Without systematically tracking your eCommerce inventory, you\u2019ll face issues like delayed order fulfillment or product wastage.<\/p>\n\n\n\n
You can avoid this by having an efficient inventory management system in place. This guide will get you started with the basics, benefits and strategy of eCommerce inventory management.<\/p>\n\n\n\n
Understanding eCommerce inventory management<\/h2>\n\n\n\n
eCommerce inventory management is the set of processes involved in handling product inventory, such as ordering, stocking, shipping and monitoring for online businesses.<\/p>\n\n\n\n
Managing inventory is essential for any eCommerce business. Good stock management helps you maintain inventory to an optimal level without under or overstocking products.<\/p>\n\n\n\n
It also minimizes costs, decreases stockouts and enhances <\/a>customer satisfaction<\/a> by ensuring timely delivery.<\/p>\n\n\n\n But before getting started with inventory management for eCommerce, you need to understand some of the related terms:<\/p>\n\n\n\n Knowing these terms will help you develop a basic understanding of inventory management. But how does it benefit your eCommerce business? Let\u2019s find out.<\/p>\n\n\n\n As an eCommerce business, synchronizing online order placements with offline inventory is crucial. Without proper inventory management, you\u2019ll encounter a number of challenges, such as:<\/p>\n\n\n\n You can avoid these challenges and streamline business processes by having an inventory management system in place. Creating a system also gives you the following benefits:<\/p>\n\n\n\n If you own multiple stock keeping units (SKUs), an inventory management system helps you keep track of them efficiently. You\u2019ll have a systematic plan to analyze product quantity, customer demand and sales.<\/p>\n\n\n\n An organized inventory simplifies decisions regarding:<\/p>\n\n\n\n This keeps your eCommerce platform updated with current product quantity and helps avoid customers ordering out-of-stock products.<\/p>\n\n\n\n In 2022, U.S. and Canadian businesses lost $349 billion<\/a> combined due to inventory distortion \u2014 overstocking or understocking products.<\/p>\n\n\n\n The staggering number isn\u2019t only due to inventory wastage. If you have excess inventory that doesn\u2019t sell, other costs like raw materials, storage, shipping and returns also add to your losses. These costs are irreversible and decrease your overall revenue.<\/p>\n\n\n\n On the other hand, if you understock products, you\u2019ll incur opportunity costs in the form of missed sales and customer turnovers.<\/p>\n\n\n\n You can minimize these costs by having a solid eCommerce inventory management system in place. The system will help you forecast the required product quantity \u2014 ordering only what you need and keeping extra costs in check.<\/p>\n\n\n\n Many eCommerce businesses distribute inventory to several warehouses to speed up order delivery. But this also means hefty storage costs multiplied by the number of warehouses you use.<\/p>\n\n\n\n If you don\u2019t have an inventory tracking strategy in place, you might end up having high inventory levels in one warehouse while the actual product demand is in another area.<\/p>\n\n\n\n This leads to unnecessary shipping and warehouse costs and also causes delays in delivery. To mitigate the warehouse management issue, you\u2019ll need a highly visible system that helps you isolate inventory levels and customer demand in all storage locations.<\/p>\n\n\n\n With viral videos and social media trends<\/a>, customer preferences are swiftly changing across industries. For example, trends in the fashion industry are lasting mere weeks or months<\/a> instead of the traditional 20 years.<\/p>\n\n\n\n A robust inventory management system accommodates these unpredictable preferences and helps you maintain a trendy inventory. You can restock optimal levels of in-demand products and ensure your inventory doesn\u2019t outlast the trend.<\/p>\n\n\n\n This helps you keep up with changing customer demands without having too much deadstock from the previous season.<\/p>\n\n\n\n If you sell through both online and offline channels, you need to continuously track and manage stock levels. An inventory management system helps you decide how much product to sell through each sales channel.<\/p>\n\n\n\n It will also help ensure that inventory levels across all channels are in sync. Customers can get real-time updates about product quantities, creating a satisfactory experience.<\/p>\n\n\n\n According to Salesforce, 88% of customers<\/a> consider the shopping experience as important as the product or service.<\/p>\n\n\n\n But poor product quality and delayed deliveries due to inefficient inventory tracking may affect the customer experience \u2014 damaging your brand impression.<\/p>\n\n\n\n With a robust inventory management system, you can update customers about inventory levels and ensure on-time delivery of good quality products. This creates a positive customer experience, uplifting your brand’s reputation.<\/p>\n\n\n\n An inventory management solution is a must for every eCommerce business. However, there are different types of inventory management processes that cater to various business requirements.<\/p>\n\n\n\n Knowing about these different strategies can help you choose the right inventory management process for your business.<\/p>\n\n\n\n There are several types of inventory management models, such as just-in-time (JIT), dropshipping, ABC analysis, bulk shipment and first-in-first-out (FIFO) or last-in-first-out (LIFO).<\/p>\n\n\n\n These models help you maintain optimal inventory levels according to customer demand and business requirements.<\/p>\n\n\n\n Each model follows a unique strategy which we discuss here in brief:<\/p>\n\n\n\n Just-in-time<\/a> is an inventory strategy where you stock up on products only when you need them.<\/p>\n\n\n\n This method is good for businesses that deal with seasonal products or frequent changes in trends. You analyze customer demand and historical data to maintain minimum inventory levels and restock products as per the inflow of orders.<\/p>\n\n\n\n A great example of JIT is selling festive-themed merchandise during the holiday season. Many eCommerce platforms stock up on holiday decor during the months of November and December when customers usually look for those products.<\/p>\n\n\n\n Just-in-time inventory helps you make a profit when customer demand is high without worrying about losing money on deadstock.<\/p>\n\n\n\n However, if there\u2019s an unexpected surge in customer demand, it might cause sudden stockouts with no immediate way to replenish the items.<\/p>\n\n\n\n Dropshipping<\/a> is an eCommerce inventory management strategy where business owners don\u2019t keep true inventory. Instead, when customers place an order, they fulfill it through another company or seller while making a profit on the sale.<\/p>\n\n\n\n Dropshipping doesn\u2019t require you to handle inventory and storage \u2014 that makes it one of the safest inventory management methods, especially for small businesses. <\/p>\n\n\n\n Dropshipping doesn\u2019t require you to handle inventory and storage \u2014 that makes it one of the safest inventory management methods, especially for small businesses.<\/p><\/blockquote><\/figure>\n\n\n\n You invest a minimal amount, usually only for maintaining an eCommerce website. That reduces the risk of losing money or keeping deadstock \u2014 even if the business doesn\u2019t work out.<\/p>\n\n\n\n Due to this, dropshipping has become highly popular, with search terms for it growing 156%<\/a> between 2022 and 2023.<\/p>\n\n\n\n However, as you don\u2019t interact with the actual product, you can\u2019t guarantee its quality which may cause you to lose customers and revenue. Many business owners also struggle to find reliable suppliers<\/a> to manage their dropshipping store.<\/p>\n\n\n\n ABC analysis is meant for online stores that have a large number and variety of products. In this strategy, you focus on products that fall into one of three categories:<\/p>\n\n\n\n These products generate the most revenue and are important for your business. So, instead of all your SKUs, you\u2019ll prioritize tracking and restocking inventory for these three categories.<\/p>\n\n\n\n With the ABC analysis strategy, you can focus on products that are highly profitable. But the process is quite tedious and requires you to track multiple metrics such as revenue, profits and sales frequency of individual products.<\/p>\n\n\n\n Bulk shipment is one of the traditional inventory management methods where businesses order large quantities of products at once.<\/p>\n\n\n\n This is an excellent strategy for businesses that have very few or a low variety of products. With bulk shipment, you reduce shipping and logistics costs which is especially useful if you\u2019re ordering products from overseas.<\/p>\n\n\n\n It also helps you maintain a buffer stock if there\u2019s an unexpected surge in product demand. However, due to the large number of orders, bulk shipment has a high risk of deadstock. Businesses wasted $163 billion worth<\/a> of inventory in 2022 due to oversupply alone.<\/p>\n\n\n\n If you have a large number of SKUs or don\u2019t have a reasonable estimate of sales, then it\u2019s better to steer clear of bulk shipment.<\/p>\n\n\n\n First-in-first-out (FIFO) and last-in-first-out (LIFO) are two inventory management strategies widely used for products that have an expiry date.<\/p>\n\n\n\n In FIFO, products that first entered the inventory are sold first as they perish earlier. In LIFO, the newest products are sold before clearing out older stock. Both strategies help business owners keep stock moving while minimizing product expiration.<\/p>\n\n\n\n Even though FIFO and LIFO are highly suitable for the perishable goods industry, other eCommerce businesses also use them to maximize profits and help with taxes due to the price difference between new and old products.<\/p>\n\n\n\n Most eCommerce stores use two or more of the strategies above to boost sales<\/a>. For example, an online clothing store can use bulk shipment to order its most popular types of shirts while opting for JIT to manage winterwear inventory.<\/p>\n\n\n\n You can also choose the most suitable inventory management type based on your business requirements. But before that, you\u2019ll need to create an <\/a>eCommerce inventory management system<\/a> to keep track of your product needs.<\/p>\n\n\n\n Creating an inventory management system requires tracking past purchases, customer demand and current SKUs to build an organized structure for managing product stock.<\/p>\n\n\n\n Here\u2019s a step-by-step guide for how you can tailor a strategy for your business:<\/p>\n\n\n\n The first step to managing inventory is understanding the demand for each product. By knowing customer demand, you can determine when and how much to restock a product.<\/p>\n\n\n\n For example, if you sell three colors of a type of sneaker, one of them might have more sales than the others. Restocking that color in a larger quantity will help you keep up with customer demand.<\/p>\n\n\n\n You can check product purchases and reviews on marketplaces like Amazon and eBay to determine product demand among consumers. You can also use websites like Google Trends<\/a> to explore what products people are searching for.<\/p>\n\n\n\n If you already own an eCommerce store, analyze historical data<\/a> to forecast future sales. This includes data such as sales, revenue, customer demographics, and product variants.<\/p>\n\n\n\n By analyzing this data, you can identify patterns in customer behavior that can indicate future sales.<\/p>\n\n\n\n But using only inventory data isn\u2019t enough. You should also consider general consumer sentiment and upcoming product trends to determine inventory levels for various products.<\/p>\n\n\n\n Some trends are anomalies that can\u2019t give an accurate picture of customer demand. When using historical data for inventory forecasting, you need to consider these trends to ensure accuracy.<\/p>\n\n\n\n For example, the demand for pink-colored apparel rose due to the Barbie movie, with several brands introducing pink collections<\/a>. Though businesses made a considerable profit, this is likely a one-time trend that isn\u2019t predictive of future sales.<\/p>\n\n\n\n However, some seasonal trends, such as coats during winter or books during the start of the school year, are great selling opportunities that repeat every year.<\/p>\n\n\n\n Identifying these windows helps you predict the right time to stock certain products to make the most out of trends.<\/p>\n\n\n\n Once you\u2019ve analyzed customer data, you need to determine a minimum inventory level to keep your business viable even during emergencies.<\/p>\n\n\n\n This is the lowest amount of inventory that enables you to fulfill product demand but doesn\u2019t end up in deadstock.<\/p>\n\n\n\n To determine inventory threshold levels, first, calculate the safety stock:<\/p>\n\n\n\n The safety stock acts as a buffer in case of unexpected disruptions in supply chain management.<\/p>\n\n\n\n Next, you need to calculate the reorder point (ROP):<\/p>\n\n\n\n The reorder point is the inventory level at which you restock products. <\/p>\n\n\n\n The reorder point is the inventory level at which you restock products.<\/p><\/blockquote><\/figure>\n\n\n\n Then, calculate the minimum inventory level:<\/p>\n\n\n\n This is the amount of stock you need to maintain to ensure a smooth business flow.<\/p>\n\n\n\n While minimum inventory level and safety stock may look similar, they serve slightly different purposes.<\/p>\n\n\n\n The minimum inventory level helps fulfill day-to-day product demand during stock replenishment. On the other hand, the safety stock helps keep your business running during unexpected emergencies.<\/p>\n\n\n\n While manual inventory management works for small businesses, it isn\u2019t feasible once your eCommerce business starts to scale.<\/p>\n\n\n\n If you have an extensive product catalog or want to streamline your business processes, you can use automation to simplify inventory management.<\/p>\n\n\n\n ECommerce inventory management software improves workflows through its diverse functionality. It can help you track real-time inventory, reduce human errors and analyze sales data for better order management.<\/p>\n\n\n\n Tools like Zoho Inventory<\/a> and Ordoro<\/a> can help with the optimization of the inventory management process.<\/p>\n\n\n\n In addition, many eCommerce solutions<\/a>, such as WooCommerce, come with inventory management tools and extensions.<\/p>\n\n\n\n Inventory management isn\u2019t a one-time process but a continuous one. As your business changes and new trends emerge, you\u2019ll also need to keep your calculations up to date.<\/p>\n\n\n\n This involves reanalyzing customer data, forecasting future sales and recalculating minimum inventory levels.<\/p>\n\n\n\n Once you have an inventory management system in place, analyze how well it\u2019s working for your business, identify gaps and introduce the required changes. This will help you provide a better customer experience by meeting their ever-changing needs.<\/p>\n\n\n\n Managing inventory is an essential part of maintaining a successful eCommerce business.<\/p>\n\n\n\n And choosing an eCommerce platform that helps you manage inventory along with other business processes makes it easier to run your store.<\/p>\n\n\n\n Platforms like WooCommerce have several inventory management extensions that will help you monitor stock, manage shipping and handle purchase orders. Use WooCommerce to build an eCommerce store<\/a> with hassle-free inventory management. Check out Bluehost\u2019s WooCommerce hosting plans<\/a> to get started.<\/p>\n\n\n\n Each inventory management method caters to unique business requirements. If you\u2019re just starting out, choosing dropshipping or JIT is better as they\u2019re low-risk. But as you get established and have a clear picture of product sales, you can switch to ABC analysis and bulk shipments.<\/p> <\/div> Your optimal eCommerce inventory level depends on customer demand, historical sales data and ongoing trends. However, you can determine a minimum inventory level by calculating the safety stock and reorder point. This helps you fulfill orders during normal demand without going out of stock.<\/p> <\/div> Yes, inventory management tools are necessary for eCommerce businesses as they require a high level of synchronization between inventory and order placements. An inventory management tool will automate this process, leading to better efficiency and accuracy in your eCommerce business.<\/p> <\/div> Product quality, timely deliveries and product updates are crucial aspects of customer satisfaction. With a solid eCommerce inventory management strategy, you can ensure to deliver good quality products to customers at the right time. This creates a good customer experience and improves consumer-brand relationships.<\/p> <\/div> <\/div>\n","protected":false},"excerpt":{"rendered":" Do you keep track of your eCommerce inventory effectively? As an eCommerce business, tracking inventory is essential to fulfill orders on time and provide a great customer experience. But according to Webgility, only 75% of sellers are confident about their inventory management process. Without systematically tracking your eCommerce inventory, you\u2019ll face issues like delayed order […]<\/p>\n","protected":false},"author":50,"featured_media":47048,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_yoast_wpseo_title":"A Comprehensive Guide to eCommerce Inventory Management","_yoast_wpseo_metadesc":"Want to effectively manage your online store inventory? Learn the basics of building an eCommerce inventory management system through this six-step guide.","inline_featured_image":false,"footnotes":""},"categories":[582,3055],"tags":[3320,3330,3341],"ppma_author":[588],"class_list":["post-46689","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-ecommerce","category-sell-online","tag-content","tag-how-to-guides","tag-tools-platforms"],"acf":[],"yoast_head":"\n![\"A](\"https:\/\/www.bluehost.com\/blog\/wp-content\/uploads\/2023\/08\/important-terms-for-eCommerce-inventory-management.png\")
<\/figure>\n\n\n\n<\/a>Why inventory management is essential for an eCommerce business<\/h2>\n\n\n\n
\n
![\"The](\"https:\/\/www.bluehost.com\/blog\/wp-content\/uploads\/2023\/08\/benefits-of-creating-an-inventory-management-solution-817x1024.png\")
<\/figure>\n\n\n\n<\/a>Organized inventory<\/h3>\n\n\n\n
\n
<\/a>Reduced expenses and increased profit margin<\/h3>\n\n\n\n
<\/a>Improved space and warehouse planning<\/h3>\n\n\n\n
<\/a>In tune with the latest trends<\/h3>\n\n\n\n
<\/a>Handle multi-channel inventory<\/h3>\n\n\n\n
![\"Businesses](\"https:\/\/www.bluehost.com\/blog\/wp-content\/uploads\/2023\/08\/multichannel-inventory-1024x576.png\")
<\/figure>\n\n\n\n<\/a>Better brand reputation<\/h3>\n\n\n\n
<\/a>Types of inventory management<\/h2>\n\n\n\n
<\/a>Just-in-time (JIT)<\/h3>\n\n\n\n
<\/a>Dropshipping<\/h3>\n\n\n\n
![\"The](\"https:\/\/www.bluehost.com\/blog\/wp-content\/uploads\/2023\/08\/dropshipping-inventory-management-process.png\")
<\/figure>\n\n\n\n<\/a>ABC analysis<\/h3>\n\n\n\n
\n
<\/a>Bulk shipment<\/h3>\n\n\n\n
<\/a>FIFO\/LIFO<\/h3>\n\n\n\n
<\/a>Steps to create an eCommerce inventory management system<\/h2>\n\n\n\n
![\"A](\"https:\/\/www.bluehost.com\/blog\/wp-content\/uploads\/2023\/08\/steps-to-creating-an-ecommerce-inventory-management-system.png\")
<\/figure>\n\n\n\n<\/a>1. Study customer demand for each product category<\/h3>\n\n\n\n
<\/a>2. Determine future sales using customer data<\/h3>\n\n\n\n
<\/a>3. Consider seasonal trends that affect sales<\/h3>\n\n\n\n
<\/a>4. Calculate inventory threshold levels<\/h3>\n\n\n\n
![\"formula](\"https:\/\/www.bluehost.com\/blog\/wp-content\/uploads\/2023\/08\/formula-to-calculate-safety-stock.png\")
<\/figure>\n\n\n\n![\"formula](\"https:\/\/www.bluehost.com\/blog\/wp-content\/uploads\/2023\/08\/formula-to-calculate-reorder-point.png\")
<\/figure>\n\n\n\n![\"formula](\"https:\/\/www.bluehost.com\/blog\/wp-content\/uploads\/2023\/08\/formula-to-calculate-minimum-inventory-level.png\")
<\/figure>\n\n\n\n<\/a>5. Use inventory management and analytics software<\/h3>\n\n\n\n
<\/a>6. Continuously measure sales to accommodate changing trends<\/h3>\n\n\n\n
<\/a>Final thoughts: Essential guide to eCommerce inventory management<\/h2>\n\n\n\n
FAQs for eCommerce inventory management<\/h2>\n\n\n\n