e commerce inventory management: 15 top techniques and best practices

Strategies for Enhancing and Expanding Your Business Operations

If you have prior experience in online sales or are managing a flourishing eCommerce business on other platforms, you might easily assume that setting up an Amazon seller account and listing your products will be a walk in the park. Selling on eBay? Straightforward. Facebook? Simples. Shopify? Piece of cake. But Amazon is a whole different ball game, and here’s why.

In today’s ever-expanding digital market, the importance of efficient inventory management cannot be overstated. This is vital whether you’re just starting with your first online venture or are an experienced business owner seeking to refine your processes. Grasping the complexities of ecommerce inventory management is key to steering your business away from logistical pitfalls and towards success.

Neglecting to update or improve your inventory management methods can lead to lost opportunities, customer dissatisfaction, and reduced profits.

In this detailed blog post, we aim to present you with 15 leading strategies and essential practices for mastering ecommerce inventory management.

This article will cover:

By the end of this post, you’ll be equipped with comprehensive insights to refine every aspect of your ecommerce inventory management.

Lets explore further !

15 E-Commerce Inventory Management Techniques and Best Practices

1. Just-in-Time (JIT) Inventory Management
– Avoids capital being tied up in unsold stock.
– Simplifies inventory management and tracking.
– Requires less storage space, reducing costs.
– Highly dependent on buying trends, vulnerable to demand surges.
– Challenging to maintain with business growth and diverse product types.

2. First In, First Out (FIFO) Inventory Management
– Reduces waste, particularly for perishable items.
– Ensures efficient warehouse circulation.
– Potential for inflated profits with fluctuating production costs.
– Ideal for perishable goods but not for products with variable prices.

3. Dropshipping
– Eliminates the need for warehouse space for small businesses.
– Accessible entry into ecommerce.
– Lack of control over quality and shipping.
– Generally higher fulfillment costs.
Business Impact:
– Removes inventory holding but at the expense of control and potentially higher costs.

4. Third-Party Logistics (3PL) Fulfillment
– Saves costs on warehousing, staffing, and shipping materials.
– Access to large warehousing infrastructures, expanding customer reach.
– Frees up time for business leaders to focus on strategic tasks.
– Reduced control over product quality and branding.
– Not suitable for products requiring complex assembly.
– Some 3PL services require a large initial upfront investment.
– Suitable for businesses prioritizing vision and strategy over day-to-day logistics.

5. Forecast Future Demand Using Historical Data
– Employ predictive analytics and inventory forecasting to anticipate future demands based on past sales data.
– Provides visualized, immediate access to historical purchasing data.
Tool Example:
– Platforms like Connect3PL allow for detailed analysis of historical data across different channels, aiding in intelligent stocking for seasonal trends.
– Enhances decision-making by reducing uncertainty and enabling targeted inventory stocking.

6. Adopting a Barcode Scanning System
Automating processes to eliminate the need for human involvement is often a wise decision. Using barcodes is cost-effective, while human errors can result in significant financial losses. It’s a fundamental practice in inventory management to scan items at every stage—receiving, moving, shipping, or modifying them. Lack of such a system increases the risk of human errors, incorrect SKU entries, and unreliable inventory data. This issue becomes more critical as your ecommerce business expands and manages more SKUs in larger warehouses.

7. Establishing Minimum Stock Levels (Par Levels)
Setting par levels is essential for ecommerce sellers, acting as a safeguard to maintain a minimum stock quantity. This is advisable for all ecommerce businesses, except those dealing with perishables. Determining par levels involves considering your products’ demand patterns and production timelines. Some Inventory Management Systems (IMS) automatically notify when stock of specific SKUs falls below the required threshold, taking into account variables like replenishment time, demand trends, and existing stock. Connect3PL, for example, not only recommends optimal reorder times for maintaining stock levels and maximizing revenue but also generates purchase orders automatically. Its Replenishment Report feature, considering all supply, demand, and inventory factors, eliminates the need for manually analyzing each product’s par level. For instance, if a product sells one unit daily and takes 30 days for replenishment, the par level should exceed 30 units to prevent stock shortages. This is a simplified case; real-world purchasing trends are more complex and require continuously adjusted par levels. Managing these variables for each product underscores the importance of an IMS, particularly one that tracks historical purchasing data, in streamlining inventory management.

8. Utilizing ABC Analysis for Product Prioritization
With a solid foundation in inventory management philosophy, accurate demand forecasting, and data-driven par levels, it’s time to segment your product line using ABC analysis. This approach optimizes revenue by customizing fulfillment strategies for different product categories. For instance, Category A could contain high-value, low-quantity products; Category B, moderate-value and quantity; and Category C, low-value, high-quantity products. Segregating inventory in this manner enables organizations with diverse product lines to devise unique restocking strategies for each category.

9. Adopt e commerce Inventory Management Software
Throughout this article, we’ve intermittently touched on the necessity of evolving beyond manual systems in business. There comes a time when traditional methods, such as using simple Excel sheets or paper records for inventory, are no longer sufficient, especially if you’re aiming for growth. The transition to inventory management software becomes imperative in such cases.

For those running busy e-commerce businesses, consider this: do you want to continue spending valuable time manually creating Excel reports and sifting through old records for historical data? One of the significant advantages of using inventory management software (IMS) is the automation of these crucial but time-consuming tasks.
Moreover, platforms like Connect3PL offer more than just basic inventory management and counting. Leveraging integrations and APIs, these systems can be transformed into a basic version of an Enterprise Resource Planning (ERP) system.

Further details about this and the differences between ERP and IMS can be found in the integrations section of this article, or you can explore an informative article on ERP versus IMS.

10. Periodically Review Your Supply Chain
For ecommerce businesses involved in extensive kitting or assembly, having several suppliers or manufacturers for ordering products or raw materials is common. This is often seen in industries like handmade jewelry, unique formulas, or electronic components. It’s beneficial to conduct this review even with a limited number of suppliers. Every six months, schedule time to map out and evaluate the major components of your supply chain, assessing aspects such as:

– Comparing lead times with competitors
– Comparing costs with competitors
– Identifying any negative trends (like customer returns or defective products) that might require a change
Sometimes, issues in your ecommerce operations might stem from a weak link in your supply chain rather than an internal problem.
Warehouse staff performing an audit

11. Implement Regular Cycle Counts in Your Warehouse
Traditional, full-scale audits that shut down warehouse operations are outdated, unsafe, and inefficient, and generally disliked. However, thorough and regular inventory checks are crucial. The answer lies in cycle counting. This method involves spreading out inventory counts over several days and among different employees. Begin with your most valuable items (the ‘A’ category in an ABC analysis), assigning sections of these products to employees (or yourself if operating solo) during their shifts. Then, gradually move to ‘B’ and ‘C’ category items, counting these less frequently due to their smaller impact on profits. The regularity of your cycle counts should align with your preference for addressing inventory issues.

12. Consolidate Your Technology Platforms into a Unified System
As your ecommerce business expands, so do your software costs, the number of logins and passwords you manage, and the amount of open browser tabs. Successful ecommerce owners often use separate platforms for:

– Inventory management
– Accounting
– Email marketing
– Invoicing
– Website management
– Point-of-sale systems

Additionally, this doesn’t consider the need to manage multiple sales channels like Amazon, eBay, Etsy, and online outlets for physical stores. Managing all these can be overwhelming. Fortunately, modern inventory management systems like Connect3PL offer integration with various business function platforms. Whether it’s Quickbooks for accounting, Shopify for point-of-sale, or Salesforce for CRM, Connect3PL can integrate with them. This allows for a centralized source of truth, displaying all vital business data and facilitating communication across all essential platforms.

13. Adopt a Smart Product Selection Method

As repeatedly emphasized on our blog, every second counts in a warehouse, not just minutes. To boost your profit margins, it’s crucial to enhance both the speed and accuracy of retrieving products from your inventory.

That’s why we advise adopting a smart product selection method, which goes beyond the basic approach of printing a list and aimlessly navigating the warehouse.

A traditional method is wave picking, where you plan the day’s orders in advance, grouping them based on specific criteria. These groups are then processed in “waves,” with all staff members working together to complete them.

But we’ve innovated an even more effective approach: Hyper Picking.

Hyper Picking is a digital, upgraded version of wave picking. It leverages an intelligent location system and learns from previous wave picking sessions to optimize the picking route.

With Hyper Picking, managers can set up automated sessions that prioritize the most urgent orders. For those using physical bins, it allows selection based on bin capacity in a cart.

This method becomes even more efficient with filters, significantly reducing the time to fulfill orders. Managers can assign filters to staff, instantly generating pick lists, eliminating the need for manual creation.

14. Integrate a Quality Assurance Step into Your Shipping Process

No technological advancement or sophisticated process can outshine the value of excellent customer experiences, which directly correlate to increased sales.

Quality assurance acts as the final guard in ensuring positive customer interactions. Despite the best efforts, human error is inevitable in warehouse operations, leading to incorrect product selections, packaging errors, and damaged items.

However, reducing these errors by even 10% can transform an unhappy customer into a loyal supporter.

Connect3PL incorporates built-in quality assurance features, enabling users to take additional measures in preventing wrong picks and dispatching defective items.

15. Reorganize your warehouse layout based on product demand
You might be surprised to find out, after conducting an ABC analysis, that your most sought-after and valuable products are stored far from your processing area. Imagine the time savings if you rearrange your warehouse to place your best-selling items closer to the processing and shipping zones. Additionally, if you observe trends of customers frequently purchasing certain items together (like DSLR cameras and SD cards), it’s wise to arrange your warehouse so these items are near each other.

What is e commerce inventory management?
E commerce inventory management is essentially the practice of tracking the quantity, location, pricing, and assortment of products your business offers. This is a fundamental aspect, but sophisticated inventory management goes further by:

– Assisting in managing the balance between supply, demand, and communication with suppliers and customers.
– Providing insights into which products are overstocked, in stock, understocked, or out of stock.
– Calculating the revenue potential per pallet.
– Analyzing and projecting purchasing patterns, customer demand, and seasonal fluctuations to help you make informed business decisions for maximum revenue gain.

In the digital era, effective inventory management is as crucial as content marketing, lead generation, or SEO. Proper inventory control affects every facet of your business, and neglecting it can lead to significant financial losses and impact other areas of your operation.

Why is e-commerce inventory management important?

E-commerce inventory management is vital for business success. It maintains positive customer relationships by preventing issues like stock shortages, incorrect shipping estimates, or sending the wrong products. A positive purchasing experience encourages customer loyalty and advocacy, which are key to any e-commerce business’s success. Additionally, efficient inventory management, especially with tools like Connect3PL, provides accurate stock information, crucial for growing businesses. Without it, managing multiple warehouses, staff, and orders can become unmanageable. Effective inventory management not only saves time, cuts costs, and minimizes errors, but it also significantly enhances revenue potential and is often underestimated compared to other revenue-generating strategies.

Why is it important to use e-commerce inventory management software?

The complexities of e-commerce inventory management are vast, and without an effective system, the task can become daunting. Managing a significant e-commerce operation without a specialized Inventory Management System (IMS) like Connect3PL is impractical and inefficient.

Let’s explore the key advantages of using Connect3PL for your business.

1.Facilitates Rapid Business Growth: Connect3PL plays a pivotal role in your inventory management, simplifying the scaling of product storage and overall business expansion. As your warehouse and product range grow, and staff increases, the inventory management process remains consistent and manageable with Connect3PL. It consolidates information from various channels, warehouses, and purchasing data in a single, easy-to-manage location.

2.Real-Time Channel Visibility: Imagine being able to instantly access sales data for your main product across different platforms like Amazon and physical stores. Connect3PL provides this level of detail rapidly, aiding in efficient inventory allocation and preventing overstocking.

3.Reduced Lead Time with Smart Picklists and Routes: In the fast-paced world of inventory management, every second counts. Connect3PL includes smart picklists and routes, providing warehouse staff with detailed, efficient instructions for order fulfillment. This digital and printable guidance significantly reduces processing and shipping time, enhancing warehouse efficiency and customer satisfaction.

4. Advanced Data Tracking and Analysis: For those overwhelmed by data analysis, Connect3PL simplifies this process with accessible analytics on all your devices. It provides essential insights for demand forecasting, inventory-demand trends, and replenishment schedules, making strategic planning easier and more effective.

5. Intelligent Replenishment Insights: The Replenishment Report feature in Connect3PL tailors your stock replenishment schedule to your specific business needs. It considers your target stock levels and customer purchase trends, enabling customized purchase orders for various products and quantities.

6. Simplified Inventory Management: Connect3PL is designed to handle the complexities of e-commerce inventory management effortlessly, allowing you to focus on broader business strategies, growth, and revenue maximization.

For further details on how Connect3PL can enhance your business operations, reach out to our team for a demonstration.