Aug 2021
Inventory is the heart and soul of your business, and it’s constantly moving throughout the supply chain, including:
Along with the type of products you sell, your warehouse location(s), and your inventory’s current value — keeping tabs on ecommerce inventory data and information at all times can be challenging, error-prone, and time-consuming. Yet when the accounting period ends, your accountant is going to expect accurate reporting.
That’s why online brands ditch the manual work and implement technology that makes record-keeping a breeze.
In this article, we explore:
Inventory records are repositories of data pertaining to each item in a brand’s product line, including:
Each entry must have a description of the SKU along with relevant data. These records are either created manually or digitally.
Keeping proper inventory records provides better inventory control and visibility into inventory as changes occur.
Since inventory is noted as an asset in a business’s balance sheets, you will be expected to provide accurate inventory information at the end of a fiscal year or accounting period.
Here is why every business owner should be keeping proper inventory records.
Consistently keeping track of what’s leaving and entering the warehouse ensures inventory accuracy and inventory reconciliation.
Inaccurate inventory counts can lead to inventory shrinkage, or when stock is less than the recorded balance in the accounting record, and it can cause major discrepancies that can throw off profit margins and other financials.
Accurate inventory records make the inventory accounting process much more bearable.
Keeping track of inventory value and count is legally required of all retailers and manufacturers, as per the Financial Accounting Standards Board (FASB) and regulated by Generally Accepted Accounting Principles (GAAP).
By maintaining a proper inventory record-keeping process, you’re also able to track changes in value, so you know how much your inventory is worth at the end of an accounting period.
Keeping up-to-date inventory records help you prevent stockouts and have a better understanding on when it’s time to reorder more inventory.
Keep in mind that not having enough inventory can cause out-of-stock issues but storing too much inventory can increase carrying costs and lead you to potentially accumulate too much dead stock.
Since inventory is constantly moving throughout the ecommerce supply chain, the use of real-time inventory management technology makes it easier to check if all inventory is accounted for when comparing physical inventory and electronic records.
Being able to track inventory without the manual work can reduce risk while optimizing operational costs, including storage fees.
If your records aren’t up-to-date, you and your team risk making important business decisions based on incorrect data.
By using technology to track inventory in real time, you can reduce mistakes by cutting out time-consuming, manual work.
Tracking inventory in real time can be done using inventory management solutions, including inventory apps or a more robust system like ERP inventory software. These systems allow you to aggregate data by connecting your upstream manufacturing activities with your downstream sales.
With real-time data tied to inventory, you’re also given the information needed to identify trends and forecast demand, so you can make better predictions on inventory reorder quantities and levels.
Depending on the number of SKUs you sell, your order volume, and the size of your company, the complexity of inventory record-keeping varies.
No matter how intricate your business is, here are some of the top inventory management strategies you can implement.
An inventory audit is defined as the process of checking a company’s actual inventory levels against their financial records to ensure accurate inventory accounting. To make inventory auditing more efficient, it is helpful for retailers to keep physical records of all inventory along with online backups (or vice versa).
Keeping original physical copies can be a legal requirement in some states. And it also secures your information in case of a situation where your cloud server’s integrity is compromised.
Find an accountant you can trust and get their insights into how to keep inventory records for your business.
In most cases, the information you need during the accounting period includes COGS, raw materials (if applicable), beginning inventory, and the value of ending inventory (what’s left over at the end of an accounting period).
You can also ask your accountant for their advice on how to choose the best inventory valuation method based on the type of products you sell and your typical sales volume.
There are many ways to track and record inventory. No matter what method you choose, the most important thing is to stay consistent to ensure accuracy.
At the end of an accounting period or financial year, you will need to calculate how much your inventory is worth.
The most common valuation methods in ecommerce include:
When it comes to keeping records on inventory, you have two options:
As your business grows, adapting a perpetual inventory system is your best bet.
This can be done by investing in an inventory management software, which will help you track inventory flow in real time and record live updates without you lifting a finger.
A powerful inventory management software makes inventory record-keeping a breeze.
By automating the tracking of all inventory and real-time changes, you can optimize inventory to meet demand and improve supply chain efficiency.
With the right software, you can easily download records and custom reports, so you have all the information you need when it’s time to meet with your accountant.
Here is a breakdown of how an inventory management software works.
As you expand your business, you most likely will branch out from selling exclusively on your online store.
Marketplaces (e.g., Amazon and Walmart) and social media platforms (e.g., Instagram and Facebook) provide direct-to-consumer (DTC) brands different avenues to sell through, so they can broaden their customer reach.
That’s why many merchants implement a multichannel inventory management software, which tracks inventory across channels and aggregates records all in one place.
If you partner with a technology-enabled 3PL you get access to built-in inventory management tools that also allow you to track inventory across channels and distribution centers in one place.
This allows merchants to spread inventory across multiple fulfillment centers and be able to track inventory in real time through one dashboard instead of relying on multiple sources.
Arguably, your inventory management software is only as good as the inventory reports it generates. Calculating and tracking these metrics in spreadsheets or through multiple different integrations can be troublesome.
Inventory management technology automatically aggregates data, so you can pull custom reports whenever you need them.
For instance, many order fulfillment platform automatically pulls reports and data on SKU velocity, inventory days on hand, inventory turnover rate, and much more.
Inventory management software allows you to automatically set reorder point notifications, so you can replenish inventory on time without the need to be tracking inventory every hour or manually as each order is placed.
The software pulls insights from historical sales data to give you a better idea of when it will be time to reorder more inventory per SKU, so you can set a predetermined reorder point.