It’s no secret that global supply chains have experienced issues over the last few years. For example, the war in Ukraine increased the price of commodities like gas and oil, food products, and fertilizers across the globe in 2022. Hurricane Ian hit Florida in 2022 and led to port and rail transportation shutdowns. Port Tampa Bay alone had a “$17 billion economic impact.” In a global environment, procurement teams need to be creative and plan to stay ahead of disruptions and competitors.

So, what is procurement? In the broadest business sense, procurement is the process of sourcing and obtaining goods or services. Procurement begins with identifying business needs and ends with paying a supplier for goods and services. The process involves a lot of communication, strategy, documentation, and financial analysis. Procurement involves many stakeholders including:

• Suppliers
• Accountants
• Legal teams
• Product and manufacturing teams
• Procurement managers

We’ve outlined the four types of procurement, how the process works from start to finish, procurement software, and more. We hope this guide helps you consider the process and its impact on your business.

Why procurement is important for business

Procurement is important because it’s vital to a business’s ability to function. Without certain goods and services, most businesses cannot operate. Direct procurement addresses the core functions of a business, and indirect procurement addresses the less direct elements, such as rent and HR services. For example, car manufacturers need to procure goods such as steel, rubber, and plastic, as these raw materials are critical to their ability to create a product. Any changes in availability or cost can have a significant impact.

Since procurement takes up 40%-80% of a business’s external spending, even a small difference in cost can significantly affect profit. Strategic approaches to procurement can minimize the cost of goods sold and also mitigate potential supply-related issues and disruptions that can impact business performance, such as:

• Supplier delays
• Supply chain issues
• Increased cost of goods and services

Supply chain disruptions and market shifts are inevitable, and the global marketplace must respond to remain buoyant. For example, a sudden increase in fuel costs can impact the associated costs of transportation and storage. To mitigate the impact of those rising costs, companies might use procurement analytics to manage their potential risk and remain profitable. In fact, procurement analytics is becoming so critical to navigating a turbulent supply chain that the market is projected to reach $19 billion by 2023, according to a recent study by Verified Market Research.

4 types of procurement

The four types of procurement include direct, indirect, goods, and services. Whether procurement is direct or indirect depends on the type of product a business creates. For example, car manufacturers indirectly procure office supplies, but office supplies are not an integral element of a vehicle. On the other hand, an office supply store directly procures office supplies from a wholesaler. This is considered direct procurement because office supplies are core to their retail business. Procurement types are important for planning and prioritization.

Direct procurement

Direct procurement refers to the procurement of goods and services that are critical to a business. Think of direct procurement as “directly related.” These goods and services generally get procured in large quantities at a low frequency. In a broad sense, this encompasses anything a business needs for creating a finished product.

Examples of direct procurement include:

• Raw materials such as coal, metal, plastic, corn, lumber, and more.
• Semi-finished goods and works in progress, including computer chips, sugar, paper, and anything processed.
• Finished products that retailers purchase from wholesalers, such as t-shirts and candles.

Indirect procurement

Indirect procurement refers to the procurement of goods and services that are important but not critical to a business. These goods and services generally get procured in smaller quantities and at a higher frequency. Think of indirect procurement as “indirectly related” to the business. However, don’t be misled, these goods and services are just as vital for the day-to-day operations of a business.

Examples of indirect procurement include:

• Office supplies such as computers, task management software, pencils, and more.
• Operation consumables like lubricant, water, sewing machine needles, bobbins, and chemicals.
• Outsourced services such as maintenance services, marketing services, business consultants, and any third-party services that help the business function.

Goods Procurement

Goods procurement refers to the process of acquiring physical items, which can range from a simple lightbulb to a fleet of vehicles. Unlike services, goods require transportation and storage. It’s important to note that software is considered a good, while software as a service (SaaS) is considered a service.

Examples of goods procurement include:

• Raw materials such as tin, grain, cotton, and petroleum.
• Semi-finished goods like steel, canola oil, yarn, and sugar.
• Finished products such as smartphones, clothing, cooked sausages, or furniture.
• Software, including on-premise software and non-subscription software.

Services Procurement

Service procurement refers to the process of sourcing and purchasing services. We can categorize this type of procurement under indirect and direct procurement, depending on how critical the service is to the company’s core function.

Examples of services procurement include:

• Business consultants like legal consultants, operational consultants, and HR consultants.
• Marketing agencies such as advertising agencies, PR agencies, and digital marketing agencies.
• Building maintenance services that include janitorial, landscaping, HVAC.
• Software as a Service (SaaS) like Amazon Web Services (AWS), Salesforce, and Slack.

Procurement misconceptions

With such a complex subject, it’s no surprise that people frequently misuse the term procurement. In this section, we’ll explore some of the most common misconceptions surrounding the topic, how it relates to the larger inventory management lifecycle, and how to avoid any miscommunication.

Procurement vs. purchasing

Purchasing is a part of the procurement process, but isn’t interchangeable with procurement. The two terms often get mixed up because they both involve acquiring goods and services. However, procurement addresses larger business concerns like profitability, while purchasing addresses lesser concerns such as order costs.

The purchasing process involves creating purchase orders, auditing shipments, and making payments. This stage of procurement does not involve identifying business needs or selecting vendors.

Procurement vs. supply chain management

Procurement is a significant part of the supply chain lifecycle that supports creating a product, but we shouldn’t confuse it with the entire supply chain management (SCM) process. Procurement and SCM both support the creation of a product, meaning they’re both concerned with materials, vendors, and manufacturing.

The procurement process ends when all the materials are in place for creating a final product. Procurement isn’t directly involved in manufacturing, distribution, and retail locations.

Procurement vs. sourcing

Sourcing plays a crucial role in the procurement process. It starts once the business identifies its needs and seeks potential vendors, vets them, and chooses the best option to fulfill the business’s needs.

Sourcing is a very early stage of procurement. Once sourcing is complete, the purchasing stage of procurement can begin. This stage involves ordering, monitoring, receiving, and making final payments for goods.

Procurement vs. contract management

Contract management is part of the procurement process, which addresses vendor relationships, purchase orders, and payment for goods received. Contract management is the process of managing those agreements.

Contract management and procurement share the same goal of building positive vendor relationships, making contract management relevant to each stage of the procurement process. But the terms should not be used interchangeably.

How the procurement process works (8 steps)

1. Identify business needs

This first stage of the procurement process identifies what a business needs to create a product or provide a service. Consulting with relevant stakeholders can ensure the satisfaction of all parties. This process is sometimes referred to as a business needs analysis (BNA).

These granular product details will inform sourcing and purchasing in the following stages. Departments make requests for a wide range of needs, which can range from raw materials to office buildings. The procurement process continues once the business has adequately identified its needs.

2. Research vendors and suppliers

Following the BNA, procurement specialists begin to research vendors and suppliers. Knowing what they require for products and services is only half the battle, as this research-heavy stage of procurement informs larger business strategies.

Vendor considerations can include:

• Cost of goods or services: How much the business will pay the vendor.
• Scope of the contract: How long the contract will last.

• Timing for payment: When to make payment.

• Termination requirements: What conditions can support the termination of the contract.

• Insurance details: Who will handle insurance during the transportation stage.

• Consequences: Details of the ramifications that can occur when contractual obligations are not fulfilled.

Strategy occurs during this stage using data analysis, market research, and supplier negotiation. This concept is known as strategic sourcing. For example, market research can inform a choice of suppliers from a particular geographic location, and internal demand data can support the choice of vendors and suppliers.

3. Choose vendors and suppliers

With all the necessary research in place, it’s time to choose vendors and suppliers. Before reaching out, the business will consider the budget and analyze the requested goods and services again. This stage includes validating the vendors before the business makes any commitments. This helps the business avoid potential scams, illegitimate claims, or other negative outcomes.

At this stage, the business will send a request for quotation (RFQ) to potential vendors. With an approved vendor quote, the business can send an official purchase order.

4. Create the purchase order

After selecting a vendor and receiving a quote, the business creates a purchase order (PO). Depending on its size and cost, the POs may require approval from various departments. Once approved, the PO is sent to the supplier.

Purchase orders contain important information, such as:

• An internal PO tracking number
• A description of goods being purchased
• Quality and quantity specifications
• Detailed vendor information
• Terms and conditions
• Payment terms and conditions

Once the vendor accepts the PO from a business, it becomes a legally binding contract between the two parties, complete with pertinent information. For example, the PO will indicate when the vendor receives payment from the business.

5. Monitor order

The order will be monitored as the supplier fulfills it, and as it moves through transit towards the paying business. Orders in transit can get lost, damaged, or delayed, and businesses and suppliers will share these supply chain visibility concerns. With so many stakeholders, it’s important that procurement specialists communicate diligently.

Procurement specialists and stakeholders need to prepare for:

• Receiving the order
• Auditing the order
• Storing the order

Businesses need to monitor shipments so relevant stakeholders can stay informed and prepared. The monitoring process begins with the creation of a purchase order. From there, procurement will stay in contact with the supplier who will send advanced shipping notifications (ASNs). The ASN is a document that provides all the necessary details about the incoming order, allowing the business to stay informed and keep track of their order.

6. Receive and audit goods

You must audit received goods for quality control and to ensure all agreements have been met. Document irregularities in case of vendor error or fraud. An internal auditor, or auditing team, will be in charge of the auditing process, and the PO will assess whether the goods meet expectations.

The PO will help answer questions like:

• Were all ordered goods received?
• What is the quality of the goods?
• Was the order received on time?

Detailed documentation is vital for informing the final phase of procurement. You can’t release payment for the order without a successful audit and an approved invoice.

The auditing process can provide useful insights to improve a business’s efficiency and profitability. Insights made during the audit can be compared against internal departments and external trends in the market.

7. Review and approve invoice

The invoice and PO are different documents that serve separate functions. The invoice is the document that needs approval before a vendor receives payment. While the PO is made available when receiving goods, the invoice may arrive at a later date.

Once they receive an invoice, the accounting team will typically perform three-way matching. Three-way matching ensures the PO matches the order receipt and invoice.

This stage ensures that:

• Payment is deserved (following audit)
• Payment is only for the items received
• Negotiated discounts will be honored
• Funds will be dispersed correctly

8. Make payment and update records

Payment is finally issued upon the approval of accounts payable. Businesses need to have an efficient approval process in place to ensure invoices are paid in a timely manner. Both parties have stipulations outlined in the final purchase order.

It is absolutely important to keep these records updated. Businesses must be prepared for potential audits or contractual disputes. Well-maintained records can also support data analysis. These accounting records may inform strategies, and can help improve inventory management, vendor relationships, and the procurement process overall.

What is procurement software?

Procurement software streamlines and simplifies tasks associated with the procurement process. Procurement software simplifies redundant manual tasks and increases efficiency simultaneously. The right software can make data accessible and help improve business efficiency.

Our inventory management platform provides robust reporting for small and medium-size businesses. And Cin7’s ability to integrate with commerce platforms makes it an all-in-one system for product sellers.

Sign up for a free trial to see how Cin7 Core can help you reach your business goals quicker and easier.

We all know the excitement of waiting for a package to arrive — and the confusion and disappointment when a delivery gets delayed.

Customers remember brands that deliver their products quickly. If an order takes weeks to arrive, customers will likely think twice before ordering from that company again. Brands that prioritize quick order fulfillment build trust and reliability with their customers.

Manufacturing lead time refers to the time between when the production of a product is scheduled and when it’s completed — it’s a major factor in driving consumer trust and happiness.

If you’re outsourcing products, much of the lead time is out of your control since you’re relying on the supply chain. However, as a business owner, there are actions you can take to mitigate supply chain issues and reduce manufacturing lead time.

In this post, we’ll explore the different factors that impact manufacturing lead time and provide tips on how to reduce it.

Types of lead time 

In the manufacturing process, there are four primary types of lead time that relate to the process as a whole. These include:

• Customer lead time: The time it takes for a customer to receive an order after they place it.

• Material lead time: The time it takes for a company to receive raw materials after becoming aware that they need them.

• Production lead time: The time it takes for a company to manufacture a product after receiving its materials.

• Cumulative lead time: The sum of the three lead times listed above.

All of these lead times work in tandem to determine the total lead time required to manufacture and deliver the product.

Lead time vs. cycle time

Lead time and cycle time are commonly confused, but you can distinguish them by looking at the timeline for an order.

While lead time begins when a customer places an order, cycle time doesn’t begin until work actually begins on the product. So while lead time includes both purchase processing and the actual manufacturing, cycle time only refers to the process once manufacturing begins.

How to calculate manufacturing lead time

To reduce manufacturing lead time, you have to know what your baseline is. Luckily, you can easily calculate manufacturing lead time so you can make a plan to reduce it.

The formula for calculating manufacturing lead time is:

While this calculation may appear simple, it’s important to know exactly what each term refers to before crunching the numbers. Here’s what each element means:

• Pre-processing: The time it takes for a company to process a customer order, obtain supplies, and prepare the supplies for production.

• Processing: The time it takes to produce the order (this is the same as cycle time).

• Post-processing: The time it takes to deliver the product to the consumer.

Adding these elements together paints a full picture of the manufacturing process — and the timelines for each step. It’s important to break the equation down into these three timelines so you know which step to prioritize first when optimizing your lead time.

What impacts manufacturing lead time? 

Knowing how to calculate and reduce manufacturing lead time is significant because of the sheer amount of factors that can add to or increase lead time. The factors that impact manufacturing lead time include but are not limited to:

1. Stockouts  

Just as a vehicle cannot run without fuel, a manufacturer cannot fulfill orders without raw materials. Stockouts can be catastrophic for manufacturers as they bring production to a halt. This delay in production can:

• Increase lead time.
• Add to customer dissatisfaction.
• Reduce sales.
• Incentivize customers to buy from competitors.

With the right inventory management software, you can set reorder points so the system will automatically place orders with suppliers when raw materials fall below a certain preset level, ensuring that you do not face stockouts.

Learn how Cin7 inventory management solutions solves this problem and more with a live demo.

2. Lead time variability 

Just as stockouts can lead to an increase in manufacturing lead time, the same can happen with suppliers. Stockouts and supply chain issues with suppliers can increase their lead time, leading to an increase in yours.

Dealing with multiple suppliers can make predicting when all required items will be delivered difficult, resulting in overstocking or understocking. Ordering excess inventory can strain your budget while understocking can lead to a loss in potential sales. All of this makes it challenging to execute production smoothly.

You can address this issue by consolidating suppliers to ensure that everything you need arrives simultaneously, allowing for smooth production runs and lower shipping costs.

3. Amount of testing required 

If you plan to go skydiving, you expect the parachute to be well-tested and of supreme quality, right? After all, your life depends upon it.

For items like parachutes, extensive testing is essential, and more testing requires more time. The production part approval process (PPAP) determines the time to complete processing. In manufacturing, you need to check the individual quality of the products and ensure the parts work as desired once combined.

The number of tests — and the number of parts you must test — all affect lead time.

4. Delays in shipping 

Shipping is the act of carrying items from one place to another. A number of factors can affect shipping time, including natural disasters, human error, and component shortages. Out of all the issues discussed so far, this one is the most unpredictable and challenging to control.

Businesses can mitigate the risk of shipping delays by sourcing suppliers located nearby. Otherwise, you can choose a supplier who constantly keeps inventory stocked by monitoring their levels. There’s a general rule of thumb: Fewer incoming shipments lead to a lower risk of order fulfillment delays.

5. Inefficient inventory control 

Inefficient inventory control can adversely affect the lead time of your manufacturing unit. Inefficiencies increase inventory management costs, raise stock handling charges, and generally slow the production process. Unlike delays in shipping and lead time variability of suppliers, inventory control is entirely in your control.

Implementing proper inventory control can help you determine how much inventory you currently hold, ensuring that you have all the necessary components to run manufacturing smoothly.

6. Market demand 

In 2017, the demand for fidget spinners was soaring high. It is estimated that 50 million fidget spinners were sold in the first half of 2017 alone. But today, hardly anyone talks about them.

This case proves that you cannot perfectly predict customer demand. If something is highly sought after today, it does not necessarily mean that it would be relevant tomorrow. Improper demand planning in such scenarios can lead to losses.

Market demand can also affect the lead time. If there is a spike in demand for your product, your suppliers could likely face high demand as well. A delay from suppliers can increase order fulfillment time and increase your lead time.

How to reduce manufacturing lead time 

Reducing lead time can make for happier customers and build compounding trust. As a result, it’s paramount to know how to combat supply chain disruptions and ensure you’re optimizing manufacturing lead time. Some methods include:

1. Keep safety stock

If you don’t use just-in-time inventory, then keeping safety stock is a great buffer in case supply chain disruptions arise. Safety stock is inventory that a company sets aside to avoid a stockout.

In industries where it’s impractical to keep excess stock on hand, consider setting reorder points, which is the level at which stock needs to be replenished. If you use inventory management software, you can set custom reorder points so stock will automatically reorder when it reaches a specific level.

2. Order in smaller quantities 

Ordering smaller amounts more frequently allows you to fulfill orders quicker than if you placed larger bulk orders.

By breaking up invoices into smaller quantities, you can quickly dispatch orders and reduce your manufacturing lead time. Although you may receive supplier discounts by ordering in bulk, it is often more efficient to order smaller quantities.

3. Put lead time in your contract 

If you’re expecting your supplier to send your products within a certain time,  put it in writing. When delays happen and you’re unable to fulfill orders on time, it can be a major detriment to your business.

Your contract with your supplier should clearly state the expectations for timing and the penalties for late shipments. Without a clear line of communication or set expectations, delays can easily occur.

4. Streamline your process 

If you’re looking for ways to reduce manufacturing lead time, it may be helpful to first examine your own processes and the steps you can condense or eliminate.

Some ways you can streamline your processes may include:

• Completing tasks in parallel
• Eliminating repetitive QA processes
• Automating your sales orders

5. Automate your inventory management system 

Automating your inventory management eliminates the chance of manual error in your process and, in turn, reduces the chances of delays and setbacks in your manufacturing process.

While spreadsheets can accomplish a lot, automated inventory management can alert you when inventory is low, automate vendor management processes, create purchase orders and shipping labels, and more. Automating all these elements of the production process can help your business run as smoothly as possible.

CTA: Request a demo of Cin7 Core to see automated inventory management in action. 

What are the benefits of reducing manufacturing lead time? 

Getting products to consumers on time leads to happier customers, but businesses have more on the line than just retaining customers when it comes to lead time. Here are a few other benefits that come when you reduce manufacturing lead time:

1. Prevents against dead stock 

Dead stock, or inventory that gets manufactured but goes unsold, can occur if businesses can’t sell their products to customers in a timely manner. Reducing manufacturing lead time fights against excess inventory that can often be very costly to a business.

2. Makes for greater output  

If you can get orders to customers quicker, you’ll be able to field more orders and generate more sales. Reducing manufacturing lead time can increase profits as it enhances the number of orders a company can handle.

3. Creates a more efficient use of capital 

The longer capital is tied up in raw materials and production, the longer a business has to wait to generate a profit from its sale. By reducing manufacturing lead time and enhancing orders and sales numbers, companies can gain profits faster — thus allowing them quicker growth.

4. Builds trust and satisfaction

Customers are more likely to trust and return to a business that will always have products in stock and will deliver quickly. Companies that shorten manufacturing lead times reap the benefits of happy customers and have an easier time gaining new business.

Why are manufacturing lead times so long? 

Factors inside and outside of your control can prolong manufacturing lead times. Consider the last three years for instance, when lead times extended due to external factors — like COVID-19, global conflict, and inflation.

However, internal errors can prolong manufacturing lead times as a result of errors by companies, from misuse of material to insufficient labor or an inability to transfer finished goods to warehouses for distribution.

Getting products out on time requires many different departments to move in sync, and it can be difficult to keep track of. Inventory management software simplifies this by keeping processes in a centralized space, and automating most of them, so you can always keep a pulse of the manufacturing process.

Looking to reduce lead times and gain customers? An inventory management software solution can help. Request a demo or start a free trial of Cin7 Core to see how we can help. 

Quick Answer: A good inventory turnover ratio is typically between 4 and 8 for most industries. While the optimal ratio may vary depending on your industry, this range generally indicates a good balance between stock replenishment and sales numbers.

No matter the size of your business, you’re sure to have some items that fly off the shelves and some that take a little longer to move. It’s ok if not all your items are best-sellers, as some will always sell faster than others. This just means you need to have a system in place to ensure you restock at the proper rate.

Inventory turnover ratio is the rate at which a company buys and sells its products. Companies use this ratio to make informed decisions about pricing, demand planning, and supply chain management.

This ratio, used in both large warehouses and small shops, helps determine how much inventory is utilized within a set time. Therefore, businesses can estimate new inventory requirements from that metric.

Stay with us as we unpack what inventory turnover is, how to calculate it, and what you can do to optimize your inventory turnover ratio.

What is inventory turnover?

Inventory turnover illustrates the amount of time it takes for a company to purchase and sell an item, and is a good indicator of their efficiency regarding inventory management. By calculating inventory turnover, business owners can:

• Make inventory control decisions.
• Keep business running smoothly without going out of stock or overstocking the products.

For a business to flourish, it needs proper inflow and outflow of cash and inventory. It’s essential that businesses keep their shelves stocked so they can sell products and make profits. However, having obsolete inventory can be equally harmful to a business.

As a result, it’s crucial to optimize your inventory turnover ratio so it’s ideal for your specific business needs and aligns with industry standards. But how do you determine your specific inventory turnover ratio? Luckily, there’s a way to calculate it.

How to calculate inventory turnover ratio

The inventory turnover ratio formula is based on two main activities of a business:

• Purchases of the goods to be sold
• Selling of the goods

These are two determining factors in the success of any business, and you can only judge their performance by calculating the inventory turnover ratio.

• A high inventory turnover ratio tends to be best and generally means strong sales numbers.
• A low inventory turnover ratio illustrates either weak sales or overstocking, meaning the business is replenishing at a much faster rate than they’re selling.

While a higher turnover ratio typically represents stronger sales, companies can often struggle to meet surging demand, which, in some cases, can result in a stockout.

Inventory turnover ratio formula + example  

There are multiple formulas to calculate inventory turnover ratio, but the most commonly used formula is:

Inventory turnover = Cost of goods sold / Average inventory

However, there are a few values you need to find before you can calculate inventory turnover itself. Here’s how the process breaks down with an example:

1. Calculate cost of goods sold (COGS) 

To find the inventory turnover ratio, you first need to calculate the cost of goods sold (COGS). To find COGS, you’ll need to know the stock count of inventory at the beginning of the month (beginning inventory) and at the end of the month (ending inventory). You’ll take the beginning inventory, add purchases made over the course of the month, and then subtract ending inventory to find COGS.

For example, say you’re a retailer selling perfume for $100 per bottle. You have 90 bottles at the beginning of September, making your beginning inventory $9,000, and 92 bottles at the end of September, making your ending inventory $9,200. Assuming you purchased 77 bottles over the course of the month, your COGS calculation would look like this:

2. Calculate average inventory

Once you’ve found COGS, you can calculate your average inventory. To find average inventory, you simply need to add your beginning inventory and ending inventory and divide the sum by two. For our perfume example, the calculation would look like this:

3. Calculate inventory turnover ratio 

Once you’ve determined the COGS and average inventory, you can divide COGS by average inventory to find your inventory turnover ratio. This would be:

7,500/9,100 = 0.824

Our perfume retailer has an inventory turnover ratio of 0.8, meaning they replenish their inventory a little less than once a month. While this may seem low, remember that perfume is a luxury good, and retailers in this space can afford a lower turnover ratio. In the next section, we’ll explore how your industry affects your ideal inventory turnover ratio.

Inventory turnover ratio by industry

The nature of your industry and the products you sell will influence your ideal inventory turnover ratio. While a high ratio is vital in certain sectors, others can operate with lower turnover. Let’s look at the best inventory turnover ratios for different industries.

Industries with low margins 

Industries with low margins need to maintain a high inventory turnover ratio to stay profitable. These are companies in particularly competitive industries, like grocers, retailers, and discount shops.

These companies should get products off the shelves quickly — unlike high-profit margin companies that can afford to make fewer sales due to selling more expensive products.

Industries with higher holding costs 

Industries with higher holding costs additionally need to maintain a high inventory turnover ratio, as keeping items on the shelves is costly.

Take food and beverage companies that sell perishable goods. Since they must dispose of these products after a certain period, vendors must sell them quickly, thus maintaining a high inventory turnover ratio.

Industries selling luxury goods 

Industries that sell luxury goods can enjoy a lower inventory turnover ratio since they operate in a niche market, unlike more competitive industries such as retail.

Jewelers, for example, can keep a lower inventory turnover ratio. This is because jewelers have high profit margins and often lower competition. This is all relative to scale, however, as a local business may not sell items as quickly as a national franchise.

Why is inventory turnover ratio important? 

Maintaining a certain amount of stock to run a business smoothly is essential. The inventory turnover ratio helps determine how much inventory you need to keep shelves stocked while avoiding overstocking.

Additionally, knowing your inventory turnover ratio can answer supplementary questions about your business, such as:

• Am I pricing items correctly?
• Am I using the most efficient supplier?
• Am I restocking my most profitable items quickly enough?

By uncovering these answers, business owners can find more efficient ways to run their companies.

How to improve inventory turnover ratio

After determining the ideal inventory turnover ratio for your industry, you can optimize your own inventory turnover ratio. Here’s how:

1. Reevaluate your pricing 

If you have a high inventory turnover ratio but low-profit margins, you’re likely pricing your products incorrectly.

Make sure you’re accounting for everything in your final price: raw materials, production costs, processing costs, etc. While raising your prices may lose a few customers, it’s necessary for long-term profitability.

2. Eliminate supply chain inefficiencies  

Despite popular opinion, the cheapest suppliers aren’t always the best choice. If you’re struggling to meet market demand, you may want to opt for the most efficient supplier, to ensure you’re keeping your most popular products in stock.

To maintain an ideal inventory turnover ratio in your industry, it’s crucial you’re staying stocked with the correct items. Opting for the most efficient supplier is often the best way to ensure an optimal turnover ratio.

3. Rethink your reorders   

It’s tempting to want to place bulk orders, as this usually results in supplier discounts. However, think about which items sell quickly and which aren’t. If certain items aren’t moving off the shelves, consider ordering them in smaller quantities.

If you continue ordering items in bulk that aren’t selling, you may wind up with excess inventory, which can be costly for a business. In some cases, just-in-time inventory management, which means only having the items needed for the given time, can optimize your turnover ratio.

4. Opt for automation   

Opting for automation in favor of manual reordering is a great way to ensure you always stay on track and your inventory levels never get too low. Especially if you find yourself reordering too often and getting left with obsolete inventory, an automated inventory management system will notify you when your stock is getting low — and even reorder for you.

An automated system can track what items sell the best and ensure those items get replenished when inventory is low. Automation keeps a pulse on inventory levels and takes the stress out of reordering, so you can focus on running your business more efficiently.

Frequently asked questions (FAQ)

Still have questions about finding a good inventory turnover ratio for your business? We’ve got you covered. Here are some of the most common questions (and answers) about nailing your inventory turnover ratio.

Is an inventory turnover of 4 good? 

In most cases an inventory turnover of 4 to 8 illustrates a good balance of restocking and sales. For most retailers and e-commerce brands, a turnover ratio of 4 is considered healthy.

What is a low inventory turnover ratio? 

A low inventory turnover ratio signals that sales are weak and inventory isn’t moving off the shelves. Many industries consider an inventory ratio under 4 a low turnover ratio.

Why is a low inventory turnover ratio bad? 

A low inventory turnover ratio typically shows either weak sales or a lack of demand in your industry. In some cases, a low ratio will illustrate an imbalance between how frequently you’re restocking items and your actual sales numbers.

What should you do about a low inventory turnover ratio? 

Our tips above are all great strategies to implement if your business has a low inventory turnover ratio. If you have a low inventory turnover ratio, consider reevaluating your prices, streamlining your supply chain, or automating your reorder system.

What does an inventory turnover of less than one mean? 

If you have an inventory turnover of one or less than one, you have too much stock. For example, if you sell 50 items over a year and always have 50 units of inventory in stock, you’d have a rate of one. However, this is far more inventory than is needed to meet demand — meaning you’ve significantly overstocked.

Can an inventory turnover ratio be too high? 

For most businesses, a high inventory turnover ratio is generally a sign of strong sales numbers. However, a high inventory turnover ratio, and high sales, requires you to keep up with demand. If you can’t keep up with demand, you won’t be able to meet customer demand and may experience stockouts.

What is an ideal inventory turnover ratio? 

The ideal inventory turnover ratio depends on your business and industry. But regardless of what you sell, it’s still essential to know your current ratio so you can improve upon it.

Opting for an automated inventory management system is an excellent way to ensure you always get notified when stock is low and it’s time to replenish. An automated system will also calculate your cost of goods sold and give you real-time insights — so you never miss a beat.

Stay on top of turnover with Cin7 Core.

The good news is that inventory management doesn’t have to be hard.  Employing an inventory management system like Cin7 Core will offer the insight and efficiency needed to make informed decisions and drive growth.

Here are eight common signs that you need to up your game and invest in an inventory management system

One:  Lack of Clarity Around Frequent Inventory Adjustments

If you’re in the manufacturing space and have raw materials and/or employ labor to create finished goods to sell, you’re officially at a complex level of inventory management. The calculation of all of the various inputs involved in understanding each piece of the process will be eased by having a system in place

If you are experiencing significant discrepancies between the inventory value on your financials and what your physical counts are showing an inventory management system can help provide insight into which SKU or locations are causing these discrepancies

Two:  Changing From In-House to Co-Pack, or Co-Pack to Turn-Key

Just when you get to know your trusty process, it is time to change.  With a change in manufacturing support, setup can come a host of adjustments.  All of which can affect your COGS and bottom line.  Don’t let small changes snowball into big money consequences.  Get ahead of your new partnership and/or manufacturing format by implementing an inventory management system

Three:  Expansion of Inventory Locations

For a company that pulls inventory and sells from a number of different locations, an inventory system will help you translate the details across each location. If you have multiple 3PLs (third-party logistics) at play, having more accurate tracking of the costs behind each in a clear view will help determine the best and most profitable locations to house your inventory

Four:  You Are Planning to Grow at a High Rate in the Near or Mid Future

For help with ordering and being able to stay ahead of the business needs, an inventory system will clearly show you where you stand on counts and status. This beats manually going through your data to figure out if it makes sense to reorder now, later, or whether or not you are equipped to fulfill a large order in the works

Five:  You Need More Detailed Reports:  Profitability by SKU, Reorder Points, etc.

Sometimes the classic report from your spreadsheets, Shopify, or Quickbooks just doesn’t cut it. You will need something more precise to pull from. Especially when you need an understanding of your Inventory velocity–the amount of turn on a week-over-week basis. Having better reporting means better decision-making

Side Note: Like the other systems we recommend and use, DEAR/Cin7 Core is cloud-based, integrates nicely with other systems like Shopify, Amazon, Faire, and syncs with accounting and fulfillment systems to pull data through each seamlessly.  For example, the business hosted by Shopify, shipping through ShipStation, and accounting with Quickbooks, is all set.  You’ll see sales orders, understand shipments, and more; all in one spot and without entering the same data twice

Six:  You Need to Include More in Your Landed Cost

Do you import raw materials and/or products from overseas?  Maybe duties factor into your COGS.  What about the fluctuation in the exchange rate?  There are already complexities popping up and we only touched on two items:  freight-in and duties.  For companies with more complexities in areas like landed costs (freight-in costs, labor, etc.), it is best to err on the precise side, when it comes to costs of goods sold. From a margins or general assessment standpoint, you may need to dig into the weeds a bit more

An inventory system like Cin7 Core will allow better visibility over all of these functions. From purchasing to selling and seeing the segregation of duties within each

Seven:  You Have Frequent Variances in Raw Material Cost/ Purchase Price

Remember that fluctuating exchange rate concept we just mentioned?  Raw goods costs can fluctuate based on a number of factors, and cause subtle, yet significant changes to your margins if not tracked properly over time. We see this a lot in CPG companies that source ingredients from their suppliers.  Many of these ingredients are reliant upon market conditions, weather, you name it.  They need access to the costs and fluctuations so they can make adjustments to pricing and/or seek out alternative suppliers

Eight:  You Need Access to Real-Time Data Now, Not Monthly

Up-to-date data can be the difference between making a profitable choice and paying for a guess later.  Cin7 Core provides up-to-date data that you can access immediately and make decisions from.  No more waiting to update a bulky spreadsheet or pulling a monthly report.  Since it syncs with all of your popular systems like Quickbooks and Shopify, you will have all of your sales data at hand too

If some or all of these areas spoke to you, it is time to do a bit more research into which inventory management system can support your needs.  At the end of the day, there are no awards for managing the most detailed, complex spreadsheets.  Filter that time and energy into updating your data within a more accurate and user-friendly option like Cin7 Core, and get back to moving those products and making sales

How budgeting works

Businesses generally set a budget for the financial year ahead, based on prior performance and planned changes to the business, including product expansions, efficiencies, and changes in the market.The budget is used as a tool to track progress, usually on a monthly basis when the actual results for the month are compared to the budget set for that month. In this monthly review, the team creates an updated forecast for the remainder of the year to support upcoming business decisions.

For product sellers, this budget is done with varying levels of information, depending on what is easily accessible for the business. Setting a budget often means taking an educated guess on the volume, pricing, and cost of their product sales, rather than actual data that may be buried in systems or needs to be manually calculated.

Digital commerce tools simplify budgeting

With digital commerce systems, budgeting and forecasting is more sophisticated and accurate as historical information is readily available and easily analyzed. Budgets based on actual prior performance with an assumed margin of improvement give the most accurate picture of future success. Forecasts are then a simple formula of the actual year to date results plus the budget for the balance of the financial year.

Budgeting made easier with intelligent commerce

Looking forward, as software evolves and brings intelligent commerce to small businesses, annual budgets and latest forecasts must become a financial plan based on the latest real time factors, both internally and externally. The annual budget will take into account market predictions and the monthly forecasting process will take into account real time information for their market each month.

With the help of digital commerce, accountants can easily access the last 12 months of product sales to create their seasonal revenue and cost budgets. Intelligent commerce takes this a step further ,enabling businesses to have a financial plan that updates in real time based on the latest internal data and the targeted market conditions. Businesses that use the power of intelligent commerce can make strategic decisions to achieve the best outcomes or address adverse conditions as they happen.

Accountants and business leaders will be able to focus on making strategic decisions – including finding opportunities for expansion or cost savings, instead of spending time compiling historical numbers to work out a trend for the year ahead.

Cin7 and intelligent budgeting

Cin7’s solutions provide today’s businesses with tomorrow’s intelligent budget needs, including detailed product sales and costing information to create your budgets and update your forecasts. Plus, these budgets and forecasts can be compared to actual results within Cin7 for the greatest visibility with less manual data management.

Cin7 led the way with bringing digital commerce to product sellers and is committed to democratizing intelligent commerce for small businesses. Join us in this exciting journey where intelligent commerce will enable small business owners and their accountants to add more value to the growth of the business.

Based on research presented by Benedict Evans in February 2023, this shift isn’t actually a downturn, it’s a return to the eCommerce trendline.

While the eCommerce spike benefited businesses that were able to quickly adjust and pivot, the increased spending wasn’t sustainable. The re-alignment with the existing trendline shows that eCommerce sales are actually continuing to grow, driven by organic growth factors including a shift in overall consumer behavior and technology advancements.

Another revolution in commerce

But behind the scenes, there’s another revolution impacting the way we run our businesses. We’ve already seen a tremendous shift from analog commerce to digital commerce, moving from green accounting pads and cold-hard cash to always-on eCommerce stores and seamless connectivity. But the next revolution is the shift to intelligent commerce.

What is intelligent commerce?

Intelligent commerce expands the use of advanced technology, including artificial intelligence (AI) and machine learning to improve the customer experience, drive operational efficiency, and drive business growth.

With intelligent commerce, businesses can get real-time insights into their inventory levels, sales trends, and customer demand. Business owners can optimize their demand forecasting, leveraging historical sales data and other variables, including seasonal trends, customer behavior, and even the impact of marketing campaigns by leveraging advanced tools within their existing systems. This enhanced forecasting reduces the risk of stock-outs and ensures that customers can purchase the products they want, regardless of the channel they choose.

What’s driving this shift and why now?

The current technological landscape is witnessing a rapid pace of innovation, including automation, mobility, and intelligence. These advancements pave the way for intelligent commerce, where businesses can leverage data-driven insights to personalize customer experiences and make informed decisions. Several of these technologies are already being used by large enterprises, but the time is right to democratize them for small businesses.

At Cin7, we are committed to making intelligent commerce accessible to all by providing affordable and easy-to-use solutions. The convergence of automation, mobility, and intelligence has created a unique opportunity for businesses to improve their operational efficiency, enhance customer engagement, and ultimately drive growth.

The future at Cin7

Cin7 Core and Cin7 Omni have helped over 8500 customers in 75 countries transition from analog to digital commerce and take advantage of opportunities for accelerated growth.

“It’s the perfect growth platform for small to medium inventory businesses.”

– Cale Watson, Operations Manager for Mega Medical

Our product investments are guided by customer feedback and evolving market needs.

We gather feedback and insights from our customers and partners to identify pain points, unmet needs, and opportunities for improvement. This information is then used to guide product development and innovation, ensuring that the resulting products and services align with customer expectations.

In addition to investing in products based on customer feedback and needs, we also recognize the importance of investing in future needs based on recent technological advancements. We understand this dynamic and are committed to offering products that help our customers today while also building a future-proof solution.

Our approach involves leveraging the latest technologies and trends to create products that can adapt and evolve with our customer’s changing needs. By taking a forward-thinking approach, we enable our customers to stay ahead of the curve and maintain a competitive advantage in their respective markets. Our focus on both customer needs and future trends ensures that our products provide value and relevance to our customers, both now and in the future.

With this balanced product investment, we will enable our customers on Cin7 Core and Cin7 Omni successfully transition to intelligent commerce taking advantage of advanced technologies such as AI and machine learning, automation, and mobility to optimize their operations, and ultimately drive growth and profitability.

This includes investments in:

• Personalized, intuitive applications. With role-based dashboards and interactive charts, every member of your team will have the information at their fingertips that they need to make key business decisions.

• Actionable insights. Optimize your operations with intelligent forecasting based on customer behavior to optimize inventory levels and production schedules. Leverage AI and machine learning to simplify product management, marketing, and more.

• Strong ecosystem. Cin7 has already built strong connections with key industry partners, including Intuit Quickbooks Online, Xero, Shopify, Amazon and we are committed to investing in our ecosystem and developing best-in-class native integrations with additional partners including Shiprush, Shipstation, and others. These partnerships and integrations empower Cin7 Core and Omni customers to grow by leveraging the power best of breed solutions that are connected seamlessly using Open APIs.

This shift to intelligent commerce requires product investments over the next couple of years and we are starting now. Here is a preview of what you can expect to see from those investments through 2023.

Looking beyond

At Cin7, our curiosity and commitment extend to discovering new ways to enhance the value of your inventory, warehouse, and manufacturing systems. We are determined to provide you with cutting-edge tools and solutions that have traditionally been complex, expensive, and only accessible to large corporations. We are constantly learning more about the unique challenges faced by our customers so we can develop solutions to address their needs. By working closely with our customers, we provide tailored solutions that drive growth, efficiency, and profitability.

We’ve only scratched the surface of what’s to come, and what is possible. Cin7 is committed to building the runway for our customer’s long-term growth through our strategic investment in the Cin7 Core and Omni products. Step into the future of intelligent commerce with us.

1. Operate efficiently in a changing economy

Manufacturers, retailers, and wholesalers like you are experiencing a seismic shift in what they focus on to grow their businesses. Improving operational efficiency is most important, while adding new sales channels is getting less attention. Manage sales across multiple channels and share accurate data with a precise view of actual inventory costs and landed costs in real time.

2. Better identify pain points with an integrated cloud-based system

Shifting your business focus means identifying your most-important operational challenges so you can find solutions that will make you more efficient. The right cloud-based system integrates all your company data in one place to help you find what you need quickly. Data accuracy, systems integration (especially with 3PL systems), inventory control and forecasting are the most-felt challenges across the board.

3. Get your “must haves” in one cloud-based solution

Moving away from desktop systems and into the cloud saves you time and money, while enabling you to better manage the products you manufacture and sell. A high-impact cloud solution for inventory, accounting and complete business management can satisfy all your must-haves.

Check out Cin7 Core’s powerful feature list.

4. Moving to a cloud-based solution can be faster and less expensive

66% of product sellers say the biggest block to cloud migration is not being able to implement a solution on their own. Easily overcome that issue with Cin7 Core + QuickBooks Online, which takes up to a month less to implement than other solutions and cost $6,000 to $11,000 less.

You want to grow, become more efficient, deliver exceptional products, and easily adapt to rapid changes in the economy, including spikes in demand. Cin7 Core + QuickBooks Online offers one powerful solution for your inventory and financial management needs, from sales to purchasing, production, warehousing, shipping and returns, at a fraction of the cost of an ERP. Save time and money while better managing your products and accounting with a scalable, cloud-native solution that is actually affordable.

Book a demo

On the face of it, order management is fairly straightforward, and for the longest time, companies carried it out manually, having employees make lists by hand and checking everything off as they went. But as sales companies grew larger and the selling platforms available to buyers multiplied, manual methods became inadequate and automation was introduced. Called an order management system, like any automated system, it streamlines the order management process, which increases efficiency, and eliminates many mistakes.

In this blog, we’re going to explore the benefits of OMS, and show how this digital method trumps the manual one.

What is an order management system?

An order management system is software that’s part of the inventory management system (IMS). Programmed with details about a company’s inventory — what it’s made up of and where each item is — it uses these data as a kind of foundation, registering incoming sales and overseeing their fulfillment. It can control all of this for orders coming in from numerous platforms — online marketplaces, social media, apps, and websites, as well as offline brick-and-mortar stores — taking care of them capably simultaneously. And because the software maintains its knowledge of the inventory, it adjusts the data as items are removed or added, giving a company accurate, up-to-date information and complete oversight of everything.

An order management system is especially useful for businesses that deal with inventory, like retailers, wholesalers and manufacturers. That’s the area we’re focusing on here.

A breakdown of everything OMS takes care of

• Sales,
• Inventory control (maintaining a specific level of inventory in the warehouse),
• Customer relationship management (CRM),
• Processing payments,
• Shipping,
• Returned goods, and
• Reporting.

Automation with OMS vs. doing things manually

If you’re using a manual system to handle your order management — keeping records on spreadsheets and updating them by hand — and feel it’s working for you, you may think you don’t need to automate. If that’s the case, here are some pointers to take a close look at:

Preorders and backorders

Preordering — a customer putting in a request for an item before it’s in stock — is a well-used marketing strategy. By offering items ahead of time, a company hopes to create buzz for the product; it’s also a way for companies to gauge if there’s interest in a new product. Back orders are, of course, similar in that the customer is going to have to wait for their item to be in stock, but that’s because the company has run out of it.

In both instances, an automated system will maintain the orders in its memory until the items are in stock and the order can be filled. The system takes care of everything, and there’s nothing for employees to do. But if these orders are jotted down by hand somewhere by somebody, they could be forgotten, especially if it takes a long time to get the items in stock.

Real-time visibility

When it comes to inventory, it’s vital for a business to know exactly what it has and where it is at all times. This knowledge informs every business decision made, from buying new stock and storing it to implementing marketing strategies like sales quoting and discounts. An in-depth understanding of inventory and its turnover will also determine whether to expand the business or not.

While it’s relatively easy to log incoming and outgoing inventory on spreadsheets, the more platforms a company sells on and the more storage locations it has, the more complex tracking manually becomes and the more can go wrong.

If you’re going to make the best business decisions, the information you’re working with has to be completely reliable. Which is why an order management system is a good way to go. The automated system doesn’t just give accurate information, it does so in real time on a single screen. That means that anything and everything you need to know about sales flows and inventory levels, irrespective of the number of outlets or storage facilities you use, can be brought up instantly from anywhere.

Stockouts and overstocking

If a company runs out of an item, it has a stockout; if there’s too much of an item in stock, it’s called overstocking. Neither situation is good. With stockouts, prospective customers can go somewhere else and sales can be lost; with overstocking, a business can be stuck holding items that have gone out of fashion or that maybe even go past their expiration dates. Stockouts and overstocking can also throw off the whole order management system.

While a smaller company can prevent these scenarios by making sure they always have the right amount of stock, human error is always a possibility. Mistakes are less likely with an order management system. Automation will keep on top of inventory levels, make sure they’re consistent, and, in the case of items that have sell-by dates, make sure they’re only sent out if they’re still good.

Safety stock

Safety stock is a cushion. It’s a little bit more than you think is needed to cover for the unexpected. Safety stock levels are influenced by:

• The belief that there will be a sudden rush on the items — like Christmas,
• The time it takes for the supplier to fill an order for more, and
• The length of time delivery will take, such as longer for a shipment from overseas.

These calculations can be complex, especially when a large number of items and suppliers are in play. But while an experienced employee is capable of making these calculations, there’s inevitably going to be an element of guesswork involved; guesswork that could result in miscalculations being made and stock running out. An automated system, however, is able to process the information with a preciseness that’s hard for most people to match.

Warehousing

For companies that have more than one warehouse, coordinating them is good business. For instance, if some items sell better from one location than another, more of them should be housed there. Similar items should be stored in that location in bulk. As another example, it may be logistically better to fulfill an order from one warehouse than another. In that case, the items for the order should be routed to that warehouse.

Recognizing situations like this, in good time, is difficult without automation.

Bulk actions

Items that are recalled have to be pulled from storage and sent back to their suppliers, and the customers who ordered them before this have to be told what’s happened and offered something else in its place. Without automation, each customer has to be contacted individually, but an order management system can take care of it with a single action.

Customer satisfaction

Buyers who have had a good shopping experience — measured by the fact that the buyers received the goods they wanted — are said to be satisfied customers.

An order management system helps you create satisfied customers. It automatically monitors inventory levels, reordering when stocks run low and removing them from online channels if items do run out. If an item does run out, the system lets buyers know and offers the option of backordering — placing the order and waiting until the item is in stock. Trying to handle this with spreadsheets and having someone literally look at stock to check how much of it there is is going to lead to disappointed customers.

Scaling

Whatever method is used for order management, it has to be able to cope when the business grows. This might not be the case if operations are carried out manually, but when things are automated, there are very few issues, especially when it comes to order management.

Final words on manual vs. automated order management systems

For order management, an order management system, such as Cin7 Omni, with automated features is faster, more reliable, and more efficient. Ultimately, that means it helps to make your company more cost efficient and more profitable.

When you’re ready to switch up to automation, give us a call. Or if you want to know more, schedule a demo with one of our experts. You’ll be glad you did.

Managers and company owners have to balance this demand with the cost of both the product and storing it. That’s what inventory control is all about. We’re going to look at the ways good inventory control makes businesses more efficient and put forward ideas to make the system better.

Why inventory control is important

More chance of items staying in peak condition

Any stock that’s damaged in storage is a financial loss for your company. Inventory control can reduce or eliminate damaged goods by tracking items closely as they move through the supply chain. When carried out thoroughly and accurately, stock gets rotated through the system faster. This means items spend less time in storage where they could sustain damage, resulting in a higher probability of goods being top quality.

Maintains the right levels

While there always has to be enough in stock to satisfy demand, having too much of any item is not good for the bottom line. Good inventory control finds those correct levels, ensuring they’re maintained while adding a bit more for emergencies – safety stock.

Simplifies audits

When the inventory control is on point, all the information needed for an audit is at your fingertips. This saves a company time and money.

Less waste

Inventory control doesn’t just mean keeping a close eye on stock as it moves through the supply chain and its levels in storage, it also provides data about which items are selling and which are not. This informs buying decisions, ensuring you’re not left holding unwanted stock. Unwanted stock is a drain on resources, both space in the warehouse and finances.

Ways to improve inventory control

Create a good floor plan.

A good floor plan in a warehouse makes everything easily accessible and facilitates movement around it, giving a boost to productivity. To achieve this, items that move faster should be upfront, heavy items should be in low shelving, and walkways should be easy to navigate. Signage that’s large and clear needs to be posted everywhere too. It’s how warehouse workers find their way around.

Strengthen relationships with suppliers.

Good relationships come down to communication, and that starts with getting to know the contact person at each of your suppliers. When you have a dialogue, you build trust, something that, in turn, puts you in a position to negotiate better rates, return anything unsold, and turn your purchase orders around faster.

Use a warehouse management system.

An inventory control system keeps tabs on items as they move through your entire supply chain, and a warehouse management system maintains complete oversight over the storage facility. Adding a warehouse management system increases efficiency and reduces errors and confusion.

Conduct regular audits.

It’s important to know that your financial records accurately reflect the stock you actually have. That’s why you have to conduct these audits regularly. Fortunately, your inventory control system makes this relatively easy and painless.

Label properly.

For your supply chain to work as efficiently as possible, every item has to be clearly and correctly labeled. Nowadays that means using barcodes, QR codes, and scanners. These digitized systems also help with real-time inventory control.

Create reports.

Inventory control systems collect and store a lot of data, and the data can be incorporated into reports about your inventory. These reports can contain information that stretches from stock levels to items that are out of stock to items that have become obsolete to financial statements. Configure this information in whatever way you want, but do produce the reports regularly. It will help you keep oversight on your business.

Cycle count.

Basically a quicker and more efficient method for stock taking, a cycle count only involves a small section of the warehouse at a time. It’s usually practiced as a continual process, systematically working from one end of the facility to another, then starting at the beginning again when the process reaches the end. Cycle counting means you don’t have to shut operations down for a few days, as with traditional stock audits that count everything at the same time. In addition to keeping the supply chain in running order, counting a section at a time like this is actually more accurate.

Wrapping up

Having good control over inventory is essential for a business to thrive.Cin7 Omni can be a great help. With an array of tools to track inventory and maintain good levels, you’ll have the control you need to have. Our experts are standing by to tell you more and give you a demo. Click here to schedule a time that’s right for you.

What is the lean approach?

Developed by Toyota for its auto manufacturing plants, the lean approach is all about paring processes down to a minimum, leaving only what’s necessary and essential in place. When applied properly and strategically, a lean approach can significantly reduce costs. It can also improve customer satisfaction.

What is lean warehousing?

Just as the lean approach cut out anything unnecessary in Toyota’s manufacturing plants, in a warehouse, it means having the least amount of inventory to satisfy demand while streamlining processes to ensure there are no extra steps.

In addition to reducing overall cost and increasing efficiency, lean warehousing also leads to more accurate control over inventory. With such control in place, the whole supply chain runs smoother and more efficiently, and customers get their products in good time.

Here are a few more ways lean warehousing helps retailers and wholesalers:

• Provides better visibility into warehouse activities,
• Enables quicker decision-making,
• Reduces lead times,
• Improves operational efficiency,
• Ensures the accuracy of data, and
• Reduces unnecessary inventory.

How does the lean approach reduce waste in a warehouse?

Less wasted inventory

With the lean method, a warehouse stocks a bare minimum of inventory, holding only what’s going to be used or sold in the near term. As a result, there’s less chance of a company being left holding stock it can’t sell.

More cost-effective transportation

Here, the lean approach means finding direct routes when making deliveries. To meet customer expectations, transportation should be aligned with customer service so the entire transportation process becomes smooth and cost-effective.

Efficient flow of inventory

The route taken by inventory in a warehouse should be the quickest and most effective. This route goes from collecting the items to getting it to the packing department and the packing process itself. In other words, every time inventory moves from one area to another, it should only be in the service of the actual fulfillment process. This also eliminates the time inventory sits in the warehouse.

A system is overprocessed when it has steps in it that have no direct purpose. Those steps are a waste. By applying lean warehousing principles, the whole process can be analyzed and tracked to ensure that every action taken is there for a reason: to fulfill orders as fast as possible.

No more paper

Lean principles make the warehouse go paperless. That means no paper pick tickets, packing slips, or other such paperwork. Lean warehousing shifts all these forms to electronic devices like cell phones, computers, and tablets. This can lead to big savings over time, while cutting down manual errors.

What are the five S’s of lean warehousing?

There are five practices that have to be paid attention to with the lean method. Each is equally important, and each begins with the letter “S.”

Sorting

This is about stock control, making the best use of the inventory. You should:

• Remove damaged, outdated, surplus, broken and defective stock from the warehouse.
• Only move inventory around the warehouse when it’s necessary.
• Automate inventory control, logging it in and tracking its movement with electronic devices like scanners.

Straightening

When you’ve sorted out the stock, you have to make sure it’s organized in the best way.

• Place frequently used items in areas that are easy to get to.
• Clearly label the inventory, and tag everything.
• Put up signage that clearly shows where everything is and gives directions to get to it.

Shining

This is about the whole facility being clean and tidy. When the warehouse is well-maintained, efficiency is increased and accidents are reduced. When applying shining, you need to do the following:

Have the warehouse cleaned after every shift.

• Maintain hygiene in the warehouse.
• Place garbage cans everywhere to prevent littering.

Standardizing

In a warehouse, all employees and managers should follow the same procedures to ensure the warehouse is run well. Warehouses are standardized in the following ways:

• Set standards and clearly defined processes that help weed out ambiguity.
• Make all the standards easily accessible to the staff.
• Translate processes and procedures into simple pictures, and place them visibly around the warehouse.

Sustaining

Sustaining means making sure good operational procedures and processes are continued over time. Here’s what you need to do:

• Implement behaviors and habits that will maintain standards in the long run.
• Frequently evaluate success by conducting regular audits and reviews.
• Follow up on creative ideas from the employees, and use them when they’re good ones.

Make your warehouse lean with Cin7 Omni

If you’d like to introduce lean practices into your warehouse, take action and get in touch with a warehouse management team that knows the method inside out. At Cin7 Omni, we’re confident in our ability to streamline your warehouse processes and can help you implement all of the five “S” operations.

Reach out to our team today, and let us help you eliminate warehouse waste, cut down overall costs and optimize your warehouse operations. Book a demo with our experts now! We are all eager to assist you.