ARTICLE

eCommerce inventory management.

Online or offline, any commercial business needs to be in tight control of its goods. This can be the difference between running a profitable organization and facing financial difficulties.

Given the complexities of selling online, strong eCommerce inventory management is vital to ensure your order fulfilment, reputation, and costs remain in check. Learn how to employ a successful eCommerce inventory system.

What you’ll learn.

What is eCommerce inventory management?
Benefits of an eCommerce inventory system
Challenges around eCommerce inventory control
Methods of eCommerce inventory management
Tips for eCommerce inventory management
FAQs

What is eCommerce inventory management?

eCommerce inventory management is simply the way you look after your stock (the products or goods at the heart of your online business).

The main processes this includes are:

Sourcing
Storing
Selling
Shipping
Tracking

Whatever your industry, applying an efficient method or strategy is important to stay in control of your eCommerce inventory. Without this, you could find your business fails to meet order fulfilments and must take drastic, costly measures to correct them.

Benefits of an eCommerce inventory system.

Having tight eCommerce inventory control with a reliable system in place to measure and monitor your stock is essential to run a successful operation. eCommerce businesses are increasingly customer-centric, so keeping them happy and ensuring you can meet all orders in a timely, cost-efficient manner is vital.

A good eCommerce inventory system should help your business improve its sales, customer satisfaction levels and employee efficiencies, as well as lowering costs and boosting overall performance. It does this through:

Efficient working practices – Digital eCommerce inventory management eliminates all the labor hours warehouse workers previously spent manually tracking goods’ status. It can also reduce mistakes, such as unaccounted stock, which can cause issues and extra work.
Accurate re-ordering – Reliably keeping track of your eCommerce inventory provides a clear overview of when stock is low and how much requires re-ordering. This enables you to re-order in advance to avoid pausing sales and losing valuable income.
Meet customer expectations – Many customers visit your eCommerce store with the intention of making a purchase. If they see an item is incorrectly displayed as in or out of stock, they’ll go elsewhere. Strong management should ensure your inventory and eCommerce site are aligned, creating a smooth online shopping experience and boosting the chances of returning customers.
Cut out dead stock – Reporting and insight into your stock levels and buying history can highlight products that sell well, and those that don’t. This information helps you to prevent overstocking unpopular goods and reduces the ineffective costs they introduce, avoiding ‘dead stock’ before it becomes an issue.
Insight into buying behavior – Digitally managing your inventory provides a transparent overview of all your items. Use this data smartly, to assess buying behavior and tailor the growth and direction of your business. It may also help to provide accurate re-ordering capabilities for individual customers.

Challenges around eCommerce inventory control.

While there are plenty of benefits, some challenges exist around inventory management for an eCommerce business. Understanding these potential obstacles in advance may help you tackle them effectively and limit their impact on your inventory management.

Key eCommerce inventory management challenges can include:

Under and overstocking – Seasonality and demand drops can lead to overstocking, which ties up your money and warehouse space in unsold products. However, understocking can result in unhappy customers and missed sales – so finding the balance is a challenge.
Inconsistent safety stock – You need safety or backup stock in case there’s a surge in demand. Stock inconsistencies and shortages across your products may lead to problems with fulfilling orders when your eCommerce business first starts to grow or experiences a mini-boom.
Manual management – Start-ups and new eCommerce businesses can be tempted to manually manage inventory, as orders may start small. However, as your organization grows, processes can become complex, with manual inventory management becoming inefficient and mistakes emerging.
Stock in the wrong place – Using multiple warehouses, suppliers and fulfilment centers requires strong management, otherwise stock may end up in the wrong location. When this happens, it can delay supply chains, lead to late deliveries and cost more to get products to customers.
Low visibility across multiple channels – The larger the eCommerce business, the more complex your inventory management processes. A lack of visibility across all your channels can result in order and inventory tracking issues. Poor performance could also lead to breakdowns in relationships, which may damage your reputation.

Methods of eCommerce inventory management.

There are various strategies and methods eCommerce firms implement to stay in charge of their stock. The best method of eCommerce inventory control depends on how you operate. Common options include:

Setting par levels.

A par level is simply the minimum quantity that you must always have in stock. When your inventory levels fall below the par level you know it’s time to order more.

First, you’ll need to do research, and assess sales data to identify items that sell quickest, as par levels vary by product. Most methods involve ordering the minimum number to take you above the par level, so you avoid overstocking and the costs that can involve.

It helps prioritize inventory to order, and provides structure to the ordering process. Be sure to reevaluate your par levels regularly – as the market, sales, and your business evolves they could change.

First in, first out (FIFO).

With the first in, first out (FIFO) method, your oldest stock gets sold first. This is a common strategy for eCommerce businesses that sell perishable goods, but also for retail brands which want to shift clothing before next season.

For an effective FIFO strategy to work, you need organized warehouses, supply chains and order management systems. The focus is on making sure all new products from suppliers enter the back of your storage, so any sold items are taken from the front. It can create a natural flow, which ensures you move the right goods and avoid dead or wasted stock.

ABC analysis.

To determine which of your products are most and least-valuable, you can use the ABC analysis. This method is based on the 80/20 rule (also known as the Pareto Principle).

To implement it, you need to audit all your products and consider how much you sell, at what price and the quantity you stock. This can segment your inventory into the following three categories:

A – Stock representing 80% of your revenue.
B – Stock representing 15% of your revenue.
C – Stock representing 5% of your revenue.

With this information you can then prioritize everything in band A, so you always have items to sell. Band B is still important but sells more slowly, while products in Band C are generally slow selling or dead stock – you might want to discount these to free up storage space.

Contingency planning with safety stock.

Unexpected events can crop up and affect eCommerce businesses at any time. It could be a sudden surge in sales of a specific product, a cash-flow shortfall or slow-moving products taking up too much storage space.

Having a contingency plan for eCommerce inventory mitigates such potential issues and avoids them significantly impacting your operations in advance. An important element is having safety stock for your best-sellers especially, to avoid running out and losing business.

Consistent and comprehensive auditing.

Regularly checking both your stock and eCommerce inventory control methods helps avoid any mistakes and inefficiencies building up. There are generally three methods that can be deployed:

Full audit – Counting every single item in your warehouse(s) and checking the numbers align with your system. This is a time-consuming job and is normally only done once or twice a year.
Partial audit – Also called cycle counting, this basically splits a full audit into segments. Certain products are checked against your recorded numbers at different times, with the assumption that if they’re accurate, other areas should be fine.
Spot checking – With spot checks, a random product or category is picked and compared to recorded numbers, as a short-term check that inventory numbers are accurate.

Tips for eCommerce inventory management.

Alongside the method of eCommerce stock management you implement, there are a few other techniques you can apply that may improve the efficiencies of any eCommerce inventory solutions. Consider:

Dropshipping – An alternative to managing your own inventory is to simply take orders but fulfil them from the original manufacturer or producer. This means you don’t need any warehouse or storage space.
Study historical data – When using eCommerce product management software that collates sales and stock data, regularly analyze this for trends to predict future sales and adapt inventory levels and promotions accordingly.
Scanning system – Not everything can be automated. Applying barcodes to items and scanning them at every stage (receiving, moving, shipping), which connects to your eCommerce software, helps ensure accurate tracking.
Quality control (QC) checkpoints – Never lose focus on the customer. Mistakes may still happen, no matter how tight your inventory control, but regular QC checking may work to prevent more errors reaching their destination.
Build and maintain relationships – It’s not just customers you need to keep happy – suppliers, couriers and others in the supply chain all impact your inventory levels. Clear, transparent communication can highlight problems early on, so you have time to act if there are delays.

FAQs.

Do you need inventory management software for eCommerce?

You can manage inventory manually, but it may take a lot more time, labor and money. Almost all modern eCommerce businesses invest in one type of eCommerce management software to automate many processes. This can make scaling up an organization much easier, reduce the risks of inventory errors, and improve general operating efficiencies.

What is the EOQ model?

The economic order quantity (EOQ) model is a way to determine the optimal number of items a business needs to buy to reduce inventory costs. This includes cutting storage, shortage and order costs. It’s a formula that assumes demand, holding and ordering costs stay constant, which can be applied best to inventory management for products that are regular sellers – not seasonal items.

How often should you do an inventory?

It depends on the size of your business and the type of goods being sold. Some warehouses carry out an inventory check every two months, while others may do so every three weeks. If you work with seasonal products, it may be most effective to check your stock before or after the busy periods.

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