You’re a product based company and have worked tirelessly to apply proper inventory accounting methods. You’ve got a good handle on your margins and the steps and costs associated with each part of your product lifecycle. However, things may still be quite complex, and maintaining records is a struggle. Now is the time to apply an inventory system to help manage, track and display current inventory status in a less cumbersome way than your tried and true spreadsheet.
What Is An Inventory System?
By definition, an inventory system is a stand alone, ERP (Enterprise Resource Planning) system that focuses on the inventory lifecycle. Some key items these programs manage are:
- the purchase of the products to the receipt of those products
- the assembly of the products from raw materials to finished goods
- the sale of the products - from a sales order from the customer, to a pick/pack/ship center, to an invoice sent to the customer
- the controlling of the inventory: it provides an understanding of what the total count of inventory is on hand, amongst all your resources from an inventory evaluation process. It also supports reporting on the products as well as manages the reordering and purchasing of those products.
In short, this system/program is focused on your inventory accounting/cost of goods sold accounting. That's what the system does.
When Should You Consider Using An Inventory System?
If you are still teetering toward the side of maintaining your trusty manual spreadsheet systems, let us help you consider a few items that point toward needing a system in place. A few key items that will help you decide if you’ve reached the complexity level that requires an inventory management system are:
- Complexity of the Inventory and Process in General/ A Lot of Pieces Are Involved:
If you're in the manufacturing space and have raw materials and/or employ labor to create finished goods to sell, you’re officially at a complex level of inventory management. The calculation of all of the various inputs involved in understanding each piece of the process will be eased by having a system in place.
- You're Not Really Clear On Your COGS or Want Them To Be More Precise:
For companies with more complexities in areas like landed costs (freight-in costs, labor, etc.), it is best to err on the precise side, when it comes to costs of goods sold. From a margins or general assessment standpoint, you may need to dig into the weeds a bit more. These systems are great at providing a more precise view of your COGS.
- Supporting The Functionality Of The Business:
For help with ordering and being able to stay ahead of the business needs, an inventory system will clearly show you where you stand on counts and status. This beats manually going through your data to figure out if it makes sense to reorder now, later, or whether or not you are equipped to fulfill a large order in the works.
- The Level of Reporting You Require:
Sometimes the classic report from your spreadsheets or Quickbooks just doesn’t cut it. You will need something more precise to pull from. Especially when you need an understanding of your Inventory velocity, aka, the amount of turn on a week-over-week basis. Having better reporting, means better decision making.
- Number Of Locations Involved in Fulfillment:
For the company that pulls inventory and sells from a number of different locations, an inventory system will help you out a lot. If you have multiple 3PLs (third party logistics) at play, having more accurate tracking of the costs behind each in a clear view will help out a lot.
- Multiple Team Members Involved In Different Functions Of The Inventory Process:
An inventory system will allow better visibility over all of these functions. From purchasing, to selling and seeing the segregation of duties within each.
- Need For Creating More Efficiencies In Processes and Automations:
Like the other systems we recommend and use, these are cloud-based, integrate nicely with other systems like Shopify, Amazon, and sync with accounting and fulfillment systems to pull data through each seamlessly. For the business hosted by Shopify, shipping through ShipStation and accounting with Quickbooks, you’re all set - you’ll see sales orders, understand shipments and more. All in one spot and without entering the same data twice.
Remember, no one gets an award for managing the most detailed, manually-inputted spreadsheet to track their inventory. Keep it as simple as possible. If you don't have proper control of your inventory - where it is, how much is on hand and how much you need, you’re not running your business very effectively and you have a 100% chance of having grumpy investors, when their investment isn’t tracked properly. It is relatively common for businesses to lose track of inventory between locations, because their system of tracking it isn’t dialed in. That doesn’t make it OK. Inventory is your biggest asset, so treat it as such.
Which System Should You Use?
Once you’ve run through our checklist of items that may suggest it is time to implement a formal system, which one should you choose? We recommend DEAR Systems. Its basic subscription is a couple hundred dollars a month and includes five users. For that cost, it is very much worth it when it comes to the features it provides and the benefits to your business. In a nutshell, DEAR can do the following:
- supports the delineation and segmentation of complex inventory details
- shows inventory assemblies
- narrows down and shows the intricacies of your COGS
- adds in finite COGS aspects, like landed costs
- shows controlling locations
- shows you what is on hand, and at which location
As we mentioned earlier, DEAR is cloud based and integrates well with EDI partners, CRM databases, etc. If you are using this system correctly and leveraging its data you can go from zero dollars to millions in revenue. It is flexible and functional for all sizes of businesses, to say the least.
Who Manages The Inventory System?
So you're officially on board and you’ve signed up. Now what? Automation is inevitable with the efficiency of the system, but it won’t run itself. Now it is time to get your operations in order. The system is only good as its initial set up and data entry. This is where you will need to put an operations point of contact on the case. You will need to know what level of support is involved for your business. Some businesses may benefit from operations consultants like Siddhi or Rodeo CPG, others may do well with their own team members that can handle the data entry. This will depend (again) on the size and complexity of your business.
The person in charge of this important task will need to have a handle on managing purchases, the various steps in fulfillment, and have an understanding of what goes on in each warehouse. Inventory counts will need to be updated in real time in order for your business to benefit from pulling these reports. You will also need to have the initial data to enter in the first steps of set up. All aspects of your COGS need to be included for the foundation to be on point.
If a big operations consulting firm or in-house option doesn't feel quite right, Accountfully sets up each client for success in our inventory accounting management processes. Remember the all important Inventory Workbook? This is the key to a simple transition from intricate spreadsheet to complex (and wildly beneficial) inventory management system set up. We are able to not only help with the initial set up, but can maintain and manage the system as it is integrated in the business operations. We also translate and pull reports to help with major decision making. Pretty cool, huh? Since we have great relationships with many of these operations consultants and integrate into our client businesses well, a marriage of the three works great too; Accountfully, your operations team and a consultant, all work together to keep your inventory working at maximum efficiency.
In short, when the complexities of your inventory based business get to the point where you are doing too much manual work, it is best to employ an inventory system. This will help better understand and account for your COGS and automate many time consuming tasks. Using a cloud based system, like DEAR, that integrates seamlessly with other systems like eCommerce websites, other fulfillment channels and accounting software, will provide more accurate reports, from which you can make more informed decisions.
When it comes time to implement the system, Accountfully’s team will help set you up for success by providing the correct data to enter and the ongoing support to maintain the system with real time information.
Ready to get your inventory squared away? Keep your investors happy and better plan for the future? Tell us about your business. We'd love to chat more.