When you talk to e-merchants, most of them will tell you the same thing: “I love my job, but stock management is a real headache.” However, they’re obliged to take care of this aspect, which is one of the most important in ecommerce.
If you don't optimize stock management, or worse, if you neglect it, it’ll cost you time and therefore money.
In contrast, you’ll gain some if you take control of managing your inventory before you launch your ecommerce business.
However, and this is the good news, it’s never too late to change the way you manage your stock.
In this article, we’ll start by presenting you with the main methods used by merchants to manage their inventory of goods efficiently.
Then, we’ll detail the problems frequently encountered in stock management by ecommerce businesses. Finally, we’ll offer you concrete solutions to help remedy them.
Stock management methods
To begin this article, here is a quick summary of the six main methods of stock management.
- Minimum stock: When the stock of a product falls below a certain threshold, you have to restock. The advantage here is that you’ll always have a minimum number of products in your inventory and that you won’t run out of stock. A real positive point to ensure the continuity of your business’s sales and therefore the satisfaction of your customers.
- Just in time (JIT): Here, you only restock when a customer places an order. Again, your stock will be limited and you’ll only buy the products that your customers buy. No unsold items or damaged stock in your supply of goods. On the other hand, if your supplier isn’t very reactive, the delivery time for your customers to receive their orders is going to be longer. This is a system to be used sparingly—only if you are sure of your supplier’s reliability. Otherwise, your reputation as a merchant may suffer and cost you future sales.
- First in, first out (FIFO): Here, your products bought first will be sold first. For example, perishable food stores use this method of inventory management. If you use FIFO, be sure to have a very organized process for storing your products.
- Last in, first out (LIFO): As you may have guessed, this method is the exact opposite of the FIFO method described above. The product that arrived last in your inventory will be the first to leave. Conversely, the product that arrived first will leave the stock last. This method is rarely used today, unless your products are delivered in boxes, as it’s always easier to take the product on top of the stack first.
- On-demand forecasting: Managing inventory based on forecasts (trends, seasonality, etc.) is possible! The advantage is that you can anticipate a higher or lower sales volume and manage your supply according to these forecasts. The objective is always to have a stock that’s as low as possible, but still high enough to satisfy the demands of your customers.
- Vendor-managed inventory: By taking inventory of your stock, you make sure that it’s in good condition. This process serves as an opportunity for you to sort out and remove damaged, outdated, or destroyed products. In many parts of the world, the law requires that businesses do this at least once a year, just before the closing of the accounts. Think of it as an opportunity to help improve the overall state of your stock and not as an “obligation.”
As an e-merchant, it’s important to know these inventory management methods to help you to better run your business.
Before you create your online store and start managing your inventory, you need to be aware of the problems that businesses frequently encounter. This is what we’ll see in the rest of this article.
Common problems in stock management
Unfortunately, just like with other aspects of selling online such as ecommerce returns management, things don’t always go according to plan with inventory management. The key is to be consistent and structured with your process.
Here are some common issues you may encounter:
Overstocking and understocking
What is good inventory management? It's not overstocking or understocking. It's storing just what your company needs!
You don't want to build up a mountain of inventory or run out of a product when a sale comes along.
Storing your merchandise for a long time will tend to make it lose value, which is going to result in the reduction of your cash flow. Products stored for a long time can also deteriorate. Furthermore, storage costs can add up, quickly eating away at your business’s bottom line.
In short, the consequences are multiple.
As for understocking, although you’ll have a little more cash, as you’ll have lower up-front costs, you risk running into an "out-of-stock" situation, which is often very unpleasant for your customers and can actually result in missed orders and a higher cost for your business over the long term.
In the long run, it’ll have a very negative impact on your company’s reputation and therefore on your revenue.
The solutions that we’ll give you later on will help you avoid these situations of overstocking and understocking the items that you sell.
This is one of the most problematic situations when it happens to you.
For example, if you sell candles on your ecommerce site and you indicate an inventory of 20 candles, you must actually have 20.
Imagine that someone wants to order all 20 candles at once before you realize that the remaining quantity on your site is actually only 17.
An error of judgment or a missing or damaged product…it happens! But, the delay in delivery, no matter how small, may displease your customer who, after this unpleasant experience, won’t want to order from you in the future or recommend you to others, which can cost you additional sales in the long run.
Having a good stock management system in place and regularly taking inventory of your business’s products can help you to avoid this situation.
Lack of a centralized inventory management system
The mistakes described above are the result of the lack of centralized inventory management. Some people still use a notebook and pen or an Excel file filled in by hand.
By using these time-consuming methods, you can be sure that an error will happen at some point throughout the process of managing your stock of goods.
Another option is to choose an automated system. You can also opt for an inventory management platform designed for physical merchants.
However, the functioning of a traditional store is so different from an ecommerce store that the tool in question may not be suitable at all.
The most effective solution is to use ecommerce website creation software that will automate the processing of orders and the updating of your inventory.
Wizishop’s stock management tool does this perfectly.
With just a few clicks, you can set up your inventory management system. Enter the stock quantity of each product and don't touch anything else!
It’s the ecommerce solution that will automatically calculate the stock of each of your products.
By opting for this solution, you can manage the delivery as well but also automatically update your product pages with the corresponding stock quantity.
Create your online store - 15-day free trial
Solutions to manage your stock in ecommerce
The choice of your inventory management system depends on your objectives.
Do you want an affordable but time-consuming solution? Or, in contrast, a system that involves a more significant investment but that provides you with a certain amount of savings in time? Are your goods stored in a warehouse or at home? Are you okay with having only a small amount of authority over the process of tracking your stock levels or do you want maximum control?
Choosing the best inventory management solution for your situation involves answering these questions. Here are several different systems to consider for your business.
Manage your own stock
Whether you’re at home, in a warehouse, or in a store, you’ll ALWAYS have to make sure that you maintain optimal stock levels.
Optimal stock levels mean avoiding overstocking and understocking. Set a critical threshold and place an order when you reach that threshold.
This technique will help you to prevent your retail business’s products from being out of stock without ordering too many products.
You must therefore anticipate demand! Anticipating demand is THE key to good inventory management.
Here are three valuable tips to help you forecast the sales that your company will make:
- Do you know the quantity of goods you sold and how many sales you made last year? If you have this data, use it to predict what will happen. Chances are, what happened last year will also occur this year. If you’re just getting started and don’t have a handle on your sales data, skip to the next tip to help you determine demand.
- Plan, plan, plan…this is the lifeblood of the business! Whether it's for a 15-day period, a month, or more, determine the volume of sales you expect to earn. As these periods pass, analyze the performance of your marketing activities as well as your actual sales and compare them with your forecasts. By tracking this data, you can adjust your forecasts for future periods.
- How do you know if your product is popular without analyzing the trends in your market? The best tool for this is Google Trends. You’ll collect all the data about the searches done on Google. If you see a spike in searches, there’s an increased demand. The opposite is true as well. Tracking the trends will therefore be very useful for you to anticipate demand for the products that your business offers.
Once you have your sales forecast, set the minimum inventory. Here, minimum means “optimal.” Based on your forecast, your minimum inventory should be about 5 days of stock.
Finally, centralize your inventory management.
If you sell via an online store created with an ecommerce platform, centralization is included. On the other hand, if you also sell goods in physical stores, you can rely on enterprise resource planning (ERP) software or complete customer relationship management (CRM) software such as Sellsy.
Outsourced inventory management
If you’re an e-merchant but only a distributor, your suppliers will stock the products. This mode of operation is much easier to manage.
You’ll place your orders each time that customers order on your site.
This is, for example, the principle of dropshipping. This form of ecommerce is an order fulfillment method that allows you to sell products on the internet, without owning them. The dropshipping business model can help retail businesses save money by eliminating storage costs because they don’t need to store the raw materials for manufacturing the products or store the finished items. It makes the shipping process a breeze as well, as sold items will be shipped to customers directly from the supplier’s warehouse.
On the other hand, you need to have your supplier’s stock levels at your fingertips to update the availability of goods in your inventory in real time on your business’s site. This isn’t easy!
Two methods can help you to do this:
- Manual updates: To do this, go regularly to your supplier’s site to see the status of stocks to update them on your own site. If your retail business has a small quantity of products, this method will do. Otherwise, you may quickly become frustrated with this strategy and give up.
- Use of software: This is the easiest method. Several tools connect your ecommerce site directly with your supplier’s site. The synchronization of stock levels is done in real time. By using dedicated software, you’ll be able to automatically update the status of your inventory but your product pages as well. Your suppliers can decide to modify the prices of a product but also to modify its description or its title, add variants, or even remove it entirely from the catalog. Using software is also a guarantee to sell much more easily on multiple channels and on marketplaces such as Amazon.
Create an account, quickly set up the tool, and you’re up and running in a few minutes. The vast majority of these programs are easy to use, so get started!
You can also be an e-merchant and use companies to delegate the logistics part.
Several companies offer services concerning ecommerce logistics at affordable rates. The company takes care of storing your products, packing them, and delivering them to your customers.
You now know the main methods of stock management in ecommerce. Whether you plan on keeping your supply of products close by at home or in a warehouse, be sure to take the time to examine the different systems carefully to determine the best strategy for your business. To optimize your performance and better satisfy your customers, it’s important to focus on this aspect of online sales.
There are many ways to evolve, and they can help considerably improve your company’s revenue.