Ecommerce Inventory Management 101

Managing inventory is a critical aspect of running an ecommerce business. It has the potential to determine whether an ecommerce business cries or thrives. If you are a retail store owner inventory management is managing your physical warehouse inventory and display inventory. But with ecommerce, this gets a bit more complex as inventory has to sync across multiple customer touch points, suppliers, and warehouses.

Before you get into inventory management you must know the advantages and the perils which come along. Knowing so will help you decide whether holding a stock is really for you or strategies like Dropshipping is ideal.

Why To Hold Stock?

  1. Competitive advantage through improved customer service – You can deliver the product fast and with higher accuracy when you hold stock. When the product is shipped from the supplier’s end it usually gets queued among many other orders he has to fulfill. Sometimes the wrong product is shipped. Your commitment to customer service is much higher than your supplier. You will go the extra mile to serve the end user as your brand reputation is at stake. Holding inventory helps you stand up for this accountability.
  2. Can wither sale storms – Holding stock is a great option during the holiday season. Based on your previous holiday season sales and current traffic you can predict the stock of gift items you might need. You can replenish your inventory accordingly and deliver gifts to your customers just in time for holidays.
  3. Offers better per unit margins – Suppliers give you a discount once you buy from them in bulk. This is NOT the case when you rely on dropshipping as products are sold only when an order is placed. When you buy in bulk the supplier will give you a discount which you can negotiate. This will improve your margins and you will know upfront how much money you have to invest in marketing to sell each product.

Perils Of Having Inventory

  • Lack of cash flow because of slow-moving inventory – Not all inventory is same. Few items fly off the shelf within days while few gather dust over months. Slow moving inventory is a dead investment. Cash flow is important for a new ecommerce business. Cash flow builds in momentum and helps acquire more customers. Slow moving inventory prevents this from happening.
  • Risk of theft and spoilage – Physical goods come with an expiry date.  You have to be aware of perishable goods and its expiry date. You will need to invest money for the security of your warehouse. Fragile items need extra care and attention.
  • Takes time and effort – Managing and moving physical items takes time and labor. If not managed well you will scale your problems exponentially as you increase the size of your inventory. You will need people to help you with stock audits. Having inventory might increase the number of people on your payroll and will eat up your time from other business activities.

11 Strategies To Manage Inventory Right

Forecasting

Forecasting involves predicting the number of units you might need a product to serve your customer uninterrupted. Forecasting helps you stock inventory only up to the extent you can sell. It takes in to account various factors like seasonality, historical data, marketing campaigns, competitor pricing and market trends.

Deal with slow-moving products

Not all inventory is same. Few products fly off the shelves while few sit in your warehouse for months. Getting rid of slow inventory is important and can be dealt in three ways.

  • Announce clearance sale with deep discounts – Retailers usually sell their slow-moving inventory at no profit and no loss model to create more cash flow for their business.
  • Find drop shippers for slow-moving products – Once you clear the inventory see if you can find a reliable Drop shipper who can ship these slow-moving products. This will stop slowing moving products from stopping cash flow.
  • Build relationships with suppliers – Few retailers have terms with suppliers wherein if a particular product is not being sold he can return the product to the very supplier he bought it from. The supplier sells the product through his other channels. Not all suppliers agree to this but once you establish trust you can have this arrangement.

Know the shelf live of your products

Every product has a different shelf life. For perishable goods like food and beverages, you should have a warehouse which can preserve the quality of the products and ship these products to the end user with packaging which will preserve its freshness. Your inventory management software should allow you to notify you beforehand when a certain product is approaching its shelf life. Your marketing campaigns should align accordingly so that it doesn’t turn in to dead non-sellable stock thereafter.

Cross-channel selling

Once you have an inventory imagine it to be a huge pile of cash you have to get rid off for a profit. Companies which hold inventory usually have a strong marketing team and leverage multiple marketing and distribution channels to keep the stock moving and the cash flowing. Leverage multiple marketplaces to sell your products. Using cross-channel selling you are leveraging already existent huge audience of marketplaces like Ebay and Amazon.

Set Par Levels

Setting Par Levels is about knowing the minimum number of units needed for each product type without overloading the inventory and having a smooth customer experience at the same time. The par levels should also have a margin for the unexpected rise in demands. Few units above the expected inventory sale rate will keep customer hassles at bay.

Understand market trends

Tech doesn’t care for you. The market gets to the side of the majority. In volatile markets like fashion and electronics, it is highly likely that the product which was hot few months ago is stockpiling dust in the manufacturer’s basement. How do government’s new policies affect a certain product line? What could the latest news about toxic chemicals in basic products mean to your business? E-commerce businesses who stay ahead of the curve spot trends and pivot their inventory and marketing ahead of their competition.

Understand Warehouse Space

Selling heavy machinery? Your home basement might not be the right choice for a warehouse. Selling stationery online your retail outlet would be enough space to stack up inventory. Understanding the size of the products you plan to sell will help you forecast the amount of space you will need to host your warehouse. This foresight is important as you can budget your business accordingly.

Learn the inventory stock cycle

Inventory stock cycle helps you manage your inventory better. It fights the persistent problem of understocking/overstocking. To understand the inventory stock cycle you will have to understand the terms it entails.

Stock Level – The current stock level of each product in your inventory.

Stock Velocity – The speed at which the stock is running out. This depends on the demand for the product and how bad or good your marketing campaigns and promotions are for the product.

Lead Time – The number of days it takes for the supplier to replenish the stock by shipping your products to the warehouse.

Reorder point – The number of units at which you should replenish the stock. This is determined by the below formula

(Stock Velocity x Lead time) + Safety stock

For instance, if you are selling 5 superman hoodies every day and the time to ship the product from the supplier’s end to the warehouse is 4. At the safety stock of 10, your reorder point will be (5*4)+10 which is equal to 30.

Safety Stock Level – Is the minimum stock amount you must always away in your warehouse to battle sudden surges in consumer demands.

Out of Stock – This is when you don’t have more stock to sell and the same should be mentioned on your product page.

Be in touch with your supply chain

It could be possible that current supplier has moved his business to a whole new country or is simply not in business anymore. Is the supplier managing the inventory right? Are the manufactures of the products you are selling still in business? What are the other products which you should be selling in the same product line?

Staffing and Training

If you have a warehouse with lots of inventory you might need a team which is aware of the ins and outs of inventory management. You will have to set process and check for quality. A full-time team needs to be aware of

  • How to organize physical products for quick sorting.
  • Use the inventory management software.
  • Manage communications with multiple vendors.
  • Sync with other warehouses or suppliers in case of stock.
  • Raise red flags on theft, loss or understocked important items.

Choose the right inventory management software

The inventory solution which you plan to pick for your business should have the following features.

  • Multi channel stock sync – Since you will be selling across multiple channels your system should be capable of handling data inputs from multiple marketplaces like Amazon, Ebay, Etsy and sync it with.
  • Multi warehouse stock sync – If you have multiple warehouses you should have a system which can manage inventories across multiple warehouses. You should know how many products are there in each of your warehouses and which warehouse is entitled to ship a product based on your customer delivery location.
  • Real-time sync – With products which are sold at a fast pace across multiple channels it is important for the inventory to sync at the real time. In case of low inventory if two customers buy your product one from your online store and one from Amazon at nearly same time chances are that both place the order and you can ship the product to only one of them. To prevent such hassles choose a system which syncs real time.
  • Ability to upload drop shipper data feed – A good inventory management software should have a provision wherein the retailer can upload the product feed as given by the drop shipper. This comes quite handy when you are uploading many products to your site as the feed consists multiple attributes like name, price, image, and SKUs.

Next Steps

  1. Do a complete audit of your inventory and warehouse. Look for potential threats to your inventory via physical damage or lack of physical space.
  2. Make a list of all slow-moving products and have a plan to get rid of them before it’s expiry.
  3. See if there is data sync between your ecommerce platform and your warehouse inventory. This will arrest unexpected out of stock products and business cash flow stuck in over stocking products.

After working 7+ years as a digital marketer for startups and large enterprises I quit my job to start EcommerceYogi. Here I share the exact same tactics which I have used to drive millions of users per month to e-commerce stores. Follow me on Linkedin and Twitter to stay connected.