7 Inventory Management Techniques for Your E-Commerce Business

Efficient inventory management and e-commerce success go hand in hand. Like a meat pie and sauce, you just can’t have one without the other – it just doesn’t work! If you’re an e-commerce business owner, you’ll know that the way that you store, sort, manage, and distribute inventory play a key role in how efficient your business can be. Whether you’re a small operation just getting started with a drop shipping e-commerce model, or you’re a large business that has been successfully operating in the e-comm space for years, it’s important to implement techniques that help you to effectively manage stock. In this article, we’ll take a look at 7 different inventory management techniques that e-commerce businesses are implementing to improve their inventory management and streamline business operations.

1. Drop Shipping

If you’ve been on Reddit, Tik Tok, or Instagram, you probably have a preconceived idea of what a drop shipping business looks like. Cheap products imported from south Asia and sold in a western country for a hefty profit. But that’s not all drop shipping models – there are household e-comm businesses that still operate on this model.

Drop shipping is an ecommerce inventory management technique that enables businesses to sell products without actually holding the inventory. When a customer places an order for a product through a website or through a platform like Amazon or eBay, the business will then contact the supplier who ships directly to the customer.

Drop shipping allows businesses to mitigate risk by not having to invest in inventory or manage warehousing or shipping and logistics.

So, no risk, no inventory, and no need to store or handle the products. You’re probably thinking “Why doesn’t everyone operate on a drop shipping model?”. Here’s a quick look at the pros and cons of drop shipping as a business model for e-commerce fulfilment.

Pros of dropshipping

Low barrier to entry
No need to carry inventory
Flexible
Location independent
Scalable

Cons of dropshipping

Lack of inventory control
Returns handling can be tough
Easy to copy the business model
Extremely price sensitive

The truth is, drop shipping can be unpredictable and unreliable. Because you are not handling or distributing the products, there is often issues with timeliness and quality control that you cannot control. If your supplier is running out of stock or running late on deliveries, then it can quickly impact your business reputation.

2. Third Party Logistics (3PL) Fulfillment

Third party logistics fulfillment or 3PL fulfilment is an ecommerce inventory management technique that can be used to streamline your online business. 3PL fulfilment means that you engage a logistics provider to store, shop, and manage your products.

The upside of 3PL ecommerce inventory management is that you can spend more time focussing on your business, and less time focussing on the day-to-day fulfilment, stock management, and shipping of products.

Pros of 3PL Fulfilment

Cost saving
Streamlined business operations
Flexibility
Increased scalability

Cons of 3PL Fulfilment

Costs can be higher than in-house
Storage costs for unsold goods
Less control over fulfilment process

As the old adage goes – you are only as strong as your weakest link. And when it comes to 3PL fulfilment services, this adage is spot on. When you choose a 3PL provider for your e-commerce business, it’s important to find a business with relevant experience and facilities (warehousing, trucks, returns procedures) that can handle your business logistics.

3. First In, First Out Inventory Management (FIFO)

First in, first out (FIFO) inventory management is an effective way to ensure that your inventory is properly managed.

FIFO inventory management for e-commerce businesses ensures that the first items that you receive are also the first items to be shipped out. FIFO helps to ensure that you don’t have old stock sitting around that becomes outdated or even obsolete – which is critical if you sell a product that is driven by trends, timeliness, or an expiration date (think: food).

There are a few different ways that e-comm businesses will implement a FIFO inventory management system. Firstly, they might use a software system that helps to track inventory levels and automatically updates and replenishes items as they are shipped. Another option may be to physically label packages with a date and time that they were received and then ship items in the order that they are labelled.

Pros of First In, First Out Inventory Management

Avoid products going out of date or becoming obsolete
Simplifies the inventory management system
Accurate reflection of real life selling

Cons of First In, First Out Inventory Management

Higher inventory management costs
Difficult and costly to implement effectively
May not be the most profitable way to manage inventory

The suitability of FIFO inventory management comes down to your business and product offering. If your products carry a limited lifecycle like electronics, or they have a best before date, then FIFO can be an effective way to cut down on wastage.

4. Batch Tracking

Batch tracking is a powerful inventory management technique e-commerce businesses can use to effectively track stock levels and ensure that orders are fulfilled accurately and efficiently.

Batch tracking means that inventory management is handled by grouping items together in batches according to when they were received or shipped. This information is then tracked so that businesses can have a better understanding of their stock levels.

Batch tracking means that businesses can identify discrepancies and issues and make necessary adjustments to their stock levels. Typically, batch tracking is used in conjunction with other methods such as cycle counting to provide a more accurate snapshot of stock levels and on-hand inventory.

Pros of Batch Tracking

Track multiple items at the same time to save money
More accurate than tracking single items
Get a 360-degree view of inventory

Cons of Batch Tracking

You may need to invest in technology or software
There is a learning curve for employees to use the software

One of the most important reasons that e-commerce businesses choose batch tracking is because it allows ecommerce businesses to identify issues with their inventory before they become larger problems.

5. Optimise Inventory Turnover Rates

Inventory turnover is a measure of how quickly a company sells through its inventory. The higher the turnover, the faster the company is selling its products and the healthier its business is. For ecommerce businesses, optimising inventory turnover rates can be the key to success.

Optimising inventory turnover rates for your ecommerce business is about reducing the amount of stock (dead assets) that you hold on hand. Stock can quickly tie up business cashflow and inhibit your business from spending and investing that money in other facets of the business.

Pros of Optimising Inventory Turnover Rates

Improve profits and reduce dead stock on hand
Improve customer satisfaction by stocking the right products
Keep your business agile
Reduce overheads and stock hoarding

Cons of Optimising Inventory Turnover Rates

Costly to maintain
Requires continous stock replenishment
Logistical Challenges

Inventory turnover optimisation empowers businesses to make better decisions about what to stock. Knowing your hot-sellers and understanding which lines are a financial liability mean that ecommerce businesses can make better, more informed buying decisions.

6. Use Cloud-Based Inventory Management Technology

Technology has changed the way the ecommerce businesses operate and manage stock levels. Cloud based inventory management technology enables ecommerce businesses to have greater visibility of inventory and make real-time decisions based on levels, sell-through-rates, and item popularity.

Cloud-based data for ecommerce inventory management can be stored and accessed by users all over the world. If you’re a global business with staff performing roles from different locations, the cloud-based software means that you won’t need to send clunky files through Dropbox or your CRM.

In addition to global accessibility and a 360-degree view on stock levels and trends, cloud-based inventory management also means that ecommerce businesses are able to automate elements of their management processes. This means businesses can save time, money, and eliminate the need for manual data entry and inventory tracking which can be time-consuming and inaccurate.

Pros of Cloud-Based Inventory Management Technology

Save time and money on inventory management
Cut down on admin errors
Better visibility on stock and inventory levels
Understand trends
Automate manual processes

Cons of Cloud-Based Inventory Management Technology

When the technology is down, so is the business
Security concerns and data breaches
Online access required to manage – not ideal for those travelling
Cost to setup and rollout
Monthly costs to maintain the cloud

Overall, cloud-based inventory management for ecommerce businesses can provide significant advantages and benefits to businesses. It can help businesses to better understand their inventory, develop more accurate processes, save time, and gain a better understanding of what is and is not working.

7. Carry Safety Stock Inventory

Safety stock inventory became a buzz-term for ecommerce businesses during the global pandemic of 2020 and 2021. At a time when supply shut down and ecommerce businesses lost access to suppliers and manufacturers along the supply chain, those that held the stock held the power.

Of course, we saw the worst side of this with some ecommerce retailers choosing to charge extortionate prices because they held stock that no one else could access. However, on the flip side, for those that simply needed parts or stock levels in order to continue business, safety stock inventory became a matter of thrive or survive.

Pros of Carrying Safety Stock

Stock on hand when you need it the most
Buffer when you need it
Fulfil orders for high-ticket items

Cons of Carrying Safety Stock

Increased cost of buying inventory
Risk of carrying inventory that may not sell
Increased cost of storing inventory

The right level of safety stock will vary depending on the business, however keeping an amount of hand will ensure that you’re not left in the lurch from unavoidable supply chain disruptions.

Final Thoughts

Implementing these 7 inventory management techniques for your ecommerce business can help to avoid selling out, over stocking, and mismanaging inventory which can lead to a loss of profits and operational efficiency. By taking the time to implement the right inventory management techniques for your ecommerce business, you can streamline your processes and keep your business running smoothly. For more information on our logistics, warehousing, and 3PL services across Australia, get in touch with the friendly team at One Warehousing.