Many factors contribute to the success of an ecommerce business. There’s obviously branding, identifying and filling gaps in the market, and executing marketing tactics successfully. And on top of all that, running a profitable store takes quite a lot of backend work as well. Things like payment processing, your supply chain, and support services all contribute to that perfect customer experience that makes ecommerce businesses fruitful in the long run. But today, we’re here to talk about inventory management.
As you probably know, inventory management refers to the systems and processes involved in procuring, manufacturing, storing, and handling the assets you intend to sell through your business. It’s the basis of a healthy cash flow, as well as the system that helps you bring a fast and reliable service to your buyers.
So what can you do to take your inventory management game to the next level? And why is doing it effectively essential in the first place? Let’s find out.
Why Effective Inventory Management Matters
As an ecommerce business owner, there’s one thing you have to understand early on: you’re working in one of the most competitive industries out there.
There are somewhere between 12 and 24 million ecommerce businesses worldwide. Moreover, you’re trying to make it in an industry where you have to compete with giants like Amazon (the primary destination for 63% of online buyers).
With this in mind, an effective inventory management system might just be the thing that sets you apart from the competition.
- For one, having a reliable way of handling and reordering physical items will help you make the most of every single sales opportunity. For example, marketplaces like Amazon condition seller visibility based on product stock availability. In other words, running out of stock may do extensive damage to your sales.
- Secondly, a good inventory system helps your target audience see you as a reliable source of products.
- Thirdly, being in total charge of your physical assets will help you save on operational costs. By minimizing the required storage space, as well as avoiding surplus or potential write-offs that can happen due to obsolescence, you’ll be preventing yourself from wasting money and freeing up funds to invest in marketing or R&D.
- Moreover, with a highly functional structure in place, you can automate a large portion of your operations. That way, you’ll be able to free up time you can spend on tasks that will bring added value to your business.
So, now that you understand why you need an effective inventory management system, let’s get into the tips on improving the one you already have.
Balance Inventory Between Digital and Physical Stores
One of the biggest challenges sellers face with inventory is keeping up to date on assets between digital and physical stores. Unfortunately, this lack of inventory data (or worse yet, incorrect information) can pose several serious consequences.
In addition to creating additional work for your team, having an unreliable inventory management system can also damage your brand’s reputation. Furthermore, it can lead to unnecessary monetary loss, especially if it provides false “out of stock” notifications.
For a good example of a balanced inventory, check out this stock feature on the John Lewis website. It not only lists physical locations that have a select item available but also allows web visitors to purchase online then collect at their nearest location.
2. Use the Right Methods and Tools for Forecasting
The majority of ecommerce and retail businesses see cyclical spikes in sales and demand. These can happen due to emerging market trends or seasonal factors such as holidays or events.
These trends can affect both the number of sales your business sees and the type of products consumers look for. So, try to make forecasting an integral part of your inventory management.
Of course, you can keep up to date with basic (and free) tools like Google Trends. But, you should also consider investing in more in-depth reporting software. Solutions such as Jungle Scout’s Opportunity Finder or Ahrefs’ Amazon Keyword Tool are excellent ways to identify the potential of particular products.
But don’t allow yourself to forget about your store’s history (and common sense). If, for example, you’re a sporting goods retailer like Rain or Shine Golf, you probably already know that the winter months see an uptick in sales as most people have to find alternatives to outdoor workouts. So, the only logical solution is to stock up on time.
3. Look for Real-Time Overview
Some businesses may be able to get away with spreadsheets and manual inventory counts. But, if you’re stocking anywhere over a couple of dozen items at a time, you’ll need something a bit more robust to effectively manage your inventory. And even if you’re not selling the items themselves but using them to fulfill orders, you will need to know precisely how many of the necessary assets you have available to you at any moment.
Take, for example, Mixam. As the online printing business relies on its stock of paper and ink, it has to have a consistent and accurate real-time overview of its inventory – especially if it’s going to make good on its estimated shipping times.
That’s why you’ll want to invest in inventory management software that allows you a real-time overview of your stock levels. Even more, you’ll want to go with an option that uses reliable servers to keep your data updated and accessible at all times.
4. Set Stock Par Levels
Creating a system that lets you know when you’re running low on items makes for a great way to up your inventory management game.
By determining stock par levels, what you’re essentially doing is setting the minimum number of items you need to have in stock so that you can reorder without having to stop offering those products to your customers. This is especially beneficial for sellers with high turnovers or for in-demand seasonal items that move fast.
As an example of a store that could benefit from setting stock par levels, take Ancoats Coffee. This roaster relies on delivering fresh coffee to customers, so it cannot afford to keep large amounts of stock on hand. But, it also needs to fulfill orders within 48 hours, which means that any stock disruptions may cause problems. For this reason, by setting an inventory par level for each of its blends, Ancoats Coffee would undoubtedly see an improvement in workflow.
5. Automate Reorders
A great way to take the previous method to the next level is to automate the reordering process so that stocking up on goods takes as little time as possible.
For a baseball equipment retailer like Anytime Baseball Supply, this would mean something along the lines of setting up automatic reorders. These would ensure that the brand’s most popular products, like bats and gloves, are never out of stock, thus preventing instances of products being sold out just at the end of an uptick in seasonal purchases. Additionally, it would also allow the business to compete in alternative marketplaces where item availability determines store performance.
6. Use the FIFO Technique
FIFO – First In First Out – is an inventory management technique that is the perfect choice for those businesses that work with limited time for selling their products. Think perishables, holiday-related objects, or fad items that are likely to lose interest in a few weeks or months.
Essentially, the idea behind FIFO is that by ensuring that stock is moved chronologically, based on when it was acquired, retail businesses stand to avoid financial losses – especially due to spoilage.
Furthermore, FIFO offers exceptional benefits in inflationary markets, where items bought at a lower price are sold before the cost of storing and distributing them becomes too high to make a profit.
7. Give Feedback to Your Customers
Finally, if you want to improve the customer experience in your store this season, consider including stock statuses on your product pages.
By letting consumers know when something is unavailable (or if there’s a limited amount of items ready for shipment), you can reduce customer churn and cart abandonment and even boost your brand’s public image.
You could also do something along the lines of 100% Pure, for example, a brand that adds a “Notify me” button to its sold-out items, allowing customers to stay in the loop and have the opportunity to restock on their favorite products as soon as they’re available.
Making improvements to your existing inventory management system is one of the best ways to succeed. It benefits you financially. It can be a gateway to better store performance. And it can lead to a more positive relationship with your buyers.
And, the best part is, it doesn’t have to be expensive or time-consuming. On the contrary, choosing the right software solution will not just save you money. It will also allow you to spend your work hours growing your business instead of struggling to keep it afloat.