Guest Post: How E-Commerce Businesses Can Manage Their Product Inventory Efficiently

Sep 01, 2022

To create a sustainable and profitable e-commerce business, you need to know how to manage your product inventory efficiently. 

Poor inventory management and making mistakes when managing your inventory can be incredibly costly in the long run. On the other hand, making the right decisions from the get-go can be highly profitable on your end. 

We’ll walk you through several best practices on how you can build a better inventory management strategy for your business.

But first, let’s walk you through the basics.

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What is Inventory Management?

In a nutshell, it’s sourcing, storing, and selling stock. It knows how much stock you have, how much you should be selling, where you need to keep it, and how long you’ll be keeping it.

Once sold, your inventory becomes your revenue. But before it sells, inventory ties up your cash. Having too much inventory decreases your cash flow. Thus, inventory management is vital to your company’s health as it ensures you rarely have too much or too few stocks at hand. 

What Does It Mean for E-Commerce Sellers?

E-commerce inventory management is essential because if done well, it helps you:

  • Track your items in your warehouse, or any other third-party logistics fulfillment center

  • Monitor products that are sold via drop shipping

  • Track products stored in a consigned inventory of another business or with contract manufacturers.

  • Track multichannel selling strategies

When you optimize your product inventory for e-commerce, you’ll better gain insights into your analytics and logistics. You can then use this data for inventory control, maintain stock levels, and make more accurate predictions in inventory demand.

10 Ways E-Commerce Businesses Can Manage their Product Inventory

1. Avoid spoilage and unnecessary storage fees

 Items such as cosmetics, supplements, and food products have expiration dates. You’ll significantly hurt your investments when you hold items past their sell-by date.

 But when you track your items in a system, you can avoid spoilage and unnecessary storage fees.You can also do promotions or offer discounts to avoid the risk of these items spoiling soon.

2. Implement a centralized inventory control system

To scale your e-commerce business, investing in good inventory management software is vital. 

Doing so lets you track your inventory, ensuring that you never go overstocked and understocked. It allows you to sync inventory tracking across channels selling your products and collect real-time data in one convenient system. 

Having the right database management support is also necessary. It gives you valuable insights into what opportunities you can take advantage of, improve your sales, and scale your business in the long run.  

3. Keep an inventory safety stock

 Always expect the unexpected by keeping your safety stock. There are several reasons why you would need this. 

For instance, when the pandemic broke, there was a lot of panic buying with an unexpected supply and demand. Keeping a safety stock will ensure you’re prepared for unforeseen circumstances. 

4. Restock popular products right away

Although you want to avoid stocking excessively, you should also keep enough stock at hand to meet customer demand during the busiest times of the year.  

Strategically monitor your sales to know how many stocks you need in your inventory. You should also have enough backups to ensure you won’t run out of stocks in case of mishaps in your supply chain.  

Monitoring the days of supply for bestselling products also lets you plan and re-order to avoid running out of stock and losing out on potential sales. It also helps you boost revenues, maintain profits, and scale. 

5. Strictly following the FIFO system

The First-In, First-Out (FIFO) method is where the sales and usage of goods follow the same order they’re bought. 

Meaning that in this system, the goods that are bought and produced first are the ones that are sold and expensed first. 

It’s not just food companies that should be using this method. It  also applies to clothes, tech, or other goods that are something in between. The last thing you want is to be stuck with a pile of items and wait for them to go back in style so that you can sell them. 

FIFO means that you have a high rotation of stock. It will help keep things fresh and will prevent you from having to make a massive clear-out sale. 

6. Rely on ABC analysis

To enhance efficiency, and save more money, prioritize products with ABC analysis. 

You can prioritize your current inventory with three categories: 

A- High-value items with low sales frequency. 

B- Moderate-value items with moderate sales frequency

C- Low-value products with high sales frequency

ABC Analysis is based on the Pareto Principle, wherein 80% of your sales come from 20% of your customers. Usually, these people purchase category A products, which account for a significant portion of your revenue. It’s more costly to lose these customers than those who buy B or C products. 

The ABC inventory system is an excellent tool that you can use to enhance inventory management. Using it can improve your overall business efficiency and decrease costs. 

7. Forecast future demand based on past sales

You also need to know how to forecast future demand, including seasonal demand. You can look at the past sales that you’ve made and where the interest in your products is highest. 

Look for significant selling opportunities where you can make a lot of sales, such as special events and holidays. That way, you can order and store inventory accordingly. It also prevents your products from going out of stock during peak times. Apart from referring to your sales history, you can also check your data on Google Analytics or Google Trends. 

Forecasting future demand allows you to develop a feedback loop of understanding what stocks work. Tracking your stocks this way also lets you see which products sell best and helps you assess yearly trends. You also can do it as much as you want. 

8. Be smart with your storage

When looking for stocks to sell, you should also think about where you want to store your items. If you wish to store them in a spare room In your house or a warehouse, make sure you can quickly locate them. 

Keep them in a secure location wherein you can easily pack and send them to the customer in the quickest way possible. You also might have to move things around if you need to. Doing so lets you stay on top of your stock and offer excellent customer satisfaction. 

9. Use the kitting technique

Putting your stocks together and selling them as a deal is known as kitting. Using this technique lets you eliminate any overstock at a reasonable price. 

You can find products in your inventory that have been there too long. You can take your slow-moving and dead stock and bundle it with the previous stocks that you’re selling. Doing so allows you to offload your products and reduce your losses. 

10. Maintain a good relationship with your suppliers

Your suppliers play a crucial role in your business. Here are some of the ways that you can maintain a healthy relationship with your suppliers: 

  • Treating them with respect

  • Paying bills on time

  • Regularly communicating with them

  • Giving them constructive feedback

You can get the right products on time by maintaining a positive interaction with the essential players in the supply chain. It’s also easier to anticipate any shipment or manufacturing issues. 

Over to You

So, there you have it. Hopefully, by following these steps, you can grow your business over time. The more you can manage your product inventory efficiently. The more profitable your business will be. 

By incorporating the right software and these strategies, you can ensure that you stay on top of your inventory, leading to more profits. You’ll also have happier customers who will keep coming back. Good luck!

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