For a distribution business, keeping track of your inventory is extremely critical. For such an important topic, I seldom read about other small businesses talk about their processes and software that they use to manage this function. Here’s how we do it at Being Kids.
But first, why is accurate inventory important?
This might seem obvious at first but let’s peel back the layers behind this. At the most basic level, having accurate inventory allows you to forecast. If you sell 500 units of Product X a month, a simple forecast could be as follows:
Sales per month – 500 units
Order to delivery time – 2 months
“Inventory Buffer” – 1 month (this means I always want 1 month’s worth of stock in the warehouse)
This means I should always order 500 * (1+2) = 1,500 units of product with an average re-order period of 3 months. That is to say I place an order for 1,500 units every 3 months.
This only works if the inventory is accurate.
If your product isn’t perishable, you might be tempted to load up on more stock to prevent out-of-stock situations. Retailers HATE IT when you go out of stock. Well yes, if you’re confident of sales and if your cash flow is good. The fact is that unsold product in the warehouse represents a cost in both storage and return on cash. The general rule of thumb is to have 3 months opex in the bank and not more than 2 months worth of stock (this depends heavily on your industry).
Inventory Management Software (IMS)
Managing inventory becomes a problem as soon as you have more than 1 point of sales. To do this properly, you will need an inventory management software and no, I’m not talking about Excel.
The biggest challenge in choosing a new software is that you don’t know the limitations exactly unless you’re using it operationally. Online documentation/youtube videos (if at all) just doesn’t cut it. Oftentimes for new business owners, you won’t even know what your requirements are. For Being Kids, there are a few key functionalities that we look for in an inventory software.
- Cloud based
- Handles consignment
- Has stock adjustment/stock take functionality
- Has good integration with ecommerce platforms
- Able to mass update product information easily
- Syncs with an accounting software like Xero
- b2b sales functionality
- Most importantly, doesn’t cost more than $1000 a month
Back when we were researching this 4 years ago, there were only two apps that fitted this criteria. They were Trade Gecko and DEAR Inventory. If I starting from scratch today, I would probably take a closer look at Unleashed.
I couldn’t get pass the initial bulk load of my products. The app kept hanging so this was quickly ruled out. Note that I only had about 1000 SKUs in my CSV file.
DEAR Systems checked off all the requirements on the list and more. So far, our experiencing with DEAR Systems has been positive. It has also allowed us to implement better workflows that has made our business leaner and more efficient. I’ll be talking more about DEAR in future blog posts on how we use it.
Before we switched to DEAR, we were using a locally hosted version of Inflow. Back then, they only had a self-hosted version of their software. In terms of pricing, Inflow is unbeatable. If you have a simple operation, Inflow might just be good enough for your needs. But one of the major issues we were having was managing consignment customers. Inflow (at that time) just didn’t seem to have a good way to manage this.
In the world of distribution in Singapore, consignment is a dirty word. We hate it. Retailers love it. And for some reason, consignment is not common in other countries. As the word suggests, consignment is the act of consigning your goods to a retailer on the promise that they will bill you for whatever items that was sold during the month. Any breakages, pilferage is borne by you, the consignor.
More than half our current customers are consignees. We needed to know what stock was being held, by which customer, at all times, so that we could do our replenishments in a timely manner. The feature that allows this is called “multi warehouse”. DEAR Systems has this. Essentially each consignee becomes a warehouse which if you think about it, is conceptually correct. Each time we deliver stocks to a retailer, a “stock transfer” document is generated thereby adding more stock to that warehouse. At the end of the month, the retailer should generate an itemised sales report that allows you to create an invoice that then deducts stock from said warehouse.
The added benefit of having this is that it allows you to easily generate a “per-store” sales report of what items were sold.
Yes, this entire blog post is just an elaborate ruse for me (and for you!) to save 10% a month on subscription costs. Use our referral code 9DCD1357-2F5C-4084-A5F6-77641A1BAF5E if you decide to sign up for DEAR and save us both some $$$.
PSG Grant Approved Software
Honestly, I just don’t trust locally developed software. I’ve just seen too many examples of poor implementations over the last 10 years of me working in software and agency world. Too much over promising and under delivering by local SIs and software houses has made me extremely skeptical and jaded with software made in Singapore.
Now that we have established your IMS to be the primary data store, keeping your eCommerce platform in sync should be relatively simple. Most IMS have integration points (at a fee) that connects your eCommerce software to it. The 2 most common ones on the market are Woocommerce and Shopify; both of which have are served by DEAR Systems. In my opinion, if you’re using an IMS that doesn’t support Woocommerce or Shopify, it probably isn’t very good.
The final piece of the puzzle is connecting the inventory to the various marketplaces that you operate. As of 12/09/2020, the only marketplaces worth spending time on in Singapore are: Lazada, Amazon, Shopee, qoo10 and Redmart. Of the 5, Lazada and Shopee have APIs that allow you to programmatically update your inventory. Amazon probably has one too but I’ve not been able to work with the administration to get access. Redmart has an old API documentation but it does not look well-maintained. Eventually I imagine Redmart to be rolled in completely with Lazada and it’ll probably share the same API endpoints once that happens. qoo10 is a bloody mess so I’m not going to even talk about it.
In an ideal world, the inventory software should offer integration extensions to these marketplaces. But because more SaaS software are dedicated to serving US/Western audiences, the support for Lazada and Shopee will always be lower.
So, we made the deliberate choice of choosing to build out a plugin on our Woocommerce platform that syncs with both Shopee and Lazada. So the flow goes like this:
DEAR -> Woocommerce -> Lazada/Shopee
Unfortunately, API support for both Lazada and Shopee is basically non-existent. If you run into any issues, it’s going to be very hard to get any answers or feedback about it. After spending close to a year trying to get a reliable sync going between our Woocommerce and Lazada/Shopee, I gave up and went back to using Excel uploads.
Until the APIs for Lazada and Shopee are more stable and mature, I won’t be spending more time and money trying to create a hands-off solution.