Your Essential Guide to Retail & eCommerce Inventory Management

February 15, 2021 - 12 minutes read

How to optimize your inventory tracking & management strategy.

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When it comes to your eCommerce and retail business, gaining the ability to track, optimize, and regulate your inventory can mean the difference between surviving and thriving in an increasingly competitive landscape.

Knowing how to track and manage your inventory effectively will drive down unnecessary costs while fulfilling more orders successfully (and when you do that, you will boost your bottom line). 

Studies show that most businesses’ inventory management processes are accurate just 63% of the time. And, a third of businesses will miss a shipment deadline by selling an item that isn’t even in stock.

Inventory management is important, and to guide you to success, here we’ll look at essential tips and best practices.

But first, let’s consider the benefits.


The benefits of a solid inventory management strategy

By understanding inventory management best practices and optimizing your supply chain to ensure you fulfill the right products in the right quantities and at the right time, you will see your customer loyalty rates soar.

By handling, managing, and tracking your inventory with pinpoint efficiency, you can:

  • Reduce costs, improve cash flow, and enhance your bottom line.
  • Make informed, accurate forecasts and predictions based on stock or product demand.
  • Order stock in a smarter, more cost-effective way.
  • Optimize your processes to improve communication and save your staff time.
  • Track the state of your inventory processes in real-time with dedicated software.


What to avoid: common inventory management mistakes

Before we look at tips and best practices, it’s important to understand what to avoid when it comes to successful eCommerce and retail inventory management. Steer clear of these two common mistakes and you will significantly improve your inventory management and tracking processes.

Excess stock

While this sounds obvious (why would you want to buy too much stock?), it’s an issue that echoes through stockrooms across the nation.

Many growing eCommerce or retail business owners get concerned that they won’t be able to handle sudden surges in demand on certain sale items, and they overstock. This ‘playing it safe approach’ usually works out to be a waste of time, money, and space.

Another issue with buying excess stock, known as safety stock, is that it can cloud your judgment. When you panic-buy specific items, you narrow your vision, increasing your chances of making poor investments on stock that is unlikely to sell at all. 

To avoid crowding your stockroom or investing in the wrong items, you should take the time to analyze your stock levels and sales at set timeframes. It’s also best practice to conduct data-driven demand forecasting so you can make accurate, informed ordering decisions.

The just-in-time approach, where you only order inventory items when needed, is often effective. The reorder point formula (ROP) is also worth considering as you can set a minimum level notification for various items to keep your store well stocked without overdoing it.

Poor communication

When it comes to fluid stock management, communication is key. One of the most progress stunting errors in inventory management is a lack of effective communication between your internal departments as well as your partners and suppliers. 

Remember, inventory management is about maintaining order and efficiency while keeping your supply and fulfillment chain running. Without frequent communication, clear-cut processes, and the right tracking processes, you will become flooded with errors, delays, and mistakes that will cost your business dearly. 

But don’t worry; in the next step of our inventory management journey, we’re going to discuss how to overcome these common challenges.


Essential inventory eCommerce & retail inventory management best practices

The importance and benefits of effective inventory tracking and management are clear. Here is a rundown of essential inventory management best practices to help you streamline your strategy and improve your business operations.

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Create a stock hierarchy with the ABC system

To prioritize your stock effectively and create a hierarchy that will allow you to store and manage your products better, you should adopt the ABC system:

A: High-value products with a lower sales frequency.
B: Moderate value items with a medium sales frequency.
C: Low-value products with a high sales frequency.

Usually, in eCommerce or retail, the high-value items require the most attention when it comes to stock handling, management, and analysis as the turnover is notably lower than products in category C. 

Working with the ABC model, you will create solid foundations for your various inventory management processes, saving time and reducing unnecessary errors in the process.

Nurture your supplier relationships

In addition to categorizing your inventory for improved stock management, nurturing your supplier relationships is something you should focus on consistently.

Whether you need to fix an issue with a faulty batch of stock, replace poorly selling stock with alternative products, or solve a fulfillment problem, maintaining a solid relationship with your third-party suppliers will increase your chance of responding to challenges in the best way possible.

To keep your supplier or vendor relationships happy and healthy, you should focus on these two core areas:

  • Communication – Communicate with your suppliers regularly, sharing any relevant information or updates on a weekly or bi-weekly basis, if possible. Contact your suppliers leading up to annual holidays like Christmas and Thanksgiving—doing so will demonstrate your commitment while building rapport.
  • Partnership – Treat your supplier as a partner rather than a transactional relationship. Where possible, you should hold meetings or catch-ups where you share ideas or strategies on how to improve your processes and create emergency response initiatives.

Adopt the First-in-first-out (FIFO) or last-in-last-out (LIFO) approach

A powerful framework for managing your inventory, the FIFO or LIFO approach will improve your handling efficiency while reducing unnecessary costs or expenditure. Here’s how it works:

With FIFO, your oldest stock (first-in) is sold first (first-out), rather than your most recent stock items. With LIFO, the opposite applies. 

The FIFO approach is ideal for keeping your inventory flowing efficiently, and the LIFO approach is perfect if you deal with a range of perishable goods sporting a short shelf life. Either approach will optimize your system and help you keep an accurate handle on costs.

Choose which approach is best for you, depending on your business model. Whichever approach you decide to adopt, ensure your stockroom or warehouse is well organized, with a tracking or labeling process that allows you to keep everything safe, well stored, and easy to locate. Which brings us to our next point.

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Work with the right data

To keep your stock room, warehouse, or retail store well organized and consistent, you need to work with the right data.

By tracking and analyzing the right inventory management key performance indicators (KPIs) and metrics, you will be able to manage your supplier relationships effectively, create stock forecasts, measure your performance, and keep on top of your ABC, FIFO or LIFO initiatives.

As a guide, here is the essential inventory management KPIs and metrics you should track for ongoing growth and success:

  • Stock to sales ratio: The ratio of stock for sale compared to the stock you have sold over a certain timeframe.
  • Sell through rate: The percentage of items or units sold during a specific timeframe.
  • Weeks on-hand: The length of time it takes for specific items or products to sell.
  • Inventory turnover rate: A clear-cut ratio of how many times items of stock were sold and replaced over a specific timeframe.
  • Backorder rate: The number of backorders as a percentage of total orders demonstrates how well you stock products that are currently in demand.
  • Rate of returns: The percentage of sold and shipped items that your customers return.
  • Costs of carrying inventory: A percentage that represents cents per dollar spent on inventory overhead each year.
  • Economic order quantity (EOQ): A formula that calculates the ideal quantities of stock you need based on a range of common inventory management variables.
  • Minimum order quantity (MOQ): A calculation of the minimum amount of stock your suppliers will expect you to order before permitting a sale to your business. 


“What gets measured, gets managed.”— Peter Drucker


Work with the right inventory management software

To track and analyze your data in a way that offers real value to your retail or eCommerce business, working with the right tools is essential. Fortunately, we live in a tech-driven digital age.

Modern inventory management tools offer a wealth of insights that will empower you to make accurate stock forecasts and cost-efficient improvements to your inventory management initiatives, while also responding to unexpected issues and fluctuations with confidence.

Our intuitive and fully integratable inventory management app makes it easy to track, analyze, and fulfill orders across your website as well as all third-party marketplaces from one simple dashboard. You can also use the app to drill down into important data, analyze trends, make accurate orders, and streamline every aspect of your fulfillment processes.

To find out more about how we can help you improve your inventory management strategy, contact us. For more business-boosting advice, read our definitive guide to the art of upselling.