What is eCommerce Inventory Management?

When running an eCommerce store, there are a few essentials to keep up with such as an attractive website, compelling marketing content, and good product quality. One aspect that is integral to eCommerce success that is often overlooked is inventory management. Some business owners are not familiar with this concept. eCommerce inventory management is the process of understanding the number, place, mixture, and even price of your products. In keeping track of your inventory, you are ensuring the frontend and backend of your online business stays healthy so that you can effectively and properly serve your customers.

Why do we need inventory management?

The short answer is that inventory management (or the lack thereof) affects every aspect of your business in some way. In more detail, since inventory management allows you to see the amount of various products and where they are located you can determine where a product is low on stock and where you overestimated the demand of a product. If you keep up with these numbers, you are saving your business money by drawing data from inventory patterns and adjusting order amounts accordingly. If you choose to partner with an inventory management service, it improves customer experience greatly. Since these kinds of systems translate inventory levels to your selling platforms, counts are nearly always accurate. With up to date inventory information on your selling pages, customers know when something is out of stock – there is no confusion and you are left with happy customers!

Are there different inventory tracking strategies?

Yes! Since eCommerce businesses vary and are at different stages, there is a wide variety of strategies for inventory management. Take a look at the list below to learn more about what would be most suitable for your online store:

FIFO

If you are not familiar, FIFO stands for First In, First Out. The way this strategy works is explained in the name – the first products to arrive in your warehouse are also the first to go out to customers. The types of companies which most typically take this approach are usually those that sell perishable goods. However, if you are thinking of testing this method but do not sell goods with an expiration date, take a look at the price pattern of your product. If the price fluctuates frequently, FIFO might not be the best fit for your store because it’ll result in inflated profit.

JIT Inventory

Just in Time Inventory is another self explanatory inventory management concept. Products and materials are ordered to a company’s warehouse on a strict need basis. Products arrive only when needed – no sooner and (hopefully) no later. Those who use the JIT Inventory method decrease inventory costs significantly because they do not have the need to use large storage spaces. The downside to using the JIT strategy is that if there is a disruption in the supply chain, your processes will be delayed. The interesting thing about JIT is that anyone between small eCommerce businesses to larger corporations use it due to its cash flow benefits.

Dropshipping

Dropshipping is becoming the most popular inventory management strategy. Dropshipping is where a seller does not keep any of the products it sells in stock. Instead, they use a third party manufacturer to complete all orders. The seller never touches or even sees the inventory. This method is most frequently used by eCommerce sellers just getting their foot in the door since storage costs are nonexistent. The main downside is the fact sellers have little to no control over product quality, shipping efficiency, or customer experience.

Safety Stock

The Safety Stock strategy is a good one to use if demand for your product fluctuates. This is because Safety Stock is where a seller always keeps extra goods in storage to ensure unexpected customer demand is covered when it occurs. This process reduces the likelihood of expensive stockouts, keeping customer satisfaction high. Since a seller is oftentimes keeping more inventory than truly needed, the Safety Stock method falls on the pricier side of inventory management due to larger storage costs. If you are a seller with a new product, Safety Stock may be the way to go. With less knowledge about purchasing patterns, Safety Stock will give you that buffer you need while you draw inventory conclusions from demand history.

Conclusion

Inventory Management is a crucial aspect of your business, and as your business grows and potentially expands into more channels, you will have to have a more sophisticated approach to monitoring your inventory.

If you can master inventory management, you will keep your business healthy with great cash flow, so choose a method of inventory management that works well for you and keep the products moving!

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