Importance of inventory management for small businesses

“Stock, level, place, time and cost should be right” that’s all it takes to manage inventory.

Sounds simple right!

Let’s think about Danish who is an online retailer and has been selling his fashion wear products in one online marketplace.

He is hardworking and wants to grow his business. So, he registered at 4 more online marketplaces and started selling his products on all of them.

It was simple to list products in all the marketplaces.

And Danish was initially able to manage the orders coming from all these marketplaces manually.

But once the orders started increasing, things started moving out of hands.

His products and inventory were common across all the 5 marketplaces, but the orders were coming in individually.

Gradually, he started facing many challenges like updating inventory for every single product manually for each marketplace and ensuring that there is no loss of sale because of not updating the inventory.

Another challenging situation was when product stocks went out, still, he was getting an order for the products as he did not reduce the inventory to zero at all the marketplaces.

The problem becomes more challenging with thousands of products selling across so many different marketplaces.

Danish thought it would be fine soon.

But with the growth of the business, the complexities started growing more.

Danish now spends more time and effort in getting his stocks right, throughout the day, for all his products.

He also went to the extent of hiring 5 people (one for each marketplace) just to update the inventory tens of times every day.

And yes, this was all done manually!

His daily routine was to download the sales from each marketplace and update spreadsheets, containing the inventory of the products 5-10 times a day and share it to his team.

His team would then manually update the stock at the marketplace for each product one by one.

This cyclical process gave him no option but to stay where he was and quit the objective of business growth.

Despite hiring a large team to manage the inventory manually.

He was now confronted with more order cancellations leading to penalties, sale loss, long wasteful hours of manual work and no time to focus on growing the business.

More cancellations lead to lower seller-rating and tarnishing the brand image.

All I want to tell you is, “managing inventory is the key to a profitable business”.

Experienced business owners spend most of their time and efforts in automating the inventory and supply chain process.

The right inventory at the right time at the right price in the right place is the key, and there is serious science behind that.

Stock shortages or aging inventory have crashed many businesses. And when it comes to managing the inventory on e-commerce marketplaces, the challenges multiply geometrically.

Let’s take the around, in this part Danish invested in automation software for his online inventory management.

And he realized that the cost of this automation is a fraction of the 5 resources which he had hired.

More than massive savings on cost, his business started growing!

Now, there were zero order cancellations and his average inventory count reduced dramatically, reordering got more organized.

Now, he could find all the time to think about growing his business.

The above story was to reflect the importance of inventory management for your business.

But how does this concept start?

Evolution of the inventory management process

Everything in this universe is evolved i.e. gradually developed with the time, and so does the process of inventory management.

The process started even before the introduction of technology or the invention of computers. 

However, the process is believed to be started before the industrial revolution when merchants had to do the inventory management process manually, understanding the needs of customers.

With the manual process, merchants were not able to manage inventory accurately, leading to loss.

At the time of the industrial revolution, the demand for mass production rose and the businesses grew leading to a better inventory.

Finally, in the 1930s Harvard University designed the first modern checkout system. The system used a punch card in the catalog that was inserted into the device that read them.

And data was stored, the same checkout system was used for inventory management.

With time and the introduction of fine technologies, the process turned out to be more refined. The barcode and scanner brought a drastic acceptance of the process making it very simple and convenient for retailers.

The technology is still moving ahead and coming up with more surprises in the future!

What is inventory management?

Mayank Kumar quotes, “Inventory management is the process of exposing the right inventory to all available demand channels and maximizing throughputs profitably without losing a single opportunity”.

Inventory management involves tracking and managing the lifecycle of stock and includes ordering, handling, and storage.

In the e-commerce scenario, it is the process that involves managing returns, multi-warehouse movements, managing damaged inventory, warehouse management and lots more.

Large companies invest huge finance into inventory and warehouse management systems especially to address these key questions.

  • Is this product available in the warehouse?
  • Where is this product stored in the warehouse?
  • How much to reorder?
  • When to reorder?

Right inventory management is helpful in optimizing your stock management process and to work in a more cost-efficient manner.

It is quite obvious, that inventory management provides you a detailed outline of every product when it enters or leaves the warehouse and it addresses the following requirements

  • Centralized view of stock- Managing inventory gives you an overview of your entire business, you can now have an accurate track of your inventory as they are centralized at one hub.
  • Planning and forecasting- Imagine knowing what your customers demand and how much stock you require for the coming time.

Isn’t it all you need as a perfect business plan!

With the right management of inventory, you can easily make reports to analyze your stock.

It helps you in making a smart business decision and gives you information on what is demanded more.

  • Time-efficient- Inventory management is one of the most time-efficient methods to work with, it not only helps you to work fast and accurately.

But also helps you to complete the inventory process with improved delivery and getting high customer satisfaction.

For every business, it is important to keep track of their work. It helps them to understand the direction they are moving, and inventory management provides you that opportunity.

Basically, inventory management solves all your queries related to stock and its management.

Remember, in today’s competitive world you have to be ahead of the crowd.

How to manage inventory in an e-commerce marketplace scenario?

As we now know the importance of managing inventory for any business, let’s see how we can do that when selling on e-commerce marketplaces.

  • Search and research  – Planning is really crucial to make your move smooth.

For successful inventory management, you can use data and reports such as product sales velocity, profit calculator, sales comparison, channel-wise movement, etc.

It will help you to deep dive into past trends and plan for the future.

Do you know, marketplaces such as Amazon provide business reports on their seller central dashboard.

Do not overlook stuck or stranded inventory and stock in transit.

Remember, people tend to order more stocks without seeing that there is existing inventory in the system which is either not active/utilized/published or stored at the right place.

  • Focus on profitability – Margins & profits through sales on e-commerce marketplaces are more than just sales and purchase.

There are dynamic costs such as commissions, shipping, packing, advertising, storage, etc.

And they get loaded to your product.

For example:

Your purchase cost of a pair of Jeans is Rs. 200/- and you are selling it at Rs. 400/- on Amazon.

This may look to be a gross margin of Rs. 200/-, but here are some of the real costs which may simply change the picture

  • Average shipping cost = Rs. 50/-
    • The commission charged by Amazon (15% on selling price) = Rs. 60/-
    • Packing, storage, fixed fee, etc = Rs. 50/-
    • Average Returns (20% and 10% of these are damaged) = Rs. 8/-
    • Net GST payable (Input on purchase and fees and output on sales) ~ Rs. 5/- (assuming that the product is on 18% GST category)
    • Total costs – Rs. 173/-. Add a TCS cash-flow block of 1% = Rs. 4/-

The net realization from the marketplace on a product being sold at Rs. 400/- and the purchase cost being Rs. 200/- is just Rs. 23/-.

Now think about your internal costs – salaries, warehousing, procurement, bank interest, etc.

As I said, “it is more than just sales and purchase”.

  • Use a warehouse management system – On-time delivery of online orders is the key to growth and reduction in cancellations.

When you get multiple orders and your inventory is not well organized, it will lead to delays in picking, packing, and shipping, leading to more cancellations and returns from customers.

Therefore, a scientific and agile warehouse management system ensures automated, timely and well-structured movement of stocks.

  • Monitor aging inventory – A product that has spent a huge time in your inventory is known as aging inventory.

In inventory management, you have to keep an eye on the stock or product that is in your inventory for 12 months or more.

It is very important to manage aging inventory as it is consuming your inventory space, hampering the management of your inventory.

  • Manage returns in real-time – Returns are a hard reality in e-commerce.

You can control some of the returns by keeping a habit of rechecking before you ship the product.

However, this helps to only some extent, so at that point, you are left with nothing but to handle return in a smarter way.

As for any industry, average returns are in the range of 25-30%. With such high ratios of return orders, it becomes even more important to manage inventory more intelligently.

To make it easy you can do is to track returns and keep them at the top of inventory management.

  • Keep a habit of audit- A habit of auditing every six months or annually can be a great support.

This will help you to know what you have in your stock and what you can add more to grow your business.

Moreover, the process of auditing helps you to check over the quality of products and monitor the machinery of your inventory.

  • Track product information- The most important part of managing inventory is tracking the product information especially barcode data, SKU, suppliers’ information, etc.

All these processes can be really hectic and time-consuming.

Additionally, manual tracking can lead to lots of errors.

What to do?

To ensure an optimize inventory management, you can integrate your inventory with inventory management software.

With the integration process, the system of your company gets integrated, not only with the back end of your company but also with suppliers and 3PLs, making the tracking process more accurate.

Integrating inventory will help you to integrate financial activities like logistics, HR,  sales and financial production solving problems of reconciliation. 

It will connect the demand channels for offline sales, and will also connect with discovery engines through digital payment acceptance.

With integrated inventory system software, you can easily make local sellers and stores digital and discoverable.

Connecting to the global market with Indian economic merchants.

Therefore, importance of inventory management for small businesses isn’t just limited to stocks but also provides you all accurate financial reports including tax returns that are important for your investors and government.

So, If you are looking to integrate your inventory, eVanik can help you!

Best accounting software for e-commerce sellers in india

Finding out the most appropriate accounting software for your online business on marketplaces could be a really difficult task to choose from.

When you are considering to buy accounting software for your eCommerce business and especially if you are selling through marketplace platforms such as Amazon, Flipkart, PayTM, etc, it’s important to consider several factors. Moreover, if you buy the wrong one, it wouldn’t be easy to make a switch to another one in the middle of the year.

Here’s what all you must consider before you go ahead and buy your accounting ERP

Integration

  1. Your accounting software should be able to automatically integrate with marketplaces and fetch all data points like sales orders, returns, payments, commissions & marketplace fee and TCS
  2. These integrations should be real-time primarily because marketplace transactions are dynamic in nature. If you are thinking of downloading files from your seller accounts and then uploading it back to your accounting software, it may not be a good idea, simply because what you have downloaded today may get updated or modified by the marketplace tomorrow. This will become an infuriating struggle to identify the changes and re-updating your accounts
  3. Most accounting software does not have a direct integration with eCommerce marketplace channels. Therefore, it’s important to look for a middle layer solution that talks with your marketplaces and your accounting software simultaneously and seamlessly. eVanik OneWorld Suite is one such option that has direct integration with all major eCommerce channels and major accounting ERP providers.

Features & Functionalities

  1. The nature of accounting transactions in the eCommerce marketplace business vs. a regular trading business is largely different. The following table illustrates some of the key differences between both.
Nature of TransactionEcommerce MarketplaceOffline / Trading Business
Sales Orders & Fulfilment Multiple Statuses (Changing dynamically)
Party ledger of Marketplace instead of the end customer
Invoicing done by Marketplace (FBA Model)
Simple direct invoicing to end customers.
Payments Received in bulk for multiple orders/invoices after multiple deductions.
Payments received against one bank account or GSTIN location even if transactions have happened in multiple locations
Direct full payment against an invoice from the end customer.
Commissions / FeeMultiple charges linked against order/product/fulfillment model etc
Charges are dynamic and ever-changing
Charges to be adjusted at every order-level / item-level and warehouse-level
Mostly unlinked to sales invoice with exceptions like Shipping Fee
Sales Returns Returns initiated by the marketplace vs. returns received by the seller – when should it be recorded
Recording accounting vouchers for replacement orders
Simple Return Voucher or Credit Note
Refunds & Reimbursements Claims vs settled reimbursements
Refunded orders but not settled to seller
No impact
Inventory Stock transfer from the main warehouse to channel warehouse
Recalls from channel warehouse to the main warehouse
Inter warehouse movement done directly by marketplace channel
Damaged and unsellable stocks accounting treatment
No impact
TCS TCS is implemented only for marketplace eCommerce business
Accounting entries of TCS
TCS on return orders
Reconciling TCS with GSTIN portal
No TCS impact

  • accounting software may not have such large data handling capability. This may cause a threat of loss of valuable data, incorrect reports and delay in filing your returns.
  • Reporting your online business comprehensively in the way you would like to see it.
  • Ease of Use / Accessibility 
    1. Simplicity is the key to good accounting software. Ensure that you take a detailed product demo and list down all your queries at the time of the demo. 
    2. Most software will provide you a limited free trial period. Make maximum use of this trial with your actual data and see if this is working for you or not.
  • Cost
    1. Acquisition cost – Initial cost and annual maintenance / AMC charges
    2. Operational cost – Server cost
    3. Support cost 
  • Support and Implementation
    1. While most accounting software comes with standard support channels, it’s important to scope out your implementation requirements and support requirements with definitive timelines.
    2. Check the ratings and reviews to see how the software company fares on customer support and implementation.
    3. Customization will be required especially when you are into this complex business of eCommerce marketplaces. 

Tally .ERP 9

Tally .ERP9 is undoubtedly the leader in Accounting software in India. 

It is a windows-based enterprise resource planning software. The software handles accounting, inventory management, order management, tax management, payroll, banking and many such requirements of the business. It supports all day-to-day processes from recording invoices to generating various MIS reports.

Tally boasts of 6 million overall customer base out of which 2 million are with an official Tally license. 

Tally does not have any direct integration with any eCommerce companies in India and hence the commonly used workaround is the import and export of spreadsheets which may not be a good practice.

eVanik OWS is the only tool that has an automated chrome extension based integration with Tally ERP9. This means that there is no need for you to manually upload or download vouchers. No 3rd party module (TDL) needs to be installed into your Tally license. All ledgers, SKUs get mapped or created automatically through eVanik. And the GST reports generated on your Tally will be 100% accurate and error-free.

The biggest limitations of using Tally are:

  1. Limitation on data. Experience says that after posting 50-70k vouchers, the software tends to slow down. Generating GST and other reports take a long time.
  2. Tally is a single company / single branch software. Branch accounting is not available
  3. Its an offline and desktop-based software and cannot be accessed from a remote location
  4. The multi-user version of Tally can run only if all the users are on the same network.

QuickBooks Online

QuickBooks Online provides direct integration with very limited marketplace channels. In the Indian eCommerce context, this is even more restricted. However, if you have the technical expertise, you can do an API integration of a few of your marketplaces (that provide API) directly with QuickBooks Online.

QuickBooks offers on-premises accounting applications and cloud-based versions with features like expense tracking, tracking bills and due dates, and reporting

Currently priced at Rs. 4,800/- per year, QuickBooks comes with a 30-Day Free Trial. The “Simple” edition of QuickBooks Online limits to 1 Billable User, 250 Charts of Accounts, lack of custom reports and no multiple branch accounting options.

Alignbooks

Alignbooks leads the house when it comes to eCommerce accounting in India. Alignbooks is a Delhi based company focused on SMBs. Alignbooks recorded 1000 new customers within the first year of its launch.

The biggest advantage of this software is that it is completely automated and integrated with eVanik OneWorld Suite. Server-based APIs between Alignbooks and eVanik ensure real-time and automated transaction posting without any manual intervention. Reports are highly customized and the support is available 24×7 from the company. It’s Multi all the way: Multi-User, Multi-Company, Multi-Location, Multi-Branch and unlimited transactions.

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Zoho Books

Zoho Books is one of the most sought after cloud-based accounting software in India and now globally. Zoho Books provides end to end accounting and also has a very simple and useful mobile application in Android and iOS.

zoho books

The pricing of Zoho Books is very attractive for small businesses The standard edition comes at just Rs. 2,499/- per year with a restriction of 5,000 invoices annually and the premium edition comes at Rs. 19,999/- per year with 25,000 invoices. The pricing steeps up with more number of invoices.

Ecommerce integrations are limited to sales orders and returns. Payments from marketplaces can be managed through their bank feed integrations. Cons – Single Branch, restriction on the number of transactions, limited users, etc.

NetSuite

NetSuite is one of the leading solution providers of cloud-based business management software. NetSuite helps companies manage core business processes with a single, fully integrated system covering ERP/financials, CRM, eCommerce, inventory and more. NetSuite is focused on strong compliance management and designed for large enterprises. If you have a global and large enterprise business with multiple verticals, NetSuite is worth checking out.

Pricing of NetSuite may be one major constraint if your business is into early or growth stages. NetSuite’s cost depends on several factors including the selected product configuration, add-on modules required, total user count and contract duration. NetSuite’s base license pricing begins at $999 per month with general user access listed at $99 per month.

NetSuite comes with a basic integration with eVanik OneWorld Suite.



Xero

Xero is another popular online accounting software. Right from the Xero login page, the overall experience of the web and mobile version is fantastic.

Xero comes with integration with over 800 third party apps and a very hands-on expense management module. Xero boasts of over 2 million subscribers. The UI of Xero is one of the most beautiful in this segment.

Xero also claims to provide a reconciliation of Amazon FBA transactions and the Amazon Seller Central can get integrated with Xero. Besides Amazon, integrations with Alibaba, Etsy, and eBay are also available.