The Importance of Inventory Management for Ecommerce Businesses

In today’s hyper-competitive marketplace, good inventory management is an often overlooked but critical aspect for any ecommerce business. It is vital that the inventory management process is efficient, cost effective, and accurate. If you do not have all of those components in place you may run considerable risk of failing to meet customer demand and losing money.

What is Inventory Management?

Inventory management refers to tracking the goods a company has in stock. It includes such activities as ordering, restocking, storing and inventory forecasting.

Strategically managing inventory gets more challenging in accordance with the growth of units sold. Inventory can also grow if new and more types of products are introduced and sold. The right inventory system can help manage inventory, and is a crucial part of supply chain management.

Many small businesses think that outsourcing order fulfillment and product storage to a third-party logistics (3PL) provider means completely turning over the inventory management process to them. The truth is a 3PL can provide valuable tools and data that will allow a seller to successfully manage their inventory in the most efficient and cost effective manner possible.

Here are 5 benefits for an ecommerce business that establishes proper inventory management.

1. Forecast for the Future

Proper inventory management can help with inventory forecasting. By tracking and managing your inventory storage levels and output flow, you will be better able to plan for demand. If you monitor your inventory trends on a monthly, quarterly, or unit-to-unit basis you will likely be more able to keep up with sales.

2. Plan for the Unexpected

No one can predict the future, but by managing your inventory can help you prepare for unexpected supply chain issues or deficits, such as:

  • Delayed inventory from the manufacturer
  • Unexpectedly sell out of a product
  • Run out of storage space
  • Cash flow problems

By analyzing your inventory over time you can create a contingency plan for problems that might occur. This preparation will help bolster your business when you encounter adverse circumstances that otherwise could have serious adverse effects for your bottom line.

3. Provide Insights into Customer Behavior

By monitoring the amount of product inventory that gets shipped  (as opposed to that which is unsold, in storage, or stuck in any part of the supply chain) you will gain valuable insights into what customer’s preferences. Is there a peak month of purchase? Perhaps a specific location that buys your product most frequently. Additionally any spikes or dips in inventory after a product launch will help lend necessary feedback on your promotional efforts and product satisfaction. This can cut down on the lead time as purchase orders come in as well as streamline operations at your point of sale. This can help with both inventory tracking and inventory control, and is crucial for a small business.

4. Save Money on Storage Fees

If you have too much inventory on hand it will likely cost a lot in storage fees.  And that’s money that could be spent on branded shipping materials, or absorbing expedited shipping fees. Storing goods is most often based on how much physical space your products take up. Fees vary depending on how many units you need to keep in stock. By keeping your inventory at the right amount based on your customer demands  you will save money on storage fees, and put it toward aspects of your business.

5. Ensure you Never Run Out of Product

One of the most critical parts of inventory management is calculating the right amount of product units (SKUs) needed in stock at any given time. If your stock level dips too low, you run the risk of running out of products which can lead to missed sales, backordering, and customer service issues. On the flip side if you have too much inventory, it can result in having products that can no longer be sold due to decreased demand or being outdated. This is also known as “dead stock”. Proper order management, combined with analytics can also help with your warehouse management operations.

Bottom Line

If you establish the best practices for inventory management it can be an incredible help in efficiently running your business. It is important to make the right choices that can scale and grow with your business. Great inventory management will save money, time, and improve customer service.

Help with inventory management is one of the many benefits to working with a 3PL. If you are seeking logistics support we’d love to hear from you. You can read DCL’s list of services to learn more, or check out the many companies we work with to ensure great logistics support. Send us a note to connect about how we can help your company grow.

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