The number of e-commerce stores has risen over the years. As of 2018, an estimated 1.8 billion people worldwide had purchased goods online. In that year, global retail sales amounted to $2.8 trillion. It is estimated that global retail e-sales will increase to $4.8 trillion by 2021. Figures from Statista reveal that 4.75 percent of people shop online at least once a month.
If you are an online retailer, e-commerce inventory handling can be crucial to customer satisfaction. Not being able to handle inventory is tantamount to lost business for your store. According to the Baymard Institute, the average global cart abandonment rate is at 69 percent and could easily reach 90 percent. This translates to $4 trillion worth of products and services lost every year.
If you are handling hundreds or even thousands of customers, you could easily get overwhelmed by the volume of orders you need to accomplish. Handling ecommerce inventory is vital to your online store. From ordering stock to delivering the actual product to the customer, each step of the inventory handling process is vital to customer satisfaction. This article will tackle the following topics:
- What is Inventory Management?
- Why is Handling Inventory Important?
- Benefits of Inventory Handling System
- Common Obstacles to Inventory Management
- Types of Inventory Handling Techniques
- Tips for Effective Inventory Handling
What is Inventory Management
Inventory management is a crucial business process in your online store. It encompasses various elements of the supply chain. It refers to the way a company keeps track of their product inventory and includes ordering, storing, and selling. Inventory management also covers warehousing products and dispatching items for delivery. It also includes maintenance of accurate records of where units are and how many units you have. Inventory handling techniques also cover creation and updating of records.
In order for your online store to succeed, your supply should meet the demand of your customers. Having enough items of your inventory is crucial to the survival of your customers. Effectively handling your inventory can make a huge difference in the success of your business. Keeping tabs of your stock and supply chain can help you meet the demands of your customers.
Why is Inventory Management Important?
Today’s market is more focused on the customer than ever before. An effective e-commerce inventory handling strategy is important to be able to meet the demands of your customers. Inventory management helps you determine whether you are understocked or overstocked. Knowledge of stock and inventory management is important to ensure the success of your business. Here are some of the reasons you need to give importance to inventory management:
Avoiding overstocking
Overstocking can be damaging for online stores. If you just have a small business, the more fatal it can be. Having too much stock of your inventory can be a waste of valuable warehousing space. You can use that space for other products that your customers are buying. Overstocking may often lead to dead stock. These are products that you are never going to sell and may have to pay to dispose of.
More effective order fulfillment
What’s worse than having too much stock? Having little inventory of course. You don’t want to run out of items that are in demand with customers. You cannot just give up just because you got your stock levels wrong. It will be disastrous if you take an order that you can’t fulfill. You could lose a potential customer if you do that. 69% of consumers are less likely to become repeat customers if the order is fulfilled after two days. The percentage gets higher if the order is cancelled.
Better visibility
Just because you have a large business does not mean you don’t need inventory management. The fact of the matter is that it is even more critical for you to manage your inventory. Keeping track of stock and order management can become a little bit tricky. That is why having an effective inventory management system is vital.
Improved stability
Maybe you have the notion that you can handle your inventory with just pen and paper. If you have a small business, you might be right. However, as your business grows, your inventory management process has to grow as well. Manual management won’t cut it for a large business.
Benefits of Inventory Management
Keeping track of your inventory is already complicated itself. If you inter it in spreadsheets for syncing, it can become even more chaotic. This is where an inventory management system can come in handy. Learning different inventory handling techniques can be beneficial for your online store. Here are some of the benefits of using inventory management.
Efficiency & Productivity in Operations
When you keep stock, it means you can’t spend money on them. An inventory management system will help ensure that you will be efficient in managing your stock levels so that cash flow in your business will stay positive. You don’t want your e-commerce store to run out of cash.
Most inventory management systems come with analytics and reports so you can have an idea on what items are selling fast on your multiple sales channels. This will help you make smart purchasing decisions and you might be able to spot a trend or two.
Minimize Costs, Maximize Sales & Profits
You may have a multi-channel, whiz bang ecommerce setup with sales flowing from both online and offline stores. However, if you are not able to manage orders across the different sales channels, you could still lose sales especially during the hectic season like the holidays. Controlling your inventory is also crucial to minimize carrying costs.
Carrying costs include storage fees, insurance, taxes, theft, natural disasters, and passing fads that could potentially eat into your profits. Also, you don’t want to leave behind dead stock as it could affect your best intention of analyzing past sales and purchasing patterns.
Integration of Entire Business
When one of your sales reps closes a sale and creates a sales order, an inventory management system will allow collaboration with other departments related to fulfillment. Once an account has been created, each staff in departments like management, administration, sales, purchasing, and fulfillment will be able to access it.
With an inventory management system, you can define roles and assign user permissions. They can have access to modules and functions for their respective job responsibilities. This way, they won’t have access to stock adjustments or transfers or from being able to view confidential financial reports. Inventory management allows collaboration, seamless sharing and handover information. It offers full visibility until the order is fulfilled.
Automation of Manual Tasks
Surely, you wouldn’t want to be sitting around manually entering data or making manual calculations with every purchase order. You need to consider investing in automation software. Also, you can start embracing barcode scanning technology. This will allow you to create sales orders right away by scanning them or shipping goods as well.
Customer satisfaction
Inventory management can have a huge impact in customer satisfaction. E-commerce inventory handling will dictate whether or not customers will buy from you or your competitor. Nearly a quarter of online shoppers would abandon their orders if no delivery date was provided. In addition, 69% of consumers are less likely to shop with a retailer in the future if their order is not delivered within 2 days of the delivery date promised.
An inventory management system will help you with order fulfillment. It will notify you about delivery dates to ensure that orders are shipped on time to keep your customers happy.
Common Obstacles to Inventory Management
Managing inventory is crucial to any retail business. When you don’t know how much in stock you have left, it can be difficult to reorder. Also, you can’t list your items accurately because you don’t have visibility into the volume of products to allocate for each channel. 43% of retailers consider handling ecommerce inventory as their top daily challenge. Here are some of the challenges that online retailers experience with inventory management.
Overstocking and Under-Stocking
You don’t want your store to be stocked with too much inventory. Overstocking means your capital is tied up in inventory that is just sitting on your shelves. It means you have less budget for marketing and operational costs. This means you are left with products you will not be able to sell. Since you don’t know when demand will dry up, you are left with inventory that is as good as useless.
Likewise, you don’t want to be understocked. While you have freed up some capital, there is also the risk of losing potential sales due to a short inventory. Put yourself in the shoes of the customer. You bought something and refunded your order because the item is out of stock. What would you do? Buy somewhere else. According to a survey by the IHL Group, online retailers could be losing $1 trillion worth of sales due to understock or out of stock.
Incorrect Inventory Level/Lost Stock
Inventory management could also go wrong because of erroneous levels of inventory. The computer says you have five left in your stock when in reality there are only three. When this happens, you could end up canceling or making back order purchases which can hurt your reputation and cost you money.
No Centralized System
The lack of inventory handling techniques is another reason retailers find managing their stocks challenging. How do you track incoming and outgoing inventory? How do you know what your inventory on hand is? All of the above challenges can be mitigated with a centralized inventory management system.
Types of Inventory Handling Techniques
As your business grows, your store inventory becomes increasingly complex. Unfortunately, this is a problem that will not go away and can badly hurt your online store. Proper e-commerce inventory handling is key to the success of your online store. Manual monitoring can be prone to mistakes and you could end up either short or with excess stock. It could also hurt your customer reviews as well as their loyalty. Here now are some inventory management methods you can utilize in your online store.
Economic order quantity
Economic order quantity or EOQ is a formula for computing the ideal order quantity an online store would need to purchase for its inventory using a set of variables such as total costs of production, demand rate, and other factors.
With EOQ, the aim is to minimize related costs. It is used to determine the highest number of products you can order to minimize buying. It considers the number of units for delivery and storage of inventory unit costs. As a result, you can free up cash that would be tied up in inventory.
Minimum Order Quantity
Minimum order quantity is the smallest amount of set stock a supplier is willing to sell. If you are unable to purchase the MOQ, the supplier won’t sell it to you. For example, inventory items that have more production costs have smaller MOQ compared to cheaper items which are easier and more cost effective to manufacture.
ABC Analysis
In ABC analysis, you divide your inventory into three categories to determine those that have a heavy impact on your overall inventory cost. Category A is for the most valuable products that have the highest contribution to your overall profit. These are products that provide 80% of total revenue and 20% of stock.
Category B are those products that fall somewhere in between the most and least valuable. These are products that provide 15% of total revenue and 30% of stock. Category C is for small transactions that are important to your overall profit but does not affect the individuality of your company. This category is for products that generate 5% of your total revenue and 50% of your stocks.
Just-in-time inventory management
This inventory management technique arranges raw material orders from suppliers directly connected with your production schedules. JIT is a great way of reducing inventory costs. You receive inventory on an as-needed basis instead of ordering too much and risk having dead stock.
Setting par levels
By setting par levels, you assign a minimum amount of stock for an item. Once your inventory goes below the set level, it means it’s time to reorder. You should consistently re-evaluate your par levels to ensure that the amounts are aligned with your current demand. With par levels, you provide structure for your ordering process by prioritizing items that need to be ordered immediately. In par levels, employees who know less about your inventory can place inventory orders.
First in First Out
In this method of handling ecommerce inventory, you focus on selling the oldest goods in your warehouse first. This is important especially if you are selling perishable goods. Products that sit in your warehouse for too long may already show signs of wear-and-tear. Also, this will help with your record-keeping system as you won’t have to continuously account for much older stock.
Keeping Safety Stock
Safety stock is extra inventory that’s kept in case more stock is needed. You don’t have an idea on what the product demand will be so it will be a good idea to keep an inventory of your best-sellers. However, you don’t want to carry too much safety stock as it will add to the storage cost.
Regular Inventory Auditing
In a regular inventory auditing, you can either do a full or partial audit. With the former, you do a counting of every item in your warehouse. This is a tedious process that should be done no more than once or twice a year. In the latter, the audit of inventory is spread out throughout the year. With a partial audit, you can get an idea of the accuracy of your numbers for the rest of your warehouse.
Another way of doing regular inventory auditing is to do spot checking. In this process, you randomly choose a product and compare the actual count to the numbers in your software. In this method, you do a periodic test to ensure accuracy of your numbers.
It is highly recommended to use more than one type of inventory handling techniques in managing your inventory.