Ecommerce Inventory Management: A Guide to Keeping Your Online Store Stocked

For growing online stores, ecommerce inventory management can make or break the operation.

Poor inventory management causes numerous problems for ecommerce sellers: Stockouts, long order lead times, overselling, etc. And this often leads to ecommerce business killers like customer ratings and cash flow issues.

The problem is ecommerce inventory can spiral out of control as you scale and sell across multiple channels.

Fortunately, following best practices and ecommerce inventory management software takes a lot of the complexity out of stocking an online store. Using inventory software, for example, you can simplify fulfillment, cycle counting, and replenishment. Plus, the best inventory techniques will help you greatly improve efficiency.

Learn the keys to effective ecommerce stock management. Our guide takes a deep dive into ecommerce inventory management best practices. Plus, find practical techniques to avoid ecommerce stockouts, warehouse chaos, and overselling.

What Is Ecommerce Inventory Management?

Ecommerce inventory management is the process of overseeing and controlling the flow of goods in your online store.

This includes everything from ordering and receiving products to storing them, fulfilling orders, and tracking stock levels. Effective inventory management ensures you have the right amount of stock on hand to meet customer demand, while managing storage costs.

An Example

Many ecommerce stores manage inventory with spreadsheets or basic inventory software. However, when online stores scale – e.g. selling on website, marketplaces, and at pop-up shops – chaos follows:

• Staff wasting time searching for misplaced inventory.
• Order cancellations frustrate customers who leave bad reviews.
• Unsure of stock levels, leading to overselling or stockouts across channels.

Effective ecommerce inventory management processes fix this. The best ecommerce inventory management software can help you reach 95% inventory accuracy, which is near-perfect.

What Are the Benefits of Accurate Ecommerce Inventory?

Knowing and trusting your inventory records can help you avoid the most common ecommerce inventory problems. Some of the benefits of accurate inventory in ecommerce include:

1. Improved customer satisfaction: By fulfilling orders efficiently and avoiding stockouts, you keep customers happy. Out-of-stock or backorder issues, late delivery, and receiving wrong items are among the most common reasons for bad ecommerce reviews.

2. Reduced costs: Optimized inventory levels minimize storage carrying costs and prevent dead stock (e.g. warehouse stock that’s no longer sellable). For example, an ecommerce strategy like Just-in-Time inventory management will help you focus on ordering only what’s needed at the exact right time.

3. Increased cash flow: Having the right inventory reduces the need for large purchases, freeing up capital. For example, if multiple items sell out at the same time, you’ll have to large orders.

4. Better decision-making: Data-driven insights from inventory management software inform purchasing and marketing strategies. Want to know which products you might carry by season? You can review historical inventory data to learn when the seasonal sales bounce starts.

What Inventory Challenges Do Ecommerce Stores Face?

Compared to brick-and-mortar retailers, ecommerce shops face some different challenges when it comes to inventory. The 4 biggest inventory challenges in ecommerce are:

1. Demand Forecasting Volatility

Traditional demand forecasting methods struggle with the rapid shifts in demand seen in ecommerce. A viral marketing video might send sales soaring, but the growth is unsustainable. This can send your forecasts awry.

Therefore, ecommerce businesses need to find ways to incorporate real-time data and external factors like web traffic and conversion rates for more accurate predictions.

2. Omnichannel Inventory Management

Customers expect a unified experience across all channels (online, in-store, and on third-party marketplaces). However, ensuring your inventory data is legitimate across every channel (especially if you’re juggling 3 or more), is difficult.

This requires businesses to have a unified view of inventory, sometimes called real-time inventory, across all locations and platforms to avoid stockouts and overstocking.

3. Managing Perishable Inventory

The rise of fresh food grocery ecommerce and meal kit delivery services presents a new set of challenges. Therefore, food ecommerce shops need to choose customizable ecommerce inventory software that can track specialized data and optimize inventory processes.

This allows them to track data like spoilage rates, ensure proper storage conditions, and optimize delivery routes to minimize waste.

4. Reverse Logistics (Returns and Refunds)

Ecommerce shoppers today expect your shop to offer easy refunds and returns. This is especially true in the clothing industry.

However, managing refunds adds another layer into your inventory management. Therefore, ecommerce businesses need tools that allow them to track returns and restocking, as well as integrate potential returns into inventory planning.

How Ecommerce Inventory Management Works

Inventory starts when you place a wholesale order, and businesses need to track inventory throughout the entire cycle. The process is different for every business and depends on the items the business sells.

Ecommerce Inventory Management Software: By Step

Here’s a simplified breakdown of the ecommerce inventory management cycle and how :

1. Inventory Delivered: Your supplier delivers products to your warehouse. Using software, orders can be scanned, and warehouse location logged.

2. Inspect, Sort, Check-in: Received goods are inspected, sorted, and added to your inventory management system. Receiving staff can be directed through an inspection checklist using software.

3. Monitor Inventory Levels: Track stock levels in real-time to identify potential stockouts. Once orders are checked in, they’re automatically added to your inventory.

4. Take goods from stock: Picking and packing teams retrieve products from the warehouse to fulfill customer orders. Ecommerce inventory tools automate picklist generation, as well as order accuracy verification.

5. Update Inventory Levels: Inventory levels are automatically updated after each sale. In addition to providing real-time data, software can also alert you to discrepancies between actual stock and system records.

6. Low stock triggers purchase order: The cycle restarts when inventory reaches a predetermined minimum level, called a reorder point. You set reorder points for automated replenishment. The software creates a purchase order when the reorder point is met.

7. Stock orders approved: You review and approve the purchase order and send it to your supplier. You can manually adjust the order in the software, and once approved, the software can electronically send to the supplier. Then, the cycle starts again.

How to Manage Ecommerce Inventory

Inventory management processes vary from business to business. But there are some basic principles to follow.

Here are general guidelines for how to set up and manage ecommerce inventory processes:

I. Prepare

Step 1 would be preparation. If you were just launching an inventory platform, you would start with these tasks:

• Categorize your products: Group products by factors like demand, price, and profitability (ABC analysis).
• Set reorder points: Determine the minimum stock level before a new order is needed. There are many different ways to set reorder points in FTx POS.
• Choose the right fulfillment method: Consider options like in-house warehousing or 3PL fulfillment. In-house warehousing is the most labor and cost intensive, while 3PL might offer advantages for smaller ecommerce businesses.

II. Management

Once you’ve established item-level protocols, you can begin to actively manage ecommerce inventory processes. Here are some tasks to focus on:

• Demand Forecasting & Inventory Optimization: Predict future product demand and set reorder points to avoid stockouts and overstock. This can involve ABC analysis and safety stock management.
• Inventory Tracking & Accuracy: Regularly conduct inventory audits and warehouse cycle counting and utilize tools like barcode scanners to ensure your system reflects actual stock levels.
• Supplier Management & Reporting: Maintain clear communication with suppliers, and analyze key metrics (turnover rate, carrying costs) to optimize inventory allocation and identify areas for improvement.

III. Monitoring

Finally, you’ll want to regularly analyze your data to find opportunities.

• Regularly analyze sales data: Identify trends and adjust forecasting models. In particular, look for seasonality changes, products with below-average sales, and long-term growth (a potential sign of a long-term market trend).
• Conduct periodic inventory audits: Physically verify stock levels to ensure accuracy. Cycle counting is great to verify accuracy on a rolling basis. However, periodically, you’ll want to conduct full inventory counts for consistency.

Ecommerce Stock Management Best Practices

An effective inventory management plan is crucial for any ecommerce business. Here are some key strategies to optimize your stock and ensure smooth operations:

Inventory Control Techniques

• First-In-First-Out (FIFO): Sell older stock first to avoid expiration or obsolescence.
• ABC Analysis: Classify inventory into A (high-value), B (medium-value), and C (low-value) categories for focused management.
• Safety Stock: Maintain a buffer of essential items to handle unexpected demand surges.

Supplier Management

• Minimum Order Quantity (MOQs): Negotiate minimum order quantities with suppliers to potentially secure bulk discounts while minimizing storage requirements on your end.
• Lead Time Management: Closely track lead times (time from order placement to receiving inventory) to ensure you order products well in advance of stock depletion. This helps avoid stockouts, especially for items with longer lead times.

Inventory Organization

• Inventory Segmentation: Categorize your inventory for efficient storage, picking, and packing, saving time and resources.
• Kitting: If you sell products that are frequently bought together, consider creating pre-assembled kits. This can streamline picking and packing processes, improve order fulfillment speed, and potentially encourage higher sales through bundled product offerings.

Final Note: You Need Ecommerce Inventory Management Software

By implementing effective inventory management strategies, you can streamline your operations, improve customer satisfaction, and gain a competitive edge in the ecommerce landscape.

However, it is next-to-impossible to do without the right software tools. FTx POS includes ecommerce inventory tools. Our ecommerce software offers key advantages:

• Integrates seamlessly with brick-and-mortar retail
• Integrates with our retail POS system, FTx POS
• Inventory automation with reorder points
• DoorDash integration for local delivery .
• Fulfilment tracking
• Ordering picking generation, inventory barcode scanning
• Buy Online, Pick-Up In-Store (BOPIS)

Bottom line, FTx POS offers all the functionalities you need to scale your operation (both in-store and online).

See FTx POS in action. Schedule a demo today to learn how FTx POS can help you better manage your ecommerce processes.