Using Cloud Computing To Break Inventory Management Bad Habits

We had an amazing time at the Shopify Asia E-Commerce Festival that was held from 19 to 27 June 2014 in sunny Singapore. Its aim was to share how businesses can experience growth by venturing into the e-Commerce realm through a number of conferences and workshops.

As a key partner of Shopify, we held a ‘Teach Up’ (workshop) on effective inventory management – where we shared some of our expertise and experience with a large group of the festival’s attendees. And we’re glad to share that feedback has been that these were some really engaging, fruitful insights on the importance of proper inventory management for successful businesses (be it online shopfronts or brick and mortar operations).

I have here some key pointers from the Teach Up that are worth an extra emphasis:

Debunking Myths & Breaking Bad Habits

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For retailers, stock management holds the key to success. However,
many business owners still overlook the importance of proper inventory management because of the following myths:

1. An accounting system with an inventory control module is enough

Because many business owners often start their businesses off as a side-project and may want to run operations off one platform to ‘minimize work and costs’, they choose to run their end-to-end processes through an accounting system that eventually churns out what they believe are most crucial to them – numbers and profits.

Such thinking cannot be further from the truth.

No accounting system, no matter how fantastic it may be at accounting, can have the analytical features to manage your inventory precisely.

Too many have adhered to this belief, and when it came for the time to expand their business, they were left scrambling to find a solution to get a sense of their messy stock levels. By then, even utilizing the best inventory management program in the market would be a tedious process due to the lack of paper trails and information.

2. Sales data is all that is needed for inventory management

Inventory data does not draw much information from sales, which only shows what products are sold. An over reliance on sales data to accelerate inventory management leads to bad business management habits simply because stock drives the sales process, and not the other way round. Sales may bring in the actual, tangible profits, but always remember that it is only possible because of proper stock management.

Inventory management is supported by on demand information, which is different from any data that can be drawn or interpreted from sales data alone.

3. Using Historic Sales Data is the most reliable way of projecting and forecasting future stock planning

Unfortunately, the contrary is true. Using historic sales data is one of the major contributions to poor inventory planning and forecasting because there are other factors that need to be considered. Examples of factors that fall under inventory management include the shelf life of a stock, current holdings on hand, and even the moving average cost of a stock.

Instead, using the wrong type of data leads to inaccurate safety stock calculations. Your business may miss crucial sales due to under ordering or wastage due to over ordering.

4. Using Spreadsheets For Inventory Management Is Enough

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Most e-Commerce business operators believe that using their own memory or spreadsheets is enough to keep them on top of the stock levels. However, as a business grows, it is simply impossible to just run these numbers off the back of your head.

On the other hand, not only is the use of spreadsheets a long, painful and unfulfilling process, it is also more susceptible to human errors, which then reflects an inaccurate reading of stock levels.

Imagine you are a customer seeking to buy a product, and you chance upon a webstore that is out of stock on the product you wish to purchase. Would you wait for the stock to replenish before buying? Or would you continue browsing? Chances are, customers will keep on looking for other options in this competitive market.

Having good inventory management doesn’t just allow you to make one sale; it ensures that you can manage customer expectations without even lifting a finger – a fantastic stock management system subconsciously markets your business for you. By always having accurate stock levels, you can sell your products without having to worry about running out of stock.

Having a good stock inventory thus gives the impression that your business is a serious player in the market and gives consumers confidence in your products.

Time and time again, these recurring bad habits are fostered through the usage of out-dated systems and methods that are clearly obsolete and no longer fit business requirements. Which leads me to my next point.

Taking A Leap Into The Cloud

We’re all for taking your business to the next level – which is why we’re strong advocates of disrupting your own business. YES, for the short term, because that change is going to benefit you largely in the long run.

One surprising realization that I had at the Shopify Teach Up event is how a lot of business owners don’t really know the Cloud, and so, are often somewhat intimidated by it. This calls for an introduction to the marvellous Cloud and what it means for businesses.

In essence, the ‘Cloud’ is just a synonym for ‘Cloud computing’ – computing based on the Internet. When in the past, people would run applications or programs from software downloaded on a physical computer or sever in their building, Cloud computing allows people access to the same kinds of applications, just through the Internet.

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Now, onto the Whys:

1. Flexibility

As long as you have Internet access, you can work from anywhere, anytime, because when all your information is stored in the Cloud, data can still be easily accessible no matter what device you use or where you are.

In addition, Cloud computing would be able to instantly meet your need for more bandwidth because of the vast capacity of the service’s remote servers.

2. Technical Expertise & Support

If you get onto the Cloud, you’ll no longer need complex disaster recovery plans. Cloud computing providers take care of most issues, and they do it faster. The reality is that unless you have a 150+ person in-house IT team, you probably don’t have an expert for any given situation.

Cloud providers have to have the range of skills and technical knowledge to handle client requirements. Since most cloud providers work for many different kinds of clients, their ability to handle the range of needs is always being tested. So, they probably have a little broader exposure than even your top in-house people.

Cloud computing suppliers also provide secure systems. With them doing the server and software maintenance (including security updates) for you, you can dedicate time and resources for other tasks.

3. Long Term Cost Savings

The path to success is by playing smart. Cloud is a smart decision, and the cost savings of initially switching are nothing compared to the long term evolution that your business can experience.

You will be able to reduce operation costs by having the broad array of vendor relationships and needs streamlined through the Cloud provider. Also streamlined are your hiring requirements, associated HR requirements, and legal fees. In the end, whatever technical staff you have can certainly stay – just refocus their job scope on innovation rather than upkeep.

4. Collaboration

It is no longer feasible for teammates to send files back and forth over email or phone calls, where only one person can work on a document at a time and that same document has over a hundred names and versions.

Cloud computing keeps all files in one central location and everyone works off a central copy and receives critical updates in real time. Everybody can now make changes to a single document together at the same time. This minimizes time wastage on double efforts, manual errors, and makes collaboration stronger, faster, and simpler.

5. Competitiveness

The Cloud grants SMEs access to enterprise-class technology. It also allows smaller businesses to act faster than big, established competitors. Furthermore, the technical superiority that Cloud computing offers can be the fine difference between your business moving forward, or simply staying where it is. With cost savings, increased efficiency, and greater innovation as key benefits – there’s nothing to lose, but everything to gain.

Optimize Inventory Management By Integrating With Other Backend Processes

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Lastly, there’s a very important lesson we can learn from a close inspection of super successful organizations such as IKEA and its supply chain and inventory management strategy. The message here is very clear: your inventory management tactic affects every point of your supply chain and business backend. In IKEA’s case, their ‘Cost-Per-Touch’ inventory technique moulded and determined the designs of their furniture, their relationships with suppliers, and even warehouse and retail processes etc.

The thing is, you have to stop looking at inventory management in silo. In other words, managing your inventory should not be viewed as an isolated or independent process, because there are real benefits to integrating your inventory management process with other backend processes such as your accounting, sales channels, or shipping and fulfilment operations.

Inventory management is about knowing what you have in your warehouse and where your stock is located. However, unless it is integrated with other back-office systems, an inventory system alone can’t effectively optimize your inventory, at least not without manual intervention and reconciliation – which defeats the purpose in the first place!

Just imagine an end to end solution that’s fully automated, where all information concerning a customer or an order gets pushed from your various sales channels to your inventory to your accounting and invoicing and lastly, your shipment and fulfilment. On top of that, imagine having all these operations and systems and processes in the Cloud. It’s a dream come true isn’t it?

And we are already in the future. We can already achieve that with super simple and easy to use software applications that can be utilized the moment you log in to your TradeGecko account and allow it to be synchronized with other systems such as Xero accounting software and Shopify e-Commerce platform.

Allow your inventory to synchronize and update other business operations automatically in real time with Cloud computing so that you don’t have to carry out every single step of the supply chain or sales cycle manually.

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If there is one key takeaway from the Teach Up session at the Shopify Asia E-Commerce Festival 2014, it is certainly this: It is only through breaking bad habits (i.e old systems) and adopting innovative means can you truly achieve scalable operations and achieve maximum benefits out of processes.

I say it’s high time to chuck that old spreadsheet or beloved desktop application and take your business sky high in cloudy goodness, what say you?

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