Yield Management: Dynamic Inventory Control is the Key to Ecommerce Profitability

In a market where consumers expect fast – and often free – delivery, brands and retailers are feeling the squeeze on their ecommerce operations and margins.

The ideal fix involves stocking products in multiple locations closer to consumers. It’s called Distributed Order Management (DOM) and has been proven to be a powerful tool for reducing shipping times and costs.

But this approach introduces a new challenge: managing inventory levels and replenishment across multiple locations without resorting to costly safety stocks, which further strain ecommerce margins.

With rising customer expectations for faster deliveries, wider product assortments and competitive pricing, traditional inventory management strategies are struggling to keep pace. The result? Stockouts, overstocking, and ultimately, a squeezed bottom line.

The solution? Yield Management.

What is Inventory Yield Management?

Inventory yield management goes beyond just inventory control. It's a strategic approach that utilizes real-time data and analytics to dynamically adjust inventory allocation and pricing based on various factors such as seasonal demand fluctuations, shipping and fulfillment costs, and inventory availability – all with an eye towards preventing stockouts or excess inventory.

An ecommerce inventory management strategy that focuses on yield management seeks to:

Sell the Right Product

Focus on selling what's in stock, using tools that prevent overselling and promote products with inventory that is readily available.

To the Right Customer

Target sales to customers near enough to inventory locations to make 1-2 day shipping feasible and financially sensible.

At the Right Time

Engage customers with dynamic, real-time offers while they're shopping online. Instead of treating product listings as static, yield management adapts the content shown to each shopper based on inventory levels, fulfillment costs, and shopper-specific factors such as location or membership benefits.

For the Right Price

Go beyond traditional pricing strategies by showing prices that reflect the total delivered cost, including fulfillment. The aim is to ensure every listing and order can be profitably fulfilled.

Why is Inventory Yield Management Optimal?

Traditional inventory management often relies on static ordering patterns and historical data, which fail to capture the dynamic nature of ecommerce. As a result, sellers face:

• Reduced Margins: Overstocking leads to storage costs, product aging and potential price reductions.
• Lost Sales: Stockouts result in customer frustration and missed revenue opportunities...and, in some cases, severe marketplace penalties.
• Inefficient Resource Allocation: Inventory investments don't align with actual customer demand, tying up cash that could be used elsewhere to grow the business.

Adopting a yield management strategy for inventory control tackles these challenges by taking a real-time, dynamic approach:

• Maximizing Inventory ROI: Aligning inventory levels by location with projected demand and real-time product sales data ensures optimal capital allocation. The Etail order optimization platform takes things a step further with its Ideal Order Technology.? Ideal Order calculates the exact dollars lost through not stocking inventory at the right amounts in the right locations, pinpointing areas for improvement and immediate payback.
• Increasing Margins: By dynamically adjusting prices based on demand and cost analysis – including actual total fulfillment cost by location – sellers can maximize margins while remaining competitive.
• Enhancing Customer Satisfaction: Reduced stockouts and efficient fulfillment lead to a smoother customer experience. Additionally, platforms like Etail are “inventory aware”. Etail manages the visibility and content of listings shown to individual shoppers based on inventory availability and cost of fulfillment. The goal: never show the shopper a listing that can’t be successfully and profitably fulfilled.

?Getting Started

Implementing inventory yield management effectively requires robust technology.

Advanced ecommerce platforms and inventory management systems like the Etail platform are equipped with enhanced analytics and forecasting tools that can process vast amounts of data to provide actionable insights and spot areas where margins are leaking from your fulfillment operations.

These tools also can automate much of the decision-making process, from identifying replenishment levels to automating dynamics pricing adjustments.

And remember, you may be managing inventory across multiple sales channels and fulfillment partners – including external partners such as 3PLs. They’ll have their own systems. So your yield management system will need advanced implementation capabilities and the ability to work with partner systems that are already in place.

Want to learn more about ecommerce inventory yield management? ?See our LinkedIn article “Yield Management: Thinking Differently About Ecommerce Inventory Management”. Or check out our “Distributed Logistics for Ecommerce” video series. The eight-part series offers a deep dive into yield management, distributed order management, dynamic pricing and more tools for maximizing inventory ROI.