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Incidentally my supplier actually just went bust, and so i'm moving to another one, they keep a lot more stock and offer free delivery, so I'll be ordering once every week from now on, so I'll be keeping less stock.
I had previously used the "just-in-time" philosophy to order inventory but found that I ended up spending a larger perecentage on shipping by doing that. Now I tend to order more at a time less often to save on shipping (and thus am able to offer customers a lower price). Because my biz is expanding, I generally always need more than I think I need. Expansion is great, but it means you are always having to reinvest a significant amount of profits in the biz, which cuts into how much you can take out as income. So when you are constantly expanding, you can be making less than if you were standing still. At least, this is the way it seems to me.
1) Look at historical data. This should provide you with a rough idea how much is needed on a per week/month basis. If your product is seasonal, a longer historical data is needed to pick up some trend. This should provide you with a demand figure.
2) Figure out your in-transit time from the time you order from supplier to actually receiving it. This should be your lead demand. Add your demand figure to your lead demand. Make sure that they are based on the same /mtn or /wk demonination.
3) Figure out your safety level. This should be the extra buffer you should keep should your demand exceeds you normal forecast.
4) Add all these 3 levels together and it should be fairly close to what you should keep on a per mth/wk basis.
This formulation works for us since we do our orders in a monthly basis. Our supplier is happy with this arrangement since he has some advance notice on how much we would need.
Some merchants will do it on a ad-hoc basis by triggering a re-order point. We have found out that this method would work fine for large high volume merchandize, providing some scale on shipping rates.
Alright, hope this helps!
Keeping little stock suits your business if it's in a fast-moving environment where products develop rapidly.And keeping more stock might suit your business if sales are hard to predict,and it is hard to pin down how much stock you need and when.
))))Ask yourself some key questions to help decide how much stock you should keep:
#How reliable is the supply?
#Are the components produced in batches?
#Can you predict demand?
#Is the price steady?
#Are there discounts if you buy in bulk?
E-commerce is better when it involves reliability.
E-commerce is better when it involves reliability.
Aint that the truth!
When I started out I held no stock. I worked with a local wholesaler that I collect stock from daily. Their company is not computerised and their stock control is terrible! The number of unhappy customers I had because I had to refund part or all of their order!
Over time, I have built up a stock of just 1 or 2 items of each product line. These are replaced straight away when they are sold. That way, if my supplier is out of stock my stock is not replaced, so can I tell to mark it as such on the website. I have plenty of alternatives that the customer can choose from, so it works out well.
HRoth's method of ordering (greater quantity to save on shipping) works very well. Some of our suppliers offer free shipping for orders over a set dollar amount, so we always wait until we can get the free shipping. We typically order enough to cover 12 weeks sales and prepare to reorder once we are down to 3 to 4 weeks worth of product remaining. If you are in an area where products change quickly, then this probably won't work for you. But it works well in areas where product change is fairly slow.
As far as knowing how much of everything to stock, experience tells, but you have to keep an eye on trends, for things go in and out of fashion as far as sales volume and it's lame to get stuck with a large stock that doesn't move. When starting out without a track record, it takes a mixture of attempted prescience and thoughtful choosing of what you can afford with your allotted capital, in quantities that give the best lot/shipping prices, then adjusting the method as you go. Not only do I find it hard to predict what's going to sell (thus how much to stock) even WITH extensive experience, I have things collecting dust on the back shelf from when I opened five years ago, and sell the heck out of things I thought no one would ever want. Therefore, a hearty GOOD LUCK is at least as useful as the "hard" advice here. :)
<Edit: Re-conjugate a verb>
One strategy I have been lucky with is focusing on what other shops in my area do NOT have. I could not compete with established stores in terms of price, because they had lots more volume and so could get better wholesale prices. I had to give customers something else. I gave them lots of information, an aesthetically pleasing site, and merchandise that no one else carries because they all depend on the same suppliers. This has worked for me. I am working on starting up a content site and am planning on using this same strategy of focusing on what others don't have.
If you drop ship and you have a reliable supplier, then you really don't need an inventory.
I used to keep 30-40K in inventory, and I sure don't miss those days.
No Stock means no counting, no packing, and most important, not getting stuck with any dogs.