Welcome back to the place where you can get the latest news on e-commerce and online selling.
Let's start today's article by emphasizing that an online store needs a few things to be successful, such as: an attractive and user-friendly website, an effective delivery and shipping plan, and a good understanding of inventory status and locations.
Unfortunately, many stores make some critical mistakes that lead to their failure. One of the most common of these mistakes is the inability to implement an e-commerce inventory management system, which is a vital and essential component of managing your e-commerce business in general.
Therefore, it's extremely important that you understand your e-commerce inventory management if you want to maintain a thriving and growing business this year, and every year.
In this guide, we'll briefly provide you with all the information you need to manage your e-commerce inventory, from what it is to the steps and strategies you should implement.
What is e-commerce inventory management?
Ecommerce inventory management, is “the process of monitoring the number, locations, prices, and marketing mix of ecommerce products across all your ecommerce channels—in short, managing inventory.”
With Ecommerce Inventory Management, you can quickly determine whether your inventory is adequate, understocked, overstocked, or out of stock. Ecommerce Inventory Management also allows you to adjust your business operations quickly and efficiently.
Inventory is one of the most important assets essential to your business, and you can think of it as a deferred investment for after-sales operations. Given all of the above, inventory management is a significant and critical issue for businesses of all sizes, whether online or traditional.
Poor inventory management exposes you to numerous risks and financial problems. This makes it essential to develop a sound inventory management system and strategy.
Alternatively, you can use off-the-shelf systems offered by companies. These companies have developed methods to identify time-sensitive inventory characteristics and indicators using a variety of criteria, as well as models such as TVP-VAR to test for time-sensitive market shocks.
Relying on these systems will represent a significant investment in managing your inventory, tracking it, ensuring its condition, and handling it properly.
Inventory management tools must ensure that there is no oversupply or undersupply. Businesses have several methods for managing their inventory, including manufacturing products on demand and resource planning, which automatically determines inventory purchases based on expected sales over a specific period.
Important Concepts About E-commerce Inventory Management
1. Inventory: Refers to the product or products sold through an online store, which are ready in warehouses and then shipped to the customer.
2. Just-in-Time (JIT): This is an inventory management strategy based on storing small quantities of inventory and arranging the arrival of new inventory when the old stock runs out.
3. Manual inventory: This is a process in which physical and manual verification of the quantities of products available in warehouses is performed.
4. Inventory cost: These are expenses directly associated with the storage process, such as warehouse rent.
5. FIFO strategy: This stands for First in, First out. This strategy is based on shipping older products from warehouses first. It is important for products with a limited shelf life.
6. Inventory unit of measure: This refers to the unit used to measure inventory, whether in quantities, kilograms, etc.
7. Demand rate: This refers to the daily or monthly demand volume, for example: 10 pieces of clothing per day.
8. Ecommerce inventory management system: This is a program that provides an integrated system that you can implement in your online store, such as ScienceSoft's inventory management software.
The importance of ecommerce inventory management
Managing e-commerce inventory is one of the most important pillars of success in e-commerce in general, for the following reasons:
a) Maintaining customer satisfaction
Of course, you can't make your online store successful through chaos and confusion. Everything must be organized and well-organized, especially those aspects related to timely product availability.
A successful online store is one that always works to provide its products to customers as quickly as possible. This can only be achieved through smart e-commerce inventory management.
b) Reducing costs
Storage costs are an important factor that can make a significant difference in your online store's profits.
Reducing storage costs is only achieved by keeping to a safe minimum of the product available in the warehouse. As inventory increases, costs increase, and as inventory decreases, the risk of unavailability increases.
Having a smart inventory management system is your way to achieve this safe minimum and thereby reduce storage costs.
Steps to Developing E-commerce Inventory Management
I will now explain the five basic steps of e-commerce inventory management that you should understand and implement:
Step 1: Analyze Product Demand
Demand is simply the willingness of customers to purchase a product or service at a specific price. It is a fundamental economic factor that drives business revenue.
Understanding the demand for your products and how it will change over time—taking into account various factors and aspects such as seasons—is the first step you should take.
This analysis is an essential step and process that you should pay attention to, especially if you are introducing a new product to the market.
You may need tools such as Google Trends to identify popular products that are currently in demand.
Step 2: Forecast Future Product Demand
Forecasting product demand is the process of predicting and estimating future demand for a product using predictive analysis based on past sales data.
Although it relies on your past sales data, this forecast will not be completely accurate, but it will be practical and will make many things easier. Many e-commerce inventory management strategies are based on it, as we will see shortly.
It's also important not to forget to consider different times of the year, such as holidays, when demand fluctuates significantly.
Note: In this step, you'll need to analyze actual demand on a regular basis to adjust your forecast more accurately and closely to actual demand.
Step 3: Maintain a Minimum Stock Level
The term "Minimum Stock Level" refers to the guideline number of products that a product must have in stock.
This step is essential to prevent product delays or shortages, but keep in mind that this minimum level fluctuates based on the demand for each product you offer.
Here are some important points to help you determine the appropriate minimum order:
Product Type: The easier the products are to sell, the higher the minimum order you'll need to make.
Shipping Lead Time: The longer the shipping lead time, the lower the minimum order you can make, as the shipping period will allow you to keep the product available.
Financial Situation: The more liquid you have, the higher the minimum order you can make.
Product Shelf Life: If the product has a limited shelf life, you should lower the minimum order available.
Step 4: Choose an e-commerce inventory management tool
Manually managing e-commerce inventory is a very difficult and tedious process. It requires a large amount of labor and is also fraught with errors and failures.
Therefore, relying on an e-commerce inventory management software is always the smartest choice, and one that every online store owner should choose.
There are some e-commerce platforms that offer inventory management systems, but there are many other options you can rely on depending on your budget, the nature and size of your store, and the way you set it up.
Step Five: Continuous Monitoring and Development
Managing your online store's inventory isn't a one-time task that you'll just leave unattended. It's a continuous development process.
Yes, relying on a good inventory management software is an important step, and perhaps a one-time one, but human intervention is crucial.
Technology's role is always to provide us with data, but making decisions is primarily a human function, as there are factors and aspects that technology cannot know or predict.
Therefore, my advice is to constantly monitor your inventory and develop the system or software you rely on to manage your e-commerce inventory.
Best E-commerce Inventory Management Strategies
There are many strategies that will help you manage your e-commerce inventory, controlling inventory and increasing your income.
Among the most important of these strategies are:
1. First In, First Out (FIFO)
FIFO, short for First In, First Out, is one of the most important and widely used strategies for managing e-commerce inventory.
It involves ensuring that the oldest products in inventory (first in) have priority for sale (first out), rather than selling the newest products first.
This strategy will greatly help you deal with products that have a specific expiration date or are likely to spoil.
However, one of the drawbacks of this strategy is its inaccuracy in estimating profits, especially in unstable markets where product prices are constantly increasing. This will generate illusory profits for your online store, as you will be purchasing new products instead of selling them at higher prices.
2. ABC Prioritization
The second strategy on our list is ABC priority, which will help you manage your e-commerce inventory based on value and its impact on your income.
You first research and evaluate the products within your inventory based on their profitability. You divide the products or inventory into three categories:
Category A: Inventory that accounts for 75% of your income.
Category B: Inventory that accounts for 15% of your income.
Category C: Inventory that accounts for 10% of your income.
In this case, you will handle inventory for each category differently. The products that generate the highest profit will require more priority in inventory than other products.
3. Real-Time Inventory Management (JIT)
Just-in-Time (JIT) inventory management isn't for everyone; it's for those who can take risks.
With this strategy, you will stock the minimum amount of product that fulfills your operations and replenish it before any of it is released or sold.
The success of this strategy depends on two critical points:
Consistent demand volume.
Complete confidence in the source of the products.
4. Accurate forecasting
Precisely forecasting is a great strategy for managing your inventory. In short, it controls your inventory based on the number and quantity of orders you expect.
This strategy relies on analyzing and understanding your past sales data, taking into account different seasons.
However, with so many influencing factors involved in the forecasting process, which are difficult to fully understand without some knowledge of upcoming orders, it will be difficult to rely on this strategy alone.
Nevertheless, this method is practical, even though it isn't completely accurate, and it will enable you to roughly determine how to manage your inventory.
Conclusion
Ecommerce inventory management is a very important component of ecommerce, helping you manage your inventory accurately to ensure order fulfillment and customer satisfaction.
Therefore, it's extremely important to carefully manage your inventory plan, especially if you're just starting out in ecommerce. We hope you've found our article useful. If you have any questions or concerns, please ask us in the comments, and we will respond as soon as possible.