Solving the Most Common Ecommerce Inventory Management Issues
With the global nature of ecommerce, there’s significant emphasis on inventory management at every phase of the supply chain process. Making the wrong decisions when it comes to inventory tracking can be incredibly costly.
Whether you’re a small business owner, a new online store, or a veteran online retailer, it’s essential to recognize the pain points related to your inventory management process—or lack of one.
Keep reading as we examine some common ecommerce inventory management barriers and how you can become more strategic when it comes to streamlining inventory management tasks and processes for your business.
Common Ecommerce Inventory Management Issues
It doesn’t matter how experienced you are or how long you have been in business; every merchant encounters inventory management challenges at some point or another.
Knowing how to identify these issues ahead of time and how to address them separates “okay” inventory management from excellent inventory management.
Here are some of the most common challenges that today’s retailers face.
Overstocking and Overselling
If you don’t have a good grasp on the shopping habits of your target audience and your inventory, it’s easy to find yourself in situations where you’ve overestimated how much product you actually need or you can’t supply demand.
Sure, it can be advantageous to keep a healthy supply of inventory on hand—especially heading into a busy season—but it can present some hurdles.
First of all, it’s expensive.
Unless you’re dropshipping all of your inventory, you’ll have to store the products you order from manufacturers. It goes without saying that too much inventory on hand without as many orders can wreak havoc on your bottom line.
On the other hand, there’s potential for dead stock.
Dead stock is what we call inventory that doesn’t sell because you have low demand and too much inventory on hand—products deteriorate or perish over time. However, you can also end up with dead stock as shopping behaviors and trends shift.
Having too much inventory is one thing, but accidental overselling is another (letting customers purchase products that aren’t in stock).
Customers demand transparency, especially when working with online retailers. They want to believe that if you make a promise, you’ll deliver. When you sell inventory you don’t have, you risk damaging any trust you’ve built up with customers over time. An easy fix to this is automatically flagging products as “out of stock” so customers can clearly see whether an item is available or not.
Lack of Visibility Across Channels and Warehouses
Another common problem that multichannel retailers tend to face is a lack of inventory visibility. This becomes even more challenging when demand increases, making inventory management more complex.
When considering visibility, two main challenges can impact your ability to meet consumer demand: the absence of visibility across multiple channels and the inability to keep track of inventory across all manufacturers, warehouses, and partners.
As your retail business grows, you’ll need to expand across multiple channels to stay competitive. Unless you’re using an intelligent inventory management tool, it becomes almost impossible to keep track of orders from each platform and how these orders impact inventory levels.
To meet your customers’ growing expectations, you may partner with additional manufacturers or suppliers to have ample inventory to access as demand increases. Again, without implementing the right software, keeping track of inventory, orders, and relationships across multiple warehouses becomes tedious, if not unmanageable.
Lack of Data Insights
To make informed decisions for your business, you need to focus on the data.
It’s essential to understand things like how demand changes over time, how inventory fluctuates, when to scale back, when to reorder products, and where workflow breakdowns are occurring. This understanding gives you the insight you need to cater to your customers’ needs, boost profits, and support growth.
Often, you’ll need to act on new information within hours to capitalize on an emerging opportunity. Without an automated, centralized system that gathers inventory data on a real-time basis, it’s nearly impossible to leverage data to make strategic decisions.
Manual Updates That Don’t Allow for Scale
In the early days of building an ecommerce business, it’s easy to manually track and fulfill each order—even if you’re selling on more than one channel.
However, it quickly becomes much more difficult as your customer base’s demands continue to grow. For many merchants, scaling means introducing additional channels, such as Amazon, eBay, and Walmart. You may even store products at several warehouses across the country or globe.
Scaling is next to impossible when you rely on manual inventory management methods. Not to mention you risk encountering data entry mistakes that negatively affect inventory management. For example, you could easily under- or overestimate the inventory available across sales channels.
Examples of inefficient and error-prone manual inventory management processes include:
- Using a suite of tools that aren’t integrated or synced in any way
- Using offline spreadsheets to track inventory numbers manually
- Using a paper and pencil or spreadsheet to track and fulfill orders manually
- Using an offline program that can’t provide you with true real-time inventory updates
When you’re just starting out, it’s tempting to use outdated and inexpensive processes to keep a hand in every aspect of your business and save money. To prepare for some of these challenges, it’s crucial to investigate and make plans to adopt more scalable processes, tools, and tactics that support continued business growth over the long term.
Addressing Ecommerce Inventory Management Challenges
Now that you understand some of the typical inventory management challenges in ecommerce, it’s time to get to work.
To create optimized inventory management processes, you can be proactive in forecasting future demand, auditing inventory often, preparing for busy seasons, and utilizing automation.
Forecast Future Demand
You can optimize your inventory management processes by forecasting future demand based on past sales.
This isn’t as hard as it sounds. Simply look at your past sales to determine when interest and demand were highest. Then, look ahead to identify selling opportunities throughout the year, such as holidays and events, to plan for higher demand.
The next step is ordering and storing inventory accordingly—with the goal of having enough stock to last during the busy season.
If your business is new and you don’t have any sales history, check out Google Trends and Google Analytics to identify what people are searching for and when to give you an idea of shopping behaviors.
It’s essential to regularly check your stock levels to ensure accurate inventory counts.
You can perform an inventory audit yourself or have an outside company do it for you. Your audit can be as simple as physically counting inventory and cross-checking against records, or assessing all of your inventory management processes together.
When auditing inventory, choose the method that makes the most sense for your business. There are several techniques to choose from, including:
- Physical inventory count
- Cutoff analysis
- Reconciling items
- Overhead analysis
- Finished goods cost analysis
- Freight cost analysis
- ABC analysis
- Analytical procedures
The more efficient your inventory management process is, the less complex and less frequently the need for an audit becomes. Ecommerce inventory management varies from brick and mortar stores, as sales occur on several channels, making it more unpredictable.
Using technology that keeps your inventory availability synchronized in real-time, rather than using manual counts and spreadsheets, helps significantly reduce errors.
Prepare for Particular Shopping Seasons
If you’re running a store that often takes advantage of a particular shopping season, such as a surf shop in the summer, always do what you can to be prepared for seasonality.
It’s essential to keep inventory low during the slow season, but don’t delay ramping up your supply for too long. Near the end of your busy season, promote clearance events to sell off the majority of your products to avoid carrying dead stock.
It’s best to keep your operating costs down for as long as possible in the off-season. Use the slow time to make sure your resources, tools, and partners are in place to ensure a thriving sales period.
To build a successful multichannel business, you must invest in trusted inventory management software.
While you can manually work through some of the issues discussed above, it’s not easy to scale this way. The right software helps you keep a pulse on inventory, ensuring you’re never over- or under-stocked. You’ll also have the ability to sync inventory across channels, compile real-time data within a centralized system, and take advantage of valuable insights that allow you to grow your business through more sales.
Solve Your Ecommerce Inventory Management Challenges Today
Deciding how to tackle ecommerce inventory management can be a never-ending puzzle for ecommerce and mixed-model retailers. By implementing the methods listed above, you can troubleshoot and simplify the processes to make your life easier.
When you’re ready to consider implementing ecommerce automation software to solve the headaches involved in managing multichannel inventory, reach out to us to speak with an expert.