What lies at the heart of every growing product-based ecommerce business? It’s not your online or social media presence — it’s your inventory management system. But tracking orders and inventory levels becomes more complex as you try to serve additional sales channels. As your business grows, the benefits of an inventory management system are impossible to deny.
As you expand your ecommerce business, you must update the sophistication of your operations accordingly. If you’re still manually managing your inventory, for example, you’ll struggle as you try to sell to more customers in more places.
This article will explore the benefits of developing an effective inventory management system, including the role that automation can play to help streamline your inventory management processes.
What is inventory management?
Inventory management allows you to track the acquisition, storage and sales of your products at every stage to ensure product availability and optimize production costs. It helps businesses keep track of their stock levels, so they can make informed decisions about how much to produce and when.
Once you know the location of each product, you can also monitor stock levels at a precise, granular level.
Inventory management techniques
Common strategies include:
Just-in-time inventory management, which helps minimize storage costs by making sure that there are enough products available at the right time
Economic order quantity, which helps determine the ideal order size for inventory purchasing;
Regular cycle counts, which help monitor stock accuracy.
Inventory management software
Inventory management software can be used to automate all of these processes and help streamline workflows.
Automated inventory management systems help businesses accurately track their stock levels through real-time data entry, as well as automatically generate reports on usage trends that can inform future orders.
While tracking locations is one of the key benefits of inventory management, this process also includes detailed and accurate forecasting based on historical data trends and modeling. Good inventory management helps you anticipate trends and seasonality rather than reacting to events.
Why is inventory management important?
Developing and implementing an inventory management strategy can be challenging, but it is essential for any ecommerce business that wants to be successful in the long term.
First, it helps to make sure that you have the right products in stock at all times. This is important because it can help you avoid stockouts, which can lead to lost sales and angry customers.
Second, managing your inventory well can help you keep your costs under control. This is because it can help you avoid overstocking, which can tie up your capital in inventory that is not selling.
Third, inventory management can help you make better decisions about your product mix. This is because it can give you a better understanding of which products are selling well and which ones aren't.
Finally, good inventory management can improve your customer service. This is important because it can lead to more customers coming back to buy from you, and also telling their friends and family about their positive experience.
4 KPIs for inventory management
KPIs, or key performance indicators, are essential to track for managing inventory well. Here are the basic KPIs we recommend that every ecommerce business track:
Inventory turnover rate
This refers to stock rotation, the measurement of the number of times that inventory is sold and replaced within a period of time.
The amount of time between when a reorder point triggers a purchase order and when your supplier delivers the products to you.
Carrying costs of inventory
This includes all overhead costs incurred from holding inventory, such as capital expenses and storage costs, as well as expenses associated with inventory service and risk.
Average order value
This is the average amount of revenue that is generated from each purchase order.
Days to sell
This measures how long it takes, on average, to sell one unit of inventory once it is received. This is important to consider because it can help manage expectations for future demand for a product.
If a product has a long shelf life, it's important to have accurate forecasts to ensure that there is enough inventory to meet customer demand.
If a product has a short shelf life, it's important to have accurate forecasts to ensure that inventory doesn't go bad before it is sold.
This measures how often a product isn't available for purchase because it is out of stock. This is important to consider because it can impact customer satisfaction. If a product is frequently out of stock, customers may start to look for a similar product from a different brand.
Each of these KPIs will give you insights into different aspects of your inventory management and help you to identify areas that need improvement. You can also use these KPIs to compare your performance with other businesses in your industry.
These KPIs provide both invaluable insight into a business' current operations and help guide inventory managers' decisions around future investments or changes in production processes as necessary.
7 benefits of inventory management systems
Businesses that use inventory management systems can reap many benefits, both in terms of cost savings and increased sales.
An inventory management system provides a comprehensive view of inventory, allowing you to track every item’s location and movement using real-time data.
With this insight, you can identify any emerging supply chain issues so you can address them quickly.
You can also take advantage of opportunities by moving stock around based on sales trends, data-driven forecasts or spikes in demand.
A centralized inventory management system eliminates many manual steps by instantly downloading, sorting, prioritizing and managing orders from everywhere you sell online. You get visibility into real-time insights with comprehensive analytics in a single, integrated platform.
This visibility can also extend to customers.
A good inventory management system creates transparency in shipping and delivery information for customers, who are eager to track their orders in real time. (Our research found that 72% of consumers have abandoned a cart over a lack of shipping and delivery information. )
Fewer errors and discrepancies
Using an inventory management system can significantly reduce errors and discrepancies across your records and orders. Manual inventory tracking methods, such as spreadsheets, are prone to human error and are difficult to update.
Without up-to-date information, you’ll have incorrect inventory counts, leading to excess inventory or stockouts.
Manual processes can also create errors in areas such as reordering, delivery and customer service.
Accurate inventory management is crucial for preventing overselling, which can lead to stockouts. Not only do stockouts create a negative experience for your customers, but they create additional expenses, including costs for marketing and customer acquisition.
Cure your back-order and stockout headaches with centralized inventory management across all of your sales channels so you’ll know exactly when — and where — to replenish stock with more inventory. While supply chain disruptions are inevitable, you’ll be better prepared to adjust when you have the latest and best data.
An effective inventory management system also provides information that informs how you make decisions on inventory levels. These analytics include calculating turnover rates, conducting an ABC analysis and determining the amount of inventory needed for safety stock.
More efficient operations
What would you do if your staff could stop wasting hours every week using manual processes and archaic inventory management techniques? With automated inventory management systems, you avoid human error, save time and improve accuracy. Your team also reduces the need for manual work and repetitive tasks.
An inventory management system helps your business run more efficiently and cost-effectively.
When you have accurate, real-time data, for example, you can optimize your warehouse layout and storage approach, maximizing the space available.
This is especially important for ecommerce sellers with bulky, hard-to-store goods or those with limited storage capacity.
Better use of space can also improve warehouse management by helping staff optimize the pick, pack and ship process.
Inventory management systems also contribute to lower business costs by informing your understanding of sales trends. You can adjust your purchasing and stocking decisions accordingly, which also helps avoid overstocking products that aren’t in demand or are obsolete.
As you evaluate inventory management vendors, evaluate how well they integrate with the other ecommerce tools you use. These systems should connect to your sales channels, customer relationship management and point-of-sale systems, customer service software and 3PL and fulfillment providers.
Explore whether those systems have direct connections or whether integrations are available.
More reliable inventory planning and forecasting
Accurate reporting and information are key to any successful ecommerce business. Historical and seasonal data can help you understand sales patterns based on seasonality and other factors. As order volumes fluctuate, an inventory management system ensures you have the right products at the right time through accurate demand forecasting.
A software system that integrates with all of your marketplaces and sales channels, along with shipping and third-party logistics (3PL) providers, will give you accurate and real-time visibility across your business.
This enables better business decision-making, including improved forecasting and planning, so you avoid carrying too much inventory.
Because robust inventory management software gives you better demand forecasting, you’ll also realize benefits in areas such as marketing and budgeting.
Your teams will have a better sense of what products to promote, and when — for example, shifting between paid marketing and organic marketing depending on the selling season.
More predictable supply chain operations
Supply chains have been anything but predictable in recent years. But a proper inventory management system can help retailers be smarter about their supply chain strategy while diversifying their supplier base.
Having multiple supplier options reduces the risk of unexpectedly long wait times for finished products if one supplier can’t deliver on time.
An automated inventory system also helps you plan for known variables, like peak season fluctuations in demand.
By automating workflows across your supply chain, you’ll fulfill orders faster, at a lower cost and with greater accuracy.
An automated inventory management system can also help you track your supplier's performance. This data can be used to find new suppliers that may be able to provide better quality products or services at a lower cost.
The ability to add new sales channels easily
Adding new sales channels is simple when you’re using an inventory management solution that tracks inventory and shares that data in one place.
Features like real-time inventory tracking are even more essential to maintaining inventory control once your stock is being sold in multiple locations.
Find a system that allows you to sell wherever your customers are and capture every revenue opportunity with simple multichannel ecommerce solutions.
Automating inventory management is crucial as you move beyond just selling on your website.
You need a robust system that can coordinate inventory and orders across a variety of marketplaces, including Walmart and Amazon.
This opportunity for scalable growth is perhaps one of the biggest benefits of inventory management.
How inventory management software can save your ecommerce business money
Inventory management software is a powerful resource for companies that aim to remain competitive while controlling costs.
Automation can be used to reduce the need for excess inventory, automate tedious tasks related to stock control, and improve customer satisfaction.
One major benefit of using inventory management software is its ability to help you determine an optimal stock level, meaning you always know exactly how much inventory you need.
This improved inventory tracking reduces wasted resources from unnecessary purchases and frees up storage space.
Furthermore, time spent on manual tasks is minimized, saving on labor costs and freeing up resources for other activities such as marketing campaigns or customer service initiatives.
Top features of an automated inventory management system
The right inventory management software can save you money and time, freeing you up to focus on growing your ecommerce business.
The ability to generate reports, set up alerts and notifications.
Integration with your accounting and shipping software. This will ensure a streamlined process and help to avoid any errors.
Barcode and RFID compatibility. This will make it easier to keep track of your inventory and will help to speed up the ordering process.
The ability to track inventory levels, reorder points, and lead times.
Responsive customer service. This is important in case you run into any issues or need additional technical support down the line.
Transform your ecommerce business with the right inventory management system
Rising costs, shipping delays, labor shortages and inaccurate forecasts are making your job harder than ever.
These challenges can’t be avoided, but you can manage them more effectively to reduce business risk and deliver a better customer experience.
You can harness the advantages of inventory management to gain visibility, save money, increase profitability and improve efficiency simultaneously.
Automating inventory management leaves you more time to focus on marketing and growth while reducing errors and surprises.
Take control of your inventory management strategy and create a foundation for years of continued growth and success by using the right systems and tools for your business.
Eliminate manual effort by instantly downloading, sorting, prioritizing and managing orders from everywhere you sell online, all in one place.