Most people who think about ecommerce will jump to the conclusion that you need lots of working capital. This capital would be used to buy stock that sits on the shelf and if it doesn’t sell, it ends up costing you lots of money. What if I told you that it doesn’t have to be like this?
We saw three different ways of handling our stock for Eliot Turner:
- Hold stock – we thought about holding stock in the traditional manner. For example, we would buy 5 of item X at £100 each and sell them for £200. The problem with this method is we had no idea of what would sell well and how many of each item to buy. We also had a really small amount of working capital so how could we do this?
- Just in time (JIT) delivery – we looked at this as a great way to reduce costs by keeping stock levels to a minimum. If we could broker good relationships with our suppliers, then we would be able to adopt this method. This technique means that items are delivered when needed and dispatched immediately when ordered. Our big concern is we would either run out of stock if carrying small numbers or the supplier can’t deliver on time, resulting in mistakes which we couldn’t afford.
- Drop Shipping –This is a supply management technique which is very rarely heard of. It essentially means we wouldn’t hold any stock and the supplier would dispatch the goods directly to the customer. We would make our profit from the difference between wholesale price and retail price, which is how a retail business operates. Our problem would be how to ensure that the supplier maintains our brand image and secondly we would have to trust suppliers implicitly.
Some businesses have an extremely complicated stock control system where they are manufacturing the product and holding raw materials as stock. We are going to bypass this headache by buying in jewellery from small, locally produced suppliers to avoid work in progress. We effectively only carry finished goods as stock, but creating our own limited edition lines is something we are considering for the future in our business plan.
Top TipIf you are planning to manufacture your product and hope to scale your business up quickly then look at ERP (Enterprise Resource Planning), sooner rather than later. A successful ERP system will allow you to bring together aspects such as manufacturing, sales, marketing, etc into a seamless process. Alternatively if you are already running an ERP system and looking to sell online, you must review your system to see if it will be able to cope with the changes to your sales / marketing process. An increase in the sales of a certain product could mean that the manufacturing lead time is affected.
There are obvious pros and cons of all three techniques, but before we started making decisions it was time to talk to a few potential suppliers. If we could work out their supply processes we could build a stock management system around them. We had a fairly good idea of how we wanted to work, but before we put pen to paper we needed to speak to our suppliers. We had to find them first!
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