Inventory Management Made Easy

October 19, 2023


Inventory is your stock for sale on your online store, marketplaces, and other channels. In the old days of eCommerce, you had to split your inventory between channels and marketplaces based on where you thought the inventory would sell best.  

That is rudimentary inventory management. Inventory management is possibly the most crucial element of your eCommerce business. Why? Because overselling or being unable to supply a customer with the goods causes your business problems that do not quickly disappear. If a customer places an order that you fail to fulfil due to not having the stock, they will not be happy, but what is worse than that is that they will lose trust in you. Once the trust has gone, you will struggle to keep that customer.
So, how do you effectively manage your inventory? This week’s blog looks at how software can help you efficiently manage your inventory, enabling you to service your customers and keep them happy and returning.

What is eCommerce Inventory Management?

If you are an eCommerce retailer, you will need some things in place to succeed. They are a functional website with a good user experience, a system for efficient shipping, and accurate visibility into your inventory amounts and locations. So many eCommerce retailers make inventory mistakes that end up costing them.

eCommerce inventory management is a system that helps retailers grow their businesses. Good inventory management will streamline your business and warehousing operations and enable you to keep your customers happy and make smarter financial decisions.  

Just making sure you know exactly what, how much and where your goods for sale are is the keystone to a successful eCommerce business.  When you know how much inventory you have and where it is, everything else falls into place.

What are the Four Types of Inventory Management?  

There are four types of inventory management, they are just-in-time management (JIT), materials requirement planning (MRP), economic order quantity (EOQ), and days sales of inventory (DSI).

As this is an eCommerce blog, we will concentrate on the models used most in eCommerce: Just in Time and Economic Order Quantity.

Just-in-Time (JIT) inventory management is used in supply chain and inventory control. It focuses on minimising the amount of inventory a business holds, aiming to have inventory arrive just in time for production or sale. This is an ideal way of managing inventory for eCommerce businesses. The primary goal of JIT inventory management is to reduce carrying costs, such as warehousing, storage, and obsolescence while improving efficiency and reducing waste in the production process.

Fundamental principles of JIT inventory management include:

Minimal Inventory: The system minimises excess inventory to reduce holding costs. Inventory levels are kept at a minimum, only what is necessary to meet immediate production or customer demands.

Demand-Driven: Inventory is replenished based on customer demand. This means that when products are sold or components are needed for production, the system triggers orders to replenish the stock. (Link to SF Suggested orders)

Continuous Flow: JIT promotes a continuous flow of materials with minimal disruptions or bottlenecks in the production process. This reduces the need for extensive inventory buffers.

Quality Control: The focus on quality is critical. Defective components can disrupt production, and with minimal inventory on hand, there's little room for error.

Supplier Relationships: JIT relies on solid relationships with suppliers. Suppliers must be reliable and deliver products quickly, often in smaller, frequent shipments.

JIT inventory management has been widely adopted by various industries, most notably in manufacturing. However, it has also found applications in online retail, healthcare, and other sectors where reducing waste and improving efficiency are essential. While JIT can lead to cost savings, it also requires a high level of coordination, reliability in the supply chain, and a focus on quality to be successful. You need an excellent platform to prompt you to order the exact stock you need to fulfil your orders.

Economic Order Quantity (EOQ) is a formula used in inventory management to determine the optimal order quantity a company should order and maintain in stock to minimise total inventory costs while meeting customer demand. EOQ helps businesses strike a balance between the costs of carrying inventory and the costs of placing orders.

The EOQ model is based on several assumptions, including:

Stable Demand: Demand for the product remains constant over time.

Constant Unit Costs: The cost per unit remains constant regardless of the order quantity.

Instantaneous Replenishment: Inventory is replenished immediately upon reaching zero.

No Quantity Discounts: The purchase price per unit remains consistent.

The EOQ model aims to balance two primary costs:

Ordering Costs: These costs include expenses related to placing orders, such as order processing, communication, and transportation. The ordering cost per unit decreases as the order quantity increases because orders are placed less frequently.

Holding Costs: These costs are associated with carrying inventory, including storage, insurance, and the opportunity cost of capital tied up in inventory. The holding cost per unit increases with higher inventory levels.

The EOQ model aims to find the order quantity that minimises the total cost, which is the sum of the ordering and holding costs. The formula determines the order size for these two costs at their lowest point.

EOQ can be a valuable business tool to optimise inventory management and improve financial efficiency. By implementing the EOQ model, companies can ensure that they order and hold just the right amount of inventory, reducing carrying costs while maintaining adequate stock lev  els, Days Sales of Inventory (DSI), also known as Days Inventory Outstanding (DIO), is a financial metric that measures the average number of days it takes for a company to sell its entire inventory. It is an essential inventory management component and provides insights into how efficiently a company manages its inventory levels.

Is there a software solution for inventory management?

In a word, yes. Many software platforms can help with your inventory management on the channel. This is where we get a bit biased, but a platform like StoreFeeder will take your inventory and allow you to list it across all your channels and stores. As sales come in, the inventory numbers will be automatically adjusted across all channels.
These platforms give you control over how your inventory is displayed and have tools that enable you to interrogate how well certain products do on which channels. Inventory management software will also allow you to control pricing simply and efficiently.  All of this enables you to do inventory management intelligently.

If you have any questions or want to know more, give us a shout. We have been doing this for a long time now and have been helping businesses grow in eCommerce for over ten years.

Thanks for reading this week’s blog. There will be another next week.

Written by
October 19, 2023

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