How to Master Ecommerce Inventory Management

Entrepreneurship in the U.S. saw a big surge in 2021 with the launch of around 5.4 million new businesses. Without a doubt, some of those businesses are brick-and-mortar retail outlets, bakeries, and auto repair shops.

Yet, more than one person has looked at an online business and thought it would make a great side hustle. Many of those businesses fall into the eCommerce business category. Of course, that kind of business comes with the challenge of managing eCommerce store inventory.

If you’re feeling shaky about eCommerce inventory management, keep reading. We’ll cover some of the tips and strategies that will let you navigate the sometimes strange world of inventory management for an online store.

What Is Inventory Management Anyway?

Most people understand inventory management at a basic level. Consider your own kitchen.

A few times a month, you go through the kitchen, look in the cabinets, check the fridge, and peek into the freezer. Then, you make a list of what you think you’ll need for the next week or two.

If you have too much spaghetti in the cabinet, you don’t buy more pasta. If you can’t find any peanut butter, you decide to get two jars this time. You’re always running out of french fries so that’s on your list permanently.

The edible contents of your kitchen represent your food inventory. The periodic checking and purchase planning is your method of food inventory management. You want to make sure you have enough of what you need to make meals for the next week or two.

Ecommerce businesses must make similar kinds of decisions and choices about what products they keep on hand and in what quantities. Those choices will play a significant role in the success of your business and the health of your bottom line.

Pick the right products in the right amounts, and you’ll see a steady flow of revenue. Pick the wrong products or the right products in the wrong amounts, and you’ll end up with one of several potential problems we’ll cover next.

Possible Problems

When it comes to managing inventory, there are a number of related problems that can occur. On the whole, though, you can categorize the problems you’ll face under two main headings: overstocking and overselling.

Overstocking

Overstocking happens when you simply order more of something than you end up selling or at least more than you sell in a tenable timeframe. Overstocking can happen for a few reasons.

You can overestimate the interest in a given product in the market. For example, celebrity-backed products can prove instant bestsellers or languish on the market. If you back the wrong product or, perhaps, the wrong celebrity, you can end up with a lot of inventory that doesn’t sell.

With all the ongoing supply chain problems, some businesses over-order out of a fear that the product simply won’t be available the next time they need it. This can leave you oversupplied, but only time will tell.

You get bad information from your inventory forecasting system. In a nutshell, the software uses past data to suggest future inventory needs. This gets more coverage later, but the takeaway is that the predictions aren’t always accurate because the market changes.

One of the key related problems with overstocking is that it ties up your capital in inventory. Every dollar locked up in unnecessary inventory is money you can’t invest in more employees, new equipment, or additional marketing.

Overselling

The other big problem you can face with inventory management is overselling. This happens when the number of orders you get exceeds your available inventory.

It’s one of those problems that sounds great on the surface. How could a buying frenzy ever be a bad thing? Yet, it creates havoc behind the scenes.

Overselling can trigger a lot of unhappiness among your customers. That, in turn, puts pressure on your customer service people. If you’re a solopreneur who handles all the customer service yourself, it can add hours of extra time to your workday on top of everything else.

It also creates a situation that erodes trust between your customers and your business. While longtime customers will probably forgive you and come back, new customers may well never come back and try again.

Some customers will want refunds. Issuing those refunds incurs fees, which come out of your pocket. So, not only do you lose sales, you pay an extra penalty on top of it.

The goal of inventory management, of course, is for your business to avoid both of these problems as often as possible. So, let’s dig into how you do that.

Inventory Management Technology

If you’re in the e-commerce game for the long haul, you’ll want some kind of inventory management system or the best inventory app you can find. These systems and apps consolidate and even automate a lot of inventory management tasks into one tool. Let’s look at some of the key tasks they help you manage.

Inventory Tracking

You can’t manage your inventory if you don’t know how much of you have at any given time. Good inventory solutions make inventory tracking much simpler by automatically adding inventory as you enter it into your system. Additionally, they should also automatically deduct from your inventory as orders come in.

Most of these systems will minimally let you set automated alerts that trigger when inventory drops to a certain level. These alerts work best when you make individual decisions about how much to order each time a product hits that critical level.

Some systems also enable automatic ordering. For example, if you always do a minimum order quantity to keep costs down, you can set the system to make that order for you whenever your inventory drops below a certain level.

Inventory Forecasting

Another feature common to inventory management systems is inventory forecasting. This feature analyzes historical data from your own system to generate predictions about what and how much of what you should order at what times.

This feature is particularly important for seasonal inventory. For example, you may know you need patriotism-themed items for the 4th of July, but how many flags should you order? How many star-spangled yard gnomes?

By analyzing the historical data, the software can make these predictions. You must temper these predictions with some context and an understanding of how the software works.

If the software bases the predictions solely on data from prior years, it won’t adjust the prediction based on, for example, the 10 percent increase in your baseline website traffic and sales over the last six months. It’s on you to adjust order sizes to account for that change in your business.

Integration

The last thing you want is an inventory management system that acts as an information silo inside your business. You need that system to integrate with other key systems in your business, such as your primary e-commerce platform and your accounting software.

Ideally, the system will also provide multi-channel integration. While your eCommerce business may start out as a standalone website, odds are good that will eventually start selling on other platforms.

When you make that jump, inventory management can get messy in a hurry. After all, you list the same inventory on multiple sites. There is a very real chance of overselling if your inventory management system isn’t hooked into all of those channels.

With multi-channel integration, the system gets real-time updates every time something sells through any of the channels and can update the available stock on all the other sites.

ECommerce Inventory Management for New Businesses

You might think, “All of that sounds great, but my business won’t open for another two months. How do I deal with purchasing my initial inventory and managing levels moving forward?

That first year or two is always tough for new business owners in large part because you are in a data dead zone. You don’t have sales information from last year to lean on in making predictions.

In that situation, there is only so much you can do. As much as possible, look for publicly available data from inside the industry. That might not tell you exactly how much to order, but it can provide insights into what to order.

Make sure that your eCommerce system locks out any product that reaches a zero inventory level. Customers might get annoyed that they can’t buy it, but they’ll be a lot less annoyed than if they order it and don’t get it.

Lean conservatively in your order numbers. You can always order more. You can get back the money you sink into inventory without selling it.

Inventory Management and Your Business

Whether the eCommerce business is your new full-time job or a side hustle, you should not overlook eCommerce inventory management on your to-do list. Overstocking or overselling can have serious consequences for your business.

Invest in an inventory management system or app. It will make the process a lot easier and, once you have historical data, make forecasting a much simpler and more effective process.

Looking for more business management tips? Check out our business category for more posts.

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