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What is Inventory Management & Why Is It Important For an eCommerce Website?

18 Nov 2022
What is Inventory Management & Why Is It Important For an eCommerce Website? Image

A profitable e-commerce business needs a website that works well and is attractive, a cost-effective shipping scheme, and information about its inventory levels and locations. A proper inventory management system Is required for the smooth running of the business.

Unfortunately, the majority of these shops initially make costly inventory blunders, such as failing to implement an inventory management system. In this article, we will discuss the importance of the eCommerce inventory management system in 2022. 

Table of Contents

1. What is Inventory Management?

2. Importance of inventory management For an eCommerce business

3. Importance Of eCommerce Inventory Management in 2022

4. Advantages Of eCommerce Inventory Management 

What is Inventory Management?

In case you are wondering what is Inventory management, then you've come to the right place. In general, Inventory management assists businesses in determining which and how much merchandise to order at what time. It keeps track of merchandise from purchase to sale.

The technique identifies and responds to trends to guarantee that there is always enough stock to fulfill client orders and that a shortfall is properly announced. Inventory becomes revenue if it is sold. Inventory consumes cash before it is sold. As a result, having too much stock costs money and reduces cash flow.

Importance of inventory management for an eCommerce business

There are many Inventory management benefits that could influence you towards it. The goal of eCommerce inventory management is to aid retailers in expanding every facet of their operations. Every major firm understands the importance of inventory.

Business owners may optimize warehousing operations and make wiser financial decisions thanks to technology.

Everything else comes into place once you are aware of your inventory levels. Excess inventories can cause a lot of problems for the company owner.

Any business's foundation is effective inventory management. Both the front end and the back end of your activities are served by it. Order management is crucial to effective inventory management.

One of the major inventory management benefits is that sound Inventory management software can also help in maintaining the desired inventory level which is very important for small businesses.

It is a crucial component of the supply chain on the back end, frequently serving as the go-between for your suppliers and customers.

For instance, it ensures that your front-end amounts are exact so that you don't lose consumers as a result of inaccurate information.

The cornerstone of any firm is efficient inventory management. It benefits both the beginning and the finish of your activities. inventory management process should be clearly stated.

It plays a significant role in the supply chain's back end, frequently acting as a middleman between your suppliers and customers. This guarantees that your front-end figures are accurate, so you don't lose clients due to false information.

Why is inventory management necessary in 2022?

It's crucial to evaluate your company's demands in order to discover an appropriate solution before you start looking for and implementing an eCommerce inventory management solution. Why? Because almost every part of your business operations are impacted by inventory management. 

It provides visibility over inventory counts and whereabouts from the time it enters your warehouse until it reaches your client, first and foremost.

Products that are overstocked, understocked, out of stock, or completely absent can all be seen more clearly by users. You can more accurately plan inventory purchases and get ready for possible shortages with this level of visibility.

A dependable inventory control system helps your customers have a satisfying shopping experience. Inventory counts are always precise since the system automates inventory procedures and updates quantities throughout your sales channels.

As a result, online counts are accurately advertised, giving customers a better chance of really obtaining the right product. A customer loss resulting from a poor purchasing experience is the absolute last thing you want.

Inventory Management advantages

Here are some of the top Inventory management advantages that one should definitely consider:

1. Keep Track Of Your Inventory

If you have a large or growing business, you'll need a strategy for adding items to your catalog. A single warehouse for one product would not make sense

When companies choose to employ numerous warehouses, especially when it includes cross-border shipments, this complexity multiplies tenfold. 

Every product's location is disclosed by an e-commerce inventory management system, and you are informed when supplies are running low.

An inventory management system provides deep insight into warehouses, making it easy to manage warehouses near and far.

2. Reduce Stock Wastage

While having too little inventory can be a concern, having too much stuff on hand increases the likelihood that you won't be able to sell it all. Good inventory management requires control of wastage.

Reporting (such as historical sales reports) provides users with information to help them decide what to buy so they don't end up with deadstock or unnecessary inventory in the first place.

In comparison to using a manual spreadsheet, they feel more prepared and competent to make informed reorder decisions based on sales data.

Inventory management systems help you keep track of your inventory and ensure that products are fresh. By doing this, the need for additional storage fees and steep discounts to get rid of goods is removed.

3. Retain More Customers 

A customer will frequently wish to visit a website again and make the same purchase. An efficient inventory management system combined with your eCommerce platform's billing and login features will improve user experience by making it simple for customers to see their order histories and reorder items as needed. 

4. Efficient Handling Of Your Business 

Imagine the time it would have taken warehouse workers before the digital revolution to learn about an order, find the item or items it included, and package it for distribution. If your inventory management is sound, what used to take a lot of labor hours can now be done digitally.

It might be difficult for warehouses to operate if there are errors in your system or missing stock items. You'll save time and get more use out of your staff with a robust inventory management system.

eCommerce Inventory Management Strategies 2022

If you want to easily manage your inventory & products, create an eCommerce website on JoonWeb & get access to all the latest eCommerce features. 

There isn't a single eCommerce inventory management solution that works for everyone. Due to its distinct requirements, every organization uses a different approach to keeping track of its inventory. Look over the available alternatives to see which strategy could work best for your business model.


1. Just-in-time inventory (best for small eCommerce retailers)

The just-in-time inventory strategy, often known as JIT, is appropriate for your company if you don't need to maintain a significant amount of inventory on hand. Businesses that only need to stock orders as they are purchased by customers use this method. Usually, the number of orders fulfilled equals the volume of inventory.

A great example of the JIT strategy is businesses that sell seasonal goods. They just place orders for what they need to fulfill orders when the demand for their goods rises. They can empty the shelves when the season comes to an end without worrying about losing money from dead stock.

This approach is not suitable for businesses that rely on consumer trends. Stock-outs can be expensive amid unexpected demand spikes, as the ones many sectors experienced in 2020 during Covid-19. 


2. FIFO (First in, first out) Inventory Management 

Retailers who sell products with expiration dates strongly prefer the first in, first out method. First in, first out, or FIFO, refers to the practice of fulfilling orders for clients using the first products that arrive at a warehouse.

It applies to more than simply businesses that sell perishable items. If they wish to get rid of the merchandise quickly, anyone can use this inventory management approach.

However, pay close attention to the pricing trends of your products and raw materials. When the cost of goods sold is higher than the cost of products received, it can lead to overstated profits.

Retailers who sell perishable goods may also utilize first expired, first out (FEFO) and last in, first out (LIFO) inventory strategies. 


3. ABC Product Analysis

Using the ABC Analysis approach, inventory is divided into three categories. The profitability of each SKU is the basis for each category.

Inventory falling under Tier 1 could be expensive yet sparsely stocked. Inventory that is modest in value and quantity may fall under Tier 2. Finally, Tier 3 can comprise stock that is both cheap and plentiful.

This kind of inventory cataloging makes it possible for your company to sell a variety of product lines. It is crucial because diversified product lines allow for specialized replenishment plans for each category/tier type. 

For instance, you wouldn't employ the same fulfillment techniques for both if you were a footwear retailer selling INR 2,000 shoes and INR 50 socks in the same brick-and-mortar location or online. The value of one product exceeds that of another. 


4. Safety Stock 

Keeping additional goods on hand in case of random demand spikes is a common inventory management technique employed by merchants.

Contrary to the JIT approach, safety stock enables you to maintain steady output by preparing for unforeseen delays and demand changes. 

Retailers use safety stock to prepare for things like inaccurate forecasting, shifting consumer demand, and varying lead times for different raw materials.

Because you have extra inventory on hand when you hold safety stock inventory, you can overcome these challenges. 


4. Dropshipping

One of the most well-liked and accessible inventory management techniques is dropshipping. Because owners don't touch the merchandise, it's not precisely an easy inventory procedure.

Instead, as the company owner, you execute orders from manufacturers and ship them directly to customers. The inventory is entirely ignored by you. 

First-time eCommerce retailers that need to grow their business quickly but lack the funds for a warehouse or storage facility commonly adopt this strategy. 

The downside of dropshipping is that you can't control the customer experience, even though it may seem straightforward.

After a buyer makes a purchase, the manufacturer does the majority of the work, therefore they get to decide how the goods are stored and distributed. A customer would look to you for explanations if they received a defective or wrong product.

You can learn more about Dropshipping here

You wouldn't use the same fulfillment techniques for selling shoes and socks if you were a retailer. This would be the case whether you were selling in a brick-and-mortar location or online.

Different fulfillment techniques would be used for selling shoes at INR 2,000 and socks at INR 50. This would be the case for both brick-and-mortar and online retailers.

Inventory management is in charge of all stock in a corporation. Supply chain management oversees the entire process, from supplier to consumer delivery. Inventory control includes warehouse management, which focuses on the stock in a single place.
The inventory management process must be efficient, cost-effective, and precise. If you don't have all of those components in place, you risk failing to satisfy client demand and losing money with your eCommerce fulfillment operations.
inventory Management Software is defined as software that tracks basic inventory data and includes the concepts of ERP and MRP software. Advanced Planning and Scheduling (APS) organizes the raw materials and components needed in the production process, and analog elements are employed in warehouse management systems. The term Inventory Management system refers to a distinct category of specialized tools for gathering and analyzing inventory management information or planning.
By Harkirpal Singh
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