E-commerce inventory management techniques
Here are six tips to implement for improved inventory management:
- Use insights to inform your decision-making on reorders and pricing
- Automate as much as possible
- Use order tracking to ensure accuracy and improve customer satisfaction
- Focus on maintaining consistency by adhering to established processes
- Streamline all internal communication to ensure team efficiency and reduce error
- Update your inventory management system periodically for improved functionality
Inventory auditing
Did you know that businesses can claim a tax deduction on most expenses incurred when buying, maintaining, repairing and selling business assets or stock?
To maximise your tax refund, however, you need accurate and reliable records. One of the best ways to ensure this is to conduct a thorough stocktake at the end of each financial year (also known as an inventory audit).
Depending on the size of your business and the range of products offered, this can be quite labour-intensive. Using the right tools helps with a seamless and quick audit.
Set a date for conducting this audit to allow for proper preparation of the stockroom. Your stock should ideally be categorised appropriately to maintain accurate records and minimise duplication or errors. Your audit method should also be clearly defined, outlining the process and workflow.
Stay organised with SKUs
When you have several product lines, a good way to track your inventory is by using SKUs (stock-keeping units). Retailers use SKUs to identify and track their stock through unique codes generated that represent distinctive characteristics of each product, such as the manufacturer, brand, colour or size.
When you use SKUs, you have a system to search, identify and track your stock across order forms, invoices, warehouse and more. You can track overall stock as well as individual variants. For example, you can track not just the number of mugs available but also, how many blue, red and yellow mugs there are.
A SKU typically contains letters and numbers, with each element representing important product information. For example, Rivette-330241-S-BL refers to the Rivette brand; product ID number, size ‘Small’ and blue colour.
You can easily create SKU numbers using QuickBooks’ free SKU Code Generator.
Determine economic order quantity
Determining your Economic Order Quantity (EOC) involves identifying the ideal quantity of units to have on hand to meet demand while minimising associated inventory costs. Managing stock typically incurs costs for holding, ordering and dealing with shortages.
Additionally, it is important to determine your minimum order quantity (MOQ)and invest in building strong relationships with suppliers, manufacturers and customers. Understanding your minimum order quantities is crucial for effective inventory management.
Category analysis
A product category refers to a group of products that share similar characteristics, whether these relate to the product features or its benefits. Categories can be defined with varying levels of precision. For example, a broad category could be skincare but depending on your range of offerings, you may have subcategories such as sunscreens, exfoliators, moisturisers, masks, and treatments.
Category analysis is typically conducted to better evaluate your product offerings and to research what the competition offers. This analysis can ensure that your products have sufficient differentiation, enabling your marketing to respond to identified demand for certain products and helping identify opportunities for cross-promotion or upselling.
Just-in-time (JIT) inventory
Just-in-time inventory is desirable because it arrives precisely when needed, thereby reducing costs associated with holding inventory. While it represents an ideal scenario, it requires effective supply chain management and oversight of all aspects of your business.
Safety stock
Safety stock, as the name suggests, is extra inventory held to avoid the risk of stockouts due to fluctuations in supply and demand. Maintaining safety stock reduces the customer’s frustration when they can’t purchase the product they want. Achieving an optimal balance between supply and demand is challenging because of many factors that are beyond one’s control.
You could improve inventory tracking. But sometimes, this is still not enough.
To offset this issue, you could allow back ordering, where customers purchase out-of-stock items with delivery expected on restocking. This can partly satisfy the customer but is not a complete solution.
Safety stock offers an optimal solution without significantly increasing costs. The key is understanding how to calculate it accurately.
To calculate your safety stock, you will need four key figures:
- the maximum daily usage (MDU)
- the maximum lead time (MLT) in days
- the average daily usage (ADU)
- the average lead time (ALT)
The safety stock calculation is: (MDU x MLT) – (ADU x ALT).
For greater convenience and speed, QuickBooks offers a Safety Stock Calculator.
Inventory kitting technique
Kitting is an interesting and useful technique where various but related products are assembled, packaged and shipped together as a single ‘kit’. When you hear of a “buy 2, get 1 free” or “buy 1 and get the 2nd one at half price”, this is kitting in action.
Inventory kitting, therefore, involves organising inventory into kits for sale. Its advantages include:
- increasing revenue through additional product sales
- reducing costs because multiple products are shipped together
- enhancing customer satisfaction through convenient bundles
Businesses with diverse product offerings can benefit from reviewing their product range and identifying complementary offerings, ideal for kitting.