eCommerce Inventory Management

Updated · May 16, 2022

As an ecommerce business owner, you know that excellent inventory management is vital to running a successful online store.

After all, if you don't have the products your customers want in stock, they'll simply go somewhere else to make their purchase.

That's why we've put together this introduction to inventory management. Join us as we take a look at the process and all it entails.

What Is eCommerce Inventory Management

Inventory management is the process of tracking and managing the stock of products or materials that a business has on hand. In this case, we’re covering ecommerce businesses, but it will benefit brick and mortar stores too. 

Inventory management can include everything from raw materials to finished products, and it's a vital part of any business that relies on physical goods, being a key feature of the order fulfillment process.

Key Elements to Effective Inventory Management

There are a few core elements to good product ecommerce management. They are:

  • Accurate tracking - Knowing exactly what you have in stock at all times, as well as where it is, when to resupply, and how much that will cost.
  • Forecasting - Predicting future demand for products. This involves keeping track of trends and seasonal fluctuations, as well as knowing your customer base well.
  • Optimal Levels - Keeping the right amount of stock. Too little and you can’t meet demand. Too much leads to wastage and storage fees stacking up. 
  • Efficient Processes - Having efficient processes in place for everything from placing orders to tracking shipments.

Challenges in eCommerce Stock Management 

Inventory management is a crucial but often challenging task for businesses. There are two main challenges that can arise: 

Overstocking

Overstocking refers to having too much inventory on hand, which can tie up valuable resources and lead to storage costs. 

In some instances, it can also lead to “dead stock”, (not to be confused with “deadstock”, another commerce term related to sneaker resale) which is stock that can’t be sold, either because it’s expired, or it was a seasonal/fad item that is no longer in demand, 

Understocking

Understocking, on the other hand, occurs when an ecommerce inventory manager fails to ensure enough inventory to meet customer demand, which can result in lost sales and damage to reputation. 

It can be even worse if a customer has already placed an order, and you must now cancel it or notify them of a hefty delay.

The Main Causes of Stocking Challenges

In short, the two challenges above are caused by poor management.

This can, in turn, be due to manual inventory management and a lack of oversight. 

Manual Management 

This type of management is the “old style” that relies on physical ledgers, notetaking, and stocktaking.

While small businesses can implement manual management fairly easily, it becomes harder and more time-consuming as a business grows in size and/or complexity. 

Managing inventory manually leads to errors and inaccuracies, which can then of course lead to overstocking, understocking, and any number of other problems.

Plus, it wastes time that employees could be dedicating to sales and customer service. 

This is solved by making use of an automated system, which can either be SaaS, or even an open-source tool you implement.

Whichever you opt for, it must be implemented properly or it can lead to…

Lack of Oversight

Having an automated system for management of your ecommerce inventory is no good if every part of it isn’t integrated.

Having multiple channels can complicate things for a business, whether they have storefronts on multiple online stores, multiple brick and mortar locations, or a combination of both.

Businesses need to keep track of inventory and sales across all channels, to have an accurate read on their central inventory, and also accurately reflect what’s available on each channel. 

To neaten inventory and eliminate the confusion caused by duplicates, product matching is vital. 

Steps to Great Inventory Management 

Now that you know about the main challenges to ecommerce inventory control and their leading causes, let’s look at some of the steps necessary to get it right. 

Understanding Demand

Inventory management is all about understanding customer demand and ensuring that the right products are available at the right time. 

By understanding what customers want and need, businesses can avoid overstocking or running out of popular items. 

This helps to keep inventory levels balanced, which can save money and improve customer satisfaction.

It can then be said that understanding demand is the basis of great inventory management.

Looking at Past Data

Of course, to understand demand, you’ll need to do your research.

What better place to start than past data?

Analyzing past sales data can help a business more accurately forecast ecommerce stock demand and manage its inventory levels accordingly.

If you’re making the jump to digital, then you can analyze your own past sales data to see how you may need to adjust your strategy.

If you’re just starting out, you’ll need to go broader, and look at the sales data of your industry at large, through the use of keyword tools, for example.

ABC Model

With a better understanding of past trends, you can implement the “ABC” model. This model categorizes inventory based on importance. 

This inventory guide sees everything divided into three categories:

  • A items are the most important and are given the most attention
  • B items are less important
  • C items are the least important

This system helps businesses to focus their resources on the most important items while still keeping an eye on the rest of their inventory.

Your A, B, and C will be specific to your business.

For example, your A could be an expensive low demand item, or it could be an inexpensive high-demand item.

A good rule of thumb is to make your A the item that makes you the most money on average.

Another aspect of inventory management in ecommerce is anticipating future trends in order to meet coming demands.

It’s best to focus on seasonal trends because there are patterns that form year on year.

You can also keep an eye on trending items, but don’t hop on fads that are on their way out, otherwise, you could be left with a big clearance box. 

That said, clearance sales are a great way to shift stock towards the end of a season.

Setting Minimum Stock Levels

A minimum stock level is a threshold at which you order more stock of a particular item, to ensure adequate supply.

You’ll need to set a different minimum stock level for each item. 

Sometimes companies hold safety stock inventory due to possible delays. This is a reserve stock that won’t be counted in with your main stock but added if necessary.

The time it takes for new stock to be manufactured and put into your inventory will dictate how high the minimum stock level is.

If an item’s procurement is quick, you can allow the stock to drop fairly low before reordering. If an item’s procurement is slow, you’ll need to order more proactively potentially at a higher threshold. 

Of course, the demand for each item will also influence the threshold.

Stock that sells quickly can safely have a higher threshold. 

Procurement 

A necessary part of basic inventory control is making sure that your system is linked to your suppliers and manufacturers.

This way restocking orders can be sent through quickly to ensure minimum delay. 

Inventory Financing 

Of course, all of this relies on budgeting.

Proper inventory accounting must accompany inventory management, in order to make sure you aren’t overspending and will be able to afford the needed stock.

Inventory Control Frequency

Finally, there’s the question of how frequently you check up on your inventory. 

Periodic 

Periodic inventory control is when stock is checked at intervals, i.e. once a month.

It’s an outdated method, but some smaller businesses still use it, because it doesn’t require a heavy tech stack. 

This style of ecommerce inventory management system isn’t recommended because it doesn’t give an accurate tally of stock, which can easily lead to any of the issues mentioned.

Perpetual

Perpetual inventory control is where stock is constantly monitored.

It’s vital in ecommerce, even if you have a single storefront.

With the perpetual model, the stock count is automatically updated as customers make purchases. 

This can give you a timely warning on when to restock, or even feed a system that will automatically request new stock from your supplier. 

Role of eCommerce Inventory Management Software

It should be quite clear now that a great ecommerce inventory management system requires the use of software. Ultimately, it’ll be a choice between a SaaS solution vs an open-source one

Whether you piece together your tech stack by combining shopping cart software with a site of your own making, or go for a full SaaS solution and build a Shopify store, inventory management will require input and thought from you.

If all of this sounds a bit intimidating, here are some alternative inventory systems you can experiment with.

Alternative Inventory Systems

Below are two “zero inventory” models, which can also be called “direct-to-consumers”.

Dropshipping

Dropshipping is a zero inventory business model in which items your customers buy from you, are shipped directly from the supplier to them.

You’re simply the middle point that facilitates the transaction. 

You’ll still have to do some inventory management, but seeing as most suppliers carry a lot of stock, you won’t have to worry about understocking, and since you haven’t paid for any stock in advance, that takes care of overstocking.

Print-on-demand is similar to dropshipping, in that stock is sent from suppliers to your customers, but it differs in that the products are branded to your specifications.

Most print-on-demand stores are geared towards artists, who want to put their work on t-shirts, cups, stickers and so.

Conclusion

As you can now see, ecommerce inventory management is vital.

To do it right, you’ll need the right mix of tools, know-how, and good old fashion effort.

We hope that this introduction has given you a lead on where to begin in your quest to perfect your ecommerce inventory management system.

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Garan VR
Garan VR

Garan is a writer interested in how tech reshapes the environment, and how the environment reshapes tech. You'll usually find him inoculating against future shock and arguing with bots.