Inventory Management 101

When your business transactions take place online, efficient and accurate inventory management is a key aspect of keeping cash flow at optimal levels while ensuring that you have the appropriate products in stock to satisfy consumer demand. Here are a few simple ways to establish sound processes for streamlining your inventory management when you sell online.

Find the tools that provide a “bird’s eye view”

There are many low-cost inventory management apps and software tools designed to provide even small businesses with the “just in time” inventory management practices larger retailers have come to embrace to synchronize customer demand with stock on hand. In fact, many such tools are even designed to reduce the odds that items sold through two separate channels at the same time are inaccurately reported (or depleted from) inventory, the odds of which increase when your product sells successfully and frequently online, by way of multiple online channels.

Despite the technology’s ability, however, it’s critical to “test drive” inventory management technology to avoid a potential (and costly) disruption to the current system. Scour industry-specific trade publications, blogs and websites for customer reviews that may exist about the inventory-related software you’re considering to get a sense of the product’s capabilities, shortcomings and ease of use beyond what the marketing copy claims. Likewise, consider whether the technology addresses current needs and future growth, including the ability to manage inventory costs and prices in various denominations for global transactions that you conduct online.

Consider consumer behavior

Developing an understanding of prospect and customer browsing and purchase behavior online is key to accurately forecasting potential demand, particularly when you sell in multiple channels, which tend to attract different types of customers (and subsequent purchase behavior, including price sensitivity to promotions).

Establish a process for analyzing the average amount of time online shoppers browse, place or edit items in their virtual shopping carts, check out, or abandon transactions in every channel in which you sell.  Before you release promotions in any channel, ensure that you understand how consumers in that channel tend to react to marketing efforts, as well as any other offers that may exist in the marketplace that could incentivize purchases beyond what you’ve forecasted. (If you cannot fulfill the orders that customers place, you’re likely better off forgoing the sale completely, if it means losing a satisfied customer, or turning off a prospect with a bad customer experience). Additionally, note the efficacy rates behind any retention marketing efforts you may deploy to your online customers (like reminder emails about products placed in an abandoned cart), and the average response rate you generate from those communications to determine how long you should allow items to “sit” in a shopping cart before returning them to virtual stock counts.

Leverage labels in your processes

Regardless of the technology you adopt to streamline inventory management, there remains a “human” component to pulling, shipping and receiving products. To make the process less cumbersome, integrate a basic premise of “lean” operations by using color-coded labels for “eyeball-level” inventory management. For example, core products that must be kept in stock at significant volumes because they sell quickly in many online channels might be assigned blue inventory labels, while orange labels denote the products that may not sell as frequently, but are inexpensive to purchase in volume, and small enough to keep in stock without demanding too much space. Using other colors, the same concept can be applied to non-core inventory items whose demand fluctuates based on seasonality and market trends, helping you identify opportunities for promotions that may boost sales and order volumes to offset the cost of any discounted shipping promotions you may offer, or to eliminate inventory of “one-off” items you don’t intend to sell again. Though you may rely on technology for a more accurate view of stock on hand, a simple color-coded system can keep inventory levels optimal, particularly during peak seasons.  

Focus on relationships

Because there are so many variances involved in inventory management, including vendors, manufacturers, shipping services and your staff, there is room for potential error. Mitigate the risk of such surprises by relationship-building with a few reliable vendors who can provide a multitude of quality products, at a competitive price (even if it’s not the lowest). The better your supplier relationships, the more “top of mind” your business will be when vendors must determine how to allocate limited quantities to feed high demand, and/or when you need to expedite an emergency order during peak seasons. Building symbiotic relationships among your own staff delivers similar benefits: When buyers, merchants, accountants and marketers have regular, ongoing communications about the inventory that is needed, expected or in abundance, the team can better determine how to structure operations to regain optimal balance.

Inventory management is a critical business function, but it’s not an exact science for any online retailer. By leveraging the technology tools and operational controls that reduce the uncertainty, you can establish an appropriate inventory formula that serves your customers, without exposing your business to unnecessary risk in the process.