Managing your inventory is a pain for all eCommerce sellers. It’s time consuming to track inventory for different products across your site. It’s even harder if you sell on multiple fronts, like a site, marketplaces such as Amazon, and brick and mortar.
Because of these challenges, 46% of SMBs either don’t track inventory or use a manual method.
This is a problem. Inventory management is essential to your business. Capital can be tied up in stored inventory. Poor management can lead to a bad customer experience.
Inventory management for your eCommerce business should be your top priority. In this article, we’ll tell you why it should be and recommend best practices.
Why eCommerce Inventory Management Should Be a Top Priority
Inventory management touches many parts of your eCommerce business. When you forgo management, you can’t forecast sales. You can’t efficiently get items to customers when they need them.
This can lead to different types of problems. Carrying too much inventory ties up capital. Too little means missed opportunities for sales. Both affect your customer experience.
Inventory management can benefit you in many ways. See all the different ways.
It prevents overselling. When inventory isn’t tracked, it can lead to you incorrectly listing available inventory on your site or marketplace. Nothing is worse than telling a customer you can’t ship an item they bought because you actually don’t have it.
It provides a better customer experience. Tracking inventory means that customers can check online for inventory levels, whether for online or in-store. Employees are also better equipped to help customers with this information too.
You can track and forecast sales. If anything, this should be a major advantage of implementing a robust inventory management system. Tracking your sales means you can estimate how much inventory you’re going to need on hand during different parts of the year. This helps you avoid making or ordering too much or too little.
Inventory management helps speed up shipping processes within the warehouse. When you don’t rely on manual entry, you can quickly know that you have the inventory on hand to ship. You’ll have more control over your inventory and be able to track it over different locations.
With these types of benefits, it’s easy to see why inventory management should be one of your top priorities.
Inventory Management Best Practices
Once you make inventory management a priority, you then need to know what to look for in different solutions. These are best practices for eCommerce inventory management:
Real Time Inventory Updates
One thing you must have for better inventory management is real time inventory updates.
When you sell an item, inventory should be decimated right then and there. When it’s not, you run the risk of overselling. For growing sellers, this is real problem that affects your sales.
There is a grave distance between real time and “near” real time. Near real time means that inventory could be updated once every 15 minutes, once every hour, or just once a day. These delayed inventory updates expose your business to too much risk.
You risk having that hated conversation with customers that you can’t ship their items they bought. You can bet that you lost that customer for life.
If you’re an Amazon seller, and you oversell, you can quickly lose your ability to sell on their platform at all. Your account can be dinged and even suspended.
Real time inventory updates can also go the other way – showing that inventory is in stock. When this isn’t correct, you miss opportunities for sales.
Your inventory management should be able to handle real time inventory updates across all of your locations.
Endless Aisle With Drop Shipping
Many merchants use drop shipping as a way to jump start their eCommerce business. It allows merchants to start a business without having to procure inventory up front.
Drop shipping is a process in which a merchant does not have to keep inventory on hand. Instead, they have a relationship with a supplier who holds and manages the inventory.
When a merchant makes a sale of an item, the drop shipper picks, packs, and ships the item. The best part is that the supplier is invisible to the customer, who receives the item as if from the merchant.
New sellers can use drop shipping as a way to offload fulfillment to a supplier. You just have to find a supplier that sells the items you need. Established sellers can use it to easily expand their product assortment.
Drop shipping though can also serve as a way for you to ensure that you never run out of products. This concept is called “endless aisle.”
As soon as you sell your last on-hand item, you start forwarding incoming orders directly to a supplier. The supplier fulfills the order directly. You then just reflect the order status to the customer.
You seemingly always have stock on-hand then, which appears as an “endless aisle” of products to your customer.
To be successful at drop shipping, you need an inventory management solution that can handle the necessary transactions between yourself and the supplier. Inventory updates, order status, invoices, and purchase orders will all have to be communicated for incoming orders. This ensures accuracy and financial reconciliation.
If you’re a Magento sellers, check out Magento Drop Shipping: What It Is and How to Set It Up to learn how to get started.
When practicing better inventory management, you need to consider upfront where you’re going to manage your inventory.
If you have a single eCommerce store and don’t sell in any other channel, you can probably just manage your inventory from your eCommerce platform.
But, if you sell on multiple sites, different marketplaces, and offline, then it is best practice to centralize your inventory in a dedicated system. Your eCommerce platform isn’t going to be able to handle it across a multichannel business.
A designed system could be a POS or ERP system, which is then integrated to your online platforms. This type of inventory management integration can ensure that inventory numbers are updated in real time as orders from all channels flow through.
Handling Variant Products
Certain types of products can make handling inventory inherently difficult. Variant items is one of them.
Variant, or matrix products are when you have multiple variances of one product. For example, let’s say you sell t-shirts. For one t-shirt design, you could have multiple different sizes and multiple colors in different sizes.
In terms of inventory, you’ll not only want to know how many blues vs white t-shirts you have, but also how many large blue shirts and small white shirts. The number of SKUs you have to manage inventory for is the number of items x the number of attributes x the number of attribute possibilities.
Managing this within your eCommerce platform again is going to be cumbersome and clunky. You’ll have to manage each variant separately.
Imagine how complicated it’s going to be manage tens or hundreds of variant products. If this is going to be an issue for you, you need to choose an inventory management solution that handles variants easily.
Handling Kits/Item Bundles
Another product type that causes inventory complications is kits or item bundles.
Kits, or bundles are when you sell multiple individual items together as one. A combination of items you sell together might be shampoo, conditioner, lotion, soap, and a loofah as a shower kit.
Kits, or item bundles are a great way to add value for your customers. But, they make managing inventory difficult.
When you sell a bundle, you can’t increment the whole item bundle as just one item. You need to decimate inventory for each item individually to keep inventory levels accurate.
Otherwise, you could sell your last shampoo bottle as both an individual item and as one within a kit. When you go to ship your bundle, you won’t have the inventory to fill it.
For eCommerce sellers, you usually need to look to a third-party solution to help you easily manage kits. This could an app add-on for your eCommerce platform or a robust inventory management solution.
Certain types of products can complicate inventory management. Selling in multiple channels can also cause problems.
If you’re just selling on a single webstore, or marketplace account, you might only need a small app to ensure your inventory is updated and variant products are handled.
Imagine though if you sell on multiple webstores, different marketplaces, offline, work with suppliers, and handle matrix products. Whatever combination your multichannel business is, you’re going to have multiple orders flying in from different sources that need to be fulfilled.
No matter where it’s sold, the type of item it is, or who fulfills it, your inventory must be updated in real time across all your channels.
This is the only way to ensure that your inventory levels are accurate across all of your channels at any given time. The risk for multichannel sellers is even greater when they don’t properly manage their inventory.
These types of sellers cannot rely on their eCommerce platform to handle all of these types of complexities. It’s not within your site’s platform to do so with accuracy and automation.
To achieve that, most merchants turn to third-party integration providers. These types of platforms integrate your current systems – webstore, marketplaces, POS, and ERP systems – so that you can sync your data, such as inventory, across all your channels.
They centralize your inventory and update inventory in real time, while handling complexities like drop ship suppliers, variant products, and item kits/bundles.
To see what a multichannel inventory management solution is like, check this out.
(Disclaimer: This is one of the things that nChannel does as a multichannel management platform, which is why we know so much about it.)
What To Do Next
Inventory management is essential to your business. When you start feeling growing pains, you need to research what the best solution is for your business. Use these best practices to better understand what your needs are as a business.
For further reading, check out these articles:
Thanks for this “best practices” guide. It’s a good overview of what elements a good inventory management software can manage for an ecommerce owner.
We’ve put together a list of critical questions that an owner should ask themselves in order to determine if they’re ready to implement such a solution http://bluestout.com/blog/ecommerce-inventory-management-software/#criticalquestions.
I didn’t come across nChannel in my research – are you a Magento-specific solution?
Thanks for reading!
Magento is just one of the many systems that we work with. We can manage inventory updates between many systems like ERP, POS, eCommerce, and marketplaces. Our more popular systems that we integrate are Magento, Shopify, Bigcommerce, NetSuite, Microsoft Dynamics, Lightspeed, Amazon, and eBay. You can see our full list of supported systems at http://www.nchannel.com/connectors.
Great, thank you for the reference. Cool to see you partner with Shopify Plus! A platform we’re keeping a close eye on.
No problem. We’re excited for the Shopify Plus partnership, also! I’d be keeping my eye on them, too!
[…] Managing inventory levels might be a fairly straightforward process for you at this point in your business. However, if you’re suddenly overwhelmed with orders or your business scales as you expect, you simply cannot afford to take any chances. […]
[…] According to nChannel, nearly half (46 percent) of small and medium-sized businesses track inventory manually, or don’t do so at all. While it’s never advisable to forgo keeping close tabs on your inventory levels, it’s absolutely non-negotiable for a medium-sized or large ecommerce business. Serving more customers means your inventory will be moving off the shelves faster, which makes it imperative to track closely, lest you run out of stock. […]