Beginner’s Guide to Inventory Management for Ecommerce Businesses

Most ecommerce businesses eventually find themselves inundated with items. From packaging materials to whole products ready to send, we bet your warehouse is full to the brim with essentials for your ecommerce store. Without it, your store simply wouldn’t exist.

With so much to keep track of, organising your inventory can be tricky for even the smallest of businesses. Without proper management, your company could be losing out on thousands of pounds every year. Keep your business organised, your profits high and your sales flying off the shelves with our beginner’s guide to inventory management for ecommerce businesses.

Effective inventory management

First things first, here are some of the basics when it comes to effective inventory management for ecommerce businesses.

Avoid over-stocking

When establishing a new business, or after a busy month, it can be tempting to overdo your inventory orders and fill your warehouse with supplies. This can actually damage your business overall, as your profits will take a severe slump if the products don’t sell. When overstocking your inventory, you’re essentially tying up valuable capital in potentially useless products.

On the other hand, under-stocking can be just as harmful. Without enough stock, you risk having to turn customers away and lose sales, and repeat business, due to insufficient products. Getting your inventory levels right is extremely important for a successful business.

Keeping track of stock

No matter how much stock you have or how many orders you’re getting, it’s all redundant if you have no idea of your stock levels. You may end up selling products that you can’t supply or underselling products that you need to get off the shelves.

Regularly auditing your warehouse may be time-consuming and dull, but it is essential for the proper management of your business. This way, you can boost promotions on products that you have in abundance and order more of those that you are running low on.

Have a centralised system

Many businesses make the mistake of not establishing a well-run, easy-to-use inventory management system to keep track of their stock levels. Unfortunately, pen and paper or a simple spreadsheet won’t cut it as your business grows.

Using an automated inventory management system specifically designed for ecommerce businesses, you can ensure your stock is correctly managed, so you’re not at risk of falling short or over-ordering certain products.

Types of inventory management system

There are a number of commonly used inventory management systems, each better suited to certain business models and sizes…

Just-In-Time (JIT) Inventory

Using the JIT method, your business would order stock to keep up with demand. You would only ever have enough stock to meet the needs of your customers. This method works well for smaller companies or start-ups as it keeps costs down and avoids having a large amount of your money tied up in unsold stock.

On the other hand, this method puts you at risk of not being able to meet a sudden increase in demand, which means you could potentially lose valuable customers by not being able to fulfil all your orders.

Minimum Viable Stock Levels

This is one of the most popular inventory management methods used by both small and large companies alike. Essentially, it involves setting a minimum level of stock and inventory that your company should have at all times. If your stock levels fall below your minimum requirement, you should order more to replenish your inventory.

Using this method puts you at a lower risk of running out of stock and being unable to fulfil orders. However, similarly to the JIT method, this form of management does not prepare you for a sudden large increase in demand.

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Forecasting Demand

Established companies often choose the forecasting demand method of inventory management. It involves taking a close look at past sales records and upcoming promotions to predict how many sales you believe your company will make over the next 6 months or year. Using this information, you can then order the correct amount of stock to fulfil your expected orders.

Of course, using any method which requires making educating guesses, you are at risk of your actual sales figures being much higher or lower than your estimation. Typically, this method works best for larger, established companies with a longer history of sales to use as a guideline.

First In First Out (FIFO)

This method essentially means the first products you have ordered or received are the first to be sent out. FIFO is often used in supermarkets or for businesses dealing with perishable goods and ensures that customers receive the freshest product possible.

Using the FIFO method can save time as it is a relatively easy concept to grasp. It can also help to keep your costs down as working out the exact inventory levels correlates with sales exactly, making it easier to calculate.

First In Last Out (FILO)

Similar to the FIFO method, FILO forms a link between the products coming into the company and those going out. Unlike FIFO, however, this method involves the oldest products being sent out last to customers.

This method is rarely used today as its benefits are slim and the concept doesn’t hold for a number of businesses. In fact, for those dealing with perishables, FILO is actually illegal.