How you manage your inventory can make or break your business.
According to a report by Wasp Barcode, 43% of small business owners either use manual methods (pen and paper or spreadsheets) to track inventory or don’t track inventory at all.
In fact, it’s a disaster happening happening right now as e-commerce owners are throwing away millions of dollars each year due to improper inventory management.
Now’s the time to change that.
Why You Need a Proper Inventory Management Solution
Having effective inventory management is critical to your e-commerce store’s success for the following reasons:
Saves you a significant amount of money
With proper inventory management, your storage costs are heavily reduced as you won’t have dead stock.
Seasonal items such as clothes, will be sold and restocked appropriately to avoid having stock you can’t shift.
The more stock you have that you can’t sell, the higher your warehouse and storage costs will be.
Improves cash flow
Unfortunately, inventory doesn’t age like fine wine. The longer stock sits in your warehouse, the faster it loses value and the harder it is to shift.
With an effective inventory management system however, you can identify and set minimum stock levels and look at your past sales history to determine exactly how much stock is required for any given time in the year.
You’ll keep making sales as your customers will always have their favorite products in stock, but also these extra sales will enable you to buy more stock as you start to run low.
Whether you exclusively dropship or store your own inventory, in this article you will learn 7 powerful strategies to help you better manage your inventory, keep customers happy and increase your sales.
1. Invest in an Automated Centralized Inventory Management System
This is the easiest and best thing you could do for your e-commerce store.
Having a centralized inventory management system eliminates the need to use archaic systems such as paper trails and spreadsheets as a means to manage stock.
The biggest benefit of using an automated system is it alleviates errors commonly caused by human error.
Say goodbye to incorrect stock levels for good.
There are hundreds of inventory management services out there, so you’re best bet is to choose those with features your store specifically needs.
Stick to software designed for e-commerce stores.
It’s very easy to get sidetracked and sold into buying state-of-the-art inventory management systems which requires your entire marketing and sales team to manage.
Not only are these software very expensive, they’re also designed specifically for brick & mortar businesses.
They have a lot of features, but this will only waste your time and money as you won’t use the majority of them. Don’t over complicate it by giving yourself more work than necessary.
Whilst the level of customization you require depends on the needs of your e-commerce store, you’ll be in safe hands by choosing an automated, inventory management system that was built specifically for e-commerce stores.
Benefits of Using Automated Inventory Management Software
In addition to saving you money and increasing cash flow, using inventory management software like Orderhive can also benefit your e-commerce store in the following ways:
If you have multiple sales channels, it can be incredibly laborious to update the correct stock and inventory levels on all channels.
Using inventory management software however, you only need to update your inventory once, and the changes are reflected everywhere.
Whether that’s pricing changes, stock levels, product descriptions or anything from your data feed.
Good inventory management software will integrate with your favorite accounting tools so you can do all your administrative tasks in one place.
No more going back and forth between apps trying to collate data. You can monitor taxes, sync sales data and prepare your accounts all from one roof.
2. Forecast Demand for Your Products Using Google Trends and Past Sales Data
Forecasting demand for your products is an essential inventory management strategy you can’t go without.
What would it mean for your e-commerce store if you could accurately predict how much stock you’ll need for the coming season? No more overstocking, no more disgruntled customers, fewer customer service tickets.
The easiest and most accurate way to predict how much demand there will be for your products is check your past sales history.
For example, you probably receive a significant spike in sales during Christmas, so it makes sense to have a higher than normal amount of stock at this time of year.
Go through your past sales history for the last few years and identify your highest and lowest selling months. What contributed to these high and low points?
Which events, local or national were the main driving force behind these numbers. If these data-points recur year-over-year, then that’s a very telling sign that you should have more stock on hold during that time of year.
How can you forecast demand if you have no sales history?
If you have no previous sales history, then looking at current trends and industry reports is your best bet.
Google Trends is one of these tools built with predictive analysis to identify in-demand products by monitoring searches online.
Simply enter one of your products/highest performing keywords to see what the trends looks like for the next few months.
Here’s the chart Google Trends returned for the term: “laptop cases.”
Looking at current trends in this way also enables you to see whether an industry is growing or declining.
It puts you in a better place to determine whether you should continue selling a product line on your store, or to remove it and invest in a new one.
By default, you should already have a minimum level of stock for each item.
If it drops below this level, it means you need to order more. Combining this with your previous sales history or predicted industry trends, gives you a snapshot of what your current fiscal year or sales quarter will look like.
3. Supplement Inventory with Dropshipping
There is no doubt that dropshipping has grown in popularity in recent years.
Imagine you’re having an amazing year of sales. You receive order after order, with little to no let up.
One of your biggest sellers suddenly suddenly becomes out of stock, leaving you with lost sales and a plethora of disgruntled customers who either send you support tickets or call you out on social media each day asking whether the item is back in stock.
You could avoid this heartache and continue selling by using a dropshipper to send their stock to your customers, until you receive more of your own.
The key takeaway here is to always have a contingency plan. Running an e-commerce business is difficult as no two days are the same.
If you fail to plan and invest in ample resources for when these problems do happen (and they will happen), you could lose thousands of dollars and customers.
4. First-In, First-Out (FIFO)
First-in, first-out has always been an inventory management best practice. But what does it mean and how can your e-commerce store take advantage of it?
Essentially it means that the stock which arrives first (first-in), must also be sold first (first-out).
Usually this advice is given to those with perishable goods, so you’re not left with spoiled products which cannot be sold.
However, it can also work wonders as an inventory management strategy for non-perishable products.
The easiest way to ensure this works for your business is to simply reverse the order in which products are added to your warehouse.
As new stock comes in, add them to the very back of the warehouse. This ensures that the oldest stock (first-in), gets sold first (first-out).
5. Do a Physical Stock Audit
Software is great, but it’s not perfect. They also make mistakes and get things wrong from time to time. You should routinely do a manual stock audit to make sure what’s on your screen is reflected in your warehouse.
Most businesses tend to do a full physical inventory check, close to the end of their tax year.
Not only is this incredibly time consuming and exhausting, but it’s also very difficult to identify the cause of stock errors when looking back at data over an entire year.
A better approach would be to check stock and inventory routinely throughout the year, so you have a much smaller sample to cover each time, making it easier to find errors and mitigate them.
This is also known as cycle counting, where you would count different products or a category of products on a rotating schedule.
6. Use The ABC Analysis for Optimizing Inventory
The ABC analysis is a tried and tested strategy for managing and optimizing your store’s inventory.
Essentially, you’ll give each product in your store a rating from A-C using the following rules and parameters. (With A, being the most valuable and C, being the least.)
A – Are goods which contribute 70-80% of the total annual consumption value of the company. Only 10-20% of your inventory will come from these items.
B – Are moderate-value products which account for roughly 20-30% of the total annual consumption value. Usually, 25-30% of your inventory will be these items.
C – Are items which contribute very little to your company’s yearly consumption value and total sales. At least 45% of your inventory will come from these items.
Used in conjunction with the Pareto principle, the goal is to identify and focus on your most valuable products (20%), where the yearly consumption value is at its highest.
To calculate annual consumption value, use the following formula:
(Annual demand) x (item cost per unit)
By categorizing your products in this way, you can identify the products which are the lifeblood of your store, and assign stricter inventory controls and resources to ensure their stock is managed much more closely.
7. Keep Stock Lean with Just-In-Time (JIT) Inventory Management
JIT is a powerful inventory management strategy used to decrease storage costs and increase efficiency.
As the same suggests, an e-commerce store should use JIT to buy stock or receive goods only when they’re needed. This prevents you from storing stock for months as these items are brought in to sell on demand.
To make best use of this strategy, you need to have processes in place to accurately predict market trends and when demands will be high.
Toyota are a widely used example of a business that routinely use JIT to manage their inventory.
Rather than manufacturing thousands of cars and keeping them, Toyota will wait for the customer to make their order first. Then they will order the parts from their supplier so it arrives just-in-time.
As explained above, without proper inventory management you’re hemorrhaging money, by unknowingly (or knowingly) sitting on stock and using outdated processes that is only holding your business back.
Use these seven inventory management strategies in your e-commerce store to increase productivity, reduce costs and improve cash flow.
Which inventory management strategies have you used in your store? Let us know in the comments below.