Managing ecommerce in business: Inventory Management
Inventory is the lifeblood of any retail business, whether a brick-and-mortar store or an online operation. The way you manage it will have an enormous impact on the success of your business (or lack of it). Read on to learn best practices for online store inventory management. We will explain:
- What inventory management means
- tips for ecommerce inventory management
- common mistakes and
- how to choose ecommerce inventory software
What is inventory management?
The expression “inventory management” refers to the things a business does to make sure that it always has what it needs to operate. “What it needs” can be raw materials if it is a manufacturing business, but it more often refers to the products that the company sells. (This article focuses on inventory management for online retailers.) It involves not only ordering stock but also storing it and keeping track of it (to make sure the oldest stock gets used first, for example). The objective is to maintain stock in optimal quantities, neither too much nor too little, with a safety margin for crucial items. The products in inventory are often a business’s largest asset. As a business owner, you have a huge investment in not only the inventory but in storing it, tracking it, and ensuring it. Poorly managed inventory can lead to serious financial problems, whether your business is small or large, online or a physical store. So managing inventory well is crucial to running a profitable business.
The importance of managing ecommerce in business
You need inventory to do business! Having stock on hand allows you to make sales. But it’s a balancing act. Running out of stock leads to lost sales, but excess stock ties up capital and can lead to spoilage and write-offs. Here are some key objectives in ecommerce inventory management: Balance supply and demand: You need to monitor stock levels to ensure that consumed inventory gets replaced, but only when necessary. Seasonal items don’t need to be replaced until next year, and ideally, you would like this year’s seasonal items to be cleared out. Have a safety margin: Although you want to avoid allowing excess inventory to accumulate, in the case of core products or popular items, it can be prudent to keep an extra amount of “safety” or “buffer” stock. That way you won’t be caught unaware if you have an unexpected rise in sales, or delay in delivery of new inventory. Take advantage of your location: Certain geographical locations may offer advantages such as low labor costs, low energy costs, or a nearby source of a material that you use. If such advantages exist in your area, make use of them to improve your profits!
Tips for online store inventory management
New methods of doing business bring new challenges. Unlike brick-and-mortar stores, online stores are open 24 hours a day. The site needs to be always up-to-date to ensure that no sales are missed. Some businesses have both online and physical stores, which ups the complexity of managing ecommerce in business. Handle core products separately. Core products are the ones that make up the foundation of your business. The ones you absolutely can’t do without. Non-core products are the extras that aren’t crucial to your continued operation. For example, no one is too upset if Starbucks runs out of muffins (a non-core product). But there would be a big problem if they ran out of coffee (their core product). Identify your core products, and prioritize them. Your inventory management activities should focus more on the core products than non-core ones. Try using “JIT”. JIT stands for Just-In-Time. It’s an inventory management technique that involves receiving goods just when they are needed. This strategy reduces the cost of storing inventory. For this approach to work well, the company needs to be really good at forecasting, because sales forecasts form the basis for when to order stock and how much. With excellent inventory management software, which can provide real-time demand and order information, this can be accomplished. Improve forecasting: The key to successful ecommerce inventory management is accurate forecasting. Good forecasting doesn’t involve guesswork. Businesses gather data by conducting market research, observing market demand models, analyzing demand patterns. Research helps them understand what their customers need, and how much and enables them to maintain appropriate levels of stock.
Advice from online business owners
Experienced online sellers have learned that ecommerce success requires more than putting some product photos and descriptions online and waiting for customers to send them money. It takes some savvy behind-the-scenes work. Here is their advice: Be well organized: It might seem obvious, but being organized will help you to know what you have in stock and to find it quickly. Wherever you store your inventory, be it a closet, a garage, or a warehouse; arrange it in a way that is logical visually, so that you can easily observe what is there. However, once you’ve moved from the closet to a larger storage facility for your inventory, you’ve likely reached the stage where you need a more technical solution to keep track of where things are. Most operations find that a barcode system is the most practical option. They are affordable and accurate and will streamline operations. Don’t run out of stock: Have you ever tried to purchase something online and received an out-of-stock notice? How did you feel? More importantly, what did you do? Probably you looked for it elsewhere, rather than wait for the online retailer to replenish their stock. And how likely were you to shop again at that site? Running out of stock risks losing not just immediate sales, but repeat sales as well. To avoid the problem, do regular physical inventory counts. The frequency will depend on the nature of your business and the size of your inventory, but many smaller operations take stock once a week! Always knowing the state of your inventory, will greatly reduce the risk that you will run out of something crucial. Choose your software carefully: As your business grows, your needs will become more complicated. The simple spreadsheet that many new entrepreneurs start with doesn’t meet their needs for long. When you select a shopping cart system for your business, look for one that:
- Can grow with your business
- Has mobile functionality for use at trade shows or fairs (if that applies to your business)
- Can be integrated with inventory management and accounting software
A good system will help you track your inventory by automatically subtracting sold items whenever a sale is made. Ideally, it will notify you when inventory drops to certain levels. Using appropriate software to organize and track inventory will reduce the risk that you will lose sales and disappoint your customers. There are lots of software options for managing ecommerce in business. Later in the article, we’ll give you hints on how to choose software that’s right for you.
Common mistakes when managing ecommerce in business
Whether your business is a large-scale online retail outlet or a small at-home operation, it’s vital to keep accurate inventory records. But running a business involves a multitude of tasks and sometimes the behind-the-scenes chores, like inventory tracking, fall through the cracks as you deal with more urgent issues. It’s important to be aware of the potential pitfalls and risks related to online store inventory management. Forewarned is forearmed, as they say. Knowing the pitfalls can help you to avoid them. And it can also prepare you to deal with the problems if they arise. Here are some common mistakes to avoid: Overselling: Your business’s reputation depends on your filling orders accurately and promptly. If your inventory count is inaccurate, an item could show on your website as being in stock when in fact it isn’t. So you’ve sold something you don’t have – this is called overselling. Overselling damages your reputation and could lose you sales if a disgruntled customer cancels their order and purchases from your competitor. They may also leave a negative review, either on your site or another rating website like “Yelp.” Such a review can be very damaging in the world of e-commerce. Verifying your site’s stated inventory levels against regular physical counts can help prevent this problem. Also, good forecasting and just-in-time ordering will have new stock on the way before the stock on hand runs out. Over-ordering: So you are so determined to never be out of stock that you order large quantities of inventory. Then what happens when an item is less popular than you expected? You end up stuck with stock you can’t sell or have to sell at a loss, which can noticeably reduce your business’s profitability. You can avoid this situation by continually refining your forecasting practices, which will help you order appropriate levels of inventory. Not integrating inventory for multiple online stores: Many online sellers try to maximize their sales by maintaining a presence on a variety of online marketplaces in addition to their own independent site. Online sales happen at all hours of the day, and sales could occur simultaneously at more than one online store. This can lead to overselling if the item is sold out on one site but is still listed as available on another. To avoid accidentally overselling in this scenario, select inventory management software that allows you to integrate inventory tracking across all platforms. Such a system will instantly update information for each of your online stores. Failing to manage the supply chain: Your supply chain is the process that brings goods or services to your customers, from manufacturing to shipping to warehousing to the retail outlet and finally delivery to the customer. Managing the supply chain means coordinating these flows, within your operation and in line with your suppliers and customers. It involves the flow of information and finances as well as goods. Many small retailers make the mistake of focusing on too narrow a portion of this chain, leaving them unprepared when changes cause an interruption in supply. When you keep track of the entire supply chain, you can anticipate and prepare for such problems. Getting your prices right: Pricing is important and can be complicated. It needs to be high enough to cover your costs and earn you a profit, but low enough to keep you competitive in the marketplace. Changes in manufacturing processes, shipping costs, and the global economy can give rise to the need to adjust pricing. Savvy businesspeople keep on top of these factors and regularly review their prices. Training your staff: The success of any inventory management system depends on the efforts of those who use it. Even the best system won’t work well if the staff running it doesn’t understand how to use it. Training your staff will ensure that your chosen system is used effectively. It will reduce human error and improve the accuracy of your inventory data.
How to choose inventory management software for ecommerce
There are many types of inventory management systems available. To figure out which is best for managing ecommerce in your business, can be overwhelming. You need to start with a clear understanding of your business needs. For example, some ecommerce sellers rely heavily on email marketing, while others may focus on creating a mobile-friendly site. Still, others may emphasize quick shipping or lowest prices. Important features to look for when selecting from the various types of inventory management systems: Synchronizing inventory across channels: These days most online businesses sell via multiple online channels. In most cases, these various outlets draw on a single pool of inventory. To effectively manage this inventory across the different channels, online retailers need an inventory management solution that offers real-time synchronization across all their channels as well as the inventory storage location. Automatic real-time updating: Real-time updates require a connection between the various elements in the supply chain. By updating in real time, the business can avoid overselling by automatically removing out-of-stock items. The system will then resume displaying these items once fresh stock has arrived. Integrating multiple online stores: While your e-commerce operation may sell via multiple channels, you need to see a single unified picture of your stock and your sales. Select software that can provide a consolidated picture of what is selling on each online marketplace (Amazon, eBay, Etsy, etc.) and your own store. You should be able to see the status of each item on a single screen. Integrating multiple warehouse locations: If you store your inventory in more than one location, the software you choose needs to consolidate this information as well. As with multiple stores, you should be able to display your inventory status from all locations on one screen. Managing ecommerce in business isn’t difficult when you follow the practices outlined above. We hope these suggestions will help propel you to greater success! If you need more advice, talk to our guru!