Every eCommerce retailer must master their inventory to survive and thrive in the competitive market. However, many online businesses struggle to manage their inventory. Some sellers have too little inventory that is unable to meet customer demands. This often leads to low customer satisfaction and drives customers away.
Other e-tailers go the other way and overstock items. While such companies always have the items clients want, they tie tons of money in inventory, which affects cash flow and increases the costs of storing and tracking it. Effective inventory management balances between these two extremes. To help you understand and improve your inventory, here are five questions you should ask.
1. Have You Prioritized Your Inventory?
It is best practice to categorize your inventory into priority groups since all products are not equal. Arrange your inventory from the most important to the least essential items based on value to your business and how they sell. Prioritizing inventory helps to optimize storage space and streamline order fulfillment. ABC analysis is a good technique to use.
- A-items: they are high-ticket, high priority items and small in number
- B-items: they are moderate value items and moderate in number
- C-items: they are low-priority items, turn over quickly and are large in number
Your answer to this question should define your next step of action. If you prioritize your inventory, you will reap the benefits. If you don't, it is time to start doing it for streamlined inventory management.
2. Which Inventory KPIs Are You Tracking?
Inventory KPIs allow you to monitor your stock's performance, make strategic decisions, and identify areas of improvement. They provide valuable insights into sales, turnover, demand, costs, and process success. Some KPIs you should track include:
- Rate of Inventory Turnover - how fast stock is sold and replaced in a specific duration
- Inventory Carrying Costs - the overheads of stocking items in your warehouse
- Demand Forecast Accuracy - how accurate your demand forecasting is against actual sales
- Rate of Return - number of orders returned
- Order Cycle Time - the duration between placing orders with suppliers
- Backorder Rate - number of delayed orders because of stockouts
While there are numerous inventory KPIs you can track, you should identify the ones that work best to paint a clear picture of your stock. The bottom line is to know where you stand with your inventory and areas that need improvement. If you haven't started tracking your inventory KPIs, the metrics above are an excellent place to start.
3. Do You Have Visibility into Excess Stock?
At times, products don't sell as quickly as you had anticipated, resulting in excess or obsolete stock. Among the causes of excess stock include inaccurate demand forecasting, supplier constraints, poor inventory management, and a flawed business model.
Excess stock is detrimental for business as it increases costs and affects profit and cash flow. While excess inventory is a significant challenge for many companies, it is best practice to devise ways to tackle it. First, identify the causes of excess stock and practical solutions for it. Second, develop ways to reduce situations that lead to excess inventory. Lastly, come up with techniques to effectively sell off the stock.
Gaining visibility into your excess stock is crucial. Identify if your eCommerce business has excess stock, the causes, and what you can do to minimize it. You can avoid excess inventory by addressing capacity issues, improving forecast accuracy, reducing order sizes, and reducing supplier lead time.
4. Do You Use Inventory Management Technologies?
Research shows that 14% of businesses use pen and paper to manage their inventory. Managing inventory processes manually increases the probability of shipping mistakes and data entry errors, resulting in customer dissatisfaction and decreased sales. Also, it is time-consuming and labor-intensive, which affects your profitability.
Technologies such as inventory management software have a plethora of benefits for your eCommerce business. They simplify inventory management, lessen the risk of overselling, save costs, and reduce stockouts and excess stock. Also, inventory management software provides valuable stock data for decision-making.
The million-dollar question is, do you use any inventory management technologies, or do you rely on manual inventory tracking systems? Technology can revolutionize your inventory management to make it better and efficient.
Also, consider partnering with an experienced 3PL who can handle all order fulfillment services, including inventory management. You can track your inventory from multiple fulfillment warehouse locations to know your stock is secure and ready to ship.
5. Have You Optimized Your Order Fulfillment?
Customers have high expectations for order fulfillment. They want items to be delivered fast and efficiently, with 49% of consumers saying that same-day delivery is a top incentive for shopping online. The pace of order fulfillment and inventory management is intertwined. The faster your online business can fulfill orders, the higher your inventory turnover rate.
Speedy order fulfillment increases customer satisfaction, boosts sales, and assures return business. Additionally, it enhances your supply chain's efficiency by getting rid of redundancies and cutting costs. So, have you optimized your order fulfillment? Request a quote to see if outsourcing your eCommerce fulfillment needs, from inventory management to the returns process, would be beneficial for your business.
Key Inventory Management Takeaways
Effective inventory management is a fundamental part of any eCommerce business. It aims to strike a balance between cost, quality and time efficiency. Besides delivering quality inventory to customers, good inventory management should not overburden warehouses with obsolete stock or delay order fulfillment. Above are five questions you should ask to understand your inventory and improve your ROI. Partner with Rakuten Super Logistics today for reliable eCommerce fulfillment services and better inventory management! Contact us.