How do ecommerce sites manage their inventory

Creating an efficient ecommerce inventory management system is crucial for the success of any online business. By mastering inventory management, you can optimize your operations, enhance customer satisfaction, and ultimately boost your bottom line. This guide will walk you through everything you need to know about preparing, managing, and reporting on ecommerce inventory, ensuring you’re well-equipped to handle both anticipated and unexpected challenges.

What is Ecommerce Inventory Management?

 

Ecommerce inventory management involves a systematic approach to sourcing, storing, tracking, and shipping your products. Efficient inventory management helps increase operational efficiency and reduce costs, giving you a competitive edge in the ecommerce landscape.

Preparing Your Ecommerce Inventory

1. Inventory Financing
   Inventory can be one of the most costly assets for your business. Inventory financing options like equity finance, working capital finance, and merchant cash advances can help bridge cash flow gaps and support growth.
2. Inventory Forecasting
   Forecasting helps predict future inventory needs based on historical sales data and market trends. Accurate forecasting reduces excess inventory, minimizes stockouts, and enhances your production cycle.

Managing Your Ecommerce Inventory

1. Inventory Audit
   Regular inventory audits ensure your physical stock aligns with your financial records. This process helps prevent stockouts and discrepancies, and can be performed through spot checks or third-party audits.
2. Inventory Management
   A robust inventory management process includes ordering, restocking, and forecasting. Effective management prepares you for potential issues like stockouts, miscalculations, and cash flow problems.
3. Inventory Management Software
   Leverage inventory management software to automate and streamline your processes. These tools provide real-time updates, reduce manual errors, and integrate across channels and locations.
4. Inventory Control
   Maintain optimal stock levels to fulfill orders on time without overspending. Accurate inventory control leads to reduced costs and improved customer satisfaction.
5. Inventory Distribution
   Consider distributing inventory across multiple fulfillment centers to improve delivery speed and reduce shipping costs. This is particularly useful for high-volume orders and heavy products.
6. Inventory Pick List
   Use clear and concise pick lists to guide warehouse staff in retrieving items. This ensures efficient order fulfillment and reduces errors.
7. Inventory Scanner System
   Invest in wireless barcode scanners to automate inventory tracking and reduce human error. Scanners streamline the process by reading product barcodes and updating inventory records.
8. Inventory Tracking
   Track inventory levels, locations, and quantities in real-time. Accurate tracking improves transparency and helps manage stock throughout the supply chain.
9. Periodic vs. Perpetual Inventory Systems
   Choose between periodic systems, which update inventory at specified intervals, and perpetual systems, which provide real-time updates. Perpetual systems offer greater accuracy and efficiency.

Ecommerce Inventory Reporting

1. Beginning Inventory
   Calculate beginning inventory using the formula: (COGS + Ending Inventory) – Purchases. This value is crucial for balance sheets and tax documents.
2. Ending Inventory
   Determine ending inventory with: Beginning Inventory + Net Purchases – COGS. Accurate calculation impacts financial reporting and inventory management.
3. Finished Goods Inventory
   Finished goods are products ready for sale. Use the finished goods inventory formula to assess stock levels and prevent stockouts.
4. Inventory Accounting
   Track and account for changes in inventory values due to purchases, sales, and other factors. Proper inventory accounting ensures accurate financial records.
5. Inventory Report
   Generate inventory reports to monitor stock levels, prevent overordering, and avoid stockouts. Connect your systems for integrated reporting and analysis.

 

Inventory Metrics and Terms

1. Inventory Turnover Rate
   Calculate turnover with: COGS / Average Inventory. This metric shows how often inventory is sold and replaced, helping to manage supply chain and sales efficiency.
2. Inventory Days on Hand
   Determine with: (Average Inventory / COGS) x 365. This measure indicates how quickly inventory is used and helps manage stock levels effectively.
3. Inventory Reorder Point
   Use the formula: Demand During Lead Time + Safety Stock. This helps determine the optimal time to reorder inventory to avoid stockouts.
4. Inventory Shrinkage
   Calculate shrinkage rate with: (Recorded Inventory – Actual Inventory) / Recorded Inventory. Address common causes like theft or errors to reduce shrinkage.
5. Just in Time (JIT) Inventory
   JIT minimizes inventory holding costs by receiving goods only as needed. While it reduces waste and costs, it requires careful planning to avoid stockouts.
6. Work-in-Process (WIP) Inventory
   Calculate WIP with: Beginning WIP Inventory + Manufacturing Costs – COGM. This metric tracks the cost of unfinished goods in production.

Streamlining Your Ecommerce Inventory

Partnering with a 3PL provider like ShipBob can simplify your inventory management. By integrating with popular ecommerce platforms, ShipBob automates order fulfillment and provides comprehensive support, ensuring your inventory management process is as smooth and efficient as possible.

With these insights and best practices, you’re well on your way to mastering ecommerce inventory management and setting your business up for long-term success.