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From just-in-case to just-in-time: smarter inventory management for e-commerce

The announcement of a national lockdown on March 24 in 2020 will go down in history as a watershed moment for e-commerce in India. Before the pandemic, e-commerce in India, at least, was primarily driven by non-essential categories, such as fashion, lifestyle, food & beverage, electronics, to name a few.

But the Covid-19-induced lockdown saw a spiralling adoption of e-commerce for even essential categories such as medicines, dairy, and even groceries, which were earlier purchased from the local Kirana shop. Remember ordering one or two months’ worth of groceries from an e-commerce app to avoid venturing out during the lockdown?

For e-commerce companies themselves, it was no less chaotic. It was as much business growth opportunity owing to rapid growth in order as it was a nightmare to manage procurement, warehouse, or ‘fulfilment centres’ as they call it, to ensure that citizens got what they needed the most amidst the lockdown. But it ended well for e-commerce players, who went from fulfilling that gap during the pandemic to becoming a way of life within a couple of months.

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There were other far-reaching implications for online retailers and e-commerce players — a complete transformation of how they plan and manage inventory. Any e-commerce player can tell that inventory can be a chief money guzzler if budgeted with just a forecast.

The pandemic compelled e-commerce players to get smarter at inventory and warehouse management — look at ways to optimise inventory to reduce rental costs and labour charges and automate inventory management to tackle the demand-supply dynamic.

Inventory forecasting

Before the pandemic, e-commerce typically had a traditional approach to warehouse management and relied on demand forecasts estimated by the sales team in advance. Here, the production, inventory levels, and the required workforce to manage demand and supply are maintained basis past experience and dealer interactions. This is called the just-in-case type of mindset, where one arranges net inventory and total manpower basis a future prediction.

Changing e-commerce needs with technology

But as we have learned over the last few months, the actual demand often does not align with forecasts — sometimes it is more or less than the projections, which ultimately affects the company’s top line and becomes a cause of worry for top management and investors alike.

Just in time

An inventory and warehouse practice that brought significant improvements to the automobile industry, the just-in-time mindset is increasingly seen among logistics, sales, and product managers in the e-commerce industry. Today, many companies are looking at the adaptive operating model that depends on demand-driven logistics. This model allows the business to monitor the real-time demand in the market and accordingly adjust inventory. Initially, this was a manual process and required each stakeholder, who buys the product, to manually enter the demand or inform over a phone call. Now, thanks to technology, this is a breeze.

SaaSier times ahead

The evolving SaaS services in the B2B industry and the Internet of Things (IoT) have brought the concept of auto-replenishment in warehouse management.

Auto-replenishment is a mechanism where the orders are automatically placed based on the minimum threshold inventory level required in the warehouse basis the current demand. For example, suppose the net sales for the company increased suddenly, resulting in the inventory in the warehouse diminishing faster. In such a scenario, manual tracking, documenting, and recording to place an order is time-consuming and expensive and can result in revenue loss.

Auto-replenishment mitigates these risks by tracking inventory levels in real-time to make purchase orders automatically if the inventory level falls below an indicative level. In addition, IoT-enabled warehouses and manufacturing units provide real-time visibility into stock levels and trigger an order above the minimum threshold level of inventory to notify the supplier of a potential purchase so that the product can be manufactured and supplied in time. Thus, it prevents the risk of a possible loss on overstocking or shortfall in inventory.

It also helps distribute working capital on different product lines according to real-time data and prevents the risk of over-investment in a product with comparatively low demand.

To sum up, intelligent warehouse practices such as auto-replenishment can make a world of difference to the Indian e-commerce inventory and warehousing management, which needs critical technology intervention in the wake of growth in online commerce. It can also spur better capital deployment and free up locked up money, which serves no purpose otherwise. In a world where technology and automation are heavily being deployed in the B2C space, there is no reason why B2B operations should shy away from intelligent tech transformation for business growth.

The author is Vice-President, Customer Success, Bizongo

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