What is Inventory Management & Why is it Important?

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Every ecommerce business has an inventory of the products it sells. And they manage what they buy, manufacture, store, use, and trade. The first step begins with placing orders with suppliers and ends when the product reaches the customer's doorstep.
Just like how their business model varies, so does their inventory management methods. This includes bulk ordering, dropshipping, ABC method, backorders, and more.
Though inventory management is crucial for order fulfillment, studies show that 46% of ecommerce businesses don't track their inventory, and even those who do this only manage to do it with 63% accuracy.

1. Improves Surveillance of Inventory

No business owner likes to be in the dark when it comes to inventory.
Knowledge is power in this scenario. And inventory management is a must-needed method to constantly keep an eye on the products you have in store, those that are being sent out for delivery, those that need to be restocked, and those damaged.
An inventory control software can easily monitor all the above-said functions for you. This way, you will be able to have proper control over the happenings in your warehouse.
You will be able to step in, in case of an unexpected delay in delivery, shipment problems with suppliers, manage demand and supply without any hitches, and more.

2. Improves Customer Relations and Service

Customer service is the holy grail of business, irrespective of day or age.
Ecommerce businesses need it and so do offline stores. There is no better way to keep them happy and loyal than to deliver their orders on time and in good condition. And this is inventory management's primary focus.
Most management software that is available today keeps providing real-time data to customers about where their order is.
This placates them to a large extent and also saves you from a string of queries. Also, it gives you a fair about demand and supply. Hence you can stock up on fast-moving products. This way, customers aren't unhappy due to out-of-stock products.
Moreover, inventory management breaks down the profit margin for you and helps you to set an affordable and sustainable production process. Overall, it greatly helps in converting window shoppers to repeat customers, thus extensively boosting revenue.

3. Prevents Wastage of Resources and Money

With inventory management, efficient organization comes automatically. And this the primary cause for a company to optimally put its money and workforce to use.
As most inventory software gives accurate predictions about demand, you will not buy unnecessary products, saving a ton of money on storage costs.
Also, as many tasks can be automated, you will spend less on hiring fewer warehouse personnel. And with better organization of products comes lesser exchanges and more reorders.
Moreover, you can stay on top of the Cost of Goods Sold, which the government uses to issue tax. Inventory management gives an Accurate CGS figure. Hence you will not lose too much money in taxes.

4. Delivers Goods with Accuracy

Delayed delivery is the one word that irritates both the customer and the seller equally. Neither is satisfied with deliveries that don't happen on time. It is one of the major factors that result in the loss of a customer and bad reputation.
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You can avoid this to a great extent with an efficient inventory management plan in place. You will know strictly at what stage of delivery the product is at. You can quickly pinpoint the troublemaker and rectify their mistake to avoid future errors.
A management system will also immediately inform you about suppliers who are repeat offenders. As you can overview the entire supply chain, you can streamline and optimize it accordingly.

5. Controls Employee Mishandling of Goods

Globally, companies lose close to a whopping $2.9 trillion in fraud and employee theft. On average, three out of four employees steal at work.
Shockingly, studies show that 95% of ecommerce businesses face employee theft and mishandling. And you have a better chance to prevent this only with inventory management software in place.
You can save potential hidden costs such as employee embezzling as technology will capture every action of theirs.
As every item that enters your warehouse will be recorded, there is little chance they can use these for personal use. Also, with such a system in place, your staff will know that they are being monitored.

6. Boosts Sales, Increase Profits

Planning inventory has a substantial impact on a company's profits.
The overall efficiency of your operation can be significantly improved. It helps in reducing production costs, streamlining the delivery method, preventing stocking of slow products, and more. These three factors will help you avoid incurring losses.
When customers start receiving the products they order without damage or delay, their trust in your company automatically increases. This will cause a noticeable elevation in your sales.
Moreover, you will be able to detect products that don't interest your target audience. Therefore, you will avoid spending more money to restock these.
Inventory management is even more necessary for small and medium business enterprises, as it does an excellent job of tracking their cash flow. This enables them to work better with a small investment and during times of cash crunch.

7. Better Prediction and Management of Demand & Supply

As trends, seasons, and demand are highly susceptible to change, one can overstock, understock, or easily invest in the wrong product. This is bound to bring enormous losses for any business.
As companies grow bigger logistically, it becomes much harder to keep track and perform an in-depth analysis of customers' purchase patterns.
The ability of an inventory planning tool to forecast demand will help you avoid all of the above.
The intelligence of any inventory software allows it to predict the ups and down in your demand and supply. It will help in establishing a pattern that you might be unaware of. This, in turn, will have a direct impact on your management style of the goods you purchase.
There are many methods of action after finding an obvious pattern; here is how.

8. Steer Clear of Out-of-Stock Situations

Nothing annoys a customer more than the sign of out-of-stock looming over their ready to be billed shopping carts. And companies don't want to lose such customers either.
By automating stocking methods, you can safely avoid such sticky situations.
An innovative inventory management tool will avoid such scenarios by promptly notifying you well in advance.

• It helps you calculate the percentage of safety stock you must set aside.
• It allows you to implement even the risky Just In Time inventory technique.
• It automatically sends out restocking orders to your suppliers based on demand patterns.

And above all, it will keep a close eye on your stock levels.
Here are some future techniques you can incorporate and an inventory tool to steer clear of stock-out situations.

9. Manage Your Time More Efficiently

Planning and managing your inventory saves time. But switching from manual to cloud-based computing tools saves even more time and energy. The benefits are endless with automated tools.
Firstly, it provides you with real-time data, which negates the need for employees to count boxes and fill excel sheets physically. Instead, you can use these human resources on more critical tasks like delivery, ecommerce campaigns, and customer service.
This saves the time of your sales staff as well. They no longer have to endure long phone calls with your warehouse managers to know about stock levels.
A click of a button will do the work. All of the above cuts your opportunity cost. Here are multiple ways you can utilize inventory software to save time.

10. Upper Hand on Supplier Relations

Juggling between customer demands and supplier arrangements is a nightmare if not done systematically.
Owners essentially become the middlemen in this situation. One wrong move could cost you a hefty sum by losing both your customers and suppliers at the same time.
To avoid this, industry experts insist on companies investing in automated solutions to manage inventory. And most companies need to deal with a variety of vendors. And the difficulty of managing them increases as some might be international companies.
A healthy supplier relation is crucial for running a supply chain.
An automated inventory tool will show you where each product is from the vendor stage to the delivery stage by providing real-time data. This helps you to choose less-problematic vendors too.
You can indulge in a trial and error process without losing much money to time.

Inventory Management tools

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1. Zoho Inventory

The Zoho inventory software is one of the best choices to plan, manage and track goods in the Ecommerce industry.
Its multi-functionality and compatibility with other applications make it an easy first choice. It is one of the most preferred products in the market as it works seamlessly with other popular apps like WooCommerce, Shopify, Amazon, etc.
You can use it to track inventory, create invoices and sales orders, fully integrate inventory with real-time data input, and lots more. Also, there is an option to carry out transactions in multiple currencies and languages.
There is an option for dropshipping along with real-time shipping rates. It is designed especially for small-time enterprises and therefore has an affordable pricing scheme.

2. Cin7

For a comprehensive, all-in-one solution, Cin7 is a worthy choice for inventory management software. It is also an excellent tool for Enterprise Resource Planning with 400+ integrations. It handles multiple functions like accounting, inventory, point of sale, and shipping.
It works perfectly for B2B Ecommerce setups as it offers many built-in features like a payment portal. Its inventory management game is solid and offers many services like cross-channel syncing, demand forecasting, order fulfillment, and more.
However, Cin7 is on the expensive side and is not very easy to set up, making it a cumbersome choice for beginner companies.

3. NetSuite

Oracle’s inventory cloud-based software, NetSuite, is a suitable choice for medium and large enterprises with big warehouses to manage. It encompasses various functions like financial, revenue, order, and inventory management.
It handles the supply chain management with ease due to its vital demand planning, inbound and outbound logistics, and multi-channel support features.
Also, it has an in-built communication platform where distributors, vendors, partners, and warehouse staff can coordinate and run operations smoothly. However, it doesn’t perform and integrate well with third-party applications.

4. Ordoro

Ideal for online businesses, Ordoro makes it easy for companies to monitor sales across different online channels. Its most unique feature is its non-traditional inventory management strategy. It allows you to oversell or limit stock goods to increase demand deliberately.
Ordoro stands out for its shipping process and focuses on keeping the lead time as low as possible.

• It also allows you to assign a particular vendor to a product, not handle the reordering process.
• It gives the customer an option to compare and pick the best shipping company.

However, it has no forecasting feature and doesn’t have inventory planning methods on its introductory offer.

Inventory Management FAQs

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Q1. What Is Inventory Management in Simple Terms?

Managing and handling all the purchased items stored, delivered by the company is the basic definition of inventory management. One supervises from whom and when the products arrive, how it is stored, how and when it is packed and sent out for delivery.
Until the product reaches the customer, it’s the owner’s responsibility to overview the inflow and outflow of the warehouse.
Efficient and accurate monitoring of inventory avoids capital loss to the company. Other than this, all financial transactions between vendors, suppliers, distributors, and customers also come under its purview.

Q2. What Are the Pros and Cons of Inventory Management?

Pros: Along with the management of your inventory comes increased transparency. It gives you a close to accurate prediction of the demand and supply curve. This helps you stay prepared and aids you while choosing to invest in a particular product or service.
One of its significant advantages is its ability to cut down costs. It prevents overstocking, lowers expenditure on storage fees, reduces the chances of product returns, streamlines delivery costs, and more.
Cons: As it manages a complex system, one has to devote some time to get a fair idea of its workings. Separate money has to be put aside for investing in management software. And lastly, one needs to keep an eye on the overall running of the software daily.

Q3. How Will I Benefit from an Automated Inventory Management System?

Manually counting boxes, filling up excel sheets, and calling each supplier to check a delivery status is an outdated, cumbersome, error-prone model.
This might have been the norm 10-15 years ago, but following this even in today’s time is highly detrimental to the company’s financial health.

• Cloud-based software automates every process of inventory management and has changed the face of supply chain management.
• Analysis and tracking can be done using real-time data, demand predictions, automatic reordering, and more.
• The scope of error is vastly reduced this way—issues concerning overstocking and out stocking become obsolete due to its intelligent demand forecasting feature.

Suppose one feeds basic information about suppliers, customers, vendors, and shippers; the computer takes care of the rest.

Q4. Does Managing My Inventory Increase My Profits?

That’s a big yes!
Streamlining your inventory has a plethora of benefits, especially when it comes to boosting revenue.
You will ascertain the behavior pattern of various customers based on age, location, gender, and interests. This way, you will know which product will move faster and which ones to avoid altogether. You won’t put your money where you can’t make hay.
Moreover, chances of theft, damage to products can be brought down considerably as nothing can be hidden from computers. Also, as products will reach customers on time, the chance of repeat orders and reorders will be much higher. Visitors to your website can be converted into loyal customers.

Related : Tips to Increase the Customer Loyalty of an Ecommerce Website

Q5. Overstocking vs. Outstocking - Which Is Better?

While an excess of anything is never good news, overstocking and out stocking can be used as powerful strategies in supply chain management.
Depending on the product, and customer niche, one can decide accordingly. When done astutely, a hike can be achieved in the demand-supply curve.
You can store products needed by a niche audience like chemicals or scientific items in less number as your customers will be willing to wait. But if you are dealing with high-demand consumer products like food, medicines, or clothes, you cannot afford to lose out on customers due to no stock.
If you have any queries regarding the inventory management and ecommerce, you can get in touch with us now!