Ecommerce Inventory Management – How to Make it Work

WHAT KIND OF INVENTORY ANIMAL ARE YOU GOING TO BE?

The tortoise and the hare—it’s our favorite bedtime story. And it just so happens to be a timeless lesson on why preparation, wisdom, and commitment can beat natural strengths.

Bet you didn’t know it’s secretly a story about the perils of poor inventory management.

All right, we might have stretched the truth a little. But at Goods, where we help our ecommerce customers dig out of inventory messes every day, we see a secondary lesson in the old children’s tale.

Are you ready for the biggest inventory management choice you’ll make? It all comes down to the type of management animal you’d like to be.

You could be a tortoise. You could plan carefully, maintain steady control over your pace, take care not to exhaust your resources in one burst, and match your effort with the demands of the global situation.

You could be a hare. You could freewheel your stock decisions, guestimate demand, control your operation reactively rather than predictively, and rely on your luck—or innate prophetic ability—to figure out the type and volume of products you need at any given time.

Now that you know the decision before you, let’s lift the veil on inventory management so you can decide which type of animal you’ll be.

TIME TO TAME YOUR STOCK BEFORE IT TAKES OVER THE ZOO

Still with us, tortoises and hares and all you critters in between? We’ve bamboozled you with animal metaphors, and now we zap you with a little pick-me-up. Inventory management is less intimidating once you strip it down to the bare bones.

All it means, in the simplest terms, is that you’re actively keeping track of all the items, products, and materials that flow into and out of your business.

Your stuff. Your hoard. Your trove. Whatever you want to call it and whatever it means for you, all that raw stuff needs to be managed.

If you’re doing it right, then you’ll have enough of the right kind of stuff to cover your needs. On the flip side, you won’t have so much stuff that you’re buried under a mountain of obsolete products that waste space, bloat your warehouse, and collect dust… running up your bills all the while.

In the ecommerce world, you’ll face these challenges at superspeed. Or about as fast as your average online shopper can click Add to Cart. (In case you aren’t an online shopaholic: That’s very, very fast.)

Inventory management can feel like being on the world’s worst seesaw, where one tiny shift can bounce you from overstock to understock. So, given the constant changes and fluctuations of the market, how is a business supposed to rest at the perfectly balanced middle?

For many execs in the SMB space, diving deep into the inventory labyrinth (here’s hoping that’s not how you describe your warehouse) sounds like more trouble than it’s worth.

But if you want to be a wise tortoise instead of an embarrassed hare, you can’t ignore your inventory management situation forever. Leaving it up to fate, chance, and guesswork is a surefire way to leave you high and dry while the competition steadily marches for the next finish line.

INVENTORY SCHMANAGEMENT – THE STATISTICAL PRICE OF DOING NADA

If fables about adorable forest critters don’t work on you, never fear. We’ve rustled up some inventory management statistics to scare you stiff.

The average inventory accuracy of a retail company in the United States:

< 65%

(And that was before the pandemic. You can bet it’s more complicated now.)

Percentage of businesses who have unintentionally sold a product not available in their inventory:

34%

Percentage of businesses relying on Excel spreadsheets to manage their supply chain:

~ 70%

Percentage of small businesses that don’t monitor their inventory at all:

43%

We asked the Goods team to sum up their thoughts on these findings, and they gave us a tidy two-word answer:

Yikes, man.

On the other hand, we don’t blame these small businesses or busy managers for avoiding a hairy problem that frankly feels unsolvable. But if you’re one of said businesses or managers, our sympathetic hearts won’t help you. Because no matter how much we wish we could yikes away inventory woes and bad stock tracking, it’s nowhere near that easy.

Which is why we’re about to lay the secrets of inventory management out for you, piece by gnarly piece.

INVENTORY SCHMANAGEMENT – THE ESSENTIALS OF MAKING IT WORK

The good news about inventory management is that a similar set of guidelines applies to most industries.

That said, you’ll want to take fine details about the item types you’re selling into consideration, of course. Products that expire quickly (fresh vegetables, for instance) or have special storage needs (like frozen items or combustibles) will add extra steps and concerns to the process. But generally speaking, whether you’re selling rare diamonds or magic beans, you’ll follow the same simple principles of inventory management.

And that’s where the ease of simplicity ends.

The Goods team is here to walk you through the maze. For ecommerce businesses, the essentials of inventory management include:

• Audits: It’s all fun and games until audit time rolls around. Audits are vital for the health of your operation, though, in the same way routine checkups are important for your physical health. Where inventory is concerned, most audits will ascertain if your stock is actually in alignment with your records, orders, and analytics.Regular review is the best defense against human error—sorry, humans—and it will help you catch discrepancies in your inventory counts. This is especially important if you’re still keeping tabs on your storage and order processing system manually. (First off: why? Second off: please don’t.)

• Management: You might be surprised we’d even bother mentioning this one when the process is called “inventory management,” but you saw the numbers. Almost 45% of small businesses aren’t actively monitoring their inventory whatsoever. We’re not making any assumptions here.

Where inventory is concerned, management includes every task related to keeping stock present and accounted for. Looking closely, that includes ordering new stock, monitoring stock levels, assessing stock movement (what’s moving off shelves fast versus what’s piling up), and more. A good inventory manager is always looking for the sweet spot on the seesaw, where demand for hot items is met… without smothering the warehouse in surplus stock.

• Control: Next up—control. You might think of this as an ongoing form of management rather than its own separate topic. Inventory control includes predicting and responding to errors, upsets, and general logistics chaos. Security, safety, anti-theft measures, and quality control checks are all concerns you’ll need to address to make sure your inventory is well controlled. Systems, software, and other tech designed to control your inventory-related operations fall under this umbrella too.

• Distribution: It’s hard enough to manage one logistics site without dropping the ball. Now imagine running five, and they’re all churning out multiple types of products at different speeds.

To stay on top of distribution, we strongly recommend adding a management system of some sort to your arsenal. This will automate time-sucking manual processes, keep labor costs manageable, and avoid restocking slowdowns or inventory mix-ups that could bring your multisite operation screeching to a halt.

A robust inventory management system that pulls its weight will track items across all your locations, zones, warehouses, and fulfillment centers. Once you can trace the flow of stock, you’ll find places to tighten up your distribution strategy. And that usually means slashing your shipping costs and reducing your delivery times, which is a relief to your budget and your customers too.

• Order picking: Ah, the first half of the pick-and-pack chain. In the picking step, warehouse workers are locating items that customers ordered and physically pulling them off shelves. (Or out of storage bins, carousels, and whatever other brilliant and/or unspeakable contraptions you’re using in your warehouse.)

The practice of picking well is all about finding the maximum speed at which your staff can grab goods without messing up. If your pickers are struggling, don’t rush to accuse them of butterfingers. Instead, spend some time optimizing your order fulfillment process and rethink your warehouse layout.

If streamlining your op doesn’t help, it’s likely time to investigate equipping your team with better tech (like barcode scanners and a hotshot WMS) to speed up their picking and perfect their routes. Because nobody moves fast or picks accurately when they’re squinting at a crinkled piece of paper.

• Scanning System: Though we know it’s a sensitive issue for fans of old-school warehouse methods, we’re not going to mince words when it comes to accuracy. In this day and age, when we’re constantly fighting off glitch gremlins and supply chain snafus, you need a scanning system of some kind. It will avoid errors, speed up your warehouse flow, and empower you to keep track of every item that moves through your business.

If “old-school” describes you, it’s high time we sit down and have a little talk. We care about you, you know. So please… don’t torture yourself with manual data entry. If you choose only one thing to upgrade about your inventory management methods, let go of the printed paper lists and pick up the scanner. Your eyes, your staff, and your checkbook will thank you.

• Tracking: Scanning brings us to another do-or-die of inventory management. To wrangle your operation, you need to know where your inventory is at all times. Knowing where it’s supposed to be doesn’t cut it. You need up-to-the-minute intel on shelf location, supplier status, and delivery notifications.

• Periodic vs. Perpetual Inventory Systems: Most inventory management systems break down into two categories: perpetual or periodic. Periodic systems provide individual “snapshot” overviews of your inventory at preset intervals determined by you. This is in comparison to perpetual systems, which offer continuous real-time insights into your stock, item movement, orders, and more.

Ecom orders flow fast, so Goods recommends going for a perpetual lifestyle all the way.

You may find you have additional needs based on the type of goods you sell. Hazardous, rapidly deteriorating, or shelf-unstable products will naturally need special accommodations. After all, you can’t store fruit salad like you’d store a box of auto parts.

Except for such special considerations, though, the above list sums up the basic elements of gold-star inventory management. If you spend time researching, implementing, and continuously troubleshooting each one, you’ll be well on your way to transmogrifying yourself from a frantic hare to a relaxed, well-prepared tortoise.

“WHAT? HUH? HOW? ME?”: THE NAGGLING INVENTORY MANAGEMENT QS

You can bet we hear panicked stock management questions a lot at Goods. No shade, but given those SMB inventory statistics, it shouldn’t come as a surprise.

Below, you’ll find some of the real concerns from ecommerce business owners and supply chain champs we answer on a daily basis.

“How do I know when to reorder?”

First things first: Let’s get acquainted with the concept of ROP.

Your reorder point (ROP) is the point at which you’ll need to order more stock, preventing it from falling below whatever thresholds will put you on track to run out.

Here’s the formula:

Reorder Point (ROP) = Demand During Lead Time + Safety Stock

Inventory management software will figure out the best ROP for your op. But if you’re still on Team Guestimate (why, oh why?), there are a few tortoise-y principles you can try out ASAP to help reduce major inventory mistakes.

The place to start is your sales patterns. Keep a firm, consistently updated record of your stock movement. When is it flying off the shelves? When is it piling up? If sales are spiking or a season of heavy buying is creeping up on you, don’t wait until the last minute and race for the finish line. Be a tortoise and replenish ahead of time.

As long as you’re being tortoise-ish, why not put in the effort to consider your lead time? This is the average time it takes for your supplier to put the goods you’ve ordered into your hands. If you forget to build in extra lead time, you’ll watch your competition inch steadily onward while you wind up staring at empty storage racks, twiddling your hare-thumbs, waiting for a shipment that was delayed outside your control.

At the risk of annoying our dear hares and other creatures of fate out there, we have to stress this one more time: Inventory management software is the best way to track and analyze your stock numbers. Spreadsheets alone cannot keep pace with the real-time insights and analytical powers of specialized software, especially when it comes to breaking down past sales data and predicting sales fluctuations with enough time to correct your course.

“What do I do with SKUs?”

It’s all too easy to wake up one morning and find you are buried alive under a pile of disorganized SKUs.

While the Goods Team is always available to dig you out, we’d really prefer it if you didn’t wind up underground in the first place.

SKUs (Stock Keeping Units) are alphanumeric codes that individuate, identify, and keep track of each item you stock. Generally speaking, every brand-new product needs its own brand-new SKU. The more stock you carry, the more detailed your SKUs will likely be.

Organization is key here, which is why inventory management software can correct a chaotic SKU situation with minimal effort. Remember that SKUs can be used to quickly communicate product information that is most important to the business, like color, size, customer type, etc.

Avoid doubling SKUs or reusing old SKUs to save yourself a gigantic organizational headache. Double dipping often creates PIM (Product Information Management) errors and shipping problems down the line.

One last tip: Try to avoid using too many zeroes in your SKUs whenever possible. They have an uncanny way of making a mess of things.

“What does ‘tracking the stock’ really mean?”

We love this question at Goods. It’s simple on the surface, but calls attention to the several distinct stages of keeping tabs on your inventory.

Of course, it’s not as simple as knowing where stuff is at any given time. You also must know where it’s going. That means having to-the-minute insights on:

• What’s coming into your warehouse
• What’s currently in your warehouse (in stock)
• What’s leaving your warehouse and entering the final phases of the order fulfillment track

This is why real-time inventory tracking is so vital to a functional ecommerce business. It’s the difference between knowing exactly where your stock is at all times—versus thinking, “Oh, it’s somewhere over there, probably.”

“How can this help with inventory financing and forecasting?”

The same way watching the weather forecast helps you know if you should bring an umbrella or sunscreen on your day trip. If you don’t check out what the latest predictive data says about the market and your stock levels, you’re far more likely to wind up soaked or sunburnt down the road.

Tracking your stock is also critical to get an accurate, real-world idea of what’s selling and what isn’t, not to mention identifying mistakes and delays in your order fulfillment chain.

Without forecasting data and information about your stock levels, it’s incredibly difficult to determine how and when to invest in replenishment—let alone when to approach investors. Overstocking or understocking based on dicey guesswork will waste money and accrue storage costs quickly. Just make a bonfire of your cash and dance around it, why don’t you?

RAZZLE-DAZZLE ’EM WITH RESEARCH: THE INVENTORY MANAGEMENT TACTICS THAT WILL SAVE YOUR ECOM OP

 Sweating from your long ears over there? There are some terms and tools you should familiarize yourself with in order to avoid costly (and awkward) mistakes.

• Safety Stock: Wise ecommerce wizards calculate how much safety stock they need to keep hot items in supply, even when demand peaks. Safety stock simply refers to the amount of excess stock a business deliberately keeps on hand to lessen the chances of running out due to demand spikes or supply chain problems.Safety stock is not It is an intentional and well-planned cushion of backup stock to cover the expected and unexpected changes in demand.But hey, you can call your overstock “safety stock” if it helps ease the burn of guestimated defeat. We won’t tell.

• Balanced Inventory: Balancing your inventory means exactly what it sounds like. A balanced inventory is an inventory that has been optimized by data-driven analysis. It keeps the order pipeline flowing by maintaining an ideal balance between stockout and overstock, keeping costs reasonable and accuracy high.This is the endgame of inventory management, and it’s why the Goods team bets on the tortoise over the hare every time.

• Kitting & Bundling: Kitting and bundling are the cute terms for grouping items or components together into a “kit” or “bundle,” making inventory management easier by offering prepackaged goods for customers or assembly. The idea here is to help manufacturers and retailers simplify the question of “when do I reorder?” by sorting a bunch of tiny parts or items into larger units that are easier to keep track of.

• Forecasting: When it comes to inventory management, forecasting is the tricky art of determining future demand for your products based on a variety of data. This data usually includes past sales, current market changes, ideal customer behavior, and more.

As you can see, forecasting is extremely complicated and fluctuates as often as the market does. This is why we really recommend you leave it to the experts—including the experts who build software to handle this analysis for you.

• Stock Allocation for Quick Delivery: It’s a fairly straightforward relationship. If you prioritize products that are in high demand, you can usually deliver them faster. In this context, prioritization sometimes means positioning the product in logistics sites that can fulfill orders faster. Other times, it means rolling up your sleeves and putting a sloppy order fulfillment process to rights.

CONCLUSION

And our number-one Goods Team Tip for a better ecommerce experience?

Do not try to handle all the ins and outs of inventory management by hand.

All this data and investigation leads us to one main conclusion that businesses ignore at their peril. The shining takeaway is that strong inventory management software can streamline your entire operation, patching up most of the holes and pitfalls we covered in this article.

It will automate agonizing manual tasks, save your warehouse workers time and energy, and track stock far more accurately in real time. Better yet, data-driven forecasting will rescue you from the harelike tendencies to rush blindly into placing orders, and you’ll find your overstocking and understocking disasters fade away.

In turn, it will massively reduce errors in your recordkeeping and daily business life, crank up the speed of your order fulfillment process, and get the goods into your customers’ hands. They’re sure to appreciate this boost in performance, and so will your team.

And as you watch the costs associated with inventory errors, slowdowns, and poorly utilized storage space melt away, your bank accounts will sing your praises too.

So, tortoises and hares out there: It’s time to kick your inventory management into gear and start following the numbers. Not your nose.