Whether your line of business is retail or wholesale, the efficient management of inventory will be one of the most crucial aspects of daily operations. If you need to optimize your operations for greater return on investment, evaluating your inventory processes is essential. Most business owners and managers will include products, supplies, and equipment as part of their inventory, but they should be recording another section dedicated solely to packaging materials.
At any given time, inventory will account for at least 30% of business assets for the average company. For e-commerce operators, this percentage is higher unless they are running a dropshipping business; in that case, the business entity in charge of order fulfillment would be the one that should be paying close attention to packaging supplies when performing inventory counts.
Technically speaking, your packaging inventory should feature a one-to-one ratio for each of the single-count products you have in stock. Poor management of this inventory section could lead to outages, delayed orders, and overall losses. Let’s say a female e-commerce entrepreneur caters to vinyl record collectors, and she has made a name for herself in this niche market thanks to the durable and stylish packaging she ships her products with. Collectible records can be extremely valuable, but they can also be very fragile, which is why they require protective packaging.
If one day the aforementioned collectible items vendor runs out of her special packaging, she would need to make a snap decision on how to proceed. Should she wait on custom packaging to arrive in order to preserve her branding, thus taking a reputation hit because of delayed orders? Should she wing it with cheap and unbranded packaging at the risk of products becoming damaged during the shipping process? When you are shipping an original Blue Note pressing of John Coltrane’s Giant Steps, you would risk damaging a record that is valued at hundreds of dollars.
No matter what decision the vinyl record retailer in our example makes, the bottom line is that she should not have run into that situation if she had properly managed her inventory of packaging materials. This is a scenario in which the business owner is not sure when or how many vintage records she may encounter to sell online, which means that she should try to adjust her packaging inventory so that it always matches her item counts at the least.
Principles of Business Inventory
Before we get into specifics related to keeping adequate stocks of packaging materials, let’s look at the major aspects of an inventory count that aims to establish its true cost:
- Direct costs should not be limited to purchase amounts. We need to account for shrinkage and insurance.
- Storage and handling must include how much it costs to warehouse products while keeping them safe and clean.
- Expected demand is an essential aspect of inventory because it can prevent critical shortages such as the one mentioned above.
- The lead times and frequency of placing orders can go a long way towards anticipating future costs. While you cannot eliminate uncertainty, you can reduce it when taking into consideration order frequency along with lead times.
Here’s another aspect of inventory that is intrinsically tied to business management: When evaluating the true cost of inventory, you will get a clear idea of how business expenses can be effectively reduced.
Taking Packaging Materials Into Account
As previously mentioned, many situations call for a 1:1 ratio between products in stock and packaging materials. In essence, if your inventory comes up to 192 items that require one roll of shrink wrap to package, that is the amount you should have on hand at the minimum, but you may actually want to stock more packaging materials because of the losses typically associated with them.
Packaging materials and supplies can be managed as other inventory sections and categories. Below you will find a series of techniques you can follow in order to improve the efficiency of your counts:
- You can choose between bulk ordering and minimum ordering according to sales forecasting models; both techniques have their pros and cons, but you would generally do better with bulk ordering because this is the easiest way to cut down on packaging costs. It is generally safer to order in bulk as long as you can afford it. With minimum ordering, you can also keep costs down, but they will invariably rise when demand picks up.
- With the ABC method of inventory management, you can get a better handle on the stocking of different packing materials. On one hand, a supermarket that only uses shrink wrap for produce would not need to use this technique; on the other hand, an online boutique that uses cardboard boxes, bubble wrap, and paper to package various products would certainly benefit from using ABC inventory counting. This technique assigns the letter A to materials that are used the most. B and C are used less frequently. Large wholesalers and fulfillment centers such as the ones managed by Amazon are the most likely to use this method, and they often assign different teams to manage it.
- Inventory management can be perpetual or periodic. While the latter is more commonly used for the purpose of counting packaging materials, there are ways to implement the perpetual technique; you would need bar code or QR code labels as well as scanning devices, which are reasonably priced these days. A good perpetual inventory system can be automated to a great extent, thus making it more attractive and convenient.
- Just-in time ordering is a technique often tied to perpetual inventory counting systems. If your current inventory management efforts leave you with excess packing materials, just-in time ordering can help you eliminate this hindrance, and it can also be automated.
- The first-in, first-out method of rotating stock does not lend itself too well to packaging materials because they tend to have a very long shelf life.
The techniques listed above are not specific to packing materials, but you may find them to be more appropriate. Whether you use one or more of these techniques is entirely up to you; what is more important is that you implement them separately so that they are not left out of the general inventory.
Evaluating Future Demand and Sales Forecasts
There will be times when your customers will be more active in terms of buying certain products; this can be determined by means of collecting and evaluating analytics, and it can result in recommendations to order excess items. Demand forecasting is not exact science because no one can accurately predict future consumer behavior, but quite a few retailers make inventory decisions based on this analysis.
Demand can also be created by means of early promotions and behavioral marketing; one example of this could be an e-commerce sporting goods retailer that manages an editorial calendar for the purpose of promoting seasonal items. If the content is posted on social networks that provide analytics, demand forecasting can be figured out in advance. One problem that may arise with demand forecasting is that market conditions can shift suddenly and without warning, thus leaving you with excess inventory. Your reactions to such situation may include liquidating inventory through deep discounting, bundling of products, or even giveaway schemes to boost the standing of your brand.
The use of demand forecasting is not something you should get into just because you feel it; this needs to be a highly calculated decision, and it should be accompanied by ordering sufficient packaging materials along with the excess product order.
Learn More About Managing Your Packing Materials and Supplies
Over the last four decades, Mid-Atlantic Premier Packaging has been helping business owners in all industries manage their inventories of packing materials and supplies. Thanks to our commitment to excellent customer service, our representatives have become very familiar with the ins and outs of business inventories, particularly within the retail sector. Should you have questions about the quantities of packaging materials you should keep in stock according to your product count, please contact us today so we can figure out how much you should really get.
We are also available to answer any queries you may have about the packing materials, supplies, and accessories you can find in our online catalog. Should you need more information about the ordering and shipping processes, you can get in touch with our office at your earliest convenience.