10 Inventory Management Tips For Online Shop Owners

Table of Contents

Our inventory management tips will cover how to deal with the numbers, but also the physical aspects of storage. This means looking at different locations and collaborations for your warehouses as well as how the best ecommerce inventory management software can take a lot of stress out of running your business. 

1. Prioritize your products: an ABC analysis

Before you start organizing your stock and forecasting your sales, the first place to start is by deciding what you want to sell most of and what isn’t as important. Luckily, the first of our inventory management tips tells you exactly how to prioritize the profitability of your items based on an ABC analysis. 

The ABC analysis sorts the items you wish to sell into three categories:

• A refers to your most highly profitable items. They may not be your most frequently sold products, but they contribute around 80% of your income. 

• B covers those less valuable items, but ones that are sold more often. They should represent 15% of your revenue. 

• C are low-value essentials that your customers really want, but that don’t turn over a great profit, contributing around 5% of your revenue.

For most ecommerce businesses, 80% of sales come from 20% of customers (the Pareto Principle), so it’s important to offer stellar service and keep these people happy. Therefore, when planning how to manage inventory, your A products should be prioritized and always in stock. 

2. Maximum and minimum stock levels

With the ABC analysis in mind, it’s also important to remember that you can’t just fill your store rooms with high-value products and wait for people to buy them. Instead, any set of inventory management tips would advise you to set upper and lower limits for each item of your stock. 

Effective inventory management means using automated systems to order more items once your stock drops below a certain level. With well-informed par levels, you should never fall short on your stock apart from in exceptional, unforeseeable circumstances. By setting an upper limit, you also leave a sensible amount of room in your storage facility, rather than overstocking your key items and leaving them to gather dust. 

Although your levels will need to be set initially based on manual research, you can then hand the maintenance over to the algorithms. Your inventory software can be programmed to send alerts when you’re reaching your limits so you can take action appropriately. 

3. Make life easy: organize your stockroom

Now you’ve prioritized your items and set your limits, it’s time to organize your stock. One of the inventory management tips that spans all industries is that the more effort you put into organizing your inventory, the fewer unwelcome surprises you’ll encounter further down the line.

Organization depends heavily on what kind of items you are selling. For example, if you’re in the food business, it would be wise to separate your perishable items such as fruit and vegetables from your non-perishables such as tinned and dried goods. Fresh food should be stored in a chilled area under a first in first out (FIFO) strategy. They should be easy to handle and get out of the door as soon as possible to avoid damage. 

With less urgent items, you should consider organizing by category — items that are likely to be bought together should be stored together. For increased convenience, consider putting your top sellers right next to the delivery van — your warehouse workers will thank you. Finally, as you do on your shop floor, organizing things to keep the place tidy makes finding each item far easier.

By organizing your stock the smart way, you considerably reduce errors and the time spent on fulfillment.

4. Forecast surges and lulls in your sales

The best ecommerce inventory management software on the market today will connect directly to your sales data. This way, you can use historical sales data to inform how much stock you need to prepare. Start by looking on the scale of a year before honing your research.

Once you’ve got a rough idea of the supply you need, you can double down on the details, such as seasonal or event-related surges in demand. For example, if you’re selling beachwear, you need to first look at the historical data of when your customers begin buying their swimming costumes and make sure the stock is ready to go by then. But don’t forget another important factor — how long it takes for your warehouses to receive the products. 

Without proper planning, you may find your storage spaces overflowing with both winter and summer clothes. While it’s impossible to perfectly predict how many items you will sell, one of the best inventory management tips is to announce clearout sales at the end of each season. This way, opportunistic customers and those with an eye for a bargain will snap up your excess stock from last season, making room for your new products.

Create Your Online Store Today With Bitrix24 

Unlimited Users Free

Register Today

5. Audit your inventory regularly

Although a wise initial organization of your inventory will reduce the urgency of this tip, an essential practice of any respectable ecommerce business is a regular, methodical audit of your stock. The technology to do this all based on sensors isn’t quite mainstream yet, so this task does involve manually checking if your physical stock matches what you see on your ecommerce inventory system. 

If that sounds boring… it is, but it’s something that needs to be done, and there are three main methods:

Spot checks

Around once a week or once a month, pick an item — the faster moving the better. Manually count all those you have in the warehouse and check the number against what you have in your software. 

Annual checks

Just like your spring cleaning session that comes round once a year, a full check of every item is essential for your records. Time it around the end of your tax year to align both tasks and wrap up the year.

Cycle counts

To break up the monotony of annual checks (which can lead to rushed, inaccurate counting), one of the best inventory management tips is to use cycle counts. Put simply, you spread out the task by counting one category per week.

6. Choosing inventory management software

The best ecommerce inventory management software will be the center point of your storage efforts and the driver of your ecommerce store. If you’re still wondering “what is inventory management?”, you can get a clear idea from what this software does. It syncs your records automatically, so when you’ve sold out in the warehouse, your online store reflects that immediately. You can also use your software to manage inventory adjustments, analyzing increases in demand and responding immediately with increased supply. 

Our key inventory management tips here are to use automated processes and extra technology such as barcode scanners to speed up tasks such as stock transfer, receiving returns, and sending packages without letting things fall through the cracks. By leveraging all the possible functions of your software, you can run a large-scale professional setup without heavily investing in extra staff. 

Even with multiple warehouses or websites, your software collects all the data in one place, so your inventory manager can keep tabs on every location simultaneously. 

7. Manage your inventory in house

Now we’ve covered the organizational and software side of things, it’s time to look at the physical location of where you want to store your goods. 

If you want full control over your stock, one of the best inventory management tips we can offer is to own (or at least rent) your storage space. With a close eye over everything, you can control what goes in and what goes out directly, rather than relying on communicating with a collaborator. 

There is an array of options available to those who want to house their own stock:

• Rearrange a current site

• Hire an off-site warehouse

• Consider self-storage companies

• Include storage space in your spec for new office space

What you ultimately decide to go for depends on the size of your items, and the volume you’d like to stock at any one time. With your expert knowledge, you’ll also know what kind of conditions you need to maintain for the most effective inventory management. Perhaps you need to eliminate humidity in the air, or maintain a consistent temperature. 

8. Use dropshipping to reduce storage costs

Of course, not everybody can afford the real estate needed, and more and more ecommerce businesses are moving toward outsourcing their storage. This is a great option for small businesses who don’t have the financial resources to splash out on their own spaces. 

Dropshipping is a technique where you can remove rental costs entirely from your supply chain. Especially cost-effective when volume is low, you act as a middleman, taking orders without keeping any stock physically, and sending them directly from a third party. 

As opposed to having your own space, dropshipping involves a lot of trust with your supplier. Incorrect goods or poor shipping may not be your fault, but it’s ultimately you who will have to assume responsibility. Therefore, we’d recommend setting up a bulletproof customer service strategy to deal with any inconsistencies in your service. 

9. Outsource your storage

If you don’t have the resources to fund your own storage space and you’re not comfortable with dropshipping, there are plenty of fulfillment companies set up with the expertise to take care of it for you. 

By outsourcing your inventory and fulfillment, you can pay to have your stock stored all across the country and keep delivery times down to a bare minimum — perfect for perishable goods. These companies can also deal with returns at a relatively local level, rather than wherever in the world your supplier is based. 

That’s why outsourcing fulfillment is an inventory management strategy all its own. Though it might come at a cost, using a fulfillment partner can help you generate business and keep customers happy. The best businesses can link up to your own software so you can both keep an eye on how your inventory is doing and if you need extra supply. 

10. Audit your collaborators

As the face of the products you sell, you are responsible for everything that your customers receive, so if there are issues at any point along the way, it’s on you. We mentioned before that a strong customer service team is essential to deal with complaints, but at some point, you’ll have to solve the problem at its root. Therefore, the final point on our list of inventory management tips is to regularly audit your collaborators. 

Keep records of supply issues, with a set level for when you need to speak to your contact, and another limit for when they’re so consistently late that you switch your supplier. By keeping constant tabs on the reliability of your supply, you can take action without experiencing a drop in service. 

The same goes for any storage and delivery services you use. As their customer, you have a right to discuss any issues with them and if they aren’t performing, they aren’t up to the job. Be prepared to switch, as it’s much easier to find an alternative than to repair a bad reputation for delivery. 

FAQ