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How to Do Inventory Management for Ecommerce Stores

inventory management

Inventory management entails taking steps to ensure that businesses maintain an optimum quantity of required resources such that their operations are executed seamlessly without a shortage or overabundance of resources.

Inventory management is crucial for ecommerce businesses. It enables them to function without any time lag which, in today’s hyper-competitive landscape, can cost you money, customers and your reputation. Inventory management has risen drastically in value, with U.S. retailers having $1.43 invested in inventory for every $1 of their sales. According to REL, inventory, along with accounts payables and receivables, make up 7 percent of the U.S. GDP, or $1.1 trillion.

However, despite its growing significance, statistics indicate that nearly 46 percent of SMBs do not have robust inventory management systems in place. They either use manual methods or do not track inventory at all.

This is worrisome, as having a meticulous inventory management system brings about several far-reaching benefits. Without a system, businesses lose out on cash as well as growth opportunities.

Businesses that implement thorough inventory management systems have experienced 95.4 percent of orders delivered to customers on time, 94.6 percent orders from suppliers received on time and a whopping 7.5 percent decrease in frequency of out-of-stock inventory.

The benefits of inventory management for ecommerce businesses include:

Balanced Supply and Demand

Inventory management allows for swift replenishment of utilized resources and products, and clearance of seasonal goods, so that their storage does not take up useful space and other resources.

Geographical Benefit

Inventory management can be cost effective because it entails using geographic locations that have low labor, energy and transportation costs for various activities, such as storage. Inventory management includes a detailed analysis of all feasible locations to identity the most suitable and cost effective one.

Backup Stock

In addition to utilizing resources to their optimum capacity, inventory management also ensures that backup, or buffer, stock is always available in case of any unexpected delays or an increase in demand. This is crucial for ecommerce businesses as it prevents them from losing precious sales or experiencing delivery delays which could result in the loss of customers.

 

Here’s how you can manage inventory

Inventory management for ecommerce businesses is as complex as it is vital to their success. Ecommerce businesses have to manage multiple factors simultaneously, including several payment channels and a fully functional and updated ecommerce platform around the clock backed by just the right amount of stock.

These factors become increasingly difficult to manage as the size and/ or demand of your brand/ products grows. It is, therefore, imperative that ecommerce businesses place concrete inventory management practices and tools in place from the very beginning to ensure that they keep sailing with all engines fired up.

The following is a comprehensive list of guidelines on how to efficiently manage inventory for ecommerce stores:

Real-Time Inventory Information

The backbone of efficient inventory management is the presence of real-time inventory information. Real-time inventory counts involve the updating of inventory records as soon as a sale is made. They are very crucial as they allow companies to know exactly what their capacity is, thus, saving them from over-selling or over-ordering.

Overselling can be a problem for ecommerce businesses, especially since delivering the promised items to customers lies at the heart of their success. The presence of an updated inventory count allows procurement officials to replenish the sold items promptly, hence, enabling the smooth execution of business.

Over-ordering can result in excessive amounts of inventory that will then need to be stored. This will take up monetary resources as well as useful storage space. Another key benefit of real-time inventory information is that it can be displayed in the ‘In Stock’ section on your website so that customers are in the loop about your current capacity. Real-time inventory information can best be utilized by disseminating it instantly across all office locations.

Drop Shipping

Drop shipping acts as a catapult, particularly for growing ecommerce businesses, by allowing them to sell online without maintaining a storage unit. Drop shipping involves ecommerce platforms maintaining relationships with suppliers who keep an inventory of items and ship purchased items to buyers as soon as an order is placed. As part of drop shipping, the suppliers remain unrevealed to customers, and the items are delivered as if they are coming from your ecommerce store.

Another use of drop shipping is that it enables an ‘endless aisle’ of products. The concept of an ‘endless aisle’ involves ecommerce stores selling their own inventory and forwarding any additional orders directly to suppliers so that you never run out of inventory.

The key to efficiently utilizing drop shipping is maintaining an inventory management system that allows for prompt sharing of information between you and your supplier with regard to orders, order statuses, real-time inventory counts and invoices. A thoroughly established inventory management system is, hence, important for accuracy, timely delivery and financial reconciliation. Also read The Ultimate Guide to Drop Shipping.

Centralized Inventory System

Ecommerce platforms have inbuilt functionalities that are sufficient for those ecommerce stores that function only through a single ecommerce platform. However, for ecommerce stores that sell across multiple geographic locations – channels both offline and online – the use of a centralized inventory system specially designed for your business is recommended.  This centralized system can either be an ERP or POS that can be integrated with your ecommerce platform(s), allowing you to maintain your inventory in real-time via a single interface.

Forecasting

An essential component of inventory management is accurate and thorough forecasting. Forecasting for inventory management includes foreseeing demand for certain products and the locations and quantities in which they will be required. For accurate forecasting, ecommerce stores need to conduct market research, study demand models and patterns and consequently determine required inventory levels. Forecasting enables a proactive approach to managing inventory that, in turn, increases operational efficiency many times over. Also read, The Fundamental on Demand Forecasting in Inventory Management.

Inventory Velocity

Inventory velocity, also called ‘turn’, describes the time it takes to sell a particular item within your stock. It serves as an indicator of the health of a brand and enables accurate forecasting with regard to product supply and demand. An accurate identification of inventory velocity allows ecommerce stores to make informed decisions about the manner of procurement, storage and shipment of a particular item. Ecommerce businesses with hundreds or thousands of products can save tremendous amounts of money if they intelligently use inventory velocity.

For example, if a product is in demand but is naturally purchased in small quantities and after long intervals of time, you may save on useful storage space and cost by applying the Just In Time (JIT) method of inventory management (to be discussed later) or drop shipping that particular item.

Conversely, using JIT for a product that is always in demand may be a risky endeavor as unexpected delays are bound to occur. In such a case, maintaining a storage facility or buffer stock would be more advantageous.

Inventory velocity can be determined using real world sales information pertaining to stock items, thus allowing you to proactively manage your inventory.

Industry Benchmarks

As with every other business strategy, it is absolutely essential to analyze the performance of your inventory management process. Because of cut-throat competition in the ecommerce industry, a good way to ascertain that you remain at the top of your game is by continuously comparing your inventory management metrics with industry benchmarks.

This benchmarking will allow you to identify any performance lags, enabling you to rectify them in time. In order to rectify inventory management issues, it helps to write out the entire process, identify root causes and then spruce up your processes and stakeholder performance to uplift productivity.

Supply Chain Management

Conducting supply chain management for only your specific section gives a myopic view of the environment that has a direct impact on your ecommerce store. An advisable tactic to ensure efficient inventory management is the analysis of your entire supply chain. A supply chain analysis would include keeping track of everything, including raw materials, product demand and customer buying patterns. By engaging in detailed supply chain management, ecommerce stores can be well-prepared for any fluctuations that may hinder their operations.

Inventory Management System

Inventory management systems are computer-based and enable businesses to cut costs via inventory tracking, orders, sales and deliveries. Also read Role and advantages of inventory management system for Retailers.

 

Why Ecommerce Stores Need an Inventory Management System

Many attributes of thriving ecommerce stores instigate the need for a third-party inventory management system. These factors include the following:

Matrix Products

Matrix products, or variant products, include the variety within a single item; for example, different sizes or colors for a particular shirt. Matrix items are difficult to manage via an ecommerce platform for two reasons: they increase the number of SKU manifolds, and ecommerce platforms aren’t efficient in handling matrix products. This is why it is essential to have an inventory management system in place – so inventory levels can be maintained.

Bundles

Another ecommerce offering that cannot be adequately managed via ecommerce platforms are bundles. Bundles offer multiple-related products to customers at reduced prices and are an excellent means of providing value to customers. However, they complicate the inventory management process and, hence, demand the use of an inventory management system.

Multi-Channel Selling

As mentioned above, ecommerce stores that sell across multiple channels need to establish and maintain a centralized inventory management system to efficiently manage their inventory. Therefore, the use of an inventory management solution becomes imperative as it allows for cost effective, convenient, holistic and error-free handling of inventory across multiple channels.

Just In Time Inventory

A useful tool for managing inventory is the Just In Time (JIT) mode of inventory management, that enables ecommerce stores to only procure items when they are required. JIT is a dynamic process that enables ecommerce stores to save valuable resources and requires detailed and accurate forecasting with regard to demand, supply and their fluctuations. JIT becomes increasingly difficult to implement specifically for growing ecommerce businesses. It is best handled via an inventory management system that helps in its implementation without error or hassle.

 

How to Choose an Inventory Management System

The ecommerce market is served by a huge array of inventory management systems. Picking one that will drive growth of your specific ecommerce store is a tedious task. It is important to note that inventory management systems that work well for industry leaders do not necessarily need to be the smartest choice for a growing, relatively new, SME or niche provider. Hence, the following are brief tips on how to pick the perfect inventory management system for your ecommerce store:

Customization is Key

The key to driving business growth via an inventory management system is picking a system that serves all of your business needs. A useful thing to remember would be to select a system that has inbuilt features that integrate standard inventory management software, bookkeeping, etc.

Inventory Synchronization

Inventory management systems should have the capacity to synchronize inventory across multiple channels, geographical locations and offline. Ecommerce platforms need to provide accurate information to customers with respect to available products, which becomes challenging for large ecommerce stores. This is significant, as not knowing the exact level of inventory can cause delayed deliveries, loss of reputation and operational inefficiency.

Real-Time Inventory Count

An essential feature of an inventory management system is that it automatically identifies real-time inventory counts and disseminates this information across all office locations, on your ecommerce website and to all relevant departments.

Warehouse Integration

An integral part of inventory management is warehouse management. Warehouse management involves disciplined receipt of inventory, its storage and record keeping. Accurate warehouse management is central to the overall success of an inventory management system. However, it is difficult to undertake, especially for ecommerce stores that function across multiple geographical locations.

An efficient inventory management system should, therefore, house the functionality of integrating warehouse information across multiple locations to provide a single platform which can be used to oversee inventory levels.

These systems should also have an inbuilt inventory receipt feature which involves the use of bar code scanners that are compatible with your inventory management system. This way, the product quantity and details can be entered and retrieved in an error-free and convenient manner. According to a recent study by New England Journal of Medicine, the use of barcodes reduces errors in administration by nearly 41.4 percent.

Integration with Other Ecommerce Platforms

Many times ecommerce stores host their website via other ecommerce platforms, such as Shopify. This is why your chosen inventory management system should have integrations that are linked to your platform. This integration allows for real-time synchronization and management of information across all channels.

 

Here are some Top Inventory Management Software Products to help you pick the best one for your business.

Inventory management is an essential task. If not done at the right time, it can have a damaging impact on your online business. It is imperative that ecommerce stores follow all mentioned guidelines to ensure smooth operations, paving the way for business success.

Moosa Hemani

Moosa is a seasoned online marketing professional with a strong interest in SEO, E-Commerce and what makes users flow from visitor to customer. Moosa is responsible for all content on the Awesome Commerce website.

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