Inventory Management For Your Ecommerce Business

December 21, 2010 · by Shirley Tan

Inventory refers to the total amount of goods a merchant has on hand at any given time. It’s easy to get caught up in the other aspects of running your ecommerce business, but don’t neglect inventory management. Inventory will be the largest investment in the asset column of your balance sheet, therefore its crucial to run a your inventory management most effectively for your business to be profitably. Retailers should know the exact number of items they are keeping on their shelves whether it’s a brick and mortar shop, an online store, or both.

You can eliminate some of the hassles of inventory management by opting to have the supplier drop ship or deliver goods directly to the customer. However, many retailers still prefer to have complete control by either stocking inventory completely or using a hybrid model of both (I prefer 30% drop ship/70% in house to keep a good mix). Whatever method you use, it helps to know the ins and outs to keep your business running smoothly.

Some of the other benefits of stocking inventory in house:

• You are in charge of your own shipping department, meaning you can set shipping prices and resolve issues, such damaged shipments, directly without making the customer wait for the manufacturer’s response.

• You know exactly which products are in stock, making it easier to develop special promos for customers based on inventory stock levels.

If you choose to stock inventory, your profit from the items should be substantial enough to justify the holding costs (not to mention insurance and overhead). Incurred while carrying the inventory of goods, holding costs directly relate to the facilities and equipment required for storage: Are you renting warehouse space? Do you need special equipment to move the products during your order fulfillment process?

To further improve inventory management efficiency and minimize associated costs, consider:

• Investing in technology – a strong inventory management backend that includes bar codes, allows you to streamline your inventory process. A streamlined process can lead to accurate planning as well as improved forecasting and product turnover, which leads to increased profits and better customer service.

• Using an inventory management system will make it easier to integrate your products with the newest smart phone applications that allow consumers to compare prices and shop using mobile phones.

• Measuring inventory turns – with the right software and proper techniques, you can achieve more frequent inventory turns, which boosts profits.

• Managing vendors – maintaining good relations with vendors allows you to negotiate terms and conditions favorable to your business. Understanding your vendors’ strengths and weakness will help you better manage and plan your buys.

• Viewing inventory for what it truly is: money sitting idly in your stockroom. This will motivate you to make decisions regarding excess inventory. The longer products sit, the more it eats into profits.

• Eliminating obsolete inventory in a timely manner - set an agreed upon benchmark and procedures to get rid of slow sellers or dead inventory. Work with merchandising and marketing to liquidate dead inventory though gift with purchase (GWP) type promotions.

• Reducing inventory items – maintain just enough items to meet customer demand and limit the quantity of low-selling product.

• Matching up pricing to avoid issuing purchase orders with incorrect pricing, which could lead to shipment delays and accounting problems down the line.

The amount of warehousing space a business requires depends on the type and size of merchandise and most importantly, the turnover rate of a product. Low turnover rate can eat into profits. To maximize storage capacity and increase profitability, a retailer should organize inventory into different sets, from the top-sellers to rarely sold items.

A good rule of thumb: Always have more than enough stock on items that sell fast. For example, if you are selling books, try overstocking novels by bestselling authors and, unless it falls within your niche, do not overstock books that are universally panned.

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Category: By Merchants, For Merchants | Tags: Inventory