should give it some thought and determine what’s best for yours
Costs can’t be the only consideration when you decide how the goods get to your customers.
It’s true that you may be able to save a large sum by using the cheapest delivery alternative. But how would your customers feel if they receive their packages weeks or months after they’ve placed an order at your online shop?
By identifying and analysing the locations of your manufacturers, warehouses and customers in the supply chain, you can nevertheless plan and find delivery routes that are both economical and efficient.
Optimising your e-commerce delivery routes and times for better efficiency and reduced costs, you would be able to increase your customers’ satisfaction and maybe even your profits.
Anything you write on paper can easily be encoded on a tablet or phone, giving you the opportunity to also share whatever you write with equal ease.
For example, using barcodes and radio frequency identification (RFID) to track and take note of goods could make your stock-keeping activities more accurate, and possibly give your customers an opportunity to double-check the items for themselves.
Furthermore, efficiency can once again be increased through RFID technology as it enables the scanning of numerous tags on different product items simultaneously, even from a distance.
E-Commerce supply chain management essentially guides digital merchants by offering tools and practices they could use to organise and optimise their flow of materials, products, money and information.
It’s one of the essential steps that e-tailers need to operate smoothly, create positive customer experiences, and lay a solid foundation for business growth.
What really drives the growth of an online business, however, is e-commerce funding. You’ll need financial resources to invest in your product lines, new hires, and perhaps new market expansion.
Sometimes when you want to stock up more inventory to prepare for the peak season or scale up your marketing campaigns, then some extra funding could help too!
If that sounds like what you need, Choco Up is here to help.
Known for providing zero-equity, flexible funding for e-commerce businesses, Choco Up is the trusted growth partner of digital merchants across the globe. We also offer global payment solutions and smart growth analytics tools to supercharge your growth trajectory.
In the past, we’ve helped clients like BuzzAR and eBuyNow grow their user base and revenue by 10X and 5X respectively. Learn more about our business funding here, or claim your preliminary funding offer for free today!
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Combat the $1.75 trillion lost annually in sales and costs for retailers worldwide through inventory forecasting.
In this article, we explain what order fulfilment is, as well as actionable tips for optimising your fulfilment process
