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Inventory management for eCommerce has some complications that other supply chains do not. Best practices for eCommerce inventory start with ordering and cover the entire cycling through final shipment and delivery to the customer.
Inventory management for eCommerce is a bit different than stocking the shelves in a brick-and-mortar store. Sure, the main goal for both is the same: Never run out of product while avoiding too much dead stock. But eCommerce adds some additional complications, especially as the business scales and when sales happen across multiple channels. We’ve put together a list of best practices to keep inventory doing what it’s supposed to do—satisfying customers and making money for your business.
Every piece of inventory goes through three basic phases or steps in a warehouse:
There are opportunities to maximize how inventory is handled and tracked in each of these phases. Those opportunities comprise our best practices.
How do you know how much inventory to have at any given time? Dig into the data. Inventory management software offers analytics that identify information such as sales velocity and seasonal trends. These will help determine the quantities to order and the timing of those orders.
Some industries require more of an eye on trends than others. Clothing or cosmetics, for example, are subject to fashion trends and habits. Utilitarian items such as rakes and other yard implements are not—although they may follow a seasonal buying pattern. The type of items for sale will dictate the type of information that matters.
Inventory management software can track these patterns. The purpose is two-fold. First, it can make sure enough inventory is on hand to reduce the chance of backorders.
Second, it can anticipate when a product is no longer in demand or a trend has run its course. This prevents shelves of out-dated dead stock that will need to be sold at a deep discount or thrown out. Overstock doesn’t just fail to make money, it costs money. Carrying costs include the space’s lease, utilities, insurance, etc.
Knowing the inventory you need is the first step. Finding vendors who can reliably deliver it is the next. Successful eCommerce warehouses track KPIs that measure product quality, lead time, on-time delivery, and other factors along the supply chain. All of these factors can ultimately help or hinder an eCommerce company’s efficiency.
Without good supply chain partners, an eCommerce business will struggle to keep its customers happy. If analytics show a steady uptick in sub-par or damaged products, or if certain raw materials are constantly late or on backorder with a certain vendor, it’s a signal that it’s time to take the company’s business elsewhere.
Automation for ordering inventory is invaluable for eCommerce businesses. Managers can receive alerts when stock levels get low, indicating it is time to reorder. Better yet, automatic re-ordering protocols can be built into the system, so new stock is on its way without staff having to remember to put it on their to-do list.
Real-time inventory counts within the warehouse are helpful too. Forward picking areas can be replenished by merging predictive order tracking with quantities on-hand.
Successful inventory management for eCommerce means that products travel in, through, and out of the warehouse without interruption. It is essential to keep the traffic moving quickly and efficiently.
Our series of articles, Warehouse Set-Up 101 explains exactly how the design of a space plays a key role in its efficiency, whether the warehouse is small, medium, or large. The right layout can reduce bottlenecks and traffic jams in the aisles.
Added into the basic layout are operational organization methods for proper slotting, storage, and rack labeling. Using barcode scanners and inventory management software, managers can know the precise locations of absolutely every item on hand.
But optimizing a warehouse is not just about what goes where. There is also a science to how people, products, and equipment move around the space. The picking process will be faster and more accurate, for example, by automating the choice of picking methods and pick paths. And the same barcoding system that tracks the location of products also tracks the speed and accuracy of the workflow.
Part of the beauty of eCommerce is the ability to sell products on multiple sales channels. A company can do business through Amazon, eBay, and Etsy, as well as its own online shop. There might also be a brick-and-mortar store, or business might be entirely online. Inventory could be spread out in different warehouses throughout the country. While omnichannel selling can be lucrative, each new channel and warehouse means more complicated inventory management.
Further complicating inventory management is the addition of new products or items that naturally have multiple variants. Clothing is a good example: t-shirts inventory, for instance, might come in a dozen different colors, but also in multiple sizes. The data needs to show how many of each color and size are in stock, and where they are located.
The only way to keep track of inventory in a multi-channel or multi-product business is with a centralized information hub. You need software that gathers real-time inventory data from all sources and looks at the organization’s inventory levels as a whole. It can also be set to search all sources and inform customers when items are not in stock.
Likewise, shared data can manage the movement of inventory between locations and warehouses. Let’s say a company has a warehouse on the west coast and one in the Midwest. The west coast is out of a particular SKU, but there is plenty of inventory in the Midwest. A customer in California should not see an “out-of-stock” message when ordering. Instead, systems can be in place to ship from the Midwest location directly to that customer. And depending on sales data and vendor lead times (see #1 and #2 above) the Midwest may send items to restock the west coast warehouse too.
By far, the best “best practice” is finding an inventory management software product that is up to the special challenges faced by eCommerce businesses. Look for something that is versatile and that has the capability to grow with a company as it scales and adds new items and sales channels. It needs to:
How closely you monitor and control inventory while it is inbound, in-house, and outbound will make a big impact on the success of your eCommerce business. With these best practices in place, you can achieve the goal of never running out and never letting dead stock collect dust on your shelves.
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