A Basic Guide to ECommerce Inventory Management!

ECommerce Inventory Management

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In this digital age, one of the best ways to earn money is to sell unique products online with the help of an eCommerce platform, such as Amazon, Alibaba, etc. However, to have a profitable online selling business, it’s crucial to understand the importance of inventory management in eCommerce. 

An effective inventory management system is one of the most crucial elements of running a sustainable eCommerce business. It helps businesses arrange their products systematically and ensure all products are released on time to increase fulfillment rate and promote positive customer satisfaction.

Nevertheless, an effective inventory management system may experience problems and challenges, especially manual task errors. In that case, you may consider automating your processes using the best eCommerce ERP. Through enterprise resource planning (ERP), you’ll be able to eliminate repetitive tasks and improve overall work productivity and efficiency. 

However, automation alone may not be enough for a successful inventory management system. You need to learn and understand all aspects of inventory management to be well-equipped in utilizing and controlling it effectively. Here are some pieces of information that you need to know to clearly understand what eCommerce inventory management is. 

What Is Inventory Management In eCommerce?

Inventory management is a set of different practices that manage the ins and outs of every product registered in your eCommerce system. It includes tracking the location, quantity, and pricing of all products throughout your business platform.

With inventory management, you’ll be able to immediately identify the number of products in stock, soon-to-be out of stock, and totally out of stock. By being aware early on, you can easily address issues regarding your inventory to ensure customer fulfillment and a high satisfaction rate.

What Are The Important Terms In eCommerce Inventory Management?

To better understand eCommerce inventory management, it would be best to learn and familiarize yourself with the terms firsthand. Here are the important terms and concepts you need to know:

  • Stock Keeping Units (SKUs): A set of codes to classify, organize, and manage multiple products. 
  • Inventory: It refers to all products that you sell.
  • Variants: It refers to product variations in terms of colors, shapes, size, etc. 
  • Units of Measurement: These are used to measure stocks based on their weight (grams, ounces, etc.) or volume (liters, fluid ounce, etc.).
  • Supply Chain: It refers to the flow of processes from production to distribution.
  • Buffer Stock: It refers to your extra stock to ensure products won’t go totally out of stock.
  • Lead Time: It refers to the period between ordering and receiving an item.
  • Dead Stock: It refers to products deemed unsellable but exists in your inventory.
  • Just-In-Time (JIT): It refers to products that are received from suppliers only when they are needed to reduce inventory costs.
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How To Establish eCommerce Inventory Management?

Here are the basic steps in establishing inventory management for eCommerce you might want to consider:

  1. Understand Product Demand – The first thing you need to do is understand your product demand and how it will fluctuate over time, considering different factors, such as seasons. This is a crucial step, especially when launching new products. You may use tools such as Google Trends to determine which products have been in demand recently.
  2. Forecast Demand In The Future – Forecasting doesn’t mean to be exact, but it should remain as close as possible based on your previous sales. Also, don’t forget to include seasons where demands may fluctuate significantly, such as holidays.
  3. Set Minimum Stock – Setting minimum stock levels is important to avoid going out of stock and possible product delays. Also, it varies from product to product, depending on the demand.
  4. Prioritize Products – Categorize your products into three divisions: high, moderate, and low-value products, to know which needs to be prioritized. 
  5. Prepare For Incoming Seasons – Seasons, such as summertime and holidays, indicate an impending increase in sales. So, make sure that your inventory is prepared by filling up your stock, especially those that performed well in previous seasons.

What Are The Difficulties You May Encounter In eCommerce Inventory Management?

Along the process, you’ll encounter some problems that may be inevitable. But what’s important is you know how to handle such situations. To further understand that, here are the common difficulties of eCommerce inventory management that may affect your business’ growth:

  • Overstocking: Overstocking means dead stocks are increasing due to low product demand. It usually happens when you overestimate your forecast of possible demands. To address this issue, inform your customers about the remaining stocks and start your pre-orders to know how much you need to produce. 
  • Lack Of Visibility: It usually happens when there’s too much demand in multiple channels and warehouses that you can’t maintain at the same time, resulting in chaos. To deal with the situation, you may use inventory management software, revise your inventory management strategy, and be consistent at all times.
  • Lack Of Insights: Inventory management is not a one-time solution. It needs constant development throughout the process. Otherwise, you’ll get stuck up. To solve this problem, collect more data regarding your inventory and check if there are necessary improvements, such as time changes and forecasting.
  • Manual Management: Manual processes are among the most common causes of costly delays and errors, such as misplaced orders and wrong pricing. Also, it prevents your business from growing. To address such cases, you need to invest in new tools, practices, and strategies to improve your workflow and make it run smoothly and seamlessly.
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What Are The Strategies To Use For Your eCommerce Inventory Management?

In the world of inventory management, there’s no one-stop-shop method that you can use throughout the process. There are different techniques you can use that will help you implement an inventory management system much better, such as:

  • Backordering – It’s a simple yet tricky process that involves the selling of goods without adequate supply. 
  • Bulk Ordering – This will help you get discounts when purchasing large amounts of stocks. However, make sure to analyze the demand to avoid having dead stocks.
  • Safe Stock Inventory – It is the process of having extra stock to address a possible change in customer demands and orders.
  • First In, First Out (FIFO) – It ensures that all inventory that goes in first should be released primarily to avoid expired stocks. It’s an important technique for the food and medical industry.

You may also consider dropshipping practices. However, make sure to work with only the most reliable suppliers to stay relevant, positive, and consistent with your customers, especially when it comes to quality and delivery period.

Final Words

Inventory management is an important element in eCommerce. It will help you manage your stocks correctly to ensure order fulfillment and positive customer experiences. Consequently, setting up an inventory management plan can be tricky, especially if you’re a beginner in eCommerce.

If that’s the case, you can refer to this basic guide to help you understand the ins and outs of eCommerce inventory management. 

Furthermore, don’t forget to apply what you learn to have a successful, sustainable, and profitable eCommerce business.

ECommerce Inventory Management article and permission to publish here provided by Claire Glassman. Originally written for Supply Chain Game Changer and published on April 27, 2022.

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