If you have just ventured into the world of e-commerce business, you might know by now managing inventory for e-commerce is no cakewalk. Inventory management is crucial for business scaling and avoiding loss due to overstocking or understocking. Without a long term goal and a proper inventory management system that optimizes your inventory, you can’t expect to have a solid footing in e-commerce. Most entrepreneurs,’ new to e-commerce, often find it hard to keep track of their inventory as they lack crucial knowledge about inventory management. If you are among them, read on to find out more about inventory management.
What Is Inventory Management?
Inventory management is a method of keeping track of your stock. When it comes to e-commerce inventory management, the basics are the same as a traditional brick and mortar store inventory. Inventory management starts with sourcing your products, storing them, and ends with selling those items. It also informs you how much effect you have in your stock, where you should keep them, how long they should be in stock, and sometimes even determines those products’ price.
How to Effectively Manage E-Commerce Inventory?
Managing inventory for an e-commerce business requires you to strategically project future stock requirements. Here are some useful pointers on how you can manage your e-commerce inventory.
Incorporate Inventory Software
Software and automation is a must for running an e-commerce business in this era. If you are still using pen and paper for your business, you might want to rethink your decision. Besides, when it comes to scaling up your business, managing inventory without software will not cut it for you. Manually syncing all the ins and outs of products and compiling real-time data will be a nightmare without software.
If you want to maximize your inventory management’s efficiency, invest in software or take help from an online platform. For instance, you can use online platforms like trackahaul.com for successful inventory management for your e-commerce business.
Categorize Your Stock Items with The ABC Inventory Method
ABC method will help you understand which products you need to prioritize in your stock. It revolves around three variables; categorizing each item of your stock according to their consumption value. “A” indicates the highest consumption value of products over a certain period. “A” category products are usually of high value but have a low frequency of sale.
“B” indicates medium consumption value products; their prices are not as high. and sales are more frequent. “C” indicates the products that have low consumption value, but demand is highest for them.
For an e-commerce business for sports goods and equipment, heavy exercise machinery can be “A” category products, you sell them less frequently, but they have a high value. Simple workout equipment can be considered as a “B” category product. Sports shoes, water bottles, or sweatbands are sold more frequently, but they cost less than any equipment; you can consider them as “C” category products.
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Advantage of This Method in E-Commerce Inventory
If you apply the 80/20 rule for these three categories, it will be evident that 20% of your sale contributes to 80% of your revenue. This means most of your revenue comes from selling you “A” category products, and the rest comes from “B” and “C” category products.
You need to concentrate more on your A category product as your business revenue hinges on this group. You need to understand this direct correlation between prioritizing your stock items and revenue. Otherwise, you will blindly run after that 80% while the prime catalyst for your business loses its value.
Take into Account Seasonality
Most products depend on seasonality for their sales to grow. You need to take into account this seasonality factor whenever you are stocking your products. For instance, if you are running an apparel business, stocking winter gears during the peak of summer won’t do much for your business. You need an equal amount of foresight and strategic management for seasonality based business.
There are some effective ways that you can use seasonality to minimize inventory waste. For example, make sure you are fully stocked long before the peak season. And if you still have massive stock left in your warehouse near the end of the season, consider coming up with some promotional offer and season end sale.
Barcode Scanning and Automation
Automation is a blessing when it comes to operating an eCommerce business that ships globally. If you have a huge stock of the product in your warehouse, it will be difficult to keep track of them. As a result, you might send the wrong package to your customer. A barcode identification system will ensure that this type of misplacement of the product stays at a minimum. Incorporating automation in other aspects of your inventory will reduce human error and ensure customer satisfaction.
Keep a Safety Stock
Safety stock is an emergency stash for business. It comes to the rescue when your regular supply chain faces a crisis. For instance, during the recent lockdowns, you might have had a hard time with your products’ supply and demand. If you have a safety stock set aside for emergencies, you will suffer less in such conditions.
You can adapt this formula for determining the scale of your safety stock-
Safety stock= (maximum daily usage X maximum lead time in days) – (Average daily usage X Average lead time in days)
Why Do You Need Safety Stock?
Lead time is the time-lapse between placing an order for stocking your inventory and receiving it. It determines how long you need to hold your stock without running out. If you wait until you run out of stock to place an order for restocking, you might have to wait a significant amount of time that can turn out devastating for your e-commerce sales. Between your working stock and completely running out of stock, you need this buffer of safety stock.
This formula doesn’t provide a foolproof cushion against a crisis. Lead times can vary depending on circumstances, and for the calculation, we assume a suitable number that we calculate from previous lead time statistics.
The Bottom Line
Apart from these techniques, there are many other proven methods for eCommerce inventory management. You can incorporate any of them into your business. However, if a particular method works well for other businesses, it doesn’t necessarily mean it will be suitable for you too. You can come up with your own inventory management system for your business. Make sure you find the right one that will optimize your eCommerce inventory system.
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