Inventory Management in eCommerce: Challenges & Solutions

Inventory Management in eCommerce: Challenges & Solutions

eCommerce businesses are often seen to be highly invested in the digital and technological upgrades owing to the space in which they operate. And while they spare no effort in offering exceptional user experiences and scaling their digital transformation initiatives, all of it can be unrewarding if the product fails to reach their customer in time. A situation that is likely to arise if the inventory management system hasn’t been streamlined. Implementing a sound inventory management is the first and most crucial step to a successful eCommerce business.

A 2020 global industry professionals survey by Statista shows that 45.1 percent of respondents consider warehouse automation one of the most important areas to invest in.

Efficient Inventory Management

Various types of inventory management methods such as automating warehouses, forecasting demands, and employing the right eCommerce inventory management software can organize the buying and selling of stock.

What is Inventory Management for eCommerce?

Inventory management is a system that streamlines the arduous processes of tracking stocks and their movement to and from the warehouse, which includes delivery, returns, and so on. The system offers real-time updates and helps with precise data to reduce the time and effort spent in manual tracking to manage inventory levels correctly. Several cloud solutions systems are available in the market that are suitable for each type and size of business to monitor everything on a single platform. An ideal solution should be able to look into all the factors, including the back office (warehouse tracking, employee management, etc.), as well as the customer side of it (delivery dates, return tracking, etc.).

Top Challenges in Inventory Management

Irrespective of the size of an eCommerce business, there are a common set of both internal and external factors that point towards the importance of inventory management. Here’s a look at the reasons that can slow down the movement of goods and their sales.

1. Overstocking and Overselling

The market is certainly dynamic, but a good eCommerce business learns to gain a fair grasp on the shopping patterns of their target audience and accordingly stocks goods. Failing to do this leads to a complete inventory waste in case it’s perishable, apart from having to manage spaces in warehouses for storing the dead stock.
Alternatively, accidental overselling is even more dangerous because it reflects poorly on the customer experience, specifically when they are made to wait longer to get the product. This usually happens when there is a disconnect between what’s displayed on the website and the minimum viable stock.

Over 70% of online shoppers would search for an item elsewhere if it was unavailable, rather than wait any length of time for it to come back in stock.

2. Manual Management

Enterprises often start with spreadsheets and various other scattered tools to monitor their stock, but manual management must not be encouraged even if a business is in its early stages of growth. Any venture is bound to advance and scale with time making manual control not just difficult but also redundant. Additionally, when your business starts to tie up with multiple online sellers, the demands can see a sudden surge leaving no scope for manual management of any kind. In such a case, the products are stored at multiple warehouses across cities and need to be continuously monitored. Not to forget the possibility of human errors when trying to keep a check on the data and inventory manually.

43% of small businesses do not track their inventory at all (or use a manual process to do so).

3. Lack of Clarity

Lack of visibility is another challenge that eCommerce business owners encounter, especially once the business starts to expand. The most common challenge is the confusion around the sales, orders, and inventory, particularly in a scenario where they are selling through multiple channels. Businesses also partner with various manufacturers and warehouses to ensure that the supply chain management is smooth without any shortage of inventory. Hence the goods are scattered across geographies, and keeping track of all this data can be quite taxing. This confusion can hamper the ability to conduct seamless sales and eventually affect the customer experience.

43% of retailers rank inventory management as their number 1 day-to-day challenge.

Inventory Management Techniques to Boost Sales

A reliable inventory management system is inevitable to mitigate the risks of a broken supply chain and lousy customer experience. Here’s a look at the factors that can help businesses strengthen their inventory management.

1. Forecasting Demand

Anticipating demand might seem doable by analyzing the data gathered through an inventory management software or delivery software management tool. However, businesses should ideally look at long-term forecasts to add more stability to their supply chain management. They should also account for unanticipated events and the major fluctuations in the market that they bring along. From the seasonal shifts to the rise in competition, several factors can affect the product demand. Looking at the sales of the previous years, leveraging data from Google Trends and considering the external variables can help businesses successfully map a predictable demand-supply pattern.

Out of Stock Items


2. ABC Analysis

ABC analysis, also referred to as the 80/20 rule or Pareto analysis, is a method to prioritize goods based on their importance. While the products might not always be easy to classify into these categories, it helps keep a track and better control of the high-value goods. Each category can be managed separately while monitoring what sells best in which group.

Category A – Products of high value but low in quantity. Extremely important to the business.
Category B – Products of moderate value and stored in moderate quantity.
Category C – Product of less value but stored in high quantity. Least important to the business.

ABC Analysis

3. Dropshipping

Dropshipping is a management method where there is, in fact, no inventory in store at all. This method picks the products from the manufacturers and directly ships them to the customer without managing a warehouse. The technique can be a good solution for businesses that want to focus on cost-cutting or cannot maintain enough space to store goods. Nevertheless, having to pick it from the manufacturer each time demands constant communication and a good supplier relationship. A business being operated with practically no inventory at all can be a risky decision and can hamper the customer experience in case of delays.

Dropshipping Explained


4. JLT Methodology

This methodology depends on customer demand/behavior and stocks a product when a customer orders it; hence, the inventory and orders are more or less equal at any given time. This way, businesses have to manage only those many products as the orders received. JLT involves research and analysis, and businesses keep a close watch on the seasonal demands, buying patterns, and geographical factors to derive a fair idea of product demand. A wrong prediction of the market can turn into broken deliveries if the products are not in stock with the supplier.

Benefits of Inventory Management- Final Thoughts

Successful businesses implement strategies that help them make the most of the opportunity. eCommerce is an enormous opportunity for every product available today, however, only if it is done right. Unlike the brick and mortar stores, selling online involves many too many factors to supervise and maintain. Every business must identify the challenges in managing its inventory and implement suitable solutions (some of which are mentioned above) to resolve the supply-chain issues and streamline last-mile deliveries. Inventory is at the center of the business, and the right use of technology can certainly simplify the inventory management process, and subsequently organize everything around it.

Build eCommerce Website

Shaveta Wadhwa

About the Author

Shaveta Wadhwa works as a Tech Lead (PHP) at Net Solutions. She has over eight years of experience in PHP and has worked on eCommerce platforms such as Magento, CMS, such as Wordpress and Drupal, and frameworks like CakePHP and CodeIgniter. Shaveta is a Magento Certified developer who loves debugging codes and finds herself always up for problem-solving.

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