Last Updated on October 30, 2024 by Owen McGab Enaohwo
An eCommerce business is only as good as its inventory management. Therefore, to create a profitable and scalable eCommerce business, you must build a sustainable operation model based on efficient inventory management. The health of your turnover and repeat business depends on it.
Image Credit: Photo by Bench Accounting on Unsplash
Inventory management challenges in the eCommerce sector
Especially since the pandemic-induced eCommerce boom, highly effective warehouse and distribution management are more crucial than ever as eCommerce businesses strive to keep up with demand.
Every eCommerce enterprise will encounter some inventory management issues at one time or another; being able to preempt them and understanding how to handle them can make all the difference to the long-term viability.
Common eCommerce inventory management issues include:
- Overstocking/overselling – without a solid grasp on the shopping habits of your target customers, it’s all too easy to find yourself struggling with excess stock, dead stock, or not enough stock to meet demands. This is especially problematic if you let the sales go through without fulfilling them.
- Lack of insights and manual management – manual inventory management is hard work and doesn’t allow scalability or optimal efficiency.
To support business growth and boost profits, use centralized systems to gather inventory information in real-time, which is crucial to understanding your business needs and opportunities. Efficient organizational systems are pivotal to a business’s success.
Manual management is time-consuming and inefficient. Setting your business up for growth frees you to focus on a business strategy based on data insights. You may need to start with a manual system, but the sooner you can implement an inventory software and automated systems, the quicker you can scale.
Tips for managing eCommerce inventory
Understand product category demand
Not only do you need to get to grips with the general demand for your product, but you need to understand how this demand may fluctuate through the course of a year.
Google Trends is an excellent tool for examining search trends and demands over set periods. If your eCommerce site is established, you can also use Google Analytics to understand which products demand more attention and, therefore, which stock requires more buffering.
Determine minimum viable stock levels
Once you have a good insight into the demand for your product and how long it typically takes to replace your stock, you can set a minimum viable stock level for each item you sell. Minimum viable stock levels are the lowest inventory level you can hold and still meet demand without delay.
Once you have this number, you can make sure to reorder stock as soon as the quantity dips below your minimum threshold. This number will, of course, be subject to change as your business changes and grows or as demand for the product shifts, so reassess these levels regularly.
Use ABC analysis to prioritize products
Many eCommerce businesses find utilizing the ABC analysis when prioritizing inventory for optimal revenue.
The ABC analysis is derived from the Pareto Principle, which states that 80% of your sales result from 20% of your customers. The ABC method breaks your inventory into three categories:
- A: High-value items with a low rate of sales
- B: Moderate-value items with moderate sales frequency
- C: Low-value items with a high rate of sales
For example, if category A products account for most of your business’s revenue, it would be more costly to lose those customers than those who purchase B and C category products. This insight can help you to determine what products to prioritize.
Forecasting demand based on sales history
You can also optimize your inventory management by using past sales history to forecast the likelihood of future demand. In addition, you can look ahead to seasonal holidays and events that can catapult demand and plan for additional stock and increased marketing during those times.
Invest in inventory management software
No eCommerce business is truly scalable without optimal inventory management that allows optimal productivity and efficient growth. Investing in inventory management software may seem like a daunting outlay initially. Still, these systems will enable you to keep your finger firmly on the pulse regarding inventory tracking, stocking, and insights that can help grow your business exponentially. Consider integrating a reliable QR code generator into your inventory management software, as it can enhance your inventory tracking capabilities even further. By generating unique QR codes for each product, you can easily scan and update their status, quantities, and other relevant information. This integration enables quick and accurate inventory management, reducing errors and improving overall productivity. If it’s available to you, you can take things one step further by implementing a third-party logistics (3PLs) process, thus outsourcing or automating most of your inventory management.
Future-plan when considering your inventory management approach
The more organized you are, the less you have to do. While this old saying might sound like being less busy is the end goal, you can also interpret it as the more organized you are, the less overwhelmed you are, freeing up more energy to put into working smarter, not harder.
So, dive into product demand analysis and trends and get to know your inventory inside and out. Then, commit to investing in advanced software technologies as soon as possible to allow you to scale and learn how to interpret data insights to optimize your operation.
Author Bio
Denise Langenegger is part of the team at Instasize – a content creating tool kit for anyone editing photos and online content on mobile.