What is Ecommerce Inventory Management?

Ecommerce retailers need to have a few things to be successful: a functional and appealing website, a good shipping strategy, and visibility into their inventory counts and locations. Unfortunately, most of these retailers make inventory mistakes initially that can cost them considerably, like not having an inventory management solution in place.

Ecommerce inventory management is a system to help retailers grow in every aspect of their business. The technology allows business owners to streamline warehousing operations and make smarter financial decisions. 

When you know how much inventory you have, everything else falls into place. 

What is Ecommerce Inventory Management? 

Intelligent inventory management is the backbone of any business. It operates to serve the frontend and backend of your operations. On the backend, it’s an integral part of the supply chain, often acting as the middleman between your suppliers and customers. For example, it keeps your quantities accurate on the frontend so you don’t lose customers due to incorrect information.

Ecommerce inventory management is simply the act of tracking the location, amount, pricing, and mix of inventory available from your business. The ecommerce aspect considers the necessities of an online retailer that may need to track inventory for multiple online sales channels. 

Why is it Important? 

Before you begin your search and implement an ecommerce inventory management solution, it’s important to assess the needs of your business to find a suitable solution. Why? Because inventory management touches nearly every aspect of your business operations. 

First and foremost, it offers visibility into inventory counts and locations from when it enters your warehouse until it reaches your customer. Users can better view products that are overstocked, understocked, out of stock, or missing entirely. This kind of visibility allows you to better forecast inventory purchases and prepare for potential shortages. 

A reliable inventory management system aids your customers in a positive buying experience. Because the system automates inventory workflows and updates quantities across your sales channels, inventory counts are always accurate. Therefore, counts online are advertised correctly, and customers have a better chance of actually receiving the right product. 

The last thing you want is to lose a customer from a negative shopping experience. 

What are some Ecommerce Inventory Management Strategies? 

There’s not a one size fits all ecommerce inventory management solution. Each business has unique needs that adopt different strategies to track its inventory. Take a look at the following options to determine which approach might be a good fit for your business model. 

1. ABC analysis.

Inventory is categorized into three areas using the ABC Analysis method. Each category is based on SKU's profitability. 

Let’s break this down. Category 1 could consist of inventory that is high in value but may be low in quantity. Category 2 could include inventory that is moderate in both value and quantity. Lastly, category 3 could include inventory that is low in value and high in quantity. 

When you break inventory into categories like this, it enables your business to sell various product lines. Why is that important? Because diverse product lines enable customized restocking strategies for each category type.  

For example, if you’re a handbag retailer selling $2,000 handbags and $50 keychain accessories in the same store in-person or online, you’re not going to use the same fulfillment strategies for both. One product is more valuable than the other. 

Therefore, implementing the ABC analysis strategy allows for more control over each product’s replenishment, primarily when used with an inventory management system. 

2. Just-in-time inventory.

If your business doesn’t need to keep a large amount of inventory on-hand, the just-in-time inventory method, or JIT, is for you. This strategy is implemented by businesses that only need to stock orders as they are purchased by customers. The volume of inventory is typically equal to the number of filled orders. 

Companies selling seasonal merchandise is an excellent example of the JIT strategy. As demand increases for their products, they order just enough to fill orders. As the season winds down, they can clear the shelves without fear of lost money tied up in dead stock. 

If you’re a company that depends on buyer trends, this strategy is not for you. Unexpected surges in demand - like many industries saw in 2020 during Covid-19- can cause expensive stock outs. 

3. Dropshipping. 

Dropshipping has become one of the most popular and easily accessible inventory management strategies. However, it’s not exactly a straightforward inventory practice because business owners don’t touch the product. Instead, when a customer places an order, you, the business owner, fulfill it from the manufacturer and send it directly to them. You don’t touch the inventory at all. 

This technique is utilized frequently by first-time ecommerce sellers looking to build their business fast but don’t have the money for a storage facility or warehouse. 

Although dropshipping may sound like a walk in the park, the drawback is that you have zero control over the customer experience. Since the manufacturer is doing the bulk of the work after a customer’s purchase, how the product is stored and shipped is their decision. If a customer received a broken or incorrect product, they would look to you to provide answers. 

4. First In, first out.

The first in, first out strategy is highly favored by retailers selling goods with expiration dates. First in, first out, or FIFO, means the first products to arrive in a warehouse are the first to be fulfilled for customers. 

It’s not just for industries selling perishable goods. Anyone can implement this inventory management strategy if they want to rid the product early. However, be careful to study the price patterns of your goods and materials. If the prices fluctuate often, it can result in inflated profits due to the difference between the cost of goods received and the cost of goods sold. 

First expired, first out (FEFO) and Last in, first out (LIFO) are two additional inventory methods used by retailers selling perishable goods. 

5. Safety stock.

Safety stock is another popular inventory management strategy used by retailers whereby they hold extra inventory in case demand increases unexpectedly. Unlike the JIT method, safety stock helps you cover unexpected delays and demand fluctuations to sustain consistent output. 

Retailers utilize safety stock to plan for such variables as incorrect forecasting, consumer demand changes, and different lead times for your various raw materials. So when you hold safety stock inventory, you’re able to overcome these obstacles because you have extra inventory on-hand

Conclusion

Inventory is your company’s biggest asset. Treat it like one. Implement the inventory management strategies discussed above to make better purchasing decisions, to create better warehouse organization, and to gain overall visibility into what exactly you have in your warehouse and where it’s located.