Managing Your Inventory Levels
Once you find a source for merchandise, you now have the
challenge of managing your newfound inventory. That means determining how much
to buy and when to reorder.
Ordering the Right Quantity
Establishing how much merchandise to order is tough, especially
when you're first starting out. The problem is amplified when a supplier
requires you to order large quantities of an item, or if you need to order a
large quantity to qualify for a larger discount. It's tempting to shoot the moon
to get the best possible price, but that's sometimes a dangerous strategy. It's
also problematic if your storage
space is at a premium; you certainly don't want to order more stuff than you
have room for!
The best strategy is to research similar auctions on eBay, as
discussed in Chapter 2, "Researching
Your Business Model," and make an educated guess as to how many items you can
sell in a typical week. Multiply that number by four and round off a little to
come up with a conservative estimate of your
first month's sales. That's because when you're first starting out, keeping a
month's worth of inventory on hand is a safe way to go. If your guess is off by
50% either way, you're still okay; you'll either have two weeks' or two months'
worth of inventory on hand, either of which you can comfortably handle. If, on
the other hand, you order two months' worth of inventory and you're off by 50%,
you're either out of stock in a week or stuck with four months' worth of
stuffneither of which is terribly desirable.
Note
When you're dealing with a commodity product for resale, it's
better to order too few than too many. If your business is an overnight success,
you can always order more.
In addition, when you place an order for a large quantity of
merchandise, you need to make sure that there is a sufficient long-term demand
for that product. Fads and fashions change over time. Don't order six months'
worth of inventory if the current fad looks to burn itself out in three. It may
be more prudent to pay a higher per-item price for a lower quantity than risk
not selling a substantial portion of a larger-quantity order. (And rememberyou
have to store all those items somewhere.)
And it's worth repeating that when it comes to ordering
inventory, you shouldn't bite off more than you can chew. Paying a higher price
for a smaller quantity is better than getting stuck with a garage full of unsold
merchandise!
Managing Your Reorders
Note
Don't wait until your inventory drops to zero to reorderyou'll
be stuck with nothing to sell, and no income coming in. Better to reorder before
you run out so that your auctions can continue uninterrupted.
Once you start selling, you need to keep track of how much
inventory you have on hand. That's where your inventory management system (see
Chapter 6, "Setting Up a
Recordkeeping System") comes into play. You have to subtract every item you sell
from the quantity you initially had on hand. When your inventory drops to a
specified level, it's time to reorder more. Of course, this situation poses two
questions: At what level should you set your reorder point, and what quantity
should you reorder?
To the first question, your reorder point should be based on
how long it takes you to receive any order you place from your supplier. For
example, if your supplier ships within a week of your order, you can safely set
your reorder point at a week's worth of inventory. Let's say you're selling 20
units per week, and your supplier reliably ships within a week of your order.
Set your system to alert you when your inventory drops to 20 units. Place your
reorder immediately, and you'll have your new stock arrive just as the last of
your old stock runs out.
Note
When you're factoring the cost of your merchandise, don't
forget to include warehousing costs. This might be zero if everything fits in
your garage (and you don't mind parking outside) but could add up if you have to
rent a storage bin or warehouse. You might think that large-quantity discount is
worth-whileuntil you have to pay through the nose to store all those boxes
somewhere.
Naturally, if your supplier ships more slowly, you should set
your reorder point higher. Let's say your supplier takes two weeks to fill an
order. If you're selling 20 units a week, you should set your reorder point at
40 unitstwo weeks' worth of inventory.
As to how much you should reorder, the answer depends on how
many units you're selling per week, how long you expect sales to stay at this
rate, how much inventory you feel comfortable with, and what discounts are
available for larger orders. If you're fairly confident that sales will continue
at current levels for the next two months, and you get an extra discount for
larger quantities, go ahead and order two months' worth. (Assuming you have the
space to store it, of course.) On the other hand, if you think sales will slow
(because of changing fashions, or seasonal trends, or whatever), don't go out on
a limborder another few weeks' or at most a month's supply. Order the quantity
you feel comfortable withyou're the one who has to assume the risk.
Deciding to Drop Ship
This is as good a place as any to discuss the issue of drop shipping. This is the practice of selling an item
that you don't physically have in stock. You make the sale (via eBay) and then
notify your supplier of the purchase. Your supplier then drop ships the
merchandise directly to your customer, billing you in the process.
While not all distributors offer drop ship services, many do.
Check with your wholesaler to see what services are available, or check out this
short list of popular drop shippers and drop ship directories:
In addition, Wholesale411, eBay Merchandise, and the other
wholesaler directories listed previously often note whether a particular
wholesaler drop ships or not.
While drop shipping might sound attractive from an inventory
management standpoint (you have none to manage), it might not always be the best
deal for your customersespecially if your supplier isn't always a speedy
shipper. Remember, your customers hold you responsible for shipping the products
they purchase, and if a drop shipment isn't prompt, you are the one who'll get
the complaints (and the negative feedback). If, for whatever reason (like being
temporarily out of stock), your supplier drops the ball and never ships the
merchandise, you're on the hook. If this happens too often, you could get the
boot from eBay.
So when you're researching drop shipping services, keep a few
things in mind. Make sure you understand all the charges you'll have to pay over
and above the cost of the item. Some drop shippers charge a larger shipping fee
to cover the actual costs of drop shipping, while others charge a separate
handling fee for the same reason. Some charge a flat, often excessive amount for
shipping, while others calculate shipping based on the delivery ZIP code. (While
a variable shipping fee might sound best, you won't know how much you'll be
charged for shipping until after the factwhich makes it difficult to pass on
this charge to your buyers.)
Finally, make sure you have access to accurate inventory levels
(necessary before you decide to post an eBay listing) and that you're provided
with tracking information for all items shipped. Given that you have no real
control over the fulfillment of a drop-shipped sale, it's important to at least
have as much information as possible about the shipment. | 
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