Inventory in transit is a term used in the shipping industry that refers to finished goods sent to a customer. The goods are in transit and have not yet reached the buyer or customer. However, the seller has already sent the goods out on the road via transport. Often the Inventory in transit does not directly refer to the end customer but to the eCommerce retailer who resells it on various platforms. The term can be used for goods sent out to the reseller by the whole seller.
Transit inventory is a big part of inventory management as the seller must account for the goods transported to the customers. Understanding the term is necessary to create a proper inventory management workflow inside the company. Many phases of inventory management happen between sale, transit, and delivery. To keep track of the goods sold, the seller has to account for in-transit Inventory.
What are Goods in transit?
Goods in transit are also known as pipeline inventory. Goods in transit signify the number of goods ordered in from a wholesaler that are in transit and are yet to reach the end store of the seller. Goods in transit account for purchased inventory on the way to a distribution center. The goods in transit should be added in value to the Inventory already at the center to account for the investment made in maintaining the Inventory.
Why is Inventory in Transit important?
When you run an eCommerce store, you majorly deal with goods and items. The goods that you buy to resell are a significant investment for you. Therefore, you must manage the goods you source under Inventory in transit. There has to be visibility to ensure that all the money is invested correctly and goods are circulating in the supply chain.
Many eCommerce brands keep their goods in transit to ensure inventory is always on hand and the supply chain is moving. If you plan to adopt a similar model, you must account for what is in transit and what is at the warehouse. Keeping track of Inventory in transit can be tricky, but once a process is laid down, you can streamline and follow it.
It is essential to keep track of the goods in transit so that the company can track inventory performance, transportation timeline, and warehouse restock timings. Inventory accounting is a significant part of controlling the different processes of the eCommerce store.
Related: How Much Inventory Should I Have?
How to Calculate Inventory in transit
There are different ways in which Inventory in transit is accounted for financially. Transportation inventory can be calculated once you know the average shipment value. You will have to calculate the transportation costs and carrying costs too. You must multiply merchandise cost with the carrying cost percentage for an annual cost report. Then, you divide the result by 365 for the days of the year. When multiplied by the number of days in transit, the average shipment value per day will give you the cost of transportation.
Reducing your inventory in transit is just one way to improve your bottom line. Another way to save money and increase efficiency is by using a 3PL management system. At Conveyr, we build the tools 3PLs use to not only compete but thrive in today’s market. Contact us today for more information on how our systems can help you reduce costs, save time, and improve your business operations!
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