Must-Knows about Inventory Management for e-Commerce

Posted by Maria Katrina dela Cruz

Apr 21, 2022 2:30:00 PM

You got your online enterprise up and running — that’s a good start. Now that you’re in the phase of growing your business, we proceed to the lifeblood that will keep your entity moving. How do you approach the inventory management for e-commerce? 

basics of inventory management for ecommerce
In e-commerce, the back-end affairs, which involve all the groundwork you set up from the get-go until the business takes off and everything in between, call for diligent attention as much as front-end responsibilities. Creating a strong ancillary support translates to a better purchase experience for your consumers. And a crucial point you may want to stay on top of in this facet is your inventory management. 

How inventory management works 

Inventory management is the cornerstone of any e-commerce that encompasses everything from ordering, restocking your products, tracking the quantity of goods, and storing your commodities. On a basic note, it's an indispensable element of your supply chain as it dictates the movement of your product mix across all selling channels, thus efficiently keeping tab of your stock, the pricing level, the duration of storage and faster turnover for your customers, among others.  

In practice, a smart inventory management looks like these (which we will elaborate on further below): 

  1. An updated front-end office reflecting what is in stock and what is not. 

  2. Overstocking and overselling are avoided. 

  3. Cost savings in terms of handling, storage fees and transportation. 

  4. Better customer experience because of accurate deliveries. When they get what they pay for, they become loyal patrons of your business. 

There is a lot more in inventory management than meets the eye. With proper stocktaking practices, you have full visibility on which of your products are on-trend, possible gaps in your financing and forecasts of the inventory for future orders. 

Related: Knowing the Accounting Inventory Management Basics 

Why is inventory management important? 

The Securities and Exchange Commission (SEC) and the Sarbanes-Oxley (SOX) Act require public companies to document their management practices as part of their compliance.  

Aside from the legal implications, it's also worth noting that doing inventory management elevates two focal factors of your e-commerce: to level and plan your stock and to introduce accuracy in your back-end process. On top of these, the benefits of an inventory management system come in a myriad ways.  

  • Cash flow improvement — Unless your products are purchased, they remain simply a part of your inventory.  But if you diligently manage your product mix, you're guaranteed that you only stock what sells to your market, which keeps the cash coming into the business. 

  • Maintained safe stock levels — This is an umbrella concept that covers a multitude of benefits such as eschewing unnecessary spoilage of consumable goods, avoidance of deadstock (products that have become irrelevant), decreased risks of unanticipated movement in the supply and demand and refraining stock-outs, to name a few.  

  • Refrained errorinventory is better managed when it's integrated with an e-commerce accounting software because the margin for error is significantly decreased. Remember that mistakes in inventory can incur you more expenses, so it would be helpful to have a tool that assists you with an automated approach. 

  • Making inventory forecast — Once you have full visibility of your inventory process, it gives you the power to provide insights into future purchase trends and gear up for any pitfalls such as shortages in stock.  

  • Efficient fulfilment performance — If you handle your inventory smartly, you’ll be able to cut your lead times shorter. Having real-time updates boosts your delivery of goods to consumers as well.    

Tools for better inventory management  

Manually handling your e-commerce inventory can be taxing and leave room for lapses. Thankfully, inventory management tools and techniques allowed for automated solutions in delivering a better experience for you as the owner. Here are some tools to consider using: 

  1. Barcode system — Barcode data collection is an easier, more accurate and faster way of data collection and input through a barcode scanner, compared to a manual inventory count. 

  2. ABC Analysis — For prioritization efforts, ABC analysis (also called Pareto analysis) is the way to go. This is a technique that identifies the value and ranks the inventory items according to their value (importance to the business) with the criteria of demand, cost and risk data. Based on the Pareto Rule of 80/20, ABC analysis should recognize the 20% of the products that constitute about 80% of the annual value. 

  3. Inventory cycle count — If you’re after accuracy, you can also try cycle counting inventory. The idea behind this is to do a regular counting program instead of the error-prone annual physical inventory. In incremental counts, you’ll be able to spot errors and reflect them accordingly in the records.   

  4. Cloud accounting software  — To maximize your cloud experience, consider using a cloud accounting software with integrations to e-commerce platforms such as e-Bay, Amazon, Craigslist and Etsy. This will help you efficiently streamline your inventory and your purchase records. 

You got the starters of the inventory management. Now that you’re armed with the basics, we’re taking you to a more elaborate discussion of the techniques to master so you know what, how and when to use one for your business. You can read more about it in the next part of this series about the inventory management for e-commerce. 

When done with diligence, inventory management can institute your e-commerce's future with profitability and survival. After all, this matter touches almost every facet of your growing digital enterprise, so staying on top of things would be a great kick-off.  

Looking for accountants with a background in handling e-commerce clients? D&V Philippines is here to help you out. Our in-house CPAs have experience in handling clients from different verticals and are equipped with the proper tools and software to manage your books. Download and read our whitepaper Succeeding Online: Refining Your Accounting Processes Through Technology And Automation to further examine how good accounting can set you up for growth, or you can also schedule a free consultation with us to discuss your needs.

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