Best Practices for E-Commerce Inventory Management

By guest writer Chad Rubin, CEO Skubana | April 5th, 2016

Selling products of any kind requires that you have an extensive inventory management system in place to handle orders, reorders, stock, and costs. Inventory management is crucial to meeting sales demand, avoiding overspend on stock, and ensuring that you can keep up with growing consumer demand and traffic. Most importantly, following best practices for e-commerce inventory will help you whether you’re selling on Amazon, eBay, Shopify, Magento, an app, your own web store, or a combination of each.  

Your inventory affects almost every aspect of your e-commerce business, including customer satisfaction, shipping times, and order fulfilment.

Using Analytics to Streamline Inventory

The first step to implementing best practices is to integrate and use data analytics. Most inventory management programs have some type of data capture options, but even if you’re using Excel (which you probably shouldn’t be) you can still use analytics to track data to view key performance indicators, review costs, and forecast your sales.  

Why is this important? Data analytics can help you to forecast your sales and needs, so that you can keep items in stock based on demand. The UPS Pulse of the Online Shopper study in 2015 showed that as many as 42% of shoppers surveyed for the study had abandoned a shopping cart at one point because items were out of stock.  When you incorporate stock data into your analytics, you can calculate safe stock levels, decide on re-order points for the next period, and prepare for and prevent out of stock events.

While inventory data won’t provide value right away, it’s a worthy investment to help better plan and improve your ROI. For example, understanding your normal surges throughout the year can help you to deal with increases in purchases around the holidays. Understanding your previous year’s data helps you to create valuable demand forecasts that predict your sales rates, so that you can cut down on inventory to save on storage and capital investment. Understanding your forecasts also allows you to leverage cost-saving tactics like Just-in-Time (JIT) inventory.

inventory managementUnderstanding Key Performance Indicators (KPIs) (which will tell you how much, when, and why your products are selling) can boost your understanding of your product life cycle and sales data for each product. Knowing your key products also allows you to reduce marketing and advertising, so you can place core products more prominently on your site, and maximize your ability to sell those products. Essentially, analytics can help you with understanding what you’re selling and when you’re selling it, so that you can optimize your physical and digital inventory to meet needs while maintaining minimum stock levels to reduce costs.

Use Multi or Omnichannel Integration

Most web shops sell on multiple channels such as Amazon, Shopify, Magento, or any of dozens of different multi-channel sales platforms including personal apps, websites, and Facebook stores.

Multi-channel retail requires inventory management integration to prevent cross-platform overselling. This means that your inventory has to be integrated across every channel, so that you can track your data and your sales as a whole. This is especially important for e-commerce businesses that ship everything from the same warehouse. Maintaining individual inventory for each sales platform will result in cross platform overselling, lost customers, and increased stock costs as you overbuy to reduce this risk.

Many inventory solutions offer multi or Omni-channel integration, allowing you to seamlessly sync your data across every platform with real time inventory, so that your systems update inventory as it sells on other platforms to avoid simultaneous overselling.

You can also optimize with multi-channel integration by improving your analytics and analysis metrics across all of your channels. Using your sales records on all platforms, you can integrate carrying options such as ABC analysis to optimize how you treat your products.

You can also use this data to review your inventory carrying costs on a platform by platform basis. Some of the most common and useful carrying options include bulk shipping, cross-docking (which allows for direct distribution from manufacturer to customer), backordering, and consignment.

Organization in Inventory

Organization is key to a profitable, streamlined inventory. In addition to using a clear, easy to understand and follow system to
track your inventory, it is important that you use data analytics for optimization. Organization allows you to implement small, cost saving techniques like cycle counting, where you split up inventory counts to small sections of your inventory, and then divide them over the month to reduce man-hours and down-time.inventory management

Organization also affects costs a great deal. Disorganized warehouses and inventory systems increase fulfilment times, because it takes longer to sort data and reach appropriate items in the warehouse. Implementing organization strategies based on your products can help you to save time and money. For example, a first in first out policy works well for perishable goods or those with a limited shelf life. Here, you spend extra time during unloading to ensure that the items in the back are the easiest to access. If your goods aren’t perishable, a last in first out method will save on stocking costs.

Matrix Inventory – Matrix inventory requires special organization in the warehouse and in your inventory system. Matrix is the process of handling variants in products, bundles, and options, so that you can track what you’re selling, prioritize it, and ensure you’re stocking more of your highest selling items. For example, if you’re selling one item in 10 colors, you have to track all 10 colors as individual items, but track them so that you know they’re essentially the same product. Assigning child SKUs or sub-SKUs to each product is one way to do so, so that you can track individual data, bring in more of the variations that sell, and less of those that don’t. So, when you have a shoe in 10 colors and red and black outsell the others by 50%, you can stock 50% more of those variants.

Organization is also essential for stock control, where you maintain the best amount of inventory to meet needs without tying up large amounts of capital. By keeping track of what is in your warehouse, organizing your data, and tracking your sales points, you can optimize your entire inventory.

Cutting Inventory Costs Through Organization & Analytics

Using the methods described above, you can cut costs while improving the quality of your inventory. For example, organization allows you to more quickly access materials and data needed. Prioritizing materials and products using ABC analysis or another carrying option allows you to invest money on the products that you can quickly move through, while choosing more cost effective solutions for those that you can’t. This type of asset categorization and tracking allows you to assign high values to the products that make you money.

You can also integrate some of the following processes to help reduce costs:

Reduce Lead Times – By using your data analytics to track and report on supplier deliveries, time to reorder, and the full sales cycle of a product, you can reduce lead times to substantially cut costs and wait periods. Importantly, this is not about increasing your storage capacity, but rather understanding your data and knowing when to re-order to receive the shipment just in time to restock.

Predicting for Groups – Predicting sales for individual items can be costly and inaccurate. Instead, use your data to predict sales for product groups, so that you can see purchase trends, patterns, and habits, without trying to predict exact sales.

Automate – Automating key processes allows you to cut cost and time investment, freeing up your managers to handle value-added tasks, and ensuring consistency across your inventory management system. By automating identification and data capture, you also ensure it is handled in real time for better analytics and cross-channel integration. Skubana is one solution that allows you to do this.
Skubana can allocate inventory to certain marketplace channels by percentage or quantity to ensure you don’t oversell. It also allows you to focus your inventory on your more profitable channels, push low quantity to create a sense of urgency, and seamlessly update your inventory across all channels, meeting organization, multi-channel integration, automation, and data analytics best practice standards.

Look for Underlying Problems – Many ecommerce inventory setups have underlying problems that create delays, add costs, or otherwise cause issues. It is important that you review and test your solutions periodically to ensure that they are working to provide you with maximum return on your investment.

inventory managementOptimizing your inventory by including best practices allows you to update your processes to reduce manual tasks through optimization, improve organization, and reduce the amount of stock you have on hand by improving forecasting. This reduces the amount of capital you tie up, allowing you to invest elsewhere. If you can implement these strategies, you can gain more control of your inventory and more control of your stock.

Your inventory management is just as important as the products themselves. We at Skubana believe that without an intuitive inventory management system, your business can hurt in the long run. Use this as a guideline to how to organize and optimize your inventory management workflow and enjoy the increased profitability.


inventory managementGuest post by Chad Rubin
CEO of Crucial Vacuum and Skubana

Skubana is an all-in-one ERP system that seamlessly integrates with e-commerce businesses, 3PLs and warehouses, provides state-of-the-art profitability and multi-channel inventory management. Try Skubana free for 14 Days.