Concise Guide to Inventory Management for Ecommerce

Knowing what you have to sell is fundamental to retail. You must have enough stock to fulfill demand but not so much that you overstretch your resources. When you’re an eCommerce company, things get a little trickier. Your inventory management for eCommerce may be in many disparate locations. Alternatively, you might be dropshipping and never actually see your stock.

That makes inventory management vital to your business’s long-term success. Indeed, it’s what makes inventory management software so vital for your business.

What is Inventory Management for Ecommerce?

Inventory management in e-commerce is the strategic organization and tracking of products to meet customer demand efficiently. Utilizing tools like ABC analysis and set reorder points helps balance stock levels. Including the days on hand calculation provides insights into how long current inventory will last based on average usage, aiding in informed restocking decisions and preventing stockouts. Regular reviews and adjustments ensure adaptability to market changes, enhancing overall efficiency.

Inventory management is the process of overseeing and controlling your firm’s products. It involves keeping track of stock volume, diversity, pricing, and location. Inventory management supervises the flow of goods through your company.

Inventory management can have a range of elements depending on the type of company. Firms manufacturing and selling goods must manage the flow of parts and finished products. For instance, PartsBrite sells loading dock parts, and both of those elements for this company fall under the umbrella of inventory management. Inventory management for eCommerce has a unique set of challenges.

Challenges of Inventory Management for Ecommerce

Keeping stock of your inventory is vital to any eCommerce company. Failing to do so creates problems that are tough for even the most robust businesses to come back from. There is a trio of significant issues that all eCommerce firms must overcome as regards inventory.

Dangers of Overstocking

Unless you dropship (more on that later), overstocking is something to avoid at all costs. Too much inventory on hand can be very damaging to an eCommerce company for many reasons. Firstly, it means you have lots of valuable capital in stock sitting on your shelves. That’s capital you could use for marketing, covering costs, or other crucial processes.

Worse than having too much stock on your digital shelves is having what’s known as dead stock. That’s stock that you have no chance of selling. If you overstock, goods may perish, or consumer demands may change. That leaves you with useless inventory. That kind of dead stock can have a hugely negative impact on your bottom line.

Inventory Management and Problems with Understocking

Understocking is no better than overstocking. You’re passing up easy money if you don’t carry enough products to meet customer demand. That’s not even the worst impact of understocking. For eCommerce, overselling is the most damaging impact of understocking.

Overselling is when you let a customer buy a product from your website, but you are then unable to fulfill the order. It’s something that upsets consumers as much as any other failing by an eCommerce company. Customers are more likely to abandon firms that oversell. Businesses with a reputation of failing to fulfill orders can struggle to get new customers.

Inaccurate Inventory Levels

Being understocked isn’t the only possible cause of overselling. That no-no of eCommerce can also come about when a firm doesn’t know its exact inventory levels. Inaccurate records of a stock is a common challenge of inventory management for eCommerce. Effective warehouse inventory management systems are essential for maintaining accurate real-time inventory data, minimizing the risk of overselling, and ensuring seamless order fulfillment.

You’ll be familiar with this problem if you run an eCommerce firm. You check your computer, and it says you have five items to sell. In your warehouse, though, only three units are on the shelf. In many cases, such inaccuracies are due to the complexity of your operation. Keeping an accurate inventory record is tougher if you sell via many channels and hold stock in more than one place.

Top Techniques of Inventory Management for Ecommerce

Meeting the challenges of inventory management for eCommerce needs long-term planning. Keeping a close eye on inventory over time helps you to make vital decisions about your supply chain. There are many ways to approach inventory management. Here are a few notable examples and the main pros and cons of each.

Just In Time Inventory Management for Ecommerce

You order inventory just in time to keep up with demand. The total volume of your stock is broadly equal to your total number of orders. You only need to manage inventory that you know you must ship to customers.

The main benefit of JIT management is that you never run the risk of overstocking. You’ll avoid having capital tied up in unsold stock. Without close attention, you may be unable to keep up with a sudden rise in demand for a product.

First In, First Out (FIFO)

The first products in your firm are the first you ship out to customers. FIFO ensures no inventory sits on the shelves of your warehouse for long. This technique is helpful to companies that sell perishable goods, so you should invest in inventory management software.

Minimum Viable Stock Level

You set a minimum level below which you don’t let stock levels for each product fall. When an order takes your inventory under that point, you replenish your stock. The minimum viable stock level tactic is one that many firms use in concert with another.

For example, you might use minimum viable stock levels in combination with JIT. Firms can replenish stock with each customer order. With a minimum level also in place, though, they have a small number of units on hand for emergencies.

Selective Inventory Management for Ecommerce

Selective inventory control is a technique for firms with diverse product lines. You break down your lines into categories based on the importance of the products.

One category of products, for instance, units, can be high in value but low in quantity. Another may be items low in cost but high in volume. With selective inventory control, you manage your stock of each category in isolation.

Demand Forecasting

Like its weather counterpart, demand forecasting is about predicting the future. You use sales figures and other data to estimate future customer demand for products. You can then manage your inventory accordingly.

The more data you use to inform your forecasts, the more accurate they will be. This technique is particularly useful for firms that sell seasonal items. Forecasting can help those companies predict the stock levels they’ll need at each time of year.

Dropshipping

Dropshipping is a technique for companies that don’t hold all – or even any – of their inventory. Instead, firms take orders and arrange for suppliers to deliver directly to a customer. This is an ideal system for businesses that can’t afford their own warehouse. It does need, however, close and accurate communication with suppliers and delivery companies.

Tips to Achieve the Best Inventory Management for Ecommerce

Inventory management for eCommerce is as vital as good web design or strong SEO. Whichever technique you employ, there are things you can do to make it more efficient. The following are some simple tips to get you the best possible inventory management.

Implement a Centralized System

By whatever method you choose to control inventory, you need a centralized system to manage it. There must be a setup by which you can track and control all aspects of your inventory.

Smaller firms may rely on a simple, manual system. It’s common for some to perform pen and paper stock checks and keep records that way. Larger businesses, though, are best trusting a software-based inventory management system. Such systems make it easier to track inventory across channels. They also put a range of relevant data sources at your fingertips.

Understand Products & Product Demand

Before you choose an inventory management technique, you must understand your products. You need to know how much they cost and what margins they deliver. You also need to find out as much as you can about consumer demand for the type of product you sell.

If you’re a new business, you won’t have prior sales figures to use to glean this understanding. One excellent way to get an idea, though, is by checking out Google Trends. The site shows you search trends for different terms. Enter terms related to your products, and you’ll get a picture of changing demand over time.

Build Strong Supplier Relationships

Unless you manufacture your products, your relationships with suppliers are critical. Inventory management is a lot simpler if your suppliers are reliable. You can make concrete plans, with certainty that deliveries will arrive as promised.

Having close supplier relationships is also invaluable if something goes wrong. Say, for instance, you do oversell a product line. If you have a good rapport, a supplier may be able to expedite delivery to help you fulfill an order you shouldn’t have taken.

Have a Contingency Plan

Even with the best inventory management, things can still go wrong. Suppliers might face their own issues that are out of your control. Deliveries may be damaged or destroyed in transit. You can’t avoid such problems, but you can be prepared for when they happen.

Put a contingency plan in place to account for unforeseen circumstances. Know what you’ll do if your usual supplier can’t get products to you. Set out your course of action if something goes wrong with delivery to one of your customers. As long as you have a plan, you can overcome anything day-to-day business may throw at you.

Give Inventory Management for Ecommerce the Attention it Deserves

Inventory management for eCommerce firms is critical to business operations. Fail to give it the attention it needs, and you’ll face many damaging problems. Failing to manage inventory effectively will hurt your firm from overstocking to overselling. It will damage your reputation and could annihilate your bottom line.

Fortunately, there are many techniques for proper inventory management. Some will suit particular businesses more than others. There are a few things to remember to choose the correct option and carry it out efficiently. Ensure you understand your products and customers. Foster close relationships with suppliers and have robust contingency plans. Do all that, and you’ll get close to ideal inventory management for eCommerce.