E-commerce Inventory Management: A Comprehensive Guide On Managing Inventories

E-commerce Inventory Management: A Comprehensive Guide On Managing Inventories

Introduction

Imagine a customer browsing your online store. She finds a beautiful dress and immediately clicks the ‘Buy now’ button. To her dismay, she sees the dress is out of stock. Suddenly, she sees the same dress available on your competitor’s website. The customer places an order immediately. 


During this process, you missed a sales opportunity while your competitor gained one. 


Stockouts or overstocking are not uncommon in the e-commerce industry. According to research by IHL Group, US and Canadian retailers lost a whopping $349 billion in sales in 2022 due to stockouts and overstocking.

The only way to avoid this problem is by efficiently organizing and managing the inventory. 

 

In this blog, you’ll learn:

 

Use this as a guide to improve inventory management and never let go of a sales opportunity.

What is e-commerce inventory management?

E-commerce inventory management is the process of tracking product stock levels from procurement to delivery. A well-managed inventory will help e-commerce companies avoid stock shortages, spoilages, mis-picks, and overstocks.

 

An effective e-commerce inventory management process and system will help companies reduce the costs of storing stocks, forecast demand, streamline the picking and packing process, and fulfill and deliver orders to customers on time. 

How does the inventory management process work?

Here’s how the e-commerce inventory management process typically works.

 

  • First, the stock arrives at the facility. The warehouse workers use automation or manually inspect the products for quality and damage. If the products pass the quality check, the workers sort and store them in designated stock areas. The workers audit the inventory levels regularly to ensure enough stock is available.

 

  • The picking process begins once the customer places an order and it is processed. This is where the automated robots or warehouse workers locate the products through SKU numbers and retrieve them from storage to ship.

 

  • Once the products are shipped, the inventory levels are updated automatically and shared with the stakeholders. The e-commerce company can re-order and replenish the stock in case of low inventory levels.

Challenges in inventory management

Managing inventories is never simple, especially when many moving parts are involved. For example, the suppliers must supply adequate products to the warehouse on time, the inventory data should always be accurate and up-to-date, and the warehouse must always be prepared for expected and unexpected demands. Here are some common challenges you might face in managing inventories. 

  1. Over or under-stocked products

    Stocking products beyond necessity or not replenishing them on time could have repercussions on business. While overstocking would mean products occupying too much space in the warehouse or getting spoiled if they’re perishable, understocking would lead to problems in order fulfillment, delays in shipping, and a poor customer experience.

  2. Poor demand forecasting

    Some demands are predictable. For example, sales will always spike during the holiday season, or some products will be in more demand during specific seasons. You’ll lose customers if you do not analyze demand patterns and manage inventory efficiently. 

  3. Lack of inventory visibility

    This is a common problem in large warehouses where multiple products are stored. Lack of inventory visibility makes it hard for warehouse workers to locate and ship the products on time. This could lead to inaccurate or delayed delivery, impacting customer experience. 

  4. Inaccurate inventory data

    Your team must always have access to real-time inventory data. Without that, you would not know the current inventory levels and face difficulties fulfilling customer orders. 

  5. Inefficient warehouse management

    From streamlining the process of picking, packing, and shipping products to designing the warehouses to help workers locate products faster, warehouse management is crucial for managing inventories efficiently. Without efficient warehouse management, you cannot fulfill orders on time.

  6. Manual processes

    In a fast-paced environment, manual processes can hinder processes like managing inventories and fulfilling orders. For example, using spreadsheets instead of an inventory management system to track and manage inventories is time-consuming and error-prone. Similarly, relying on paper-based inventory documentation can be challenging to manage and scale. 

  7. Legacy software 

    Modern-day e-commerce operations require inventory management software that easily integrates with the company’s business applications and manages complex logistics. Unfortunately, the legacy software many e-commerce brands use is not designed for integrations and cannot provide the real-time insights required for making data-driven decisions. 

The benefits of using an e-commerce inventory management system

To overcome the above challenges, you’ll need a robust inventory management system (IMS) that automates manual processes, provides real-time inventory data, and improves decision-making. An IMS is software that helps you track and manage inventories efficiently to meet customer demands. Here are some benefits of using an IMS. 

  1. Provides a holistic view of inventory levels

    Integrating the inventory management system with backend processes and business software will give you a holistic view of the inventory levels. This will provide you with a clear visibility of the current stock levels and help you make decisions to avoid stockouts. 

  2. Reduces errors in inventory data with real-time SKU data

    An inventory management software will provide you with real-time information on all your SKUs across all facilities and enable you to make quick decisions on managing the inventory;

  3. Improves demand forecasting

    Most inventory management systems have advanced analytics features that enable e-commerce companies to analyze trends, predict demand, and ensure enough stocking to meet customer demands. 

  4. Centralizes stock levels

    An efficient inventory management system collects and centralizes data on stock levels across all warehouses, distribution centers, etc., to give you a holistic view of available inventory and stocks that may run out soon. 

  5. Promotes data-driven decision-making

    The analytics capabilities and real-time data from all sources will help you make data-driven stock-level decisions, ensuring there are no overstocking or stockouts in the warehouses. 

How to choose the right inventory management system?

Here are a few parameters to consider when choosing an e-commerce inventory management system.

  1. Advanced data analytics capabilities

    Analytics can play a pivotal role in forecasting demand, improving product tracking, and optimizing transport routes for timely delivery. Choose an IMS that has advanced data analytics capabilities to predict demand and ensure all shelves are well-stocked with products. This will help your team fulfill orders on time and rescue inventory costs. 

  2. Real-time data tracking and reporting

    Choose an IMS that can track real-time and historical inventory data and empower your team to forecast demand accurately. This will help them manage the inventory levels more effectively and fulfill orders on time. 

  3. Integrations

    Inventory management involves coordinating with various stakeholders, such as the logistics partner, customer support departments, the accounts department, warehouse workers, and more. To ensure smooth communication and operations, choose an IMS that can seamlessly integrate with backend systems. This will ensure that everybody can access real-time data and improve business operations. 

  4. Ease of use

    Inventory management is a complex process due to its dynamic nature. Tracking and fulfilling orders and managing product stocks can be cumbersome for warehouse workers, especially during peak seasons. The last thing they want to deal with is a complicated inventory management system with a steep learning curve. Hence, ensure that the IMS is easy for all team members to use. 

  5. Customer support

    There can be initial hiccups while using an IMS. Hence, choose an IMS provider with a responsive customer support team. The team should be able to respond and troubleshoot problems within a short turnaround time.

Techniques to improve inventory management

Inventory management can become complex as you scale your business. But with these techniques combined with IMS, you can optimize the process,

  1. JIT 

    Just-in-time (JIT) inventory management works on the principle of stocking products when a customer orders or replenishing them just before the stock goes out. This technique allows you to avoid stockouts or overstocking and is useful when you have scheduled product launches. However, it might not be helpful in unpredictable situations like natural disasters or geopolitical tensions. 

  2. LIFO and FIFO

    Last-in-first-out (LIFO) is an inventory management technique in which the newest product is sold first to keep the stock fresh, while the First-In-First-Out (FIFO) technique works on the principle of selling the oldest inventory first to prevent wastage and spoilage.  

  3. Batch tracking

    In batch tracking, warehouse workers batch similar products and monitor them to ensure they don’t expire. This technique also helps improve product monitoring by tracing back to the original batch if the products are defective.

  4. Six Sigma

    You can implement the Six Sigma technique to optimize the supply chain management process and eliminate the excess inventory sold below a specific cost. 

  5. ABC analysis

    The ABC analysis divides the products into three categories to determine their impact on inventory cost - A, B, and C.

     

    • Category A includes the most valuable products that increase the company’s profits. They contribute to 80% of the company’s profit. 
    • Category B products fall between the most and least valuable categories. They contribute over 15% to the company’s profit. 
    • Category C is for products that contribute to a company’s profitability but don’t matter much individually. They contribute 5% of your company’s revenue. 

     

    This approach will help you decide what products must always be available in the inventory.

  6. MOQ and EOQ

    Minimum Order Quantity (MOQ) is a technique where e-commerce companies purchase a minimum number of products simultaneously to save costs. These are usually high-cost products. 

     

    Economic Order Quantity (EOQ) is a technique that helps companies determine the best amount of inventory to buy based on parameters like production cost, demand, etc. 

  7. Safety stock management

    As the name suggests, safety stock management involves storing additional inventory to ensure there is enough during emergencies or unforeseen circumstances when replenishment is difficult. 

  8. Reorder point formula

    The reorder point formula calculates the minimum stock that should always be available before re-ordering.

Best practices for managing inventories

Apart from the above techniques, here are a few best practices to manage inventories efficiently. 

  1. Study historical data to forecast demand

    Leverage the historical data of the orders, analyze the pattern, and predict demand. For example, an e-commerce brand will always see a spike in demand during the holiday season. Use this data to replenish or increase the stock volume. This will help you stay prepared at all times. 

  2. Audit and reconcile inventory records regularly

    Always audit the inventory levels and reconcile the physical inventory data with the inventory accounting records. This will give you more visibility over the inventory data, enable you to predict demand and avoid stockouts or overstocking. 

  3. Be prepared for unforeseen situations

    The e-commerce business is dynamic. Despite all data-driven predictions, you could face unforeseen situations like unexpected demand for a product, a shortage of products from the manufacturer, discontinued products, and supply-chain issues. It is a good idea to have strategies to address such situations immediately and reduce customers' inconvenience.

  4. Set minimum viable stock level

    Par levels are the minimum number of products a warehouse must always store. The objective is to ensure adequate product availability and replenish the stock once the product count goes below par level. Every product will have different par levels. So, check for details like customer demand and how long it will take for the new stock to arrive and ensure the products are always well-stocked.

How Marmeto can improve e-commerce inventory management

To ensure successful inventory management, we recommend you work with a trusted technology partner who can understand your business needs and implement custom solutions.

At Marmeto, we understand the challenges in managing inventories. 

 

Take our client Kohler, for instance. We had built a fully functional e-commerce store using Shopify to create their online presence. Since the objective of the e-commerce store was to sell directly to customers, Kohler wanted real-time visibility into their inventory levels to fulfill orders. Besides building custom logistics APIs to determine product availability, we built a dashboard representing serviceable regions and their corresponding inventory levels. This helped Kohler allocate stocks based on inventory levels and improved their response time. 

 

We’ve helped more than 1,000+ e-commerce companies in 31 countries achieve their dream of building a successful online store.

 

So, if you’re looking for an expert technology partner to implement and improve your inventory management process and system, contact us. We’ll be happy to help.

Wrap-Up

As your business scales and you add more products, you’ll need an e-commerce inventory management system to organize and maintain them. Before investing, compare all the available options for features, capabilities, integrations, and other factors. A good e-commerce inventory management system is critical to ensure smooth and timely order delivery to customers.

 

Implement best practices like auditing inventory levels and preparing for unforeseen circumstances and inventory management techniques for seamless operations. 

 

In this hyper-competitive industry, combining tools and best practices is essential to meet customer demands and grow your business. 

FAQs

  1. What is an inventory management system?

    An inventory management system is a software that helps e-commerce companies track and manage inventories of multiple products across different geographies to meet customer demands.

  2. What is the benefit of using an inventory management system?

    A good inventory management system will help e-commerce companies manage inventories, deliver products on time, and improve operational efficiency. 

  3. How to choose the right inventory management system?

    When choosing the right e-commerce inventory management system, consider parameters such as ease of use, cost, integrations, support, and real-time data analytics.