In the fast-paced world of e-commerce keeping an accurate inventory level is very crucial for the success of a business. The sales profit, saving ratio, and ensuring customer satisfaction, all depend on proper inventory management.
Without a well-organized inventory management system, the company might face overstocking, low cash handling, and stockouts. It could result in poor customer service and may damage the overall brand image.
In this detailed guide, we will learn the techniques that will assist you in understanding the levels of inventory management. We will also go through the basic as well as professional methods for inventory management.
By reading this blog, you will be able to get insights on inventory management and how to improve the inventory system. You will be able to learn the latest techniques for increasing revenue and sales in your business.
What is E-commerce Inventory Management?
E-commerce inventory management entails supervising and managing the ordering, holding, and application of products that a business provides for sale. This is an essential phase in e-commerce. It guarantees that you have the appropriate products, at the appropriate time, in the appropriate amount.
Good inventory management saves a business from stockouts. Stockouts occur when a customer wants a product but a business does not have the right amount of it. This could result in unhappy customers and lost sales.
They may even choose to shop somewhere else the following time. Stockouts can undermine client loyalty and harm your brand.
Do you know about these 9 Practices to Keep Inventory Tracking for Boosting Sales?
I want to Know!Keeping your inventory under control helps you maintain happy customers. When customers come to your online store, they find what they need. Most of the customers are more likely to come back and buy more from you.
Overall, 62% of business owners agree that proper inventory management helped them in increasing customer satisfaction. Moreover, both your sales and consumer loyalty will rise as a result.
Effective e-commerce inventory management also lowers expenses. Hence, you may prevent losses from unsold stock and save money on storage.
Benefits of E-commerce Inventory Management
E-commerce inventory management is critical because:
- It ensures that customers can always find the products they want.
- It helps in reducing storage costs and managing warehouse space efficiently.
- It prevents the loss of sales due to out-of-stock items.
- It improves cash flow by preventing overstocking.
- It enables better forecasting and planning.
Detailed Process of Inventory Management
The key to mastering e-commerce inventory management is staying committed to a methodical procedure. Here’s a thorough breakdown of the procedures needed:
1. Inventory Planning
Plan your inventory first. This includes figuring out what kinds of products you require, how much of each product you need, and when to restock. Important steps to consider are as follows:
- Demand Forecasting: To forecast future demand, examine historical sales data, industry trends, and seasonality.
- Lead Time: Recognize how long it takes for suppliers to restock and deliver new inventory.
- Safety Stock: Have a buffer stock in case of unexpected demand increase or supply chain disruption.
2. Sourcing and Procurement
Next, pay attention to procurement and sourcing. This process entails placing orders, negotiating conditions, and choosing trustworthy suppliers. Think about the following:
- Supplier Relationships: Establish trusting bonds with suppliers to guarantee reliable delivery schedules and high standards of quality.
- Cost Management: To reduce expenses, negotiate over terms of payment and prices.
- Order Quantities: The best order size to reduce overall inventory costs is to calculate Economic Order Quantity (EOQ).
3. Inventory Storage
Maintaining inventory quality and accessibility requires proper storage. Streamline your warehouse’s organization by:
- Categorizing Products: Sort products based on similarity to facilitate retrieval. Make segments of products with similar attributes.
- Labeling and Tracking: For precise tracking, use RFID tags or barcodes. This will help the customers as well as sellers in accurate storage handling.
- Space Optimization: Make use of vertical space and arrange the products to reduce handling and mobility.
4. Inventory Tracking
Reliability is the foundation of efficient E-commerce inventory management. Establish a reliable system to track the locations, movements, and levels of stock:
- Inventory Management Software: Utilize inventory management softwares to create reports, update stock levels in real time, and automate tracking. 87% of sellers use inventory management software to increase sales.
- Regular Audits: Perform physical audits regularly to confirm that inventory data are accurate.
- Stock Rotation: Reduce the risk of expiration by using strategies like FIFO (First In, First Out). It will make sure older product is sold before newer stock.
5. Reordering
The constant practice of reordering guarantees that you never run out of inventory. Important procedures consist of:
- Reorder Points: Establish reorder points according to average consumption rates and lead times for every product.
- Automated Reordering: When stock levels hit the reorder point, use inventory management software to automate the reordering process.
- Vendor Management: Work together with suppliers to obtain good terms and timely restocking.
Top 5 E-commerce Inventory Management Techniques to Learn
In the fast-paced world of E-commerce, successful inventory management is essential. Sustaining ideal stock levels is essential for satisfying consumers, managing expenses, and optimizing profits in online retail.
A disorganized E-commerce inventory management system puts organizations at risk for problems including overstocks, stockouts, and ineffective resource allocation. To prosper in the highly competitive world of business, companies need to use a variety of efficient inventory control techniques.
In this guide, we will explore five essential techniques specifically for E-commerce operations, each offering unique advantages for inventory management.
1. JustInTime (JIT)
A unique technique to inventory management, the JustInTime (JIT) method places a premium on ordering supplies only when needed. It allows maintaining a minimum amount of inventory only when needed. Additionally, businesses can save carrying costs related to handling, and storage space by storing less inventory.
On the other hand, an effective supply chain is necessary for JIT implementation. To satisfy demands from customers or production, suppliers must be able to supply products or materials quickly upon request.
While JustInTime (JIT) supply chain management can save a lot of money, it also comes with risks. To fully realize these benefits, supply chain risks must be carefully planned, coordinated, and continuously monitored.
Example
An online store that specializes in fashionable accessories for fashion. Rather than keeping each item on hand in case of future sales, they apply JIT by ordering things from suppliers.
It helps in utilizing the products only when they have orders from customers. Furthermore, this strategy lessens the requirement for large warehouse space and lowers the chance of keeping unsold or outdated material.
Do you know the Top Challenges of Inventory Management? Discover Solutions & Boost Your Sales!
I want to Know!2. ABC Analysis
ABC analysis is a strategic inventory management technique. It categorizes inventory into three groups A-items, B-items, and C-items based on their value and sales frequency.
- A-items are high-value items with low sales frequency. These are usually the products that have the biggest profit margins or are your best sellers. Additionally, they make up a sizable portion of your income. But because of their high value and infrequent sales, they might need additional care.
- B-items are moderate-value items with moderate sales frequency. While still significant, these goods are not as vital as A-items. They don’t have the same impact as A-items, although they may add to overall revenue and have consistent sales.
- C-items are low-value items with high sales frequency. These are usually less expensive products that sell well but make up less of the total revenue. The total sales volume of C-items can nevertheless be substantial even though individual sales may be smaller.
Example
High-end designer gowns (A-items), for instance, may be categorized by a clothes retailer as high-value items with few sales. Prioritizing these products would include keeping a careful eye on inventory levels, guaranteeing availability, and perhaps launching exclusive sales specials.
On the other hand, inexpensive t-shirts (C-items) could be described as low-value products with frequent sales. These products are essential for drawing customers to the store and raising overall sales volume. However, individual sales might not make up as much of the total revenue.
3. Dropshipping
Businesses that use dropshipping as a fulfillment method don’t hold inventory for the products they sell. Rather, the retailer buys the item from a third-party supplier and ships it to the customer.
This method is essential for companies with limited capital, resources, and storage. As it removes the need for inventory handling and storage. The global dropshipping business worth is expected to increase to $500 billion by 2027.
While dropshipping provides many advantages, there are drawbacks as well. Due to the retailer’s lack of control, there is a chance that fulfillment may be delayed which could affect consumer satisfaction.
Furthermore, dropshipping typically has smaller profit margins than traditional retail models. It is required to pay the supplier for each fulfilled order. Dropshipping is still a well-liked choice for a lot of E-commerce companies looking to simplify operations and cut expenses.
Example
For example, a small online store that sells only handcrafted jewelry, Instead of purchasing large quantities. The seller of the boutique collaborates with jewelry makers and craftspeople who take care of the manufacturing and delivery.
When a consumer orders a necklace, the owner of the boutique sends the manufacturer the order information. The manufacturer packages and dispatches the necklace straight to the customer.
4. Safety Stock
A crucial component of inventory management is maintaining safety stock. It is about keeping additional stock on hand to reduce the possibility of stockouts.
Essentially, Safety stock serves as a safeguard against unexpected circumstances, giving companies wide room to deal with situations. In any other case, these incidents can cause problems for operations or annoy customers.
Businesses can better prepare for supply chain interruptions caused by natural catastrophes, strikes in the transportation industry, or unplanned supplier shutdowns.
Having a safety stock allows organizations to function normally even in difficult situations. It reduces the negative effects of disruptions on their capacity to provide for clients.
Example
For example, consider an online electronics retailer preparing for the holiday season. The store predicts that popular electrical devices like laptops and smartphones will see a rise in demand. It is also based on market trends and previous sales data.
The merchant chooses to keep a safe stock of these in-demand items. It will make sure they can satisfy customer demand during this peak time.
5. Economic Order Quantity (EOQ)
A key idea in inventory management is the Economic Order Quantity (EOQ) formula. It determines the optimum order quantity to reduce overall inventory expenses. EOQ accounts for both the holding and ordering expenses related to inventory control.
Setup fees, transportation charges, and administrative costs are referred to as ordering costs. On the other hand, holding costs include all of the costs associated with keeping inventory on hand. It includes obsolescence, insurance, storage, and the cost of capital invested in inventory.
Businesses can better balance the expenses of ordering too often (high ordering costs but low holding costs) and too seldom (low ordering costs but high holding costs) by using the EOQ formula. Furthermore, Economic Order Quantity (EOQ) lowers the overall expenses of inventory management by identifying the best order quantity.
Example
For example, let’s consider a small e-commerce business that sells electronic gadgets. The business estimates that it sells 1,000 units of a particular gadget annually (D = 1,000). The ordering cost per order is $50 (S = $50), and the holding cost per unit per year is $5 (H = $5).
In this example, the optimal order quantity (EOQ) is approximately 141 units. This means that the business should place orders of around 141 units at a time to minimize total inventory costs.
Strategies to Consider for E-commerce Inventory Management
Sustaining optimal inventory levels, minimizing expenses, and maintaining customer satisfaction depends on continuous work and attention in effective inventory management. It’s critical to apply tactics for unique requirements and difficulties faced by the company to maintain control over your inventory.
These strategies could be keeping an eye on inventory levels frequently. It involves system auditing, streamlining the reordering procedure, keeping tabs on inventory turnover rates, and putting loss prevention measures. Let us look into some of these strategies to understand it further:
1. Monitor Inventory Levels
- Maintain a close eye on stock levels.
- Prevent stockouts and overstocking.
- Make use of automated inventory systems.
- Maintain real-time tracking.
- Set alarms for low stock levels.
- Modify plans in response to market shifts.
2. Perform Regular Audits
- Carry out routine physical audits.
- Verify the correctness of inventory records.
- Quickly resolve inconsistencies
- Check stock levels.
- Quickly resolve any inconsistencies.
- Keep precise inventory records.
3. Optimize Reordering
- Decide on ordering points.
- Regularly evaluate the reorder points.
- Adapt to shifts in demand.
- Take lead times into consideration.
- Put in place automated reordering mechanisms.
- Make the process of reordering easier.
4. Track Inventory Turnover
- Track the rates of inventory turnover.
- Determine which things move slowly.
- Choose the proper course of action.
- Reduce or discontinue slow-moving items.
- Boost the performance of your inventory.
- Boost revenue.
5. Implement Loss Prevention Measures
- Use alarms and security cameras.
- Provide theft prevention training to staff members.
- Review security precautions regularly.
- When necessary, update security protocols.
- Effectively prevent loss and theft.
- Assure continued efficacy of security.
Conclusion
Being an expert in e-commerce inventory management is essential to operating a profitable online business. Utilizing an efficient methodical approach will help you optimize inventory levels, cut expenses, and raise customer satisfaction.
Recall that regular audits, ongoing monitoring, and supply and demand adaptation are essential for success. Once you put these tactics into practice, you’ll have no trouble becoming an expert in e-commerce inventory management.
FAQs
- How does e-commerce manage inventory?
In e-commerce, managing stock inventory typically involves the following crucial steps:
- Real-time Stock Level Monitoring: Make use of software to keep track of stock levels instantly
- Demand Forecasting: To estimate future demand, examine sales data.
- Automatic Recording: Set up automated reordering of items when their quantity drops below a predetermined level.
- What is online inventory management?
An organized procedure for managing the inflow and outflow of products inside the company is an online inventory management system. To guarantee that the appropriate quantity and quality of inventory is available at the appropriate times, we must maintain inventory.
- What are the 4 main steps in inventory management?
You may commit to a 4-step procedure to efficiently manage your inventory:
- Evaluate your current situation.
- Go over what you already have.
- Examine the sales data.
- Decide which products to retire or buy again.
- What is an inventory management example?
The process by which a retail establishment routinely checks its stock levels examines sales information, and places orders with suppliers to restock inventory is one example of inventory management.
- What is the ABC Analysis of inventory management?
Inventory is divided into three categories by the ABC analysis. With “A” items being the most crucial, “B” items moderate, and “C” items being the least crucial. Selecting which inventory items to prioritize for stock levels and reordering can be done with the use of ABC analysis.
