Inventory management: 6 effective methods to use in your e-commerce 

Any e-commerce business, small or large, needs inventory. The more your sales increase, the more your product storage space needs to grow, and that’s where using a more sophisticated method of inventory management becomes necessary.

While there is no single approach to doing this, certain methods have proven successful, yielding better results.

What is inventory management and why is it important?

Inventory management is a way to keep track of the products your e-commerce business keeps in stock and monitor their weight, dimensions, quantities, and location.

The goal of this control is to minimize inventory costs, inform customers when and which products need to be restocked.

This management is extremely important for your online store, as it ensures you have stock available to meet customer demand.

When this control is not carried out properly, you can lose money on sales that cannot be made due to a lack of merchandise, or end up incurring expenses because you are storing too much stock.

But, when done well, inventory management helps your company save money in several ways, such as:

• Monitors products with expiration dates, organizing their shipping order so that merchandise with the closest expiration date is not left until last and ends up spoiling.
• It helps prevent dead stock. Items that don’t expire, but can go out of season or style.
• Save on storage costs, maintaining a reasonable quantity of products in stock.
• It indicates products with low sales so that the merchant can focus their marketing efforts on promoting sales and avoid having the items sitting idle for too long taking up space.

– How to create an online store

6 effective inventory management methods

Your inventory consists of products that you have already paid for, and which do not generate profit if they remain sitting on warehouse shelves.

That is why effective inventory control can lead to better cash flow and increased profits.

Although there are many different inventory management methods to use, we have listed the most common and successful techniques below.

Establishing par levels

The first thing you should do is establish par levels for your products, which is the minimum quantity of each item sold that must always be available.

You’ll know it’s time to order more when your inventory falls below this predetermined level, which varies depending on the product.

These levels are based on how quickly the item is sold and how long it takes to return to stock.

Although establishing parity levels may require some initial research and work, defining them will systematize the ordering process and help you make faster decisions.. 

Remember that things can change over time; therefore, check your parity levels throughout the year and make any necessary adjustments.

First in, first out (FIFO)

First-in, first-out (FIFO) is one of the most straightforward approaches to inventory control.

This happens when a retailer fulfills an order with the item that has been on the shelf the longest.

Basically, your oldest stock is sold first – not the newest.

While this is essential for perishable items, it is also good practice for non-perishable items.

Factors such as design and packaging features often change over time, and the last thing you want is to end up with something outdated that nobody wants to buy.

– How to improve order fulfillment in e-commerce

Last in, first out (LIFO)

At the other end of the spectrum, we have the method known as “last-in, first-out” (LIFO), which is the opposite of FIFO.

This inventory management method assumes that the most recently purchased product should also be the first to be sold.

This methodology is justified for inventories that turn over very quickly, in periods of no more than a few months, as it does not present the risk of loss.

This is not advantageous for inventories that have a very long turnover because the products that entered first will tend to deteriorate, or at least, expire.

If the inflow and outflow are insufficient to remove these products from inventory within the appropriate timeframe, the LIFO method should be replaced with FIFO to avoid losses and damage.

Managing relationships with suppliers

Clear and proactive communication with suppliers is part of successful inventory management.

The market is constantly changing, and the ability to return a slow-selling item to make room for a new product, quickly replenish stock of a particular commodity, solve manufacturing problems, or temporarily expand your storage space depends on how willing your suppliers are to work with you to resolve these potential issues.

Keeping the lines of communication open means that you can know if a product is delayed or to inform them when you expect an increase in sales so that they can adjust production.

In short, maintaining a good relationship with your suppliers can boost your sales.

Utilize open-to-buy (OTB) inventory planning

Open-to-buy (OTB) inventory planning, also known as merchandise management, helps retailers stock the right quantity of the right products at the right time, showing the difference between the amount of stock available and how much is needed.

The OTB formula shows the amount of inventory you can buy:

Planned sales + sales and discounts + planned inventory for the end of the month – inventory for the beginning of the month

Normally, this monthly calculation can help you move more product quickly because it requires less commitment and investment.

This is a particularly effective technique for retailers who frequently bring in products early in the season and put them on sale at the end of the season, as well as for those who simply want to keep their inventory fresh and interesting for their customers.

Forecast demand

A critical part of inventory management is forecasting demand – which is no easy task.

There are numerous factors that influence this prediction, and you can never be absolutely certain of what’s to come, but that doesn’t mean you can’t try to get as close as possible. Here are some factors to consider:

• Market trends
• Sales in the same period last year
• Current year growth rate
• Seasonality
• The general state of the economy
• Sales guaranteed by contracts
• Planned promotions and advertising expenses

– How to forecast demand in e-commerce

Trust the right partners to help your e-commerce business

With a suitable inventory management system, you can do everything from reducing overhead costs and forecasting future sales to preparing your business for the unexpected and maintaining positive revenue.

There is no single “right” technique, but by trying some of the ones we’ve discussed here, you’ll be able to more easily discover which one works best for your online store.

To maintain focus on sales and business development, the best solution is to rely on the right partners to assist with other operations, such as a well-trained team and experienced delivery professionals.

Delivery365 app specializes in delivery solutions for e-commerce, offering advanced order tracking technology, its own freight quoting system, and secure online payment methods.

A platform ready for you to create your online store, the app. Delivery365 offers diverse solutions to meet the specific needs of each business, ensuring fast and reliable deliveries.

To learn more, visit our website, discover our options and ensure the smooth operation of your e-commerce business.