Brick-and-mortar stores are convenient, but eCommerce platforms are becoming increasingly popular among customers and merchants. Customers and businesses alike benefit from online outlets created with Amazon, BigCommerce, Shopify, and other platforms. However, for merchants, having a digital shop has its drawbacks. Inventory management is critical for efficient order fulfillment, which directly affects the performance and growth potential of your online store.
What exactly is management, and why should you, as an eCommerce company owner, care about optimizing it? In this post, we’ll go through the ABCs of management, detailing the jargon and math involved in this area as well as how you can improve your management for your online business.
What is eCommerce Inventory Management?
Many people think that eCommerce inventory management is a straightforward procedure consisting of three simple processes. In fact, it’s far more complicated than this; there are several processes and methods involved in order to successfully execute an online shop. It’s a three-step process that involves receiving, storing, and delivering the goods from the producers to the warehouses. The order is then picked, packed, and sent to the final destination once it has been accepted by the suppliers.
3PL firms take care of outsourced fulfillment and management for both big and little enterprises. ECommerce businesses use inventory management to get a deeper understanding of how items are stored and what should be done in the future.
What Happens if eCommerce Inventory isn’t Optimized?
Inventory management entails maintaining track of the items, whether directly or indirectly. It determines how effectively the whole supply chain functions and may have severe consequences for businesses if it isn’t optimized. Let’s take a look at some of these results.
Stock-outs or Too Much Inventory
When inventory management is not optimized, your inventories may create difficulties. Overstock, for example, can lead to deadstock in the food and fashion industries. Nobody likes to buy rotten or out-of-date goods, and fashion that isn’t in line with current trends. Understocking can stifle the entire supply chain, causing delays that will eventually result in lost customers.
Heavily Manual Inventory Management Processes
If you’re still managing inventory manually, it might hold up the entire supply chain. It isn’t conducive to rapid expansion, either. Using a warehouse management system linked with barcode readers, for example, might save you a lot of time and costs over manual scanners.
The Wrong Products get Shipped
When you don’t have an organized inventory, you risk making more errors when delivering orders. Customers are dissatisfied if they receive the wrong items. Inventory management with automation can help to minimize these dangers.
Hard to Track Inventory Across Sales Channels and Multiple Warehouses
It’s also crucial to have a good inventory control system in place, since it will be harder to keep track of different fulfillment centers in real time. This might have disastrous effects on sales. Let’s assume you have a Shopify store and an Amazon business. If a customer places an order on Amazon, there is the possibility that it will not be fulfilled or that multiple orders for the same item will be fulfilled.
When you don’t have all of your information stored correctly, keeping track of items might become difficult. This can result in the loss of records and, as a consequence, money for the business in the end.
No Data or Insights into Inventory Performance
If the inventory management system doesn’t have the appropriate technical stack, it might be difficult to track data and then analyze it. A lack of data analysis means you can’t accurately assess inventory performance, which has long-term consequences – especially with regard to demand forecasting and inventory reordering.
Getting Started with eCommerce Inventory Management
Now that we’ve discussed the hazards of not investing in excellent management, let’s go over the basics. Of course, management varies from company to company depending on their specific demands and setups, but there are some basic principles involved.
Understand Basic Inventory Demand
You may get a sense of which levels you’ll need to replenish by looking back at your prior sales data. Look for recurring patterns in your orders based on time period. Once you’ve collected all of this information, you may decide what items to purchase to keep an eye on levels.
This also aids in the reduction of storage expenses, since you won’t need to lease additional warehouse space to keep up with the growth in inventory.
Set Minimum Viable Stock or Minimal Stock Levels
Set the minimal stock levels for each product category if your online store is already operational. These standards define how much stock you must maintain at a bare minimum to guarantee effective functioning and avoid a stockout.
Prepare for Seasonality
To provide a better consumer experience, it’s critical to plan ahead of time for busy shipping seasons like holidays. This way, you can ensure that you have enough goods on hand to meet the fluctuating purchase demands throughout a hectic shopping season.
Implement Inventory Management Software
E-commerce firms typically use inventory management software to properly manage their stocks. You may generally integrate other systems such as a point of sale (POS) system for purchase orders. QuickBooks is used to keep track of payments and receipts, among other things.
Essential Inventory Management terms
Inventory management is a broad field that may be tailored to your company’s needs. There are several inventory management techniques, including ABC analysis, Set Par Levels system, and so on. Here are some key terms and systems for managing stocks.
First In, First Out (FIFO)
By anticipating that the warehouse’s first items to arrive should be sent out first, this inventory management system ensures that stock cycles correctly. This method maintains good rotation, and it’s especially beneficial in food inventory control since expiration dates are a consideration.
Last In, First Out (LIFO)
The inventory management method featured above is extremely different from this one. The goods that are added last to the inventory are sent out first. This technique isn’t appropriate for perishable things, but it’s also becoming obsolete in many sectors.
This inventory management system isn’t for the faint of heart. The levels are kept to a bare minimum where demands are still met, as demonstrated by this example. This is not a good method to prepare for events and has an excellent chance of out-stocking.
Safety stock is a type of insurance that protects you from financial ruin in the event of an unforeseen catastrophe. It’s like having a safety net for your inventory. Calculating safety stock quantities using the maximum daily usage figures is known as the safety stock formula. The next section covers how to calculate safety stock.
The reorder point is the lowest level a firm should maintain before reordering. This point helps you avoid overstocking and understocking problems, as well as ensuring that you order the items at the proper time.
Inventory distribution is most effective when you believe that one fulfillment facility isn’t enough. This particularly aids in reducing transit times and shipping expenses after an order is placed. Inventory distribution may be the answer if your ecommerce firm receives a large number of orders.
Perpetual Inventory System
A real-time system keeps track of the real-time sales and restocking of through management techniques. Inventory management software may be used to automate this procedure. The system keeps track of stock changes in the supply chain and updates inventories automatically as items are acquired or sold.