We’ve all heard that cash is king, but how much is that really true for e-commerce businesses right now?
The answer: it’s truer than ever.
Poor cash flow is estimated to kill four in 10 small businesses within the first five years, and up to 90% of all failed businesses had some kind of cash flow problem, according to the ONS.
In the midst of an economic downturn, ongoing supply issues, wavering consumer demand and rising operating costs, retailers are under particularly huge financial pressure at the moment.
Many e-commerce businesses, especially those operating in the last decade, were set up on high-growth, low-profit models after years of cheap lending. Now, the glory days of rapid growth are over and they’re left struggling against ratcheting borrowing costs, as interest rates creep up and capital becomes more expensive.
Recent statistics show how increasing costs are eating heavily into retailers’ margins, adding strain to the already-slim high-growth and low-profit models many operate under. For instance:
- 89% of retailers have experienced an increase in costs over the past 6 months
- Ordering and holding inventory is one of the biggest expenses for retailers
- For every dollar US retailers make, they have $1.35 of inventory in stock
Clearly, it’s a challenge for many e-commerce brands to stay afloat right now, let alone be profitable or have piles of cash in the bank.
Retailers must be especially mindful of how much cash they have in the bank. The simple reality is if expenses exceed cash reserves, there’s a cash flow problem.
Taking steps to save money and boost your cash flow is essential – which is where this blog comes in.
Inventory planning, using the leading software – Inventory Planner by Sage, is the best way for merchants to rapidly cut costs and protect cash flow.
Here’s how to use it to become a more profitable and successful business…
Step 1: Accurately forecast demand
A business’ inventory carrying costs will generally total about 20% to 30% of its total inventory value, so only stocking what you can rapidly sell (and minimizing ‘safety stock’) is crucial in the battle to reduce costs and protect your cash flow.
How do you achieve that? By properly planning inventory, starting by forecasting demand.
Inventory planning helps businesses properly plan their inventory by using algorithms and statistical models alongside historical sales data to accurately predict future demand.
As the #1 Inventory Planning Software for e-commerce businesses, Inventory Planner by Sage, uses dedicated demand forecasting models for ultimate accuracy. Seasonal, non-seasonal, retail and wholesale products are catered for, while trends, spikes and supply issues are factored in.
The result is that merchants know exactly what inventory to buy, how much to buy and when to buy it.
As an advanced inventory planning tool, Inventory Planner can even forecast demand right down to specific variants – which is especially important for retailers with hundreds or more SKUs.
By accurately forecasting future customer demand using intelligent inventory planning software like Inventory Planner, the risk of running out of stock (and missing the chance to boost cash flow with revenue) is eliminated and the risk of overstocking is drastically reduced.
This means less cash gets tied up in inventory – especially stale inventory that eventually has to be liquidated – and inventory holding costs are reduced, both of which have a positive impact on cash flow.
Step 2: Intelligent replenishment
Manually monitoring your inventory levels, and then manually placing orders with suppliers, is a massive waste of time and energy – and because it usually involves a fair amount of guesswork and errors, it’s not cost-effective either.
Simplifying your buying process using Inventory Planner reduces the time and human power required for inventory management, freeing up these precious resources for other areas of your business. This can lead to reduced inventory costs and improved cash flow.
One of the biggest ways Inventory Planner helps you simplify replenishment is with its simple, easy-to-understand purchasing recommendations. Based on accurate forecasting, it shows you exactly which items to buy and when to buy them (alongside handy extra information, like the cost of delaying your order).
These buying recommendations are highly customizable, so they can work for all SKUs, brands, custom categories, suppliers and locations. They can easily be turned into daily, weekly or any other frequency breakdowns of which inventory needs ordering for which locations.
Orders can be created directly from your buying recommendation report, and then synced seamlessly with your IMS, OMS or ERP. It’s also easy to set up automatic PO generation, saving even more time.
Automatic alerts can help you identify slow-moving and hot-selling items so you can adjust pricing or promotions to increase sales, and optimize inventory levels to prevent excess inventory or stockouts.
Inventory Planner even intuitively suggests warehouse transfers, which can save you buying inventory when it’s already in stock in a different location.
It’s also possible to scale orders up and down to take advantage of freight rates or shipping carrier capacity, making crucial savings which otherwise wouldn’t be possible.
Ultimately, using Inventory Planner to simplify your buying process removes the manual burden of replenishment, drives maximum productivity and revenue and allows for the most economical order quantities – all of which have a powerful cumulative effect on cash flow.
Step 3: Get advanced insights
To optimize inventory costs and cash flow, it’s important to monitor performance regularly. Advanced reporting functionality is essential.
Inventory planning software can provide you with real-time data on sales and inventory levels. This data can be used to identify areas of improvement and adjust inventory levels accordingly.
Inventory Planner goes one step further. We turn your complex, siloed inventory and sales data into 200+ meaningful and intuitive metrics (from top level detail to granular SKU-by-SKU analysis) in a range of powerful reports.
Our overstock report is unlike any other, clearly flagging up your overstocked items (alongside the associated costs), so you can quickly see which items to liquidate first to protect your cash flow.
You can even align your marketing with your inventory performance, boosted by insights connected from Google Analytics, so you can plan your marketing campaigns based on a clear picture of your in-demand products, slow-movers, high-profit items and possible bundles. This can stop you wasting money on campaigns when you can’t get the stock to fulfil any spike in demand, or enable you to increase ad spend when you have a backlog of particular items.
By monitoring performance through advanced reporting, you can reduce inventory costs and improved cash flow.
The bottom line
Many e-commerce businesses are facing cash flow crises – and it’s directly linked to inventory costs.
By leveraging inventory planning software to optimize inventory, you can reduce the likelihood of cash flow problems and improve the chance of your e-commerce business succeeding.