Ensuring that products are available to fulfil customer orders doesn’t happen by magic. Ecommerce retailers and business owners must make sure they have the right amount of inventory, in the right places, at the right time. And that takes some serious logistics.
That’s where ecommerce inventory management comes in. For online retailers with multiple active sales channels, suppliers, warehouses, and 3PL providers on the go, getting your ecommerce inventory management right can make or break your business.
What is ecommerce inventory management?
Inventory management is the process by which businesses and organizations track and monitor their stocked merchandise. And when it comes to ecommerce operations, managing inventory is an even more complex task.
That’s because (chances are) as an ecommerce merchant, you’ll be selling your products and services across a wide range of different channels and online platforms.
That means large order volumes, and dispersed geographical fulfillment responsibilities.
As such, it’s absolutely integral that inventory levels are maintained consistently across all channels. Ecommerce inventory management takes into account:
- The mix of products available for purchase
- The amount of products available at any one time
- The location of those products
- Product pricing
Depending on the scale of any given ecommerce business, products might be spread between private warehouses, third-party logistics centers, and/or a separate business.
Accurate and data-led inventory management is therefore essential for monitoring stock levels and ensuring order fulfillment—and the whole back-end of your operations—runs smoothly. Not only this, ecommerce inventory management is also closely correlated with a business’ bottom line.
Strategic decision making when it comes to fulfillment methods (FBA, dropshipping, etc) alongside optimized warehouse locations, not only increase successful fulfillment rates but also reduce the overall cost of fulfillment and shipping.
And proper inventory management is one of the best ways to forecast revenue and inform marketing strategy.
As order volumes fluctuate across different channels, trends, and seasons, ecommerce inventory managers need to forecast demand accurately and plan inventory replenishment accordingly to avoid overselling or overstocking.
Why is ecommerce inventory management important?
Effective ecommerce inventory management is extremely important for ecommerce merchants’ growth and success. Why? Because it is the difference between meeting customer demand and not, it ensures a healthy cash flow, and it reduces human error.
1. Meeting customer demand
Effective ecommerce inventory management ensures that customer demand is always met and that a seamless customer experience is always provided. This is extremely important. Unhappy customers are far more likely to leave a negative review online which could seriously damage your brand reputation and sales.
Review culture is on the rise. 95% of all shoppers read online reviews before commiting to a purchase. That means high-quality and consistent service has never been more important.
2. Healthy cash flow
Ecommerce inventory management can make or break a business’ cash flow. When inventory is managed poorly, cash becomes tied up in slow-moving products or unnecessary safety stock. By optimizing your ecommerce inventory management systems you can release that cash flow and channel it into best selling products that lead to increased sales.
3. Reduce human error
Prioritizing your ecommerce inventory management process is essential for the reduction of costly human errors. People make mistakes. It’s a fact of life. After all, we’re not robots. But missing stock or damaged stock can be seriously detrimental to your finances. Data-led inventory management is key to mitigating this risk and ensuring accurate inventory at all times.
Poorly executed inventory decisions can quickly cause your business to hemorrhage money and leave your brand’s reputation in ruin when customers fail to receive their orders on time (or at all). Think of inventory management as a buffer between your business and some seriously costly mistakes.
5 benefits of effective inventory management
1. Avoid spoilage
When you deal in spoilable products like food, hygiene products, and makeup, having just the right number of products on hand is even more important. Nobody wants their products to spoil before they even hit the shelves. That’s money down the drain, not only on the products themselves but on the unnecessary space they’ve undoubtedly been taking up in the warehouse.
2. Reduce dead stock
Spoilage isn’t the only factor that leads to product wastage and occupied shelves. Products can become dead stock for all sorts of reasons. They might go out of season or style, for example. Once this happens they’ll be harder to sell off without major promotions that limit your revenue.
With an effective inventory management system, you’ll benefit from historical sales reports, FBA reports, and real-time data that can help you make better purchase decisions. You’ll maintain an inventory of seasonal, popular products that sell quickly and never end up lingering in the warehouse for too long.
3. Boost cash flow
Effective management of inventory saves money, but it also improves your ‘in-hand’ cash flow by reducing the amount of cash held up in stagnant products. A powerful inventory system can tell you how many products you have in stock and forecast when you are likely to run out based on real-time data.
Instead of putting all of your cash flow into buying in bulk, you’ll have cash on hand whilst still guaranteeing that products will be available to meet customer demand.
4. Save on storage
The price of warehousing is not a fixed cost. It varies and fluctuates depending on how much product you plan to store. If you over-order on a particular item that ends up being difficult to sell, this can end up being a costly mistake. Not only is that money wasted on dead stock, but it’s likely to increase your storage bill.
An inventory management system will help you avoid this dilemma by calculating the optimum stock level to meet your customer demand patterns.
5. Customer satisfaction
Inventory management doesn’t just save money, it improves customer satisfaction. How? If a product runs out, that leads to disappointed customers. If an order doesn’t arrive on time, your customer might take their custom elsewhere next time.
The more accurate and efficient your inventory management, the better your service will be. Plus, some inventory management software will even create email and marketing campaigns to encourage customer product repurchasing based on stock data.
Ecommerce inventory management challenges
Like most good things in life, there will be some challenges along the way toward ideal ecommerce inventory management. For businesses with more than one dedicated warehouse, multiple sales platforms, and many employees, this is even more true.
You’ll be managing large inventories across multiple channels. Making sure these disparate processes align is no easy task. Let’s take a look at some of the main challenges of ecommerce inventory management.
Overstocking & underselling
We’ve already discussed effective inventory management as an antidote to overstocking and overselling. Businesses that fail to get on top of their inventory often find themselves unable to supply to meet demand.
Some retailers will choose to keep a large inventory supply as security stock. But this poses its own challenges. Bulk-buying stock holds your cash that could be invested in other profitable areas and occupies your warehouse space. You’ll also risk being left with dead stock that’s hard to shift and expensive to store.
But perfect inventory is not always as simple as any old inventory management plan. Demand fluctuations are unpredictable, especially in the ever-changing market
2020 was a testament to this fact. Nobody could have anticipated the sheer impact of COVID-19 on ecommerce. As such, it’s vital to make your demand forecasting as accurate as possible. Using a data-driven inventory planning system to take the guesswork out of your decisions as much as possible.
Scaling is important for any business, but it makes inventory management that bit harder. Why? Because managing inventory across one retail location or sales channel is hard enough. When you’ve got multiple ecommerce stores or platforms on the go, inventory management becomes a seriously complex operation.
It’s especially hard if you’re relying on manual inventory and warehouse management systems such as offline spreadsheets, programs, and/or suites that are not integrated or synced up. For larger businesses, scaling manually is simply unrealistic.
Luckily, there are many ecommerce inventory management software solutions on the market to help you out. Many of these allow users to monitor their inventories, real-time, across platforms like Amazon, Etsy, BigCommerce, and eBay, all from one place.
Lack of visibility & insights
Restricted visibility often comes with business growth. The more you grow, the more complexities inventory management involves. You’ll naturally need more warehouses and sales channels on the go.
But having real-time visibility across multiple channels is challenging. It’s easy to lose track of inventory, sales, orders, and financials if all the data is stored in siloed systems. You’ll need to start getting even more organized and strategize for increased sales.
To achieve this, you’ll need real-time data insights on different aspects of your business. From sales channel performance and top and flop products, to most loyal customers, all of this data will give you invaluable insights to make decisions that stimulate growth.
Tips for ecommerce inventory management
So we’ve got to the bottom of why effective inventory management is so very important to ecommerce brands. But what about some actionable steps to start improving our own ecommerce inventory management? Despite the risks and challenges, it is possible to scale and succeed in ecommerce.
We’ve put together a list of tips and tricks to help you up your ecommerce inventory management game, and get you well on your way to acing your own inventory process once and for all.
1. Get to grips with demand
First things first, it’s imperative to understand your unique customer demand patterns. Depending on the nature of your product (and the target audience) demand will undoubtedly fluctuate with the seasons, financial climate, and current trends.
In order to get your inventory management right, you’ll need to be on the ball when it comes to demand peaks and troughs. Google Trends, for example, analyzes search demand over time. So that’s a great place to start.
2. Start forecasting
Next, you’ll want to start forecasting. After doing some research, forecast your predicted future demand based on past sales patterns. This should take into account seasonal sales demand and indicate when demand is likely to be higher or lower.
Forecasting is all about reflection and prediction. What happened before, and what upcoming events are likely to impact your customer demand levels?
3. Calculate minimum stock levels
Armed with your forecasted data, you’ll be able to make more educated decisions when it comes to stock levels.
Set a minimum viable stock level for each of your products. In other words, that means the lowest possible inventory level you can have that will still meet consumer demand. This is the best way to save on storage expense, whilst still ensuring successful order fulfillment.
4. Prioritize top products
When calculating your stock levels, take into account the most popular products. These are the products that should be prioritized in the warehouse (think accessibility and quantity). A/B testing is a great way to identify your top products.
5. Implement software
Inventory management software is critical to large ecommerce inventory operations. Whilst small businesses might be able to manage their inventory manually, once multiple sales channels, warehouses, and fulfillment providers are involved that’s no longer an option.
Technology is the key to scalability. The right management software will keep stock levels viable, provide real-time data, and sync inventory tracking across multiple, dispersed channels. An essential tool for any growing ecommerce business.
Key KPIs used in ecommerce inventory management
Inventory management is dependent on precision forecasting. Precision forecasting is more than just a prediction. You won’t ‘feel this in your bones’. Whether forecasting manually, or with software, you’ll need to infer your predictions from key performance indicators (KPIs).
Businesses that use key performance indicators to track and manage their inventories improve their purchasing patterns, increase cash flow, and boost profitability. In other words, KPIs are essential indicators of your ecommerce retail business’s trajectory.
Some of the most important KPIs include:
- Inventory turnover – how many times inventory is sold/replaced over a set time
- Average days to sell inventory (DSI) – how long it takes to turn inventory into a sale
- Average inventory – estimated inventory on hand over a set time
- Holding costs – money being spent holding unsold inventory
- Stock-out – how often demand cannot be met due to lack of inventory
- Service level – the amount of stock needed to avoid a stock-out
- Lead time – calculate how efficient your order processing is
- Rate of return – the percentage of orders that are returned and restocked
- Inventory accuracy – checks whether your internal data is accurate
- Perfect order rate – the ratio of orders that are fulfilled without flaw (this KPI is a reliable indicator of customer satisfaction)
How to choose the right ecommerce inventory management software
When it comes to inventory management, there is no one-size-fits-all solution. Every business will flourish on a different system, and some might even find that combining methods works best for them.
Based on your business model, whether retailing, wholesaling, or DTC, you’ll need different tailored features.
Also, when selling on multiple platforms, multichannel ecommerce merchants need more automation and scalable inventory software solutions that can streamline their entire back office operations.
There are various inventory management software alternatives available on the market to help merchants simplify inventory management and reduce human error. These tools automate inventory management processes to different degrees and offer various functionality sets.
Here we list the typical features that should be included in inventory management software.
- Purchase order records
- Sales level predictions
- Report generation
- Material grouping
- Stock notifications
- Multi-location management
- Multi-platform management
- Inventory optimization
- Barcode scanners
But not all inventory management software is made equal. It’s important to do your research and pick a solution that meets the unique needs of your business.
For instance, ERP systems like Netsuite offer inventory management functionality, but they are not specifically designed for ecommerce businesses. This means ecommerce customizations are often required at extra cost and you’ll pay for the features that you don’t need.
Likewise, a standalone ecommerce inventory management software solution will be limiting when your business grows. This software lacks the advanced features needed to manage complex, multichannel workflows. And you may end up having many siloed software solutions in your retail tech stack.
It’s easy to get bogged down worrying about ecommerce migration. So, what software do you need as a growing ecommerce merchant today?
The best ecommerce inventory management systems
With so many ecommerce inventory management systems on the market, all promising great results, it can be hard to know which one to choose. Remember, not all management systems are designed for complex, fast-growing businesses with multiple sales channels.
But don’t worry, we’ve put together a guide to five ecommerce inventory management systems, which each suit different kinds of ecommerce businesses.
Let’s take a look.
Brightpearl is a retail-tailored Digital Operations Platform, perfect for omnichannel merchants. The system is cloud-based, meaning that everything from orders to inventory and reporting can be accessed from anywhere.
It centralizes and automates all the critical post-purchase operations in one single system, including inventory, sales orders, fulfillment, warehouses, accounting, CRM, POS, reporting and retail business intelligence.
With Brightpearl’s purpose-built ecommerce integrations and integrated POS, all your online and offline sales channels are seamlessly synced.
Zoho is online inventory management software for small to medium size businesses. With Zoho Inventory, you can manage your offline orders and integrate them with any other tools that make up part of your sales strategy.
Zoho users can link to Amazon, eBay, and Shopify, create purchase orders, and manage dropshipping. All with end-to-end and batch tracking capabilities.
The system can handle a limited online order volume, up to 30,000 orders/month. This may be limiting for larger or fast-growing retailers.
- Effective inventory management for small businesses
- Cloud based
- Integrations with Zoho Books and Zoho CRM
- Confusing tutorials
- Limited order volumes
- Integrations with ecommerce platforms only through a third-party tool called Kloud Connectors
SellerCloud is an omnichannel inventory management software option for small businesses. SellerCloud offers a number of additional features in addition to inventory management. These include:
- Scheduled listings
- Shipment handling
- Customer feedback management
- Product catalog building
- Multiple integrations
On the inventory side of things, SellerCloud offers cross-platform inventory sync and updated vendor feeds, stock alerts, and tracking options.
- Sync orders and inventory
- Reorder features
- Possibility to customize the system
- Interface not user friendly enough
- Requires regular updates
- Poor sales verification
- No partial order shipments
- Occasional lag
ChannelAdvisor is more a channel management platform than an ecommerce inventory management platform. However, with its marketplaces integrations, you can consolidate inventory across all your selling channels and fulfill orders.
- Additional services like digital marketing and brand analytics
- Works across multiple marketplaces
- Good customer experience
- Missing advanced inventory management features
- Missing flexible order fulfillment options
- Data reports are not always reliable
- Customer support is lacking
- Difficult to contact
- A bit expensive
Keep in mind that for scaling ecommerce merchants, ChannelAdvisor might not quite fit the bill. It may be adequate if you’re mainly selling on marketplaces.
Katana is inventory management software suitable for ecommerce brands that manufacture goods.
The tool is good for businesses that need to track raw material and production processes. It’s packed with features to improve manufacturing efficiency.
- Easy to use
- Features for manufacturing businesses
- Good customer service
- Delays in updates across online sales channels
- Limited order scalability
- Currently no mobile app
- Bugs interfere with functionality
- Lacks features
- Price might be high for small businesses
Katana primarily markets itself to smaller manufacturers. For larger, multichannel retailers that are mainly selling finished goods, functionality offered by Katana may not be tailored to handle complex order fulfillment processes.
Boost your ecommerce inventory management today
Don’t turn a blind eye to proper ecommerce inventory management. If your inventory management system is far from perfect right now, there’s never been a better time to act.
Streamline your inventory management and, given time, you’ll reduce costs, increase cash flow, boost customer satisfaction, and improve your bottom line.
If you’re a large or growing ecommerce retailer looking for a better way to keep inventory, fulfillment, the books, and more, in better order, don’t fret. You need not be going it alone. There are fantastic software options at your disposal to help you unify and manage multiple platforms all under one roof.
We’ve covered the ins and outs of inventory management from the basics to the best software on the market today. It’s time to get your inventory running like clockwork. So why not book a demo with Brightpearl?