As an ecommerce retailer, you’re likely juggling various responsibilities, with the dynamic nature of consumer demand and fluctuating supply chain pressures always keeping you on your toes. You’re already well aware that one key component can streamline your operations and propel your business forward – effective inventory control.
While transitioning from a haphazard inventory control approach to a more structured, technology-driven method is undoubtedly a leap, it’s one that’s worth taking. The transformation can supercharge your inventory control from ‘just getting by’ to ‘stellar performer.’ The rewards? Improved customer satisfaction, cost savings, and striking that elusive harmony between supply and demand.
Now, let’s dive in to master the fine art of proper inventory control. Get ready to pivot from simply knowing what it is to leveraging it to the fullest.
What is inventory control?
In the realm of ecommerce, inventory control is the strategic operation that maintains optimal stock levels for each product in your inventory. Simply put, it ensures you have the right number of each item available at the right time. This process is far more intricate than just counting stock, it involves a strategic approach to managing storage and adjusting stock control levels in a way that optimizes space, cost efficiency, and caters to fluctuating demand.
While you might already know the basic premise of inventory control, truly mastering it requires a deeper understanding. It’s about achieving a fine balance – having enough inventory to meet customer demand but not so much that it leads to wastage or unnecessary storage costs.
The ultimate goal of inventory control? To establish a seamless flow of goods that perfectly aligns with market demand, minimizing the chances of too much inventory or understocking. In the following sections, we’ll delve into the mechanics of transforming your understanding of how to control inventory and turn it into an actionable strategy that can enhance your ecommerce operations.
Inventory control vs. inventory management
While inventory control and inventory management might sound similar, they play distinct roles in your ecommerce operations. Yes, they’re often used interchangeably, but let’s cut through the confusion.
Consider inventory management as the umbrella that shelters all your inventory-related strategies, with inventory control being one of its key components. Inventory management is the broader approach, focusing on every aspect of inventory – from sourcing and storing to selling and restocking.
On the other hand, inventory control is a specialized discipline within the inventory management umbrella. It’s more operationally focused, diving into the nitty-gritty details of your day-to-day inventory activities.
Think about your warehouse management and inventory management system, real-time inventory tracking, and the procedures you follow when new stock comes knocking at your door. By understanding the roles of both, you’re better equipped to tighten up your overall inventory management strategy.
Why is inventory control important in ecommerce?
So, why exactly is proper inventory control so vital to your ecommerce business? Well, let’s put it this way – inventory control is the glue that holds your inventory management strategy together. Get it right, and it enhances efficiency, minimizes losses, and optimizes resource use. Get it wrong, however, and it can lead to inefficiencies, increased wastage, and disrupt your overall business workflow.
Here are the six reasons why nailing inventory control should be at the top of your priority list.
1. Aces your accuracy game
Imagine knowing precisely how many units of each item you have, in real-time. That’s not just satisfying; it’s incredibly efficient. It’s like having a bird’s eye view of your inventory, enabling you to map the changes over time. And the tool for this magic? Inventory tracking software that digitally keeps tabs on your stock control levels.
2. Tracks your trend curve
Understanding your inventory doesn’t end with knowing your stock levels. You’ve got to have your finger on the pulse of your inventory dynamics. Sales trends won’t follow a straight line all year long. There will be highs and lows, and the secret is in tracing these changes and tweaking your stock levels accordingly.
3. Predicts your purchase path
Inventory control is your crystal ball, helping you predict buying trends over time. This foresight allows you to adjust your upstream activities like ordering, manufacturing, and deliveries to mirror your downstream buying patterns. The better you predict, the better you perform.
4. Minimizes your write-offs
Let’s face it – write-offs are a nightmare. They eat into your profits and reflect poorly on your inventory management. But robust inventory control can save you from this horror. By preventing too much inventory, loss due to mishandling, and damage, you’re effectively shrinking your write-offs.
5. Strikes the perfect supply-demand balance
Here’s where inventory control becomes a game-changer. It helps you maintain that delicate balance between supply and demand. You don’t want to be left with unsellable surplus inventory, nor do you want to grapple with fulfilling orders if supply chain hiccups cause delivery delays. Inventory control, when used alongside demand forecasting (link to new demand forecasting article), is your secret weapon for striking this balance.
6. Maximizes your customer satisfaction
Last but definitely not least, inventory control plays a huge role in delighting your customers. By ensuring their favorite products are always in stock and delivered promptly, you enhance their shopping experience. After all, a satisfied customer is a repeat customer.
Challenges of inventory control
We’ve already hinted at the challenges many ecommerce retailers face when it comes to implementing effective inventory control, now let’s take a look at four common concerns across the sector.
Keeping up with customer demand
One of the significant hurdles in inventory control is staying in sync with customer demand. It’s a balancing act between having enough stock to satisfy your customers and avoiding overstocking, leading to increased storage costs and potential wastage. Seasonal changes, new product releases, and sudden shifts in consumer trends can all make predicting demand an uphill battle.
For example, ecommerce sales grew 32.4% in 2020, with some retailers experiencing more than 100% growth in that time. This makes inventory control paramount to keeping pace with customer demand while also ensuring no wasted storage and lost revenue.
Managing multichannel sales
In 2018, ecommerce retailers reported their collective inventory accuracy at 74% and said it must reach 83% for omnichannel-level capability. Ecommerce today isn’t just about selling on your website.
Many businesses now sell across multiple platforms like Amazon, eBay, and social media marketplaces. Each channel adds another layer of complexity to inventory control. Keeping stock levels accurate and consistent across all these platforms can be a logistical nightmare, often requiring advanced inventory management software.
Dealing with supply chain disruptions
In an increasingly globalized world, ecommerce businesses often rely on international suppliers. While this can have cost benefits, it also exposes businesses to supply chain disruptions due to factors like geopolitical tensions, global pandemics, or natural disasters.
In a 2021 study, 57% of respondents cited supply chain disruptions and shortages as their top challenge. Such disruptions can lead to stock shortages, delaying orders, and damaging your relationship with customers.
Implementing effective technology solutions
With the increasing complexity of inventory control, many ecommerce businesses turn to technology for help. But selecting the right inventory control software can be a challenge in itself. Not every inventory management system is created equal, and businesses need to consider factors like cost, integration with existing systems, ease of use, and scalability when deciding on a software solution.
Types of inventory control systems
There are various inventory control systems and avenues that ecommerce retailers can take.
While not the most advanced method, spreadsheets are a common starting point for many smaller ecommerce businesses to control inventory. In fact, 43% of small businesses in the US track inventory this way.
They are cost-effective and straightforward but require a significant amount of manual data entry and updating. As your business grows, this method can become time-consuming and prone to human error. Retailers should consider this very carefully before embarking on this manual inventory management method.
Periodic inventory system
The periodic inventory system involves counting inventory at specific intervals – weekly, monthly, or annually. This system gives a snapshot of inventory levels at given times but doesn’t provide real-time data, leading to potential discrepancies between actual stock and recorded stock.
Perpetual inventory system
A perpetual inventory system automatically updates inventory levels after each transaction, providing a real-time and accurate overview of stock. However, it still requires a periodic physical inventory count to ensure its accuracy, especially in case of damaged or lost goods.
Inventory management software
The inventory management software market is expected to experience a CAGR of 5% between 2023 and 2032.
Why? Increased ecommerce spend. This is why inventory management software, like Linnworks exists. These solutions automate the process of tracking inventory across various sales channels. It can automatically update stock levels as sales are made, and help predict future demand based on historical data.
Linnworks stands out for its comprehensive multichannel support, intuitive interface, and powerful automation capabilities. It’s an effective way to reduce errors, save time, and optimize inventory control.
Enterprise Resource Planning (ERP)
ERP systems integrate various business operations, including inventory control systems, into a single platform. It provides a holistic view of the business, enabling greater informed decision-making. While an ERP system is a substantial investment, it can provide significant benefits in streamlining operations and improving efficiency for larger businesses.
9 inventory control methods and best practices
When it comes to implementing improved inventory control systems, there are some inventory control methods that should be at the top of your list …
Real-time inventory tracking
Imagine being the puppet master of your stock, tracking inventory in real time and controlling each string with precision. By utilizing powerful inventory control software, you’re always in the know of your stock’s status, right down to its exact warehouse location, making it a breeze to track inventory.
This paves the way for making swift and strategic decisions on reordering, redistributing stock, or adjusting the quantity of stock held. Spotting a low stock situation is no longer a surprise, but a calculated observation – aiding smooth operations and making sure you can meet customer demand.
Establish accurate reorder points
Think of reorder points as your very own alarm system, alerting you just in time to avoid the dreaded ‘out of stock’ status. Accurate reorder points serve as a buffer, giving you ample time to restock without disrupting sales.
Considering the unique selling pattern of each SKU is crucial in setting these points because let’s face it – not all items are in demand equally. And the cherry on top? Once your reorder points are set, you can automate the reordering process, making manual stock checks a thing of the past.
Optimize stock levels
Stock optimization is akin to walking a tightrope – balancing between having just enough and too much. It’s a strategic dance between preventing stockouts (thus safeguarding sales) and avoiding overstocks (thus eliminating wasted storage).
A well-optimized inventory means better cash flow and profitability while reducing waste. Regular analysis of sales trends, seasonality, and lead times helps maintain this delicate balance. Remember, the goal isn’t to have unlimited stock but to have ‘just the right’ amount of stock.
Ensure the right safety stock
Safety stock is your inventory’s insurance policy against unexpected delays or surges in demand. Safety stock is the extra stock you keep just in case things don’t go according to plan. But just like your regular stock, your safety stock should be ‘just right’. Too little, you risk stockouts; too much, you tie up your capital unnecessarily.
Determining the right amount of safety stock involves careful evaluation of demand variability, supplier reliability, and lead times. It’s about finding the sweet spot that mitigates risk while optimizing resources.
Leverage demand forecasting
Leveraging demand forecasting in an inventory control system offers a glimpse into the future. It allows you to anticipate sales trends, adapt your inventory accordingly, and prepare for various market scenarios. Whether it’s predicting the seasonal surge for winter wear or identifying the steady demand for staple products, demand forecasting provides invaluable insights.
By integrating this with your inventory control, you’re better equipped to make informed decisions, maximize sales opportunities, and minimize wasted stock.
Define the status of each item
Having a clear status for each item is pivotal. Not all items need to be in stock all the time. Seasonal items, for example, may need to be stocked only at specific times. Other items might have a steady demand throughout the year. Clearly defining the status for each item helps you streamline your inventory, saving warehouse space, and reducing the chances of write-offs.
Maintain quality control
Quality control and inventory control go hand in hand. Detailed information about each item’s stock levels and batch numbers enables effective quality monitoring. This system ensures subpar products don’t make their way to customers. And should a product recall be necessary, you’ll know exactly which batches to target, minimizing disruption and maintaining customer trust.
Make warehouse zoning easier
Good warehouse zoning ensures that every product has its place, and every route is optimized. Effective inventory control software supports this by helping you designate the most accessible areas for high-turnover products or grouping products frequently ordered together.
It’s about smart organization that boosts efficiency, reduces time waste, and makes your warehouse team’s job easier.
Make auditing easier
While audits may not be the most exciting part of your job, effective inventory control can make them a breeze. Having real-time access to stock levels turns the daunting task of auditing into a streamlined process. You’ll spot potential issues swiftly and tackle any problems head-on, like a pro.
A well-maintained inventory tracking system simplifies audits – it’s a recipe for better productivity and increased peace of mind.
Advanced strategies for inventory control
With these best practices in mind, it’s time to dive deeper into three of the most advanced strategies that you could adopt to control inventory.
Implementing ABC analysis
You may recall the ABCs being the foundation of your learning journey. In the world of inventory control, ABC analysis follows a similar vein. This inventory control process is all about classifying your inventory into three categories: ‘A’ for high-value items with low sales frequency, ‘B’ for moderate value and sales frequency, and ‘C’ for low-value but high-frequency items.
Ryan Mckenzie, Co-Founder & CMO of Tru Earth says “ABC analysis is a highly effective inventory management technique that separates the ‘important few’ inventories from the ‘trivial many’.”
By implementing ABC analysis, you focus your resources and attention proportionately. Your ‘A’ items get VIP treatment due to their high value, although they might not be your top sellers. ‘B’ items receive a balanced approach, and ‘C’ items, while not expensive, need efficient management due to their high sales volume. It’s all about prioritizing your efforts to maximize profitability and efficiency.
Using just-in time (JIT) inventory control
Remember the adage “just in time, not just in case”? This perfectly captures the essence of JIT (Just-In-Time) inventory control processes. JIT is all about efficiency – stocking just what you need, just when you need it. The goal is to eliminate the waste in the system.
Mckenzie goes on to say “This method requires having a very accurate demand forecast, as well as dependable suppliers that can deliver goods exactly when needed. The biggest potential perk here is a significantly reduced need for storage space, as items are produced and shipped out almost as soon as they arrive. This can result in significant cost savings. However, note that JIT requires a finely tuned logistical system, and any hiccups in the supply chain can cause major disruptions.”
The JIT method can offer significant benefits. It can reduce storage costs, minimize waste due to unsold goods, and increase cash flow. But it’s not a game for the risk-averse. It requires reliable suppliers, accurate demand forecasting, and a nimble logistics setup. When done right, JIT inventory control can be like a well-choreographed dance, balancing supply and demand with grace and precision.
Inventory control with dropshipping
Imagine running an ecommerce business where you don’t have to worry about product storage or wastage because packages are packed and delivered elsewhere as per orders. That’s what dropshipping feels like in the ecommerce world. You sell products, and your supplier handles the inventory and ships directly to the customer.
While this business model simplifies inventory control, it presents unique challenges. You’re relying on your suppliers to maintain stock levels, ensure quality, and fulfill orders promptly.
Mckenzie goes on to say “Despite the lack of physical inventory, control is paramount. Vendors need to maintain an up-to-date understanding of their supplier’s inventory, and effectively communicate possible wait times to their customers to manage expectations. In dropshipping, your most significant risk is running out of inventory without warning, leading to delays, upset customers, and potential damage to your brand’s reputation.”
Dropshipping inventory control involves regular communication with your suppliers, keeping an eye on their stock levels, and monitoring their performance. It’s also crucial to have contingency plans for stockouts or delivery issues. The key is maintaining a fine balance of customer satisfaction and operational efficiency, even when some aspects are out of your direct control.
Inventory control: real-world examples
Let’s take a look at a typical inventory control use case.
Our case in point revolves around a sustainable beauty company that recently introduced a new line of products. The initial order comprised 5,000 units of each item. Most of the products gained popularity swiftly, barring one. A review of the inventory levels revealed a bottleneck – this particular product was underperforming.
This situation poses two key problems. First, these slow-moving items are monopolizing valuable warehouse space. Second, the products have a limited lifespan. Swift action was required to mitigate the risk of wasted stock.
The inventory control manager was tasked with devising a strategy to expedite the sale of this stagnant stock. A couple of tactics were considered, including offering a promotional discount or bundling the slow-selling product with more popular items to bolster its turnover rate.
Interestingly, it came to light that the subpar performance of the product might be linked to unfavorable reviews. Customers had reported a displeasing scent tied to this specific formulation. As a result, the feedback underscored an opportunity to reassess and possibly reformulate the product in the future.
This example underscores the value of inventory control. It not only aids in managing stock levels but also in highlighting potential problems and informing product development. Thus, effective inventory control is a multi-faceted tool, pivotal to e-commerce success.
We’ve briefly mentioned how Linnworks has helped ecommerce retailers to successfully improve their inventory control. But don’t just take our word for it, read on to discover how Linnworks helped Tootonic, trading name Character, achieve huge growth with improved inventory control.
Tootonic, a £53 million company, faced significant challenges managing inventory as their rapid growth made manual processes unsustainable. Initially, the company relied on spreadsheets and paper-based methods to track inventory and fulfill orders, but this resulted in lost inventory, mixed-up customer orders, and an inefficient warehouse operation that was difficult to scale.
In 2011, Tootonic began using Linnworks for automated inventory management, initially to control stock levels. As the company grew, it integrated more of Linnworks’ features into its operation, eventually needing a solution for warehouse management as the complexity of the business increased.
In 2019, Tootonic adopted Linnworks’ warehouse management module, becoming one of the first companies to do so. The transition was a daunting task for a company used to manual methods, but Linnworks’ familiar interface and exceptional support made the switch much easier.
The results have been transformative. Linnworks’ warehouse management solution automated key warehouse operations, making it easier to locate stock and onboard new team members. Manual processes, such as dispatching, were automated, saving time and increasing efficiency. The ability to pull data for picking and packing also enhanced reporting capabilities.
Linnworks’ warehouse management and inventory management system played an integral role in Tootonic’s growth, allowing the company to handle increased order volumes and expand into new marketplaces with confidence. Tootonic’s experience illustrates how innovative inventory control solutions can transform operations and support a company’s growth trajectory.
Inventory control is the bedrock of a successful ecommerce business. From optimizing stock levels, and establishing accurate reorder points to leveraging advanced strategies like ABC analysis and JIT inventory control, the importance of a robust inventory control system cannot be understated.
By effectively managing and tracking inventory in real time, businesses can avoid stockouts, streamline warehouse operations, improve quality control, and make data-driven decisions.
Take control of your inventory
Modern inventory management software such as Linnworks not only automates these tasks but also provides valuable insights and reporting capabilities. With their multichannel and multi-warehouse functionality, they can help ecommerce businesses scale up efficiently, as illustrated by the real-world example of Tootonic. The company’s switch to automated inventory and warehouse management through Linnworks has revolutionized its operations, increasing efficiency and facilitating growth.
In an industry that’s becoming more competitive and complex, having a comprehensive inventory control system is vital. A well-implemented system can be the difference between profit and loss, growth and stagnation, customer satisfaction and disappointment.
Interested in seeing how Linnworks’ inventory control software can elevate your business’ performance? We’ve created an interactive product tour to help you do just that. You’ll be able to dive into the platform and see how it all works. No sales reps, no sales pitch – just a simple, 3-minute self-guided demo.
Whether you’re a small ecommerce operation or a multi-million-dollar business, inventory control matters. The right system can set you on the path to success – invest in yours today.