So, you’ve built a great product and selling it to the world. Fantastic!Perhaps you are importing/exporting, providing assembly of various parts before shipping it out. You might be selling medical devices, electronic equipment, clothing items, or perishable goods. You could be selling these via a number of channels. The increased scale of your business, one that perhaps began in your home garage, is now taking off and you need to better track what you’re selling.
Stock on hand
As you’ve been getting larger, and your warehouse has become more complicated, you’ll need a better method to track your stock on hand. This refers to the amount of goods such as parts, materials and finished products available at any point in time. To run your business better you may be starting to ask some of these questions already: what is the market demand for my products? Am I carrying too much stock? How can I identify my hard to move stock so I can encourage my sales reps to campaign on those? The trick is to strike the right balance of stock across your warehouse. Stock can expire, go out of date (or out of fashion!) or get damaged. So how do we track it all? To do this, you’ll need to start thinking about an inventory management system.
Cost of goods sold (COGS)
In any case, in your your financial accounting system you’ll be be tracking your product sales, and no doubt you’ll be monitoring which products are selling the best with an eye to identifying trends over time and looking to the future. One thing your accounting system will be tracking are cost of goods sold (COGS). This refers to the total cost of products sold during a specific time frame. Although the products in your warehouse are an asset they’re not actually expensed when you purchase or produce them. Instead, they go into an asset account when they are sold. The value of the product (the cost, not the sell price) is moved from an asset account to an expense account called cost of goods sold. Your COGS appears on your profit and loss statement and is used for calculating inventory turns.
As you investigate inventory management systems there are some terms you’ll come across. One of them is bin which is where your products are located within your warehouse. Think of your house: you’ve got your socks in your sock draw, your ice cream in your freezer, and your vegetables in that crisper compartment in your refrigerator. In your house you know where things are, and a bin does just that. A bin in an inventory system is the smallest addressable unit of space in a warehouse where your goods are stored. Now, things can get complicated: you can have bins across multiple warehouses, sub-bins, and all sorts of bin numbering systems. An inventory system will make sense of this for you, and make sure your warehouse doesn’t end up looking like that kitchen drawer full of mismatching tupperware containers. You know, the one where none of the lids match… who wants that, right?
One thing you will need to consider are your costing method options. There are different reasons for choosing one over the other, with implications for each. And, most importantly, it is important to know if and how your prospective system will handle this. A term you might encounter is FIFO or ‘first in, first out’. This is a method of rotating inventory to use the oldest product first. Another method is average cost, which recalculates an item’s cost at each receipt by averaging the actual cost of the receipt with the cost of the current inventory. If you’re selling perishable goods with expiry dates you’ll also need first expiring first out (FEFO). Most systems will handle batch and serial number tracking. Batches are useful for those selling food, and serial numbers are very useful for items such as electronics and medical devices, to name just a few.
Another term you may come across is landed cost. This is a costing method that includes the purchased cost plus other associated costs to get your product to your warehouse. These include transportation costs, import fees, duties and taxes. Different landed costs include by weighted value or weighted volume, or you might want to assign a specific landed cost per item.
Considerations for wholesalers:
Electronic Data Integration (EDI)
To get in with your big suppliers you’ll need to consider an Electronic Data Integration (EDI) connection. This is a data exchange used by large companies that have multiple stores throughout the country or world. Examples are Coles & Woolworths (for food and beverage products), Iconic, Myer, David Jones and Nordstrom (for fashion businesses), Bunnings (for manufacturing businesses) or Houzz and Wayfair (for lifestyle products businesses). To interact with these larger stores efficiently you’ll need to use a system that can connect electronically to their platform. Since these larger trading partners have huge number of customers, trading in large volumes, they need to know exactly when you’ll be sending their order to them, when it will arrive and they’ll also want to know it is labelled correctly (using Advanced Shipping Notices). If you don’t handle this correctly you run the risk of being “black marked” and you may lose your accreditation with these larger suppliers. Get it right however, and you’ll be on your way to taking your wholesaling business to the next level.
Business to business (B2B) portals
Ecommerce for wholesalers is also becoming a norm, they need to be able to ‘self serve’ from your website. A business to business (B2B) portal is therefore a must – you can use this area of your website to invite your wholesale customers to join your own branded portal with your unique domain name. Here you can set up multiple catalogues and control which products you sell to which customers.
Third Party Logistics (3PL)
Now that you have your EDI integrated with your larger buyers, you’ll need to consider a Third Party Logistics (3PL) to dispatch these quickly, eliminating the need for manual data entry and in turn giving better customer service. It should reduce your shipping costs, too.