Inventory management goes beyond simple arithmetic.
The knack behind inventory management is rather complex: you need to take control of your stock every minute, everyday. You need to have quick answers to questions like how many items are currently in the warehouse? Is there a correspondence between the stock levels and online orders? How many products are coming in and out of the warehouse every day?
If you don’t have the right answers to these questions, you are lagging behind and creating problems for your eCommerce business.
According to a report by Wasp Barcode Technologies, 43% of small businesses don’t even track inventory or do so manually and that’s insane.
Even if you’re don’t own a big enough business, the sooner you introduce inventory management strategies, the faster your eCommerce will grow.
And this goes for every eCommerce platform including Magento, PrestaShop or WooCommerce.
Although, a business’s available stock on any given day is just a snapshot of its inventory, managing inventory on a regular basis and comparing multiple periods of inventory to one another can help an eCommerce business with long-term decisions regarding its supply chain.
And yes, we aren’t saying this out of elsewhere, but 17+ years of experience and of course some proven facts.
Recent research shows that poor inventory management costs U.S. businesses $300 billion in annual revenue.
So what should be done to eliminate the chances of any losses? Obviously, its effective inventory management. Here are
The Techniques of Managing Inventory
First In, First Out
As the name suggests, First In, First Out (FIFO) means the first products you receive in your inventory should be the first ones to be shipped. This ensures products don’t sit in your inventory for too long before they’re delivered. Though great, especially for perishable items including food, but it can be applied to all items. So a box received in March doesn’t sit in your warehouse for months while a box received in July gets sold instead.
Though it sounds easy, but requires some management at your end, specially if you dealing with non-perishable items like clothes. Whether you decide to use date tags or bar codes or organize your storage space so that the older products are in front or located near the packaging area, a well-organized system help you reap great results with FIFO.
Pro-tip: If you are a PrestaShop store owner and are unable to keep a check on your inventory, immediately switch to PrestaShop Admin App.
To stay on top of your changing inventory needs, it’s essential to know how much of each product you need at all times. This, in turn, helps in figuring out the right time to order items and avoid unnecessary wastage.
So, even if you use the JIT method (which we will discuss below), where you only stock what your customers order, you will always have the product available.
Further, when your stock drops below the minimum, you know to place an order right away. This takes away the guesswork away since you’ve already anticipated the when and how.
ABC Analysis groups a business’s products into three categories based on a product’s importance.
- Category A: products that are high in value but low in quantity
- Category B: products that are moderate in value and moderate in quantity
- Category C: products that are low in value but high in quantity
Also known as “selective inventory control,” this inventory management technique allows businesses with diverse product lines to easily prioritize the contents of their inventory. It requires a close eye on buyers’ interest, a check on how many products are worth keeping in stock and the associated costs of stocking them to the value they bring in sales.
Snowboards, for example, might always have the high value of Category A but inherit the high quantity of Category C during the winters. So, depending on your company, you can assign different variables to the items that have a direct impact on your cash flow.
Just-In-Time (JIT) Method
As you might guess from its name, Just-in-Time inventory means you order items at the last minute instead of in advance so the volume of your inventory is more or less equal to the number of orders you’re filling. Yes, there’s some risk involved as unpredictable sales can mean you run out of inventory and can’t meet your demands. Likewise, the success of this method relies heavily on a good supplier relationship who delivers promptly and on time.
Pro-tip: This isn’t for everyone. Sustaining JIT over the long term requires you to keep a close check on buying behavior.
In a way, dropshipping is the anti-inventory. It ships products from the manufacturer directly to the customer without the business ever storing the product itself. It poses an advantage to businesses who don’t (yet) have their own storage space. However, since you aren’t managing your deliveries, communication with the shipping party is critical so that the products are delivered on time.
Pro-tip: Maintain seamless communication with the seller to avoid unhappy customers.
Whatever technique you might opt for, the worst thing you could do is to skip it altogether. Investing time and efforts in auditing your inventory and figuring out your sales patterns are steps to a successful eCommerce business.
Moreover, as your business grows, managing your inventory manually seems impossible. You could consider investing in inventory management software or can opt for a comprehensive eCommerce platform like PrestaShop.