eCommerce Inventory Management: Importance and Strategies

There’s always a trend to follow on the horizon and high customer expectations to meet in the fast-moving eCommerce landscape. The best way to keep up? With effective eCommerce inventory management. 

It means ensuring there’s always stock to sell for customers to buy. It’s easier said than done. Overstocking, stockouts, and inaccurate inventory forecasting expose you to unsatisfied customers and a significant potential loss in sales. 

Streamlined inventory management for eCommerce business systems prevents you from these headaches, allowing you to focus on delivering quality experiences and products to your customers.

This article gives tips on managing eCommerce inventory effectively so you can apply it to your unique operations.

What is eCommerce Inventory Management? 

eCommerce inventory management is the process of controlling the necessary amount of stocks a business keeps without sacrificing quality or wasting money. In other words, it’s about ensuring you have enough products to meet customer demand, whether your business operates online or offline. 

What Is the Inventory Management Process?

Running an eCommerce business is similar to a retail business in many ways, and inventory management is one of them. Although there are a few differences, they still follow this general process:

• Procuring products - sourcing products from reliable suppliers and negotiating favorable terms.
• Storing stock - businesses typically store their products in warehouses equipped to maintain the product’s quality. For instance, a business working with food may require storage space with an adjustable temperature setting. 
• Processing orders - fulfilling customer orders promptly requires businesses to develop a precise delivery and shipping strategy. This often involves assessing logistics companies to find the provider that meets the business’ unique delivery needs. 
• Managing returns - businesses need to manage returns because their products won’t satisfy every paying customer. That’s why managing returned products is just as crucial to maintaining a sustainable inventory as procuring fresh stocks. 

Why Inventory Management is Important in eCommerce: 5 Benefits

It’s crucial to understand why inventory management is important to get buy-in from other business partners and employees who may not feel it’s a priority. Here are a few reasons why you need effective eCommerce inventory management systems as soon as possible. 

1. Enhanced customer relations and satisfaction 

How would you feel if you only learned a product was out of stock a day or two after you decided to buy it online? And that the company didn’t indicate it?

It’s a situation that frustrates plenty of customers and can tarnish a company’s reputation. Efficient inventory management ensures that these disappointing experiences are rare. In this way, you can consider your eCommerce inventory management efforts part of your customer relationship strategies. 

2. Minimized costs and optimized profitability

Stocking more products than you need is detrimental to an eCommerce business for several reasons. For one, unsold items occupy valuable warehouse space you could’ve used for your new products. Another reason is that it’s a persistent indicator of how much money failed to return to you. 

The right inventory management strategies allow you to minimize your product storage expenses, helping you save more and adapt to new product market changes quickly. 

3. More accurate inventory forecasting

What do you think customers will want a few months from now? Do you have enough stocks for the holiday shopping rush? Predicting the future of market demands is a challenging yet critical aspect of effective inventory management. 

An accurate inventory forecast allows you to respond to emerging market trends and avoid holiday shipping delays, supporting your relationships with your buyers.

4. Better business decisions

Suppose your eCommerce sells baked goods of different kinds, from croissants to cookies. There’s been a recent trend in croissants as your competitors have begun offering a variety of unique flavors. Would you have enough in stock to compete? 

Your eCommerce inventory management systems can provide historical data about past croissant sales to understand how you can enhance your offers to persuade customers to buy from you, whether or not they’re part of your customer loyalty platform. Because of this data-driven approach, you can better manage your risks and set realistic success metrics. 

5. Simplified multi-location inventories

Many eCommerce businesses operate across multiple locations, whether it’s different warehouses or regional distribution centers. Some may even operate unique physical locations, such as how food businesses can start cloud kitchens. Managing inventories across these locations is a logistical nightmare without a proper system. 

eCommerce inventory management systems centralize control, making overseeing and managing stocks from different areas from a single online location much simpler. 

Despite eCommerce inventory management's efficiency and customer enhancement boosts, it isn't always simple.

5 eCommerce Inventory Management Challenges 

Online retail is perennially dynamic, especially with consumer expectations and supply chain interruptions being common occurrences. The section below explores a few eCommerce inventory management challenges you must prepare for to keep your business operating smoothly.

Photo by Arum Visuals on Unsplash

1. Stockouts 

A stockout is when you’ve run out of a particular product in your inventory, that causes your business to miss out on potential sales. A stockout also allows your customers to discover competitor products they might not have otherwise tried.

2. Overstocking 

In contrast to a stockout, overstocking is when you have excess inventory. This can happen when a business invests too much in an emerging trend that doesn’t last or products that, ultimately, don’t resonate with customers as much as they expected. 

The risk is that overstocked items put your money to waste and occupy precious inventory space. You may consider heavily discounting items, but that can greatly affect your profit margins. 

3. Seasonal demand fluctuations

Shoppers buy more during certain periods of the year than others. Your business’s ability to respond to these fluctuating market demands can often determine how profitable you will be within a certain quarter or year. According to recent consumer studies, Filipinos spent 11% more on food and 9% more on beverages in the 2023 holiday season. 

Alternatively, there will be months when sales are  at a standstill. Managing your inventory effectively allows you to survive the slowest months for online sales. That means forecasting when customers are most and least likely to buy your products and optimizing your inventory accordingly.

4. Working with multiple suppliers

Although it’s sage business advice to spread your supply chain risk by working with multiple suppliers, the arrangement can bring  unique inventory management challenges. 

Coordinating supply orders from multiple sources can overwhelm anyone who isn’t prepared for it. This isn’t to mention the persistent  potential for shipping delays because of factors out of your control, such as traffic flows or government mandates. 

5. Lack of actionable insights

Many businesses may need help  with the torrent of data their operations generate; customer acquisition costs and average order values are constantly in flux. These instances challenge you to optimize your inventory management as much as possible while remaining data-driven.

5 eCommerce Inventory Management Strategies to Consider

An adaptable and agile business is best suited for surviving the fast-paced eCommerce landscape. Even though your business may not have started with these qualities in mind, that doesn’t mean you can’t begin practicing them today.

Photo by Alberto Rodríguez on Unsplash

Here are a few eCommerce inventory management strategies you should consider implementing:

1. Try Just-in-time (JIT) inventory management

Just-in-Time (JIT) inventory management involves receiving goods only when you need them in the sales process. It’s a strategy that prevents you from overstocking your inventory and unnecessary expenses. It also effectively reduces  the number of trendy items with a high risk of obsolescence in your inventory.

2. Calculate your Economic Order Quantity (EOQ)

Following the economic order quantity model optimizes the amount of stocks you order while minimizing your total inventory costs, including how much you spend ordering and holding products. The optimal number to reach will depend on your business. This formula calculates the number of products you need on hand to operate smoothly:

Q=√2DS/H

Where:

• Q = Economic Order Quantity (EOQ) units
• D = Annual demand for units
• S = The cost per purchase order
• H = Holding costs per unit, annually 

3. Conduct an ABC analysis

An ABC analysis involves categorizing the stocks in your inventory based on their value to your business. This helps you see which items you should focus on promoting and selling. ABC refers to the categories of the products, which means the following:

• Category A: These are the few items in your inventory that provide the most value to your business. If you run a supermarket business, then Category A products would be fresh and premium food products.
• Category B: These are the average products you sell that are neither as important as a Category A product nor as negligible as a Category C product. For a supermarket, for example, these are everyday products with a steady demand, such as dairy products.
• Category C: These are the lowest-value items you offer that occupy the majority of the space in your inventory. These are slow-moving products with less demand than the other categories. For example, non-essential items in a supermarket, such as snacks from less popular brands.

This is an effective way to allocate your limited resources more profitably.

4. Implement the First in First Out (FIFO) method

The gist of the First In, First Out method is simple: prioritize selling your oldest inventory. It’s essential to implement if you want to start a food business because most of the items in your inventory have a set expiration date. This strategy reduces the risk of sitting on outdated or unsellable stocks.

5. Consider dropshipping 

An effective form of eCommerce inventory management is not to hold any inventory in the first place. eCommerce dropshipping involves selling products you don’t hold; instead, you forward customer orders to the supplier, who will ship products directly. 

It means you can quickly begin your business once you’ve found the right eCommerce website builder for you. You can consider dropshipping certain products to lessen the cost of warehousing and simplify your operations. 

Regardless of the strategies you choose, it helps to use a return on investment calculator to understand your profit margins when it comes to your inventory.

As impactful as these strategies can be for your eCommerce business, they can backfire without the proper guidance. It’s why following inventory management best practices enables you to make the most of these strategies.

Best Practices to Improve Inventory Management for eCommerce

Despite eCommerce businesses having their own structures and processes, they all share a common mode of operation that following industry best practices can enhance. It could translate into happier customers, more efficient production, and reduced costs.

Below are a few best practices you can adopt in learning how to improve inventory management at your company.

1. Study your past inventory data to forecast more accurately 

Analyzing your past sales patterns can help you spot seasonal trends you should prepare for. 

For instance, you notice a sales spike in August but a drastic decline in September before another holiday spike. This data can inform you of how much stock you should procure to meet demand in August while ensuring you aren’t overstocked in September. 

2. Utilize inventory management software and systems

For many businesses, the world is getting too fast for manual processes. Inventory management software gives you a centralized overview of your inventory and allows you to reorder and update your accounting data. It simplifies tracking your stock levels, delivering goods, and knowing when to resupply.

With the right eCommerce platform, you have access to robust inventory management software and accounting and customer service systems to centralize your operations.  

3. Implement efficient order fulfillment processes

A poorly managed inventory can cause bottlenecks in the system and delay deliveries. With delivery speed being a crucial factor for eCommerce businesses, you can’t afford to ignore implementing an efficient order fulfillment process.

An efficient order fulfillment process includes receiving supplies, storing them well, packaging them safely, and delivering them promptly. Break down your supply chain into different phases and find areas where you could improve: You may realize, for instance, that you can deliver certain packages using one truck instead of two, allowing you to cut costs. 

4. Automate inventory tracking and replenishment

Similarly to using inventory management software, automating your inventory tracking and replenishment tasks can boost your overall productivity substantially. For instance, a barcode or RFID system allows you to track products easily through the supply chain. 

Most inventory management software can integrate with this tech to unlock even more possibilities. Together, they can provide you with real-time updates about the status of your stocks. Automatic replenishment systems (ARS) can work with these systems, triggering an order to suppliers when stocks fall below a certain amount. 

5. Set your inventory PAR levels

Your Periodic Automatic Replenishment (PAR) levels indicate the minimum number of products you should have in stock to support your regular sales during a specific period. Establishing your PAR levels is integral to operating without difficulty. It’s imperative to maintain it if you’re in the business of selling perishable goods, such as medical supplies or FMCG.

Managing Your Inventory Smoothly

Without proper inventory management, you expose your business to a variety of consequences. A proactive approach to managing your inventory is necessary to remain competitive and succeed in the fast-paced world of eCommerce. 

One such preemptive measure is to ensure your online selling platforms have built-in inventory and order tracking systems. Look no further: RUSH eCommerce solutions let you bring your whole product catalog online, and manage your inventory across multiple brands and branches.

Learn more about our competitive eCommerce packages, or inquire now to discover how RUSH can help your business today!