Inventory management is essential for every business, but it’s even more important for e-commerce businesses dealing with high volumes in both customers and products and orders.

The faster you’re able to build a strong inventory management system for your e-commerce business, the faster you’ll be able to become effective and cable of growing that business. When it comes to inventory management, even the little things matter and help make a difference in future profitability and scalability.

In this guide, we’re going to break down some of the things you can do to build a sustainable and effective inventory management system that isn’t going to let you down or keep you from being able to grow your company. If you fail to make the right choices for your inventory management strategy, then you’ll experience costly setbacks and lost revenue due to inefficiencies.

What is E-Commerce Inventory Management?

You likely know that inventory management is important, especially when it comes to your e-commerce business. But, what does inventory management entail? We’ve all wondered that at one point or another. Here’s a simple definition: e-commerce inventory management is the act of tracking the amount, location, pricing, and mix of products available throughout your business.

The products you track and manage could all be located within your warehouse or through a third-party logistics partner (3PL). If you partner with a dropshipping or blind shipping company, you might also need to track the inventory that moves through their warehouses as well.

In some cases, a 3PL may be able or willing to help you with inventory tracking, but it’s important to ensure that you know what products are overstocked, in stock, understocked, or out of stock. Without knowing this, you won’t be able to run your business successfully.

The inventory in your business is always directly tied to a company’s financials. The value in the inventory and the purchasing trends that you’re able to deduce through inventory tracking tools help keep your company profitable and make smart business decisions time and again.

Inventory Management Terms

There are a lot of different terms that are regularly used throughout inventory management. You may already know some of them, and others might be new to you. Here are the e-commerce inventory management terms that you need to know.

Inventory: Items, products, and goods that your warehousing systems store and your website or e-commerce site sell to customers.

SKUs: SKU = Stock Keeping Unit is an identification code attached to different products or inventory items. An SKU will help you to track, manage, and organize the inventory.

Variants: Variants of a single product, such as a product with several different colors.

Units of Measure: The unit you use to measure your stock = pieces, weight, times, bundles, etc.

Supply Chain: The process of producing and distributing your product to customers. Supply chain lengths can vary drastically.

Dead Stock: Inventory that you have in stock but can’t sell or no longer sell.

Buffer Stock: The amount of stock on hand helps limit the risk of supply and demand uncertainty.

Minimum Viable Stock: The minimum amount of stock you keep on hand to keep up with customer demand and fulfill orders on time.

Re-Order Point (ROP): This is a pre-determined inventory level that must be hit before ordering additional inventory.

Lead Time: The time it takes for an order to be ordered and arrive at a warehouse from the supplier.

ABC Analysis: A method for counting and sorting your existing inventory. A = high-value products with a low frequency of sales. B= moderate value products with a moderate frequency of sales. C = low-value products with a high frequency of sales. You can learn more about this method here.

First in First Out (FIFO): An accounting method that assumes that sellable assets or inventory will be sold in the order that it is received from a supplier. You can learn more about FIFO here.

Just-In-Time (JIT): This fulfillment method orders inventory just in time to keep up with demand from customers. Using the JIT method, you’ll be able to limit the amount of money your company ties up in unsold inventory.

Dropshipping: A fulfillment method used to store any of the inventory in your own facilities. Instead, all orders are fulfilled by third-party companies and delivered to the consumer without their knowledge.

Centralized Inventory Control: A software that allows you to manage, track easily, and control inventory across multiple e-commerce websites and listings.

Inventory Management Software: A software tool that helps you track inventory, streamline processes, automate tasks, and leverage data for better insights. TopShelf from Scout is an example of inventory management software.

Cost of Goods Sold (COGS): An accounting item reported on the income statement details the total costs of products and merchandise sold by your business. COGS is considered an expense when during reporting.

Carrying Cost/Holding Cost: The average cost of holding inventory in your warehouse vs. the value of the inventory itself.

Inventory Auditing: Manually counting or checking inventory levels to ensure that the numbers match the numbers that exist within your tracking and automation systems.

Inventory Forecasting: Making informed decisions about ordering inventory and recording products based on historical data, trends, and seasonality.

Benefits of Managing E-Commerce Inventory

warehouse management

Coworkers working together in warehouse distribution storage area checking inventory. Warehouse logistics.

There are several huge benefits when it comes to managing inventory management. One of the largest benefits of managing e-commerce inventory is keeping your supply chain moving smoothly and efficiently. If you aren’t keeping track of how much inventory your company is moving, you might run into shortages and unhappy customers.

Any problems you have with your inventory management can lead to unhappy customers, longer lead times, and in general lost revenue. Dead stock can also become a challenge and hurt your business as you try to reach new goals.

When you finally get e-commerce inventory management right, your business will be able to gain an advantage with more intelligence and revenue because you’ll know more about your inventory, and you’ll be able to grow your business strategically.

E-Commerce Inventory Management 101

Now, let’s dive into the 101 of what makes inventory management successful and what you’ll need to succeed in this process. Note that inventory management is a process, and every business is different. Some e-commerce companies will be able to grasp inventory management more easily, but every business will equally reap successful inventory management benefits.

Efficient Business Practices

There are many ways that you can make a warehouse or e-commerce business. It’s not always as simple as hiring another employee or creating a new spreadsheet, but sometimes it can be. One great way to take advantage of technology to become more efficient in your business practices is to utilize warehouse management or inventory management software.

These software systems will help you to manage employees, inventory and keep everything flowing smoothly throughout your warehouse.

Taking control of your business’s outcome by thinking critically about your current business practices and doing everything you can to make them more efficient will help ensure that your e-commerce company succeeds.

Keeping Track of All Inventory

Large businesses that expect to grow will have large amounts of inventory and will often fluctuate what products are carried by that warehouse and sold to customers. As more products are continually added, the warehousing of those products will become increasingly difficult to manage.

It’s essential that you have eyes on all inventory items within your warehouse and that you’re able to track them. Additionally, you’ll need to set up good inventory tracking so that you can re-order stock when specific items get low.

A good inventory management tool will help you create SKUs and labels and track all data in a shareable cloud. If your business grows to include more than one warehouse, a cloud-based system is easily expandable. You won’t have to worry about how you’ll communicate between locations, and yet you’ll be able to track every piece of inventory from receiving to delivery.

Ensuring that All Customers are Happy

When items are displayed on your website as in stock, your customers will expect that it’s truly in stock and that they’ll be able to purchase that item.

Keeping your inventory counts accurate and up to date on your website is half the battle when it comes to inventory management within your business. A good inventory management system will be able to keep stock levels correct across multiple selling channels so that there’s never an “over-purchased” item.

Eliminate Deadstock and Obsolete Inventory

warehouse inventory optimization. Where to put packages.

Deadstock can be a huge expense for your business, especially if you have a lot of it and you’re completely unable to sell it. Deadstock can also be referred to as obsolete inventory. In this guide on obsolete inventory, we talk more about the do’s and do not’s of inventory management that can help you ensure you’re always doing everything you can to keep your inventory flow helpful.

Ultimately dead inventory is going to drag your business down and keep you from reaching your growth goals. Obsolete inventory and dead stock can be easily avoided by ensuring that you’re in tune with your stock counts and ordering processes.

Nurture Customers and Keep Them Coming Back

Customers will always look to return to a place that does good work, ships their items quickly, and offers great customer service. By following these guidelines and keeping your inventory processes in check, you’ll be able to nurture your customers and keep them coming back when they’re ready to re-order.

If you’re looking for the perfect inventory management system to help manage your inventory and keep customers happy, then reach out to us at Scout. We’d love the opportunity to give you a free demo of our inventory management solution topShelf.

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