Essential inventory management tips for eCommerce businesses

Inventory management sounds as straightforward as it gets. You stock your stores and warehouses with products you can sell to your customers. But as any eCommerce business owner knows, it’s one of the toughest things to nail down.

According to a report by Wasp Barcode Technologies, 43% of small businesses don’t even track inventory or do so manually. When you have recent research showing that poor inventory management costs U.S. businesses $300 billion in annual revenue (and that’s not even counting grocery retailers), it’s definitely nothing to brush over.

So what are some inventory management tips that can save your business valuable time and costs? Here are five techniques to pay attention to.

 

Set a par level per each product

To stay on top of your changing inventory needs, it’s essential to know how much of each product you need at all times. Knowing the minimum number required helps you figure out when you need to order items and when it’s not a priority so that you avoid waste.

Whenever your stock drops below the minimum, you know you need to place an order right away. This takes the guesswork away from placing orders as you’ve already anticipated how much you need and when that order becomes a priority.

Calculating the minimum involves some variation of the following formula:

Inventory use per week + safety supply / deliveries per week

Find out how many units sell on average per week, add extra units for safety, then divide that number by how frequently the products are delivered to you during that time.

Likewise, if you know your products never sell more than x units per week or month, setting a maximum can prevent you from ordering surplus inventory.

 

Use the First-In First-Out (FIFO) technique

This simple technique is especially great for perishable products but applies to all items. First-in First-Out (FIFO) just means you sell the products in the order you get them. So a box you received in May doesn’t sit in your warehouse for months while a box you received in September gets sold instead.

It’s easy to see why this would apply to products with a best-by date but how does it apply to non-perishable items like clothing or toys? For one thing, the longer you keep goods in storage, the higher the chances of spoilage or even minor wear-and-tear. You also reduce the chances of your products becoming obsolete, or “dead stock”.

Another thing to consider is that many brands often update or revamp their products and packaging. You don’t want your customers receiving products with packaging that looks dated or fashion items that are already past the trend.

This requires a bit of organization on the warehouse front — whether you decide to use date tags or bar codes, or physically organize your storage space so older products are in front or located near the packaging area (with new stock in the back), having a system in place will help make the FIFO method work.

 

Do an ABC Analysis

Just as the name suggests, an ABC analysis divides your products into three different categories in order of the revenue it brings to your business.

Category A: High-value products

Category B: Mediu- value products

Category C: Low-value products

Depending on your company, you can also assign different variables to the items that have a direct impact on your cash flow.

For instance, your Category A products might not sell as frequently as your Category B products but still bring in the most revenue because they’re high-value items. Or maybe what you want to prioritize storage space in your warehouses. Your low-value products might take up the least amount of space while your high-value products take up the most amount of space.

Knowing this information off the bat helps you make better business decisions by analyzing how many products are worth keeping in stock for each category and tie the associated costs of stocking them to the value they bring in sales.

 

Try the Just-In-Time (JIT) Inventory Method

Let’s start by clarifying that this method isn’t for everyone. As you might guess from its name, Just-in-Time inventory means you order items at the last minute instead of in advance. Doing this can save businesses from keeping excess inventory and save cash.

Obviously, there’s some risk to doing this as unpredictable sales can mean you run out of inventory and can’t meet your demands. Likewise, the success of this method relies heavily on a good supplier relationship who delivers promptly and on time, allowing you to be flexible.

 

Invest in good supplier relationships

Because many eCommerce businesses rely on suppliers to get their products on time, sticking with a less-than-satisfactory supplier is not worthwhile in the long run, even if they offer better rates. A supplier that offers both a great deal and dependable service is what you need.

Even then, unexpected circumstances like finances or weather conditions can impact the supply chain and your supplier might not be able to provide you with the products you need. This makes it imperative to carve out a relationship with a few suppliers instead of relying on one so that in emergency situations you have somewhere to go.

Suppliers will often offer lower rates for a long-term contract. But if you’re binding yourself to a three or five-year relationship with a supplier, it’s important that you enter the terms with someone you know to be reliable. In return, being a good business partner by communicating on a regular basis and notifying them in advance of any changes can yield better rates and a great relationship.

 

A Final Word: Be Proactive About Your Inventory

Whatever technique you use for inventory management, the worst thing you can do is to skip it altogether. Taking some time out to audit your inventory, figuring out your sales patterns, and adjusting your inventory strategy accordingly are steps your eCommerce business needs to take to prevent unnecessary losses due to poor management.

As your business grows, manually managing inventory will become increasingly difficult. If you haven’t already, consider investing in inventory management software, which can integrate with your ecommerce website and streamline the process. Or, you can opt for a comprehensive eCommerce platform like PrestaShop, which not only allows you to sell online, but provides you with insights about your products, and features that will help you run stock.

And if you find yourself in a situation without the liquid capital on hand to cover upfront inventory costs, consider business funding. Borrowing can give you the capital you need to meet customer demand, and fulfill your projected sales goals — all without avoiding a cash flow crunch.

It’s important to think ahead when it comes to your inventory and think through a contingency plan because eCommerce can be an unpredictable business. Making sure you’re always prepared for emergencies while knowing exactly what “business as usual” means for you will lead to successful inventory management.