Keeping your online store’s inventory levels low

Ask any online merchant, and they will tell you that keeping correct inventory levels is a never-ending struggle — a difficult balancing act.

Which products are selling faster than you expected? What items are not selling at all?

By the time you’ve established a suitable cadence, inventory levels are once more in flux. If you want to save money on logistics and meet customer demand, monitoring inventory is an ongoing job.

To prevent frequent inventory management problems as your company grows, keep reading to discover:

  • The importance of maintaining inventory levels
  • How to track inventory in real time
  • How a third-party logistics (3PL) like Launch Fulfillment can help you optimize inventory to meet demand and save on costs

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What are optimal inventory levels?

Optimized inventory levels are the recommended quantities of goods that you should maintain in a fulfillment center(s) at any one moment. By lowering inventory levels, you minimize the chances of common stock supply problems, such as high storage costs and out-of-stock items.

Overstock inventory is expensive and inefficient, taking up too much room on the shelves, waiting to be sold, or becoming unsellable. However, having too little stock may result in stockouts and backorders, which can lower consumer satisfaction.

Here are some things to bear in mind when it comes to reducing inventory levels:

  • It will be different for every brand.
  • Each SKU may require a different optimal inventory level based on demand.
  • Optimal inventory levels can change quickly (monthly, seasonally, and annually as you grow).

Finally, optimizing inventory becomes more difficult as a result of the previously mentioned challenges.

  • Your order volume increases.
  • You introduce more products.
  • You expand your physical distribution.

Why it’s important to maintain healthy levels of inventory

Healthy inventory levels are a sign of efficiency and profitability in the ecommerce supply chain. You increase cash flow, optimize warehousing capacity, and meet consumer demand by ensuring that you don’t have too many or too few items on hand.

Having too much stock can come with costs, including overpaying for holding expenses or worse — having a lot of inventory that has lost value or is no longer sellable.

Aside from keeping track of inventory levels, a deeper knowledge of your stock levels can assist you with supply chain planning by suggesting when to reorder more goods and enhance inventory accuracy.

How to determine optimal inventory levels

Determining optimal inventory levels necessitates some arithmetic and the ability to work backwards from past purchase and inventory data. You’ll also need to consider when to reorder goods so that they arrive at your supplier in time for orders placed.

Here are three factors to think about, along with some best practices for determining optimal inventory levels for your company.

1. Inventory production lead times

Understanding production lead times will help you decide when to reorder inventory to maintain consistent stock levels based on your understanding of the time it takes for items to be manufactured.

Calculating product lead time is a difficult job, but there are some factors that can help you out. The amount of time it takes for your vendor or manufacturer to convert raw materials into finished items after placing an order has an impact on how much inventory you will have and when. Here are a few things to consider while calculating product lead time:

  • Manufacturing disruptions such as those caused by Chinese New Year closures.
  • How long does it take for inventory to travel from the factory to your warehouse?
  • How long do you think it takes to receive and maintain inventory?

2. Safety stock availability

The term “safety stock” refers to additional e-commerce inventory that you set aside for unlikely events like a sudden increase in orders or delays in manufacturing or delivery. To compute safety stock, fill out the following information:

  • Maximum daily usage
  • Maximum lead time
  • Average daily usage
  • Average lead time

The following simple safety stock calculator will help you figure out how much safety stock to keep.

The economic order quantity (EOQ) formula is another fantastic approach to estimate the ideal level of inventory on hand, including safety stock.

Ecommerce warehousing costs can be extremely high, but Eemax Ecommerce Optimization is a fantastic approach to balance supply and demand while minimizing ecommerce warehouse costs.

3. Demand forecasting

Proper demand forecasting can help you make better predictions about future sales demand, allowing you to figure out how much inventory you’ll need during a certain time period.

Taking the time to forecast demand can help you make better inventory selections that may have an impact on logistics and finances, from storage fees to staff requirements. Forecasting demand will seldom be precise, but it may provide useful information about your entire supply chain.