Aug 13, 2021 | Blog, Warehouse Operations
What is a perpetual inventory system?
By: Aaron Rubin, Founder & CEO of ShipHero
Physical inventory counts are an extreme time sink. Employees have to walk around and manually count inventory levels to double-check inventory records. Not only are these physical counts a time-consuming way to track inventory, but they can also be inaccurate due to human error.Â
Periodic inventory systems that use this manual inventory management system are slowly phasing out to be replaced by more up-to-date processes that are less prone to error. Modern inventory systems save time for employees, so they don’t have to count items in storage bins when they have more vital work to do.Â
A system that has gained popularity as technology has advanced is called perpetual inventory accounting. Perpetual systems are technology-driven solutions that allow for your different software platforms to share information with each other. Companies that take advantage of this new, interconnected system can benefit from things like real-time data, point of sale (POS) integration, more accurate inventory balances, and significant amounts of saved time for employees.
Perpetual inventory systems work by tracking inventory directly through your point of sale software and inventory management software. By leveraging things such as barcode scanners and transaction data, the system automatically tracks stock and inventory items as they are acquired in the warehouse or sold. You can still hold inventory counts, but only to account for potential damages to inventory or theft, not to track your entire inventory system.
Advantages of a perpetual inventory system
There are a handful of excellent advantages to a perpetual system. Due to its automatic nature, as soon as the merchandise is sold or acquired, your COGS account (Cost of Goods Sold) is immediately updated. Through real-time database updates, accounts payable and accounts receivable can instantly and accurately report and analyze inventory and sale data. Perpetual systems also leave a paper trail for all received shipments and purchases, helping with audits and fraud prevention.
Manual counting of inventory numbers isn’t used in perpetual systems to the same extent as other systems. Implementing a perpetual sale system that automatically sends inventory data to a central database saves your employees time and your company money. Automatic systems also cut out human error, saving you money on poorly managed and miscounted inventory.
Disadvantages of a perpetual inventory system
The barrier to entry for perpetual inventory systems is their initial cost. Purchasing all the needed items such as the perpetual inventory software, RFID or barcode scanners, and other additional hardware has a high average cost for companies.Â
Costs for training are also a consideration when considering the initial investment into a new perpetual system. While you can recoup initial costs in the form of wage savings and inventory management savings, the initial investment may still be too much to justify depending on your stock turnover and inventory.
What is the FIFO perpetual inventory method?
First-in, first-out (FIFO) processes act as if the first item you received will be the first item sold. In FIFO perpetual methods, the FIFO standards are assumed within the software, indicating that the most recent costs of purchased merchandise are the first to be charged against revenue. Perpetual FIFO is extremely common and often reflects the proper flow of goods through a company.
What is the LIFO perpetual inventory method?
Last-in, first-out (LIFO) processes assume that the last unit you receive will be the first unit that you sell. Opposite the FIFO method, the last cost of merchandise is what you charge against your company’s revenue. Often this method is used for specific accounting purposes, such as tax breaks.
How does a perpetual inventory system differ from a periodic system?
Unlike the automatically driven perpetual systems, periodic systems rely on occasional physical inventory counts to keep track of stock and COGS. Periodic systems require significantly more manual involvement in inventory tracking and data updates. There are a few key advantages to consider for automatic perpetual systems:
Keep up with data in real-time
Perpetual systems use technology to update inventory data immediately as items are sold and transferred. Instant inventory updates mean that your teams can perform up-to-date analytics at any time while having faith that their inventory numbers are close to accurate. Real-time updates also empower your team to create more consistent, accurate reporting to keep an eye on product and sales performance.
Leave a paper trail
Due to tracking all inventory movements through digital software, you leave a reliable trail of data. Paper trails allow for easier audit compliance, fraud detection, and more accurate insights. Tracking can also help you get an overall view of your supply chain, helping you find areas where you can improve your practices.
Lower inventory management costs
Perpetual systems are a considerable investment upfront; however, they will lead to lower inventory management costs over time. Manual systems such as inventory counting are needed significantly less often or not at all. Real-time analytics means that you can prevent things like holding costs as well, saving you money.
Easily investigate stock level discrepancies
Since perpetual systems are constantly updating, you can more quickly see discrepancies in stock data. You can detect things like theft, damaged goods, and fraud through missing stock and inventory. Finding stock discrepancies faster can help give insight into issues that may become much larger if left unhandled, such as store security issues.
Leverage demand forecasting to grow your business
Keeping accurate and up-to-date stock information helps you forecast demand. Through reliable analytics and historically tracked inventory data, you can detect trends in your demand and make changes to your purchasing practices accordingly. Preventing running out of inventory during high-demand seasons like the holidays can help your company’s profits significantly.
When to use a perpetual inventory system
Not all companies require a fully-fledged perpetual inventory system, especially if they have small amounts of stock with little variety. There are specific places in which perpetual inventory systems do shine, including businesses with high inventory turnover or quickly growing companies.
Your business is growing rapidly
When your business is growing very quickly, implementing a perpetual inventory system can help track your new and growing stock. By implementing a perpetual system as things start growing for your company, you can keep a paper trail to track and project continued growth. Deciding to add a perpetual system set up to your company sooner rather than later can also mean saving future training and rollover costs.
You have dozens of SKUs
Dozens and dozens of SKUs are hard to track, especially when you have to go through and correctly note them manually. More SKUs mean more potential for human error and longer hours to try and track inventory data. Perpetual systems don’t struggle no matter how many SKUs you have, making them a great option if you have a large inventory variety. For example, grocery stores almost always use perpetual systems to track all of their various products.
Inventory turnover is high
Slow, manual counts don’t often cut it for analytics and tracking when your company has exceptionally high inventory turnover. It is harder to track trends and demand when your inventory moves quickly, so a real-time system is crucial for accurate data collection.Â
When stock is turning over fast in your company, it also can lead to lost inventory. A perpetual system helps keep precise data tracking and prevents things like theft.
Formulas in perpetual inventory
There are a few crucial formulas used within perpetual inventory systems. Cost of goods sold (COGS) and gross profit formulas help make sense of your data and give your company data for future business decisions.
The Cost of Goods Sold (COGS)
You can calculate the cost of goods sold (COGS) first by adding your beginning purchases and inventory, which is the cost of goods available for sale. Next, you will find the ending inventory and subtract that from your initial numbers. These numbers are tracked easily and automatically in a perpetual inventory, which means you can pull a continually updated COGS report.Â
Beginning Inventory + Purchases – Ending inventory = COGS
Gross profit
The gross profit is your actual profits after subtracting how much your operating expenses cost you during a period. To find this number, all you have to do is subtract your COGS from your total revenue.
Revenue – COGS = Gross Profit
Conclusion
Perpetual inventory systems can be an investment to implement, but they have many strengths over periodic systems. While periodic inventory systems can be suitable for companies with lower turnover or less product variety, perpetual inventory systems can provide significant advantages to companies that make many sales or have a broader range of product lines.Â
Manual tracking used in period systems takes time and is prone to human error. Perpetual systems track your inventory data in real-time, allowing your team to make faster reports, more accurate analytics, and save time in manual counting by leveraging technology. While the initial investment may seem daunting, the long-term profits seen from saved money in areas like inventory management make perpetual systems an excellent move for many growing companies.
Schedule a meeting today with our experts to learn more about our WMS software built for ecommerce brands & 3PLs looking to run their best warehouse and how ShipHero works to ensure that organizations invest in the solutions that match their needs, to improve productivity, revenue, and success.Â
Click HERE to Schedule a Meeting Today
Aaron Rubin, Founder & CEO
ShipHero
About the author: Aaron Rubin is the Founder & CEO of ShipHero. He is responsible for planning and executing the overall vision and strategy of the organization. Rubin’s greatest strengths are leadership, change management, strategic planning and a passion for progression. He is known for having his finger on the pulse of ShipHero’s major initiatives, his entrepreneurial spirit, and keen business acumen. His leadership of ShipHero is grounded in providing excellent customer service that drives improved business operations. His passion for ShipHero comes from the culture and his ability to have an impact on the lives of employees, customers, partners, and investors.
Follow Aaron on Twitter & LinkedIn.
Aug 6, 2021 | Blog, Fulfillment, Warehouse Management Software
By: Aaron Rubin, Founder & CEO of ShipHero
Ecommerce websites are constantly shifting to keep up with buyer expectations. With competition from gigantic online stores such as Amazon, keeping up with ecommerce giants can be tricky. Luckily, there are a few key ecommerce trends that online retailers can look to in order to keep up with the wants of online shoppers.Â
With the rise of the ecommerce industry, more customers than ever are making purchases online. While brick-and-mortar retailers aren’t dead yet, many of them are seeing their customers flock to online stores. With a rise in ecommerce sales comes ecommerce trends.Â
Here are the 15 trends to keep in mind to help grow your ecommerce business.Â
AI helps improve ad campaigns and messaging
Top ecommerce stores are implementing AI and automation to help boost their ad campaigns and messaging across marketing initiatives and social media platforms. Through machine learning and artificial intelligence technology, companies have been able to make hyper-personalized advertising allowing for tailored messaging to customers. Specialized messages can include content specifically targeted at the user’s interests or product recommendations that fit their previous browsing history.
On top of being able to personalize messaging to specific users, AI can track the performance of these campaigns and let marketing leads know how each initiative is performing. By carefully examining you and your competitor’s marketing success, automation can pick out trends from the complex and time-consuming data, something hard for a human to discover manually.
The customer experience must be personalizedÂ
While AI is helping us customize our marketing experience for customers, we have to tailor the process from start to finish. For example, when searching through an online marketplace, users are more likely to purchase items they are interested in if they find them through sidebar suggestions based on their browsing habits throughout your site. Personalized product recommendations can help prevent cart abandoners and can help you sell more inventory too!
2-day shipping becomes the normÂ
Retail giants like Amazon have used their significant logistics network to ensure that 2-day shipping has become the new normal. Longer shipping times, though sometimes tolerated, are not going to be seen as the usual farther into the future. Finding shipping and logistics solutions to keep up with this 2-day expectation is difficult, but it is, unfortunately, a strong trend that will separate some sellers from their competitors. For ecommerce merchants that want to leverage 2-day shipping, consider working with a 3PL.Â
But customers will be hungry for 1-day and same-day shipping
Big ecommerce sites have made it possible for 1-day and same-day shipping, especially during the boom in online shopping during COVID-19. Customers can easily have food, snacks, household goods, or other products delivered to their homes overnight or even on the same day.Â
While many smaller companies have trouble keeping up with this high bar, many people have found the convenience of it even better than visiting a brick-and-mortar store to grab an item.
Chatbots improve shopping experiences
Chatbots, often powered by automation, can help guide customers through their shopping experience. By answering frequently asked questions or directing the customer to their desired page, chatbots can help users through any confusion or concerns without taxing your customer support staff. The answers are instant, customizable depending on your preference, and work on multiple devices.
Headless commerce drives innovation
Headless commerce, where the frontend and backend of your website are separated, can help you drive innovation on your site. The flexibility of being able to customize, brand, and play with your customer-facing front end while not harming the utilities within your backend lets companies make more considerable changes without stress or danger.Â
Separating your front and backend also helps improve customer experience by enhancing the website functionality and speed.
Subscriptions keep customers coming back
Subscriptions create a commitment, whether with SaaS in b2b, or monthly product boxes in b2c. Subscription models keep customers interested in your products and brand.Â
Even when your subscriptions aren’t your main product line, they can help buyers get connected and familiar with your messaging and quality, making them more likely to open their wallets when looking at your other product lines. Subscriptions are also a regular reminder that your business exists, keeping you at the forefront of a customer’s mind.
Customers want sustainability
With millennials taking up much of the ecommerce buying power, it is crucial to tap into things that often sway them. A Nielsen report has shown that 73% of millennials would pay more for sustainable products. Some examples of industries that benefit from this trend include upcycled products, consignment, and local p2p transactions. Tapping into these markets will require new initiatives and green product lines to appeal to these wants.
Mobile shopping is here to stay
Mobile devices have become more and more prominently used when shopping online, so much so that Insider Intelligence stated that mobile commerce would reach $488.0 billion (44% of ecommerce) by 2024. One-click shopping and easily accessible social commerce ads on apps have driven mobile shopping. In order to tap into the mCommerce market, it will be essential to make sure your website has mobile-friendly shopping or a mobile app.
Gen Z becomes more of a focus
The oldest of the Gen Z era are now in their early 20s, meaning they are quickly becoming more common customers within the ecommerce world. For a generation that has always known the conveniences of ecommerce and online ordering, a smooth customer experience will be vital. Gen Z is more partial to social commerce, meaning Facebook, Pinterest, TikTok, and Instagram are key places to garner their interest.
User-generated content remains keyÂ
Influencers have grown in popularity within marketing, especially when selling products through social media sites. Having a trusted celebrity or influencer tout your product can immediately get thousands of eyes on your business and markets much more directly to a group of consumers than SEO or content marketing.
TikTok and Instagram shopping become major sales channels
Both TikTok and Instagram are rising as major sales channels, especially with Gen Z starting to become a larger and larger part of the ecommerce market. Pew Research Center saw that 48% of United States adults between 18-29 years old use TikTok, a number that falls dramatically to 20% in the 30-49 age range. When marketing to younger consumers, both TikTok and Instagram will be a vital piece of the puzzle.
With Instagram and TikTok investing significantly in commerce capabilities, ordering directly from these apps is going to become much easier.Â
Brick-and-mortar retailers aren’t dead
Score saw that 55% of those who do online shopping prefer to buy from stores with a physical location rather than an online-only shop. Being able to do returns, try on clothes in the store, or see products in person is still valuable to consumers. You shouldn’t overlook the advantages of a brick-and-mortar location, especially in specific sectors such as apparel.
Buy Now Pay Later gains more traction
Buy Now Pay Later has become a wildly popular payment method for consumers. Services like Affirm, Sezzle, and Klarna make it easy for customers to make purchases on installment payments. Shopify has implemented the option natively with Shop Pay.Â
Apple Pay is launching a similar service. Having these installment-like payment options helps those without credit cards finance payments and creates accessibility for many shoppers. Having flexibility in payment systems also means that customers can make big-ticket item purchases that they may not have entertained otherwise.
The checkout experience must be easy and simple
Many platforms such as Shopify have made the checkout experience extremely smooth. Ensuring an easy and painless checkout can prevent cart abandonment and improve the crucial last parts of the customer experience. Poor checkout experiences are also more common on mobile devices, so make sure this process is simple across all of your platforms!
How ShipHero grows ecommerce businesses
Are you worried about keeping up with these ecommerce trends? ShipHero can help. Our software connects with your warehouse, outsourced shipping processes, and 3PLs to help you deliver your ecommerce. We help you elevate your experience through:
Fast shipping speeds
ShipHero offers standard, expedited, and overnight shipping so that you can keep up with top ecommerce retailers like Amazon and Walmart. We facilitate fast shipping without the hassle and frustration. ShipHero has no hidden fees, and we help you find the cheapest overnight options to save money.
Multi-channel fulfillment
Our software can help you handle your order fulfillment through a nationwide network of warehouses. By creating distributing processes throughout these warehouses, delivery delays are minimized, and orders arrive at your customers quicker. Multi-channel fulfillment allows us to offer overnight and 2-day shipping without the worry.
Easy returns management
Returns happen. When managed correctly, they can help you grow your sales and create repeat customers. Through built-in self-service options for your customers and easy label printing through connected shipping accounts, returns become simple for customers.
Conclusion
Keeping up with ecommerce trends is crucial to staying on top of the competition. From AI and chatbots to a heavier social commerce presence, adapting to the new normals can help you stay relevant and bring in new audiences. To give yourself an edge, implement technology and software such as ShipHero to help facilitate faster shipping and smoother fulfillment processes.
Schedule a meeting today with our experts to learn more about our WMS software built for ecommerce brands & 3PLs looking to run their best warehouse and how ShipHero works to ensure that organizations invest in the solutions that match their needs, to improve productivity, revenue, and success.
Click HERE to Schedule a Meeting Today
Aaron Rubin, Founder & CEO
ShipHero
About the author: Aaron Rubin is the Founder & CEO of ShipHero. He is responsible for planning and executing the overall vision and strategy of the organization. Rubin’s greatest strengths are leadership, change management, strategic planning and a passion for progression. He is known for having his finger on the pulse of ShipHero’s major initiatives, his entrepreneurial spirit, and keen business acumen. His leadership of ShipHero is grounded in providing excellent customer service that drives improved business operations. His passion for ShipHero comes from the culture and his ability to have an impact on the lives of employees, customers, partners, and investors.
Follow Aaron on Twitter & LinkedIn.
Jul 16, 2021 | Best Practices, Blog, Warehouse Management Software
By:Â Maggie M. Barnett, Esq., COO at ShipHero
Involved procurement strategies are complex and too often ignored by top-level executives. Supplier relationship management (SRM), for example, is a powerful tool that businesses can use to help evaluate vendors and streamline processes to help create a more efficient and beneficial relationship.
A study by PwC showed that of companies that implemented SRM strategies, 50% mentioned more efficient processes as a significant benefit of the strategy, and over 40% cited inventory reduction, better customer satisfaction, and more sustainable processes and products.
One of the main concepts of SRM is to create better relationships with suppliers to enhance your workflow and working relationships. Rather than just working independently from your supplier entirely, you create a closer relationship that leads to improved reliability, trust, and efficiency. By developing these partnerships, you gain a competitive edge and create a more positive working environment for both parties.
What is supplier relationship management?
Supplier relationship management is the process of examining all suppliers’ performances and measurables to see how well they match your company’s goals while also coordinating strategies with these vendors to improve workflows and collaboration. Through professionally developed partnerships with your suppliers, innovation will flourish, and cooperative, streamlined processes will save time and money for both companies.
The importance of a supplier relationship management
Fostering improved relationships with your vendors not only can give you a competitive advantage but can prove to have significant cost savings for your company. By examining your supply chain and the suppliers within it, you can create better SRM strategies that will protect and advance your business through a handful of advantages.
Evaluate if suppliers are meeting performance expectations
Supplier management helps you carefully examine if your vendors are meeting procurement expectations. Upon looking at supplier data and KPIs, you may find that they are not meeting all initial goals. Taking a close look at these insights can help you find the best-performing suppliers that you should foster more intimate relationships with and those that may not be a good fit.
Find improvement opportunities with existing suppliers
Strong relationships with your suppliers are essential for collaboration and mutual growth. Looking at the current supplier strategies in place and finding ways to innovate your process with your distributor can help both businesses flourish. By finding areas where your KPIs aren’t quite hitting the mark, you can work together to improve and monitor those metrics.
Reduced costs
The resources required to set up new relationships and contracts with suppliers can be costly and complex. Through supply chain management, you can foster relationships with strategic suppliers to create long-term, mutually beneficial relationships that save both parties money.
Increased efficiency & quality control
Growing more high-quality partnerships with suppliers means that operations between companies become more streamlined and efficient. Through long-term relationships, your teams learn workflow tactics and new approaches to the procurement process that saves time while still ensuring quality production.
Stable pricing
As buyers work more closely with their suppliers and grow a positive relationship, disputes, and hostile negotiations become much less common. A happy working relationship is worth a lot to both companies, enough so that it can create stable pricing agreements as your company commits to continue bringing business to vendors without volatility.
Supplier consolidation
Through the process of SRM, you start examining supplier segmentation within your supply base to analyze better your interactions with individual vendors and those supplier capabilities. Within your supplier management process, you will see which suppliers you can consolidate down to and which may be less ideal import sources.
Prevent supply chain disruptions
Working closely with your manufacturers can help prevent issues if supply chain disruption events occur. With strong relationships and long-term protective strategies, you can ensure that you have a stocked inventory and your suppliers are prepared as best as possible for unexpected events.
Ways to improve supplier relationship management
Improving supplier relationships doesn’t have to be complicated. Here are some ways you can improve relationships with suppliers.
Value mapping
By examining value mapping such as vendor risk and revenue growth potential, you find truly what a supplier’s contribution will be to your supply chain. You protect your company when you look at the actual value of a supplier beyond just the product price the company hides behind.
Top-down approach
To ensure SRM best practices across the company, getting buy-in from stakeholders and top-tier executives is essential. Like with customer relationship management (CRM), business leaders can easily undermine the entire process without a total company commitment.
Spend optimization
When looking at your SRM strategy, make sure you are critically examining cost savings and cost modeling. Through value mapping and supplier analysis, you can find ways to optimize your company’s spending better, ultimately improving its bottom line.
Risk mitigation
Suppliers can be a considerable risk for a company if you don’t do the proper research into their previous work and expertise. Ask for references, and examine their financial performance, especially in comparison to competitors and their pricing. A wholesaler with the lowest price may seem attractive, but paying a bit more for more reliable service is a big deal for the strength of your supply chain.
Positive ROI
Proving the ROI of SRM processes can get buy-in from the C-suite and stakeholders. Through case studies, value mapping, and risk assessment, demonstrate and continue to back the positive ROI that these processes can bring to your company.
Technology makes supplier relationship management simple
SRM software helps communications with vendors and helps streamline and add visibility to crucial processes like invoicing, payments, approvals, and collaboration. By empowering your team with technology and software, you can take a lot of the risk out of these processes and ensure that supplier processes run smoothly and on schedule as much as possible while being transparent and gathering vital data.
Make timely payments
Just like you want your goods or services on time, suppliers rely on being paid promptly. If something goes wrong and payment will be late, communicate directly and openly with the supplier as soon as you know of the issue.
Implement a supplier information management (SIM) system
Keeping all of your supplier data tracked accurately can be overwhelming, which is where a SIM system comes in handy. All of the information you may need about a supplier, such as contact details or transaction data, is stored and managed within your SIM system. Creating an accessible and visible way to collect this data makes SRM easier and more effective overall.
How to evaluate supplier performance
Not sure if your current suppliers are meeting their requirements? Here are some ways you can evaluate their performance.
Check if SLAs are met
Continuously evaluate missed deliverables and incomplete orders. Make sure that products or services received are of the quality expected on a continuous basis. Ensuring SLAs are met is crucial to supplier performance.
Create a supplier scorecard
Supplier scorecards can be favorable for both the vendor and your evaluation methods. By setting transparent goals for your suppliers, you both will know what you are working towards and the pain points of the process.
Use benchmarks
When deciding how you will benchmark your suppliers, consider what your goals are from your supplier scorecard or other value strategies. Having measurables to look at for suppliers won’t always give a complete picture but can help point out prominent trends, strengths, and weaknesses in your supplier process.
Review & update supplier contracts as needed
You and your supplier’s needs and capabilities will most likely change over time. Rather than be resistant to change, review and update your contracts with your suppliers as situations shift for either party. Instead of keeping unhealthy expectations, morph these agreements to best fit needs across the board.
Conclusion
Supplier relationship management is crucial for a company looking to improve its bottom line and develop its procurement process. Creating solid and long-term relationships with valuable, low-risk suppliers can create a stable and reliable supply chain that will continue to fuel your company for years to come. Developing these partnerships can not only protect your company from future supply chain disruption but from having to create new, costly contracts with potentially high-risk suppliers.
If you’re new to ShipHero Fulfillment, please schedule a meeting today with our experts to learn more about how we can help you get your orders picked, packed, and delivered with our fulfillment service. No setup fees – simply pay as you go. ShipHero works to ensure that organizations invest in the solutions that match their needs, to improve productivity, revenue, and success.
Click HERE to Schedule a Meeting Today
Maggie M. Barnett, Esq., COO
ShipHero
About the author: Maggie M. Barnett, Esq., is the COO of ShipHero. She is responsible for planning and executing the overall operational, legal, managerial and administrative procedures, reporting structures and operational controls of the organization. Barnett’s greatest strengths are leadership, risk mitigation, change management and a passion for business transformation. She is known for her expertise in delivering operational excellence and an ability to provide guidance and mitigating risk. Her leadership of ShipHero is grounded in a servant mentality, always doing the right thing for our stakeholders. Her passion for ShipHero comes from the ability to drive operational excellence throughout the organization impacting the lives of our employees, customers, and partners.
Follow Maggie on Twitter & LinkedIn.
Jul 9, 2021 | Blog, Fulfillment, Warehouse Management Software
By:Â Maggie M. Barnett, Esq., COO at ShipHero
Shortages and bottlenecks have battered global supply chains throughout 2020 and 2021. The COVID-19 outbreak and other unexpected events caused critical suppliers worldwide to suddenly have short supplies, leaving companies reaching for alternate sources of supply that often had dramatic price increases. It has become more evident than ever that companies, manufacturers, and retailers need to build resilience against the uncertainty of the supply chain and the events that can upend it.
To better prepare for supply chain challenges, company leaders and supply chain managers need to develop a plan for how to avoid supply constraints. Flexibility also needs to be considered so that when emergencies do happen, the company can adapt to unexpected changes, whether short-term or long-term. One of the first steps to creating resilience against shortages and other supply chain issues is understanding what causes these disruptions.
What is supply chain disruption?
Supply chain disruption is when a crisis or unexpected change causes problems with the normal flow of goods between entities all along the supply chain. The coronavirus outbreak is an excellent example of a crisis that caused supply chain disruption, such as when personal protective equipment became inaccessible for many hospitals in North America. Other examples of changes that can cause supply chain disruption include dramatic changes in consumer demand, tariffs, or natural disasters such as earthquakes.
The state of supply chain disruption in 2021
2021 has been a large scale example of how supply chain disruption can upend entire industries. Among a handful of other complexities such as the Suez Canal blockage, COVID-19 caused immense constraints on raw material supplies, semiconductors, and other commodities. Understanding today’s issues and their effects helps us to have better visibility of future supply chain disruptions.
COVID-19 effects
COVID-19 had dramatic effects on global companies. The beginning of the pandemic saw consumers panic-buying in bulk. Inventory levels couldn’t keep up with the sudden increase in demand for essential products such as toilet paper, food, PPE, and water. Large-scale workforce safety measures inevitably increased lead times, and outbreaks of the virus slowed companies even further.
Suez Canal blockage
The Suez Canal sees around 13% of the volume of global trade, as it is a gateway for expedited transportation between the Atlantic Ocean and the Western Pacific and Indian Oceans. The nearest alternative route is navigating around the Cape of Good Hope in South Africa, eight or more days of extra travel. On March 23rd, a huge container ship called The Ever Given got lodged diagonally in the canal due to high-speed winds and was stuck there for six days.
Over 350 ships were stuck finding alternate routes or waiting during the Suez Canal blockage, leading to a ripple effect throughout the supply chain. Inventory shortages, loss of perishable goods, and a domino effect of delays caused a supply management nightmare. The waves from this event continued to be felt months after the event as warehouses and shipping companies got set significantly behind.
Supply shortages
Auto dealerships are facing shortages as they try to replenish their inventory from the pandemic. Simultaneously, car sales are up 48% over their lowest point in the pandemic. Retailers’ inventory to sales ratio is only 1.07, and inventories for retailers have shrunk 5% YoY. Due to tight capacity across the global supply chain and high demand, companies have had to extend lead times for inventory planning. Not helping the matter is the shortage of semiconductors that is affecting car production levels.
Longer lead times
Lead retailers such as Walmart have also had to lengthen lead times as the inventory to sales ratio dropped to 1.23 in March 2021, according to the Census Bureau, the lowest ever recorded.
An example of supply chain disruption: COVID-19
The pandemic impacted all supply chain members and their ties simultaneously in a way we have never seen before. Border closures, supply market lockdowns, labor shortages, and shipment interruptions caused problems across all supply tiers. At the beginning of the pandemic in March of 2020, 94% of Fortune 1000 companies already saw supply chain disruptions.
Many factors caused a critical shortage of hospital PPE, including the fact that at the time, more than 70% of respiratory protection supplies used in the United States were made in China. Manufacturers pivoted to help production, but demand worldwide was extreme. The US government stepped in to help, though federal policy like tariffs also added further disruption. Simultaneously, the general public was panic-buying resources such as PPE, grocery items, sanitizing agents, and household items like toilet paper. The reliance on just-in-time ordering and instant warehousing meant that average consumers could not reliably purchase essential items.
How are supply chains disrupted?
There are dozens of reasons why a supply chain can be disrupted. Here are some of the most common reasons.
Pandemics
COVID-19 is a prime example of pandemic-related supply chain disruption. These large-scale events can cause a ripple effect in the global supply chain that is extremely hard to recover from due to the worldwide impact.
Natural disasters
Hurricanes, fires, and floods all can cause supply chain disruption. Hurricane Katrina is a great case study, where large-scale power outages and the inability to use transportation routes caused significant supply issues.
Transportation failures and delays
Around the same time as the Suez Canal incident, a COVID-19 outbreak shut down one of China’s busiest ports, the Yantian Port. Incidents like the canal blockage and the temporary shutdown at Yantian can disrupt entire supply chains for months.
Product problems
Recalls of incorrectly made or unsafe products can sometimes be isolated incidents but also can cause much larger ripples. For example, if a large supplier recalls a part used by many manufacturers, it could cause a delay across many parts of the sector.
Cyberattacks
In May, a cyberattack caused the Colonial Pipeline to shut down its network. The pipeline sources close to half of the East Coast’s fuel, about 2.5 million barrels per day of gas. Cyberattacks are growing more common, and many crucial parts of the supply chain are incredibly vulnerable to these threats.
Geopolitical issues
Tariffs and trade wars can cause significant issues for manufacturers and suppliers. We have seen this with the US trade with China throughout 2021 and continuing shortages because of these policies.
How to prepare for supply chain disruption
Create a supply chain emergency plan
If necessary materials are affected by supply chain disruption, you need to have an alternate action plan. Whether having backup suppliers, an emergency budget, or a stockpile of these essential items, you will already be more resilient by coming up with a strategy.
Build up inventory
Stockpiling essential items for your company can help you prepare for any situation. Order ahead a handful of months so that you
r business will have plenty of time to enact its supply chain emergency plan before running out.
Conduct a supply chain vulnerability audit
By looking at where your risk is within your supply chain, you can help your supply chain leaders know where they need to create more flexibility. By predicting potential pain points before they become problems, you can encourage trade agility and find alternatives.
Identify backup suppliers
If your leading suppliers suddenly lost the capability to get you your goods, what would you do? Identifying backup suppliers for all of your goods and services categories can help provide resilience against issues in the future.
Diversify the supply base
When picking suppliers, try to pick those in different locations that ship to you through various avenues. When you diversify your supply base, you ensure that while one supplier may be unable to get to you, the others should still be functional.
Partner with a logistics expert or 3PL
Collaborating with a supply chain logistics expert can help you find alternatives in case of an emergency. Professional logistics leaders also can help you find ways to make your supply chain more robust and resilient. 3PL can also help you grow your company’s ability to have flexibility in times when some areas or resources may be unavailable.
Adopt risk evaluation tools
Technology is adapting to help try to prevent these widespread supply chain issues in the future. Implementing some of these AI-driven risk evaluation tools can provide ways to predict and combat cyber threats. Automation and AI often have a better ability to find potential shortages before most suppliers even know they exist.
What to do when supply chain disruption occurs
Communicate with customers
Clearly explain to your customer base what is happening within the industry and what steps you are taking to resolve the issue. By keeping an open line of honest communication, they will be more accepting and understanding of your predicament.
Evaluate all critical components of the supply chain
Decide which parts of the supply chain are the most vital to getting your product out. Once you have identified the most critical components of your supply chain, find alternative suppliers for those items as soon as possible.
Estimate available inventory
Calculate how much inventory you have left and how long it will last you. Evaluating where you are at with your stock will help you figure out the urgency with which you need a new supply line.
Assess buyer behaviors
If customer behavior is causing part of your disruption, start assessing buyer behavior. By seeing how your customer base is purchasing, you can better react to their needs and shift in needed areas.
Optimize production and distribution capacity for safety
In the case of an event like COVID-19 or a natural disaster, consider the safety of your suppliers and employees. Ensuring the safety of all involved people and parties should be paramount. Consider staggered shifts, remote work, and alternative schedules to guarantee a safe working environment as much as possible.
Identify logistics flexibilities
Not every item you are receiving during a supply chain disruption is as crucial as the others. Just as you identified things that are the most essential to your company’s function, also provide slowdown and flexibilities with those that are not. Communicating this information to your suppliers can help you get what you need more readily and not clog them up with less important items.
Evaluate cash flow impact
Adjust your overhead so you can cover and financial impact or issues with your cash flow. Determine what areas will suffer the most, and find ways to cover these losses in a way that is as financially healthy as possible.
Conclusion
Supply chain disruption is inevitable to some degree. The best thing your company can do is encourage visibility and resilience to ensure that if something does happen, you can combat it in a way that is healthy financially and for your workforce. Preparation and plans in case of emergency go a long way in protecting your company from disruption and can buy you precious time to implement alternatives and backup plans.
Examine your supply chain, and consider ways that it may be affected in the future, and how you can create robust practices that will help soften the blow of any issues.
If you’re new to ShipHero Fulfillment, please schedule a meeting today with our experts to learn more about how we can help you get your orders picked, packed, and delivered with our fulfillment service. No setup fees – simply pay as you go. ShipHero works to ensure that organizations invest in the solutions that match their needs, to improve productivity, revenue, and success.
Click HERE to Schedule a Meeting Today
Maggie M. Barnett, Esq., COO
ShipHero
About the author: Maggie M. Barnett, Esq., is the COO of ShipHero. She is responsible for planning and executing the overall operational, legal, managerial and administrative procedures, reporting structures and operational controls of the organization. Barnett’s greatest strengths are leadership, risk mitigation, change management and a passion for business transformation. She is known for her expertise in delivering operational excellence and an ability to provide guidance and mitigating risk. Her leadership of ShipHero is grounded in a servant mentality, always doing the right thing for our stakeholders. Her passion for ShipHero comes from the ability to drive operational excellence throughout the organization impacting the lives of our employees, customers, and partners.
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Jul 7, 2021 | Blog, News & Updates, Warehouse Management Software
By:Â Aaron Rubin, Founder & CEO at ShipHero
Effective July 1, 2021, the EU & UK will begin enforcing the eCommerce VAT Package and One Stop Shop (OSS), which includes new rules regarding eCommerce and VAT. These rules will impact all businesses in the supply chain, including individual sellers and marketplaces. All distance sellers within and trading with the EU & UK must update their VAT requirements as this package replaces existing distance-selling rules and extends the Mini One Stop Shop (MOSS) into a wider-ranging One Stop Shop (OSS). Full details from the European Union may be found online.
There will be a lower pan-EU & UK threshold of €10,000 (€0 for businesses established outside the EU), which means businesses will need to account for VAT on additional supplies.
One Stop Shop (OSS):
Many businesses may be able to register in one Member State and report all EU & UK transactions through a single OSS return. Your payments will be collected and distributed from the tax authority in the Member State to other states where VAT is to be paid.
New OSS Schemes:
European Commission, New Future Proof VAT Rules
Important Facts:
- Removing the distance selling thresholds for sales of goods and setting a unified threshold of 10.000 euros.
- Expanding the Mini One Stop Shop (MOSS) by launching the new One Stop Shop (OSS).
- Ending the low-value import VAT exemption and introducing the new IOSS.
- Online marketplaces will be deemed the seller for collecting and reporting VAT.
- New record-keeping requirements will be introduced for online marketplaces facilitating supplies of goods and services.
- Special arrangements in order to simplify imported goods with a value of less than €150 in case the IOSS (import one-stop-shop) is not used.
ShipHero Software Updates:
Your ShipHero software includes a new VAT field to help automate the new processes. Please read the ShipHero knowledgebase article on how to set up eCommerce VAT in ShipHero today HERE.
The following have been updated to support the new fields:
- Public API
- New Order CSV upload
- Automation Rules
- Order Detail page
- Generate Label Workbook
For carriers, the following are done:
- Shippo
- DHL ecomm v4
- FedEx
- Endicia
- Firstmile
- Globegistics
- Endicia
In progress are:
- DHL Express
- UPS
- Webshipper
- Asendia
- Canada Post
- Purolator
- NZ Post
- Australia Post
If you’re an existing ShipHero customer, you can contact your Customer Success Manager (CSM) today to find out how ShipHero can help you navigate the new EU & UK eCommerce VAT and OSS Package requirements.
If you’re new to ShipHero, please schedule a meeting today with our experts to learn more about our WMS software built for ecommerce brands & 3PLs looking to run their best warehouse and how ShipHero works to ensure that organizations invest in the solutions that match their needs, to improve productivity, revenue, and success.
 Click HERE to Schedule a Meeting Today
Aaron Rubin, Founder & CEO
ShipHero
 About the author: Aaron Rubin the Founder & CEO of ShipHero. He is responsible for planning and executing the overall vision and strategy of the organization. Rubin’s greatest strengths are leadership, change management, strategic planning and a passion for progression. He is known for having his finger on the pulse of ShipHero’s major initiatives, his entrepreneurial spirit, and keen business acumen. His leadership of ShipHero is grounded in providing excellent customer service that drives improved business operations. His passion for ShipHero comes from the culture and his ability to have an impact on the lives of employees, customers, partners, and investors.
Follow Aaron on Twitter & LinkedIn.
