E-commerce Inventory Management- What It Is & 5 Essential Techniques

  “Inventory management software is experiencing global adoption across diverse industries, including retail, manufacturing, healthcare, and e-commerce. Its versatility and adaptability make it a preferred solution to address specific industry needs. Accurate inventory tracking, real-time data insights, and efficient order management help minimize stockouts and overstock situations, boosting sales and revenue.”- Future Market Insights

Introduction

Sadly, a lot of eCommerce startups make expensive inventory mistakes. They have many problems due to needing to put in place an e-commerce inventory management system. When businesses are aware of their inventory level, everything becomes much clearer. Since it supports both the front and back ends of the operations, efficient inventory control is crucial. Acting as a go-between for suppliers and customers, it is an essential back-end component of the supply chain. For example, it ensures that the front-end quantities are accurate, preventing businesses from losing money due to errors.

The days of internal warehouses are gradually fading away. Online retailers must monitor marketplace fulfillment centers, 3PLs, FBAs, in-store inventories, and drop shipping. E-commerce inventory management software and efficient strategies allow businesses to rapidly ascertain whether products are missing, overstocked, understocked, or in stock. Concisely, e-commerce inventory management means monitoring the type, quantity, pricing, and location of the products your business sells.

What is E-commerce Inventory Management: Overview

For businesses, inventory management is the process of purchasing, storing, and distributing inventory. It also tracks a business’s workflow for managing all their products' quantities, prices, and locations. Having adequate inventory on hand to satisfy consumer demand without going overboard is a goal of a sound e-commerce inventory management strategy. 43% of small businesses in the US either don't maintain inventory at all or do so manually, which may surprise you. Businesses can have a better understanding of their logistics and analytics by precisely optimizing e-commerce inventory management. They can then utilize this data to maintain optimal stock levels, gain total inventory control, and improve their forecasts of inventory demand.

Businesses using good inventory management for e-commerce can establish exact reorder points to avoid:

1. Stockouts
2. Overstocking
3. Understocking

Understanding when and how much businesses need to order things will also help optimize their supply chain management. Proper e-commerce inventory management ensures that companies always know the actual location of their products, even when selling them through many physical and online sales channels.

Further Read: E-Commerce Supply Chain Management: Your One-Shot Guide

Challenges in E-commerce Inventory Management for Businesses

Challenges with inventory management in supply chain management arise for every owner of an e-commerce business at some point. Being aware of these challenges in advance can help win half the war. All you must do is deal with them in advance.

• Deadstock: For e-commerce businesses, avoiding dead stock is a common concern because slow-moving or outdated products take up warehouse space. Stores can utilize improved inventory tracking and analysis to address this problem. Dead stock can be decreased, and inventory turnover increased by monitoring product sales, identifying sluggish sellers, and experimenting with promotions and packages.

• Stockouts: Maintaining a healthy stock level is one of the biggest challenges facing e-commerce businesses. Order delays and missed sales are two consequences of stockouts. To obtain information about inventory status, make use of real-time inventory tracking systems and forecasting tools. Businesses can prevent stockout problems and make well-informed decisions about restocking orders by carefully examining precise sales data and patterns.

• Order Management: In e-commerce, handling large order volumes and making sure they are fulfilled on schedule can be difficult. It is especially difficult to track and handle orders properly during peak periods when numerous sales channels are involved, which frequently results in stockouts. Order processing, tracking, and inventory changes across many platforms can be automated by implementing e-commerce inventory management software. This lowers errors and ensures correct stock information.

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  Why is E-commerce Inventory Management Important?

A solid inventory management system contributes to your customers' positive shopping experiences. The system's automation of inventory procedures ensures accurate inventory counts every time. Also, it modifies amounts across all the sales channels. This makes it even more possible for clients to have a higher chance of receiving the right goods. Here are a few benefits of e-commerce inventory management system software:

• Improved Inventory Forecasting: Effective inventory forecasting is made possible by good inventory management. Maintaining control over inventory storage levels and manufacturing flow can help businesses better plan for demand. If businesses often examine their inventory patterns, they will be able to maintain pace with sales.

• Do Away with Stockouts: The right quantity of product units is one of the most crucial parts of inventory management. Businesses must always maintain a healthy stock level of SKUs. They face the risk of running out of merchandise if inventory drops too low. Customer service issues, backorders, and lost sales may arise from this. Conversely, an excess of inventory could lead to items that are no longer marketable. These products can see a decrease in demand or become antiquated. Such products can face declining demand or become outdated. This is also referred to as dead stock.

• Lower Storage Expenses: Businesses will incur high storage costs if they have an excess inventory. This money may have been used for other productive projects or branded packaging supplies. How much storage space you require depends on how much actual space your things take up. The amount of storage that businesses must keep on hand will determine how much it costs. Businesses might be able to reduce the cost of storage by maintaining an adequate stock.

• Improves Cash Flow & Fulfillment Optimization: E-commerce inventory management enhances cash flow by reducing excess stock and minimizing capital tied up in unsold products. It also optimizes fulfillment by ensuring inventory levels match demand, reducing stockouts and overstock situations, leading to efficient order processing and faster delivery.

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Further Read: How Can Artificial Intelligence Transform Your Retail Business

Top 7 E-commerce Inventory Management Techniques

 

Top 7 Inventory Management Techniques for eCommerce Business

1. ABC Analysis

Businesses can decide where to focus their time and effort by using an ABC analysis to identify which items are most and least useful. The Pareto Principle, sometimes known as the 80/20 rule, states that 80% of the effects result from 20% of the causes. Businesses know where to focus by using this information to identify the 20% of items that are the most effective.

Businesses can find and concentrate on the items that have the biggest impact by segmenting their inventory. It helps them determine which products require regular restocking and which don't, which lowers their working capital expenses by minimizing the amount of outdated inventory they keep on hand. They'll be able to make informed decisions about what to stock up on by knowing which products offer the best value. They'll be able to negotiate higher margins with your suppliers for some things and determine which ones are worth routinely counting.

2. First In First Out

Businesses concentrate on selling the oldest products in their warehouse first—those that arrived first—when using the first in, first out (FIFO) strategy. Many businesses find that this method of e-commerce inventory management works well for them since it corresponds with the way that items naturally flow.

While businesses that produce perishable goods benefit most from inventory control techniques like these, retail inventory management in supply chain management also benefits from them. Fashion-forward clothing may not be in style next month, so businesses in this sector typically want to get the newest items into their warehouse and onto the sales floor as soon as possible. Any industry can witness wear and tear on products if they are kept in a warehouse for an extended period. Businesses won't need to constantly account for much older goods, which puts less stress on your record-keeping system.

3. Just-in-Time

In e-commerce, just-in-time (JIT) inventory management refers to the ordering and receiving of items precisely when needed, as in the case of an electronics store anticipating the need of its customers for new devices. They minimize risks associated with obsolete or unsold goods and eliminate unnecessary storage expenses by implementing JIT inventory management solutions. JIT's ability to deliver goods precisely when consumers are prepared to purchase depends on precise forecasting and a dependable supply chain.

Certain big businesses are switching to a "just-in-case" approach to eliminate failures after the COVID-19 pandemic, resulting in considerable delays in the supply chain.

4. Economic Order Quantity

To establish the ideal order quantity, e-commerce companies frequently use EOQ. This method can help an online bookstore balance the costs of orders, holding charges, and overall inventory. To maximize revenues while efficiently managing inventory, the bookshop will order an adequate number of popular books without running the risk of having surplus inventory or holding charges.

EOQ gives businesses a tactical tool to balance their ordering procedures and ensure the right amount of inventory for efficient and economical operations.

5. Drop shipping & 3PL Fulfillment

With drop shipping, businesses don't need to maintain the product in stock because suppliers ship straight to clients from their warehouses. This lowers or eliminates the costs associated with fulfillment and warehousing. The profit is derived from the product's difference between retail and wholesale prices, less the expenses associated with selling and promoting it. In addition, dropshipping is an extremely helpful solution for supply chain interruptions and spikes in demand. Orders can be routed to dependable backup suppliers, relieving inventory pressure and acting as a vital safety valve that keeps customers from making unwarranted purchases.

Regarding 3PL (third-party logistics) solutions, the demands of the online retail sector have propelled the industry's rapid growth. 3PL services cover every step of the eCommerce fulfillment process, including shipping, refunds, pick and pack, and warehousing.

6. PAR Levels

The minimum and maximum inventory amounts kept on hand for each inventory item are monitored by periodic automated replenishment or PAR levels. A fresh order must be placed when the inventory quantity drops below the required threshold. But inventory shouldn't go above the upper limit.

Therefore, using the PAR levels e-commerce inventory management strategy is ideal for businesses that sell perishable goods, like restaurants, as it may prevent both stockouts and overstocking. The average daily demand, lead time, and safety stock level of a product are used to determine PAR levels.

7. Demand Forecasting

Reliable AI based demand forecasting and inventory management is essential. Businesses can maintain an appropriate quantity of inventory to meet current client demand without overstocking or running out of stock by forecasting future demand for their products. For several reasons, businesses can find it expensive to have too much inventory. It holds up funds that may be used for other things, increases the possibility of product expiring or becoming outdated, and may result in handling and storage costs. On the other hand, running out of inventory can lead to a decrease in sales, dissatisfied clients, and a tarnished reputation for the company. This can be fixed by AI demand forecasting software solutions.

Here, as in many other areas of e-commerce inventory management, thorough data is essential. The breadth of relevant data is immense, ranging from supply chain-led times to sales histories, yet all of it needs to be considered to make precise forecasts.

Further Read: How Artificial Intelligence Is Impacting Supply Chain Management

Future of E-commerce Inventory Management

There are numerous ways that technology is being applied to inventory management since it continues to advance at such a rapid rate:

• Predictive Analytics: To provide precise projections and assessments, predictive analytics combines automation, data, and machine learning. These analytics models, which are based on algorithms, can provide merchants with data-backed insights that help enhance inventory management. Over time, this technology will only get better. Additionally, it will understand your company better the more information you provide.
• Artificial intelligence: Artificial Intelligence is still evolving and finding new uses in inventory control systems. Businesses may respond instantly to client requests and automate inventory decisions with the help of self-correcting AI technologies.
• IoT: Real-time location data provided by IoT devices can shorten the time it takes colleagues to locate goods. Knowing the precise quantity and location of your stock can also help you make more intelligent and sensible judgments about inventory management.

How To Choose the Perfect Inventory Management System for Your eCommerce Business

Selecting an appropriate e-commerce inventory management system is essential for a seamless, productive, and economical operation. It's your covert tool for cutting costs, expediting procedures, and accelerating the expansion of your store. However, there are so many options available that it might be difficult to choose:

• Pay Attention to Your Needs
• Examine Your Choices

The seamless and uninterrupted fulfillment of customer's needs is critical to the success of an international retail framework. For an eCommerce business to gain the trust of its clients and build a sizable customer base with a higher percentage of repeat business, it must close the gap between supply and demand. Online retailers must use a top inventory management system and benefit from e-commerce inventory management solutions to accomplish flawless product delivery and great customer satisfaction. Using the finest inventory management techniques can also assist eCommerce companies build their brands' affinity, loyalty, and longevity.

For expert advice on optimizing your e-commerce inventory management, contact us today. Let’s streamline your process! NextGen Invent, as a leading AI Based Software Development Services Company, can help by providing tailored AI and computer vision software development services to optimize your manufacturing processes.

Frequently Asked Questions

1. What are the 5 stages of the inventory management process?

To effectively optimize your inventory management process, it's crucial to first establish a solid foundation. Here are five fundamental steps to ensure a streamlined inventory management system: Receive and Inspect Products, Sort and Stock Products, Process Customer Orders, Fulfill and Ship Orders, and Reorder Inventory.

Inventory management software is a crucial type of manufacturing inventory software as it is designed to efficiently track and manage raw materials, work-in-progress, and finished goods. This software helps manufacturers maintain optimal inventory levels, reduce carrying costs, and prevent stockouts or overstock situations. By providing real-time visibility into inventory status, automating reorder points, and integrating with other manufacturing systems, inventory management software ensures a smooth and efficient production process.

2. What are the 5 elements of inventory management?

To streamline stock control, retailers should focus on these key inventory management features: Track activity, perform daily counts, manage out-of-stock items, ensure clear product descriptions, and maintain an organized work environment. These practices enhance efficiency and accuracy in inventory management.

3. What is ABC analysis in inventory?

ABC analysis is an inventory management method that categorizes items based on their importance to the business. By evaluating demand, cost, and risk, it ranks items into classes, helping inventory managers prioritize stock control and optimize resources effectively.