Managing tens and hundreds of inventory without an organised system in place or methodical analysis tools, especially in e-commerce businesses, can turn out to be a time-consuming process, often resulting in increasing inventory levels with a shortage of fast-selling, profitable items. Without optimizing inventory, organizations run the risk of overpaying but underperforming.
So far, 2020 has been a capricious year – for individuals and businesses. The unprecedented pandemic, Covid19, has changed the dynamic of ecommerce and inventory management. But on the brightside, e-commerce is going to remain the centre of retail for as far as we can see.
With the necessity of working remotely, e-commerce companies are now compelled to implement technology that can take off a ton of manual work.
In the light of this, e-commerce automation is going to take jump to the forefront and in this segment, the sky’s the limit. It can be used in multiple departments like marketing, warehouse, logistics management and beyond. There is an available option for each one of these departments that considerably cuts down workload on employees and optimizes time and resources. Using some of this softwares, tasks that take hours can be set up to be performed automatically while reducing the risk of human error. For example the automation of:
- Flash sales and product drop
- Product listings on multiple channels
- Tagging and segmenting customers for retention
- Identification and cancellation of high risk orders
- Scheduling inventory alerts for reordering and marketing
- Standardizing merchandise for discovery
The pandemic has forced us to acknowledge the fact that the world is strongly interdependent. Supply chains are working consistently to provide for basic and essential supplies like groceries, medicines, face masks, santisiers, etc. in a seamless manner. This brings to light the importance of having distributed inventory in multiple fulfilment centres so that orders can be shipped and delivered in the fastest possible time. In fact, analysts estimate that 65% of retailers will begin to offer same day delivery owing to customers’ high expectations (Source: Afflink). If the centres are spread out strategically across the different locations, businesses can substantially save on transportation costs.
Across the globe, fulfilment centres are implemented with technology that makes them smarter and more automated. Softwares that give companies real-time data on orders and shipments, allowing them to assist their customers from checkout to delivery.
Besides distributed inventory, the concept of third party logistics or 3PL is forecasted to grow by at least 15%, becoming widely popular among e-commerce businesses (Source: Cerasis). 3PL, as the name suggests is a business model where the warehousing and distribution activities are outsourced to a third party. This is an excellent way of functioning for small to medium sized businesses as it gives them the chance to widen the reach of their business without having to incur heavy infrastructural costs. Softwares that use tools like Artificial Intelligence allow for 3PL to be a seamless, transparent process where businesses can be connected and track their inventory despite being apart.
The lines between brick and mortar and e-commerce are blurring, and more so with social distancing! Customers want to shop online without having to compromise on excellent customer service. That is where Private labels and D2C or Direct-to-Consumer come in. It is estimated that D2C brands will make up for 16.1% of all online retail sales (Source: Statista), while private labels make up 20% of the consumables market (Source: Forbes). Because it eliminates the need for a third party for distribution, D2C brands don’t need to invest much and can also build a strong relation with the consumer from the very beginning. They can monitor the brand’s image throughout the journey and ensure an authentic shopping experience.
All in all, 2020 is going to be transformational for e-commerce. E-commerce companies are now on the lookout for softwares that can reduce manual labour and give accurate, data driven insights for improvement. Inventory is becoming all the more dynamic, especially with the rise of distributed inventory and 3PL where companies can ensure transparency in their supply chain even without warehousing it. With e-commerce, the world is getting smaller and it is becoming increasingly easy to reach a geographically wider market; All this with simple technological integration!
How Consignment Inventory Model be made Profitable
Consignment inventory (CI) is a model wherein the product ownership is with the vendor until the product is sold by the retailer (consignee). The retailer does not own the inventory at its locations, inventory is owned by the vendor itself. Additionally, unsold products can be returned to the vendor.
For e.g. a new bag brand breaks into the market and is totally unknown. Since they are new, no retailer would like to risk their capital by purchasing their stock upfront. Instead, if the brand plans on offering the bags on consignment, the retailers might agree to stock the bags in their store and pay once the stock is sold. This creates a win-win situation for everyone. Such a model is useful for even established brands as retailers try to minimize their working capital.
The consignment inventory model works well in the following scenarios:
- New brands breaking into the market
- Existing brands Introducing a new product line
- An existing brand trying to expand into newer markets
- Expensive goods that retailers wouldn’t want to invest upfront in
But consignment business isn’t that straightforward. There are factors that both parties must consider before getting into the consignment contract.
Important factors to consider before starting with consignment business
It might sound a lot easier to handle the goods on consignment from both sides. However – remember there is no free lunch ever. Let me explain the complications involved and things to remember. Following are the points you need to take care of before getting into this business:
- The time span of holding the inventory for sale
- Payment terms for goods sold
- Who will be responsible for products security when stored in the retailer’s location?
- Who should be responsible for shipping charges for returns of unsold products?
- Who should be responsible for products damage?
- Commission structure or margins to be shared with each party
This can sometimes carry major risks for both parties. Let us look at the pros and cons of consignment arrangement:
Pros and Con of Consignment Inventory
Pros for Vendors
– A supplier can invest money for long term on the stock if a retailer is not ready for the same and assign it as consigned inventory.
– Entering the market gets easier, as consignment inventory allow vendors to hold the ownership of inventory and can contact multiple retailers to carry their inventory in the market.
– Inventory carrying cost can be reduced, as the vendor here can transfer the stock to retailers shop which will result in reducing their own holding charges.
– Can save on labor charges and shipments, where the vendors can get the stocks delivered directly to retailers instead of shipping it to their own warehouse.
Cons for vendors
– Inventory holding charges, the vendors here have to invest their money in shipment and carrying charges for the inventory with which they are not sure of making any profits.
– Bear damaged and unsold inventory charges, the vendor has to bear the charges for damaged and unsold goods even if the stock is under the retailer’s supervision.
– Fluctuating cash flow, the vendors here normally receive their payment after their products are sold. Unsold products are normally returned back to vendors.
Pros for Retailers
– Reduced carrying cost, the retailers here can have the inventory without having the stocks in possession. This reduces their holding charge.
– Cashflow flexibility, the retailers only pay their vendors once the products are sold. They can always hold as much consignment inventories without worrying about the stockouts or buying more stocks.
– Low risk, as the retailers do not have to pay for the stocks upfront, this allows them to lower their risk of carrying new supplier brands and use their capital in selling more valuable products.
– Never go out of stock, as the vendor keeps a check on the retailer’s store. If the products go sold out, they bring in new stocks. This reduces the workload on the retailers part to keep track of inventory levels and plan replenishment.
Cons for retailers
– Reduces the floor usage, if the consigned inventory is not sold for a longer period, it eats up the floor space which could be used to store other fast selling stocks.
– Inappropriate management between consigned and other inventory, as some retailers might manage their consigned inventory and other inventories separately. This creates confusion between the stocks and may eventually result in errors and inventory loss.
– Stock ownership is held with suppliers: Since the stock ownership is with the vendor, they can always plan on taking back the inventory from their store. Additionally, there is a dependency on the vendor to do the replacements. Hence the retailer has very less control and might face out of stock situations for fast moving goods.
With positives and negatives involved with both the vendors and retailers business, we will later discuss how can this business be made profitable for both the parties. But, before that, I want you to understand a closely relatable term with consignment called as – SOR (Sale or return).
SOR or Consignment (What do you prefer?)
SOR (sale or return) and consignment model is almost the same. The difference is just with the ownership of goods after the products are shipped from vendors location to the retailer.
In SOR, the ownership gets transferred to the retailer whereas, in the consignment model, the ownership remains with the supplier (vendor) until the goods are sold.
During an agreement between the two parties in the SOR model, a time period is mentioned to make the sale. If the retailer fails to sell the given products at an agreed upon time span, the products are then returned to the supplier. Depending on the stickiness of the product, it can be good or bad for both parties.
Read this article by Clare on The truth about Sale Or Return which will make you think twice before going for SOR / Consignment business.
Factors making consignment Inventory business model profitable
It is always great to learn the tricks that can be used to develop a profitable business. Check the below strategies that a vendor or retailer can follow to get rid of financial issues and develop plans to grow the business.
Prepare a strategic plan with 3-6 months goal:
Normally, few consignment agreements have an effective period of time and some others don’t. After the agreed-upon period is over, the unsold goods can be returned back to the vendor. This period can be extended with mutual understanding between the two.
With businesses taking time to build their trust among customers, both the parties can apply their plan and marketing strategy to grow over time.
Once the sales start to happen, the process will get complex and the production will increase. With a growing business, both the parties also need to plan their financial strategies, profit sharing and commission percentage. Which means the strategy does not only involve the money making process but also the marketing, profit generation, and the capital investment. Being a retailer or vendor you must constantly be reviewing the plans. That way you will be able to achieve your goals within time.
Identify factors affecting profitability
While working together, vendors and retailers get to know each other and develop an honest relationship with each other. Their supply chain relationship also gets stronger with time as the processes get more streamlined and systems get aligned. The vendor here gets a trusted retailer, selling the consignment inventory efficiently and the retailer gets a supplier who can maintain the inventory on time with a proper quality process in place.
Vendor and retailer need to have an integrated system in place for the consignment business to be successful. That provides visibility of sales run rate of various products and also visibility into damaged/lost inventory reports.
Identifying non-moving inventory
These type of products often eats up money time and space. There needs to be a plan and data sharing between the parties to find such items and they must be dealt with urgency. Nothing hurts more in retail than the dead inventory at stores. Removing stuck inventory and replacing with faster moving goods will enable faster turnover and hence more money for both parties.
Special consideration has to be given for items with a limited shelf life. Deadstock for SKUs having an expiry date coming up need to be cleared on priority. Hence special promotions or price discounts must be offered in consultation with the vendor in order to clear such items.
Consignment model friendly application
Supply chain management relationship between the vendors and retailers in consignment inventory business is not possible to manage with excel sheets/manual entries with a pen and book or on normal inventory managing software.
One has to opt for software having consignment inventory as a feature where:
- Consigner is able to track the consignee’s inventory
- Consigner must have near real-time sales visibility in order to plan replenishments to avoid stock outs
- Any surge in sales activity for certain SKUs must generate an auto alert for both parties
- Consigner should be timely updated on what goods need to be shipped
- Consigner should be able to track the shipped stock to the consignee
- Consigner should be able to track the shipped stock to the consignee
- These process can be made simpler and quicker with an integrated platform.
How your consignment inventory management workflow can be simplified?
Let us hear it from Jack about his experience with EasyEcom to manage his consignment business,
Using robust software like EasyEcom to manage your consignment inventory model will help you maintain a profitable business in the long run. It will help both retailers and vendors to have transparency in business. Check the EasyEcom platform below to manage your consignments.
1. Manage multiple customers from a single window:
Being a vendor, you will have to deal with multiple customers from different locations, selling multiple goods. So go ahead and add as many customers under your business and deal with each of them your own way.
2. Create a returnable gate pass to keep track of consignment inventory sent to various parties
If your goods remain unsold for long, you can always provide an option to your customers to return or transfer and do the in-house adjustments.
3. Create passes as per return request
Once you create an adjustment there will be a gate pass created against every selection. This pass can be used as an entry or exit for the selected products.
Find a returnable/consignment gate pass created below.
4. Upload sales and create invoice against a gate-pass:
Once the gate pass is created, the consignee can upload the sales made against that particular gate pass. The consigner can then create and send the invoice against the same gate pass number. This process can be carried on monthly, weekly or any customized interval basis.
Now that you know about consignment inventory model, you can plan your retail business in a comprehensive way. An integrated platform will surely enable the proper planning and hence profitability in the long run. Staying systematic and having proper trackers in place will enable transparency which is a must in a consignment business model.
Cross-Border eCommerce benefits – how to prepare for risks
Every growing brand dreams of becoming a global brand like Nike, Reebok one day. Now that’s easier than ever with growing cross border eCommerce. What Nike did in almost 50 years, internet first brands are doing it in a couple of years by riding the eCommerce wave.
Brands sitting in China and India are selling in the USA and European markets like there is no tomorrow. Some of the fastest growing brands globally don’t even have any physical presence anymore. Amazon and eBay are fueling that international growth for brands.
Regional eCommerce marketplaces like Lazada, SOUQ, LINIO, Flipkart, PayTM provide massive opportunities for brands looking to expand their business globally. If you are a brand having an ambition of growing rapidly, timing cannot get any better to start exploring these opportunities.
In this article, we will talk about how to prepare to go global. We will end with a check-list for you to circulate with your team.
Remember, your summer might be someone’s winter and your winter might be someone else’s spring (hint for fashion brands 😉 ). Staying ahead of your target country time would help you in long run. If you are a brand dealing in beachwear, why restrict yourself to 2-3 months long season only. There is always summer somewhere on this planet.
From a consumers perspective, Cross-Border e-commerce now allows them huge selection that was earlier not possible. Now manufacturers sitting in China can showcase their entire catalog rather than depending someone like Walmart to only sell selected items. Obviously, there are numerous challenges to be able to sell in the US for example for a Chinese brand that earlier only did white label manufacturing for Nike or a retailer like Walmart. Granted, it has become simpler with Google’s translation feature to communicate well in native languages. Still that doesn’t make it 100% straightforward, there are many more things to worry about. We will talk about some of these challenges in this article.
Without wasting any more time, let us dive deep into what a brand or seller requires to go cross-border.
Are you ready to sell Cross-Border?
You should always be prepared for what is coming next. Before jumping into a gigantic loop, here is the initial set of questions to check if you have the basics in place:
– What amount of investment is required to sell international, how much can you really invest?
[Charges for international shipping: taxes and duties, courier charges (DHL/FedEx/USPS) and extra surcharges involved]
– Is your target market familiar with your chosen product?
[If it is not, then you must be prepared to invest in marketing or on educating customers about the product]
– Are you prepared to handle multi-currency, multi-lingual, multi-tax and multi-assortment sale?
[Check if you are prepared to initiate international currency transactions; do you understand their language or have a native speaker on your end; keep a check on applicable taxes on a variety of products you have chosen]
– Are your resources and company flexible enough to handle the initial phase?
[Understand the culture and know your customers, build a relationship, try to live temporarily in the country to know your customers and understand their pricing structure]
I suggest you go through the blog post and then decide if your answers were satisfactory.
While you are working through the initial setup related questions, let me quickly discuss major advantages and challenges along with small tips related to selling globally via eCommerce.
Advantages of Cross-Border business
International reach in eCommerce:
The uninterrupted services by the World Wide Web are already helping users to market their businesses across the globe. With multiple online e-commerce websites like Alibaba and Amazon, you will be able to publish your products and increase visibility and reach.
In the below image, you will see the top 5 Leaders competing in the eCommerce industry. The GMV (Gross Merchandise Value) is based on the total value of products sold on these marketplaces. (Source)
Tip: If you deal in niche products that aren’t available globally, you pretty much have hit a gold mine here. Imagine someone specializing in Jaipuri Quilt which is only made in Jaipur, India. Now Indian diaspora is spread across the world. All over the world, Indian people will want to purchase that. If that manufacturer suddenly starts selling in the US/UK besides Flipkart in India, obviously there will be a huge demand. The icing on the cake is the fact that these customers will not even mind paying a bit more to get the product easily delivered vs carrying it all the way from India on their next trip back home.
Increased revenue by selling internationally:
With an international reach, the audience will increase steadily and with that, you will generate more sales and revenue. The foreign website products might seem cheaper and better to customers than in the home market.
Cutting out the middlemen:
Brands which used to rely on partners to distribute products are now adapting direct to consumer sales. In the past, the products were passed between multiple hands, shipping industries, distribution companies/warehouse and as a result products cost used to go multiple times of the actual cost. Whereas now brands can easily setup their stores online and reach their customers across the globe. That provides brands the ability to interact directly with their customers and alleviate the extra charges associated with middlemen.
Tip: Evolution in the eCommerce industry is making it easy for the brands to launch their online stores. Many brands and manufacturers are jumping on to this opportunity hence competition is already becoming fierce. It’s prudent to have a distinguishing factor in your product or marketing techniques. That will help you capture the market quickly.
You also need to understand the structure behind the transactions and the challenges you will come across.
Challenges and their solution with Cross-Border selling
Know about Local Laws and Regulations
– Every country has their unique set of restrictions and limitations based on categories like alcohol, medicines, weapons, relics, raw materials etc. So while shipping products to customers country, you need to meet their regulations to abide by their local laws. For example, there are some products which you cannot ship to
– As a cross-border seller, you must also have all the judicial rights and authorities in place. It’s a must to be on a safer side and having the strength of a legal framework to protect from any legal trouble.
– You can find your country specific shipping details from here.
Tip: The solution here is to know your limitations and country laws before planning to expand your business. So research extensively before you select a country to expand into.
Payment Methods for Cross-Border transaction
– Having a strong payment system is a basic requirement in the e-commerce industry or while dealing in any cross-border business. Check out Paypal, Payoneer, Stripe and choose what works for you.
– Furthermore, there is a possibility of coming across fraud cases in few transactions. Payment might get rejected or the third party application may charge you extra. Having a strong reconciliation in place and identifying such instances early on will be a lifesaver.
– You need to properly safeguard the customer details stored on your website. Hackers can reach your servers and steal customers usernames, passwords, credit card numbers, and so on.
Tip: Ensure your system is PCI (Payment Card Industry) compliant. Accept payment in methods that your customers prefer. The credit card is globally preferrable method to pay for e-commerce transactions. Some of the third-party applications include Payoneer and Paypal.
Logistics & Warehousing Support to sell internationally
– Another main strong point you need to develop is with the logistics part. With a quality product, your strong logistic support will also help you gain trust and make the buyers your repeat customers.
– With this, you need to take care of forward and reverse logistics and make sure the logistics charge do not exceed a reasonable limit. The logistics charges include customs duties & documentation, delivery charges, international shipping if you are drop shipping.
– The main challenge here is with customs clearance, paperwork submission on time, multiple carriers, security of the shipped products, delays due to bad weather etc. So plan in advance and have contingency plans in place. Also, strong communication with the customer will go a long way here, we will discuss that below.
Tip: Contact third party delivery companies like UPS, DHL, NZ post, Royal Mail, etc. Because of the competition
Communication gap with international customers
– Communication gap with customers is because either you do not know their language or is not having a local contact number to communicate.
– With the networks being spread wide, there are more channels of communications opening up. Whatsapp, Wechat, Skype, Google chat etc are becoming increasingly popular ways to interact with your customers.
By now you must have got a good sense of what is required to start selling globally. Now let us see if you are actually ready to go cross border:
Are you ready for Cross-Border eCommerce?
With that being known now, you need to make your systems and processes ready to interact with domestic and international customers and avoid the manual tasks as much as possible.
If you sell on multiple platforms like, your online store, Amazon, eBay, Walmart, Flipkart, etc, you will need to use a system which can help you with multiple requirements.
Your requirements should have the following:
- Inventory management for multiple marketplaces
- Multi-currency support with transactional capabilities
- Easily customizable system
- Logistics partner integration for Domestic/International shipments
Now that you are aware of all your requirements, start your research and get ready for some action with international customers. Furthermore, Get a virtual phone number and email ID of the country you are planning to serve in, this will provide your website with some benefit in local ranking. Also, hiring a native speaker wouldn’t be a bad choice to go with.
Click here to download the checklist for Cross Border eCommerce!