How Inventory Management Works for Online Stores

Javi Fondevila

Inventory management, it is a word hated by most operators of eCommerce stores and is by far the leading cause of headaches. If you mess it up and don’t do it properly, you can lose a whole lot of money, especially when you have products that are seasonal, can expire or are otherwise time-sensitive.

Proper inventory management is key to long-term success in the world of eCommerce. Whether you are selling your wares on eBay, have your own Etsy craft store or run a flagship eCommerce store using the likes of Shopify or Prestashop, it is important that you get it right.

Types of Inventory Management System

There are lots of different inventory management systems that can be used, and the one that’s right for your online store depends entirely on your business model and product. You may even be familiar with a few of these common terms:

  • Just-In-Time (JIT) is where product is ordered just in the nick of time to keep up with demand for a product. With JIT, your money is not tied up with inventory that isn’t being sold, however, there’s an inherent risk of not being able to cope with a sudden surge in demand.
  • First In, First Out (FIFO) is where the first products that you receive from the supplier are the first to be sold. Doing this ensures customers get fresh inventory. Obviously, this type of inventory management is best for sellers of perishable goods.
  • Minimum Viable Stock (MVS) is where the minimum amount of a good is reached that can keep up with current consumer demand. When stock levels drop below the MVS figure, it’s time to order more in!

Some other methods of inventory management include forecasting demand—taking an educated guess at how much product you’ll need to keep up with sales over a period of time—and first in, last out (FILO)—the first products in are the last to be sold—that is now rarely used.

Common Inventory Management Obstacles

Although the above inventory management methods may sound simple enough, implementing them can be a big headache and keeping on top of everything isn’t always simple. Here are some common obstacles that you should try and avoid:

1. Over and under-stocking of product

You don’t want your store to be bursting at the seams with lots of product that isn’t being sold. By doing this, you are tying up excessive amounts of capital in your inventory that is just sitting in storage waiting for the day that it is (hopefully) sold. Tied up capital means less money for the important stuff like marketing, operating costs and expansion.

2. Incorrect inventory levels

One of the worst things that can happen is carrying out an audit, only to find that the results are showing that you have nine of a product in stock when you only have four. Where has this stock gone? Incorrect inventory levels and lost stock can lead to lost funds, a harmed reputation, and back ordered fulfillment. This can be helped by using a centralized system.

3. Not using a centralized inventory management system

These problems and others can all be solved by using a centralized system to manage your online store’s inventory. A centralized system helps you keep everything related to inventory management in one place, this is extremely important and prevents silly mistakes from costing your online store huge amounts of money in the long-term, amongst other things.

Using a centralized system that has been specially created for deployment in eCommerce stores is an ideal solution and something that you should be looking into if you are considering launching a start-up online store or are having inventory problems.

Managing Inventory Doesn’t Need to Be a Chore

By being aware of your inventory management obligations and making efforts to solve problems as they arise, i.e. with the use of a proper management tool, you will eliminate all these problems and more, problems that are by far one of the largest sources of headache amongst start-up entrepreneurs running a business that has an inventory of physical product.

Whilst it’s not glamorous, inventory management is just another part of running your business that needs taking care of.

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