Customer expectations in retail have never been higher. Thanks in large part to the Amazon effect, shoppers expect the exact items they want to be available and affordable—not to mention, delivered rapidly—regardless of the sales channel they choose. And the pressure that puts on retailers? They’re only too happy to share it with their wholesale distribution partners. But there’s good news—with effective e-commerce inventory management, you can optimize stock levels, forecast demand, and stay ahead of those lofty expectations.
What is e-commerce inventory management?
In the simplest terms, e-commerce inventory management describes the way that a business sources, stores, tracks, and ships its inventory across all sales channels. This discipline not only lets you know not just how much of an item you have, but can also give you real-time insights into questions like what inventory levels to maintain by season, how to price it, and when to reorder. Small businesses often manage this process with spreadsheets, but as businesses grow, a more robust, multichannel inventory management system is often required.
Why is inventory management for e-commerce businesses important?
Effective inventory management delivers a multitude of benefits for e-commerce businesses. In the short term, it enables day-to-day operations to run smoothly. But in the bigger picture, the impact of inventory management is far more profound. It can help businesses deliver better customer service, accurately forecast the future, better understand their customers’ needs, and make informed decisions about business growth.
5 business benefits of effective e-commerce inventory management
We’ve talked a lot about the functional benefits of e-commerce inventory management systems, but what does it all mean from a nontechnical, business-first perspective? Here are five bottom-line benefits for e-commerce businesses.
Lower storage costs
It may sound obvious, but there’s a direct correlation between your warehousing costs and the amount of inventory you have to store. Effective inventory control helps you maintain just the right amount of stock to meet demand so that your available warehouse space can be used most effectively. After all, who wants to pay to store dead stock that’s just taking up space?
Smart e-commerce inventory management virtually lets you predict the future. With accurate forecasting of customer demand, you maintain optimal stock levels, eliminate underperforming SKUs, and optimize pricing. All of which contributes to a healthier, more profitable enterprise.
As the old saying goes, it’s better to work smart than work hard. Automated inventory management systems help you accelerate common inventory management tasks, reduce the load on your team so that they can focus on strategic tasks, and possibly cut your overall labor costs.
Better cash flow
The right inventory management solution can significantly improve your cash flow. You’ll be able to accelerate inventory turnover, reduce investments in dead or slow-moving stock, negotiate optimal pricing from suppliers, and sell and fulfill your goods more efficiently.
Be a trusted company
In e-commerce, like most businesses, the reputation you earn through the customer experience you deliver has a profound impact on your long-term success. Effective inventory management builds trust by enabling you to fulfill your promises, earn word-of-mouth referrals, and become a place not just trusted by customers, but where top talent wants to work, too.
Common challenges in e-commerce inventory management
As we’ve already identified, meeting customer expectations is an ongoing challenge in e-commerce, both for retail businesses and wholesalers. Let’s take a closer look at some related challenges.
Supply chain disruption
With the transport of raw materials in disarray around the world, it can be difficult to have visibility into accurate inventory data that provides accurate notifications of when you can expect shipments to arrive.
Too much inventory
Overstocking occurs for a number of reasons. It could be related to seasonality, misreading customer demand, or a number of other issues. The primary issue with overstocking is that it can become quite expensive to store all those non-selling goods, when a FIFO (first in, first out) flow of goods is far more desirable.
Some overstocks can be mitigated through discounting measures and other strategies, but unsellable inventory—dead stock—creates a real impact to the bottom line. Whether goods are considered dead stock because they have expired, have gone out of season, or are simply no longer in demand, this is a worst-case scenario for inventory management.
Too little inventory
Lack of inventory is often the result of insufficient forecasting, but can also be caused by issues like supply chain challenges, as noted above. No matter the reason, not having enough inventory to fulfill purchase orders can be a serious problem. Not only for the short-term loss of potential revenue, but because customers have lot of options, and once they’ve had a poor customer experience, they may not come back.
Insufficient safety stock
While we’ve already discussed that having too much inventory can be an expensive problem, it’s important to maintain an appropriate level of safety stock so that you’re covered in the event of an unexpected spike in demand.
Right stock, but wrong location
Many businesses operate multiple warehouses or fulfillment centers, and when stock is in the wrong place, it can hamper the entire fulfillment process. By storing products as close as possible to where they are in demand, you can deliver more quickly and cost-effectively.
Ability to scale
As businesses grow, so does the complexity of their operations. More customers across multiple channels and platforms. More vendors and manufacturers to manage. More inventory across more locations. At some point, manual, disconnected inventory management solutions become a serious hindrance to growth.
Can e-commerce inventory management software help?
Many businesses find that inventory management software is essential to their success. Implemented and managed properly, inventory management software can reduce the impact of human errors, automate and streamline inventory management processes, and expedite order management and fulfillment for a better customer experience.
Inventory management software can deliver:
- Consistent stock counts. Having an accurate and up-to-date view of stock counts at any given time is critical to maximizing profit margins while minimizing waste. E-commerce inventory management software automates this process, giving you inventory tracking that delivers real-time insights into shrinkage, pricing, and more.
- Automated reorder points. We’ve already discussed the risks of having too much, or too little, inventory. Automated reorder points—created based on data, not guesswork—help you get the right products, in the right amounts, at the right time. And this automation helps business owners reduce inventory holding costs and optimize warehousing operations.
- Safety stock optimization. As already discussed, the right amount of safety stock keeps you covered in the event of a spike and demand, without creating so much additional stock that you’re in an overstock situation. E-commerce inventory management software automatically monitors your safety stock to avoid stockouts, and issues a new purchase order to trigger restocking when safety stock levels fall to a predetermined level.
- Reduced human error. Even the best teams are prone to making mistakes. Inventory software helps you avoid costly errors while freeing up your team for high-value activities.
5 leading inventory management software companies
When evaluating the multitude of e-commerce inventory management software providers, it can be difficult to discern which is right for your needs. Below are five companies that consistently receive high rankings for their excellence in e-commerce inventory management software.
QuickBooks: QuickBooks Advanced Inventory automates inventory and order management from the warehouse to the customer’s doorstep. Streamline warehouse and management, improve efficiency with barcode scanning, track costs more accurately, and more.
SkuVault: With SkuVault, e-commerce businesses can connect channels, organize warehouses, and manage inventory efficiently with powerful integrations and simple workflows.
RetailOps: RetailOps delivers value in three ways: getting the right orders to the right customers quickly, helping businesses maintain lean and efficient operations, and helping businesses grow without the growing pains.
Skubana: Skubana helps businesses sell direct to everywhere, from one place. Plus, seamlessly integrate products, fulfillment centers, and sales channels in one platform.
Ordoro: Ordoro helps merchants operate and optimize fulfillment workflows with bulk shipping label creation, omnichannel inventory management, automated dropshipping, and more—all in one platform.
Integrating with platforms and marketplaces
A key component of any modern inventory management strategy, and particularly any inventory management software you consider, is the ability to seamlessly integrate with established retail leaders. Whether top platforms like BigCommerce, Magento, and Shopify, or online marketplaces such as eBay and Amazon, e-commerce simply moves too fast to attempt to interface with these companies in a manual fashion. You need the functionality to seamlessly integrate with these companies to see inventory, sales, product details, pricing, and customer data.
9 common inventory management techniques
As companies seek to optimize their supply chains throughout the product lifecycle, inventory management techniques quickly become a point of focus.
Just-in-time (JIT) inventory management
This is a technique in which, rather than amassing inventory based on an assumed level of customer demand, inventory is acquired in response to customer demand. This is a great way to avoid overstocks and dead stock, and it can help greatly with warehouse management because you aren’t wasting space on items with little or no customer demand.
ABC analysis places products into groups based on their value. For example, the A group contains your most valuable products, the B group falls in the middle, and the C group contains products of lowest value to the business because of issues like low profit margins. Categorizing into three groups is common, but in reality you can choose any number of groups. This is a proven way to prioritize your investment in some SKUs, while perhaps shedding others from your inventory.
FIFO and LIFO
We’ve already touched on FIFO (first in, first out). This practice states that the oldest items in your inventory should be sold first. However, for businesses where shelf life is an issue, such as grocery, the opposite approach is often called for. By employing LIFO (last in, first out) businesses can deliver the freshest goods to their customers while avoiding losses due to spoilage.
Have you ever considered that the best approach to inventory control may be keeping no inventory at all? With dropshipping, an e-commerce business takes a sales order from a customer, then purchases the item from a third party to be delivered directly to the customer. It can be a great technique for small and mid-sized businesses, but make no mistake, dropshipping also makes up a significant portion of the revenue of e-commerce giants like Amazon.
Economic order quantity
This technique considers multiple variables—like customer demand, product cost and profitability, and more—to determine optimal order quantities.
Minimum order quantity (MOQ)
MOQ establishes the smallest order of an item that a supplier will sell. Typically, there is an inverse relationship between cost and MOQ. That is, suppliers will accept smaller orders of higher-value items, while expecting larger orders of lower-value items.
Reorder point (ROP)
ROP establishes a minimum stock level you must reach before initiating replenishment. With built-in adjustments for lead time, automation-driven order triggers help avoid stockouts and unnecessary holding costs.
Cycle counting is an inventory technique in which a business counts a small sample of its inventory on a frequent basis. Cycle counting is much less disruptive to business operations than full stock counts.
In a consignment arrangement, the owner (consignor) sends goods to an agent (consignee) who agrees to sell the goods. Because the goods are owned by the consignor until they are sold, they appear as inventory in the records of the consignor, not the consignee.
A final word
When considering e-commerce inventory management, there are a lot of moving parts to consider. But customers’ expectations are only going to increase, and if you don’t master your inventory in a way that delivers for your customers, you might just watch them go to a competitor that has. Having the right products, in the right place, at the right time can help you compete and win in an ever-demanding e-commerce marketplace.