Keeping accurate inventory levels across online channels is a challenge for many merchants. In fact, on average, retailers report that their inventory is accurate just 63% of the time!

When inventory updates lag or are mismanaged, it can cause all sorts of issues for retailers like overselling, cancelled orders, and overstocks. These are missed sale opportunities for retailers and result in a poor customer experience.

If you’re inventory is disconnected, then read more about some of the industry’s best practices for handling your inventory.

eCommerce Inventory Management Best Practices

Here’s our top practices to help eCommerce sellers overcome their inventory management challenges.

Central Location to Manage Inventory

Where are you currently managing your inventory? Are you using your eCommerce platform?

When you first start your business, it usually makes sense to manage your inventory out of your eCommerce platform such as Shopify or Magento. However, as you grow you’ll realize that your eCommerce platform will start to fall short. While they do have native features built in, they aren’t meant to handle intricate inventory needs. You’re able to increment, decrement and set inventory levels for each of your products, but that’s about all out-of-the-box.

Instead, merchants should consider investing in a designated system like an Enterprise Resource Planning (ERP) to centralize inventory management. With these systems, you’ll gain much more functionality and flexibility to handle your inventory levels, alongside other facets of your business such as finances, logistics, and operations. If you’re selling high volumes across multiple sales channels, then investing in an ERP or other management system could be a critical first step for your business. 

Integrate Your Business Systems

While adding an ERP or other inventory management system to your operations is great, it doesn’t get you all the way there. You now have multiple systems that you need to enter inventory lines in.

Some companies will dedicate staff members to hand key inventory updates, line-by-line once a week individually in each their eCommerce platform and ERP system. Imagine how tedious this process becomes if you have thousands of SKUs that require updates on a regular basis! We’ve had customers report spending 40+ hours per month to just hand key these inventory updates. What would you rather your staff be doing?

That’s why it’s recommended that merchants integrate their eCommerce platform to their ERP or other inventory management system to automate inventory updates. Integration platforms are capable of syncing and updating inventory levels across all your online channels as soon as someone places an order. Through automation, your staff won’t have to take the time to make the updates by hand or worry about making costly mistakes like entering the wrong SKU number.

Integrate Your Suppliers

If you work with suppliers or drop ship to source inventory, then you have a whole another set of challenges. Without efficient processes in place, many merchants rely on emails and spreadsheets to communicate with their suppliers. As a merchant, you’re at the mercy of the supplier. If they don’t have stock to sell, then you don’t either.

There are many places where these relationships can fail:

  • How do you know your supplier received the purchase order?
  • How do you know how much inventory the supplier has on hand?
  • How do you know the supplier shipped the right item and quantity of it?
  • How do you know the supplier charged you the right amount for that item?

In short, merchant’s need visibility into their supplier relationships so there’s no questions or doubts about the status of inventory levels or shipped orders. Merchants also need to protect their financial health (called three-way match) by ensuring they’re paying suppliers the right amount when they should be.

The best way to gain this visibility and established communication with suppliers is through integration. If you automate these processes with your suppliers, you ensure that you’re not making any costly mistakes through manual data entry or order validation in your systems. You’ll also be able to reconcile your finances to keep your bottom line healthy. 

Set and Monitor Inventory Management Metrics

Once your processes are in place, merchants need a way to track inventory costs and efficiencies. Do you currently track any inventory metrics?

Setting and monitoring inventory management metrics is a great way to track the success of your processes both from a cost and customer experience perspective. Considering the following metrics as a place to start:

  • Inventory turnover = cost of sales / average inventory value
  • Gross Margin Percent = (sales – the cost of sales) / sales
  • Customer order fill rate = how many times you successfully serviced your customers / total number of orders
  • Cost of carrying = sum of all carrying costs / overall cost
  • Average sell-out days = (Your Average Inventory / The Cost of Goods Sold) x 365

Handling Variant Products and Kits/Item Bundles

Product types like matrix or kits/item bundles present unique inventory challenges for merchants that must be dealt with.

Variant or matrix products are when you have multiple variances of one product. For example, t-shirt sellers often have multiple sizes and colors for the same t-shirt design. How are your SKUs set up for this item? How do you track inventory for each SKU?

Kits or item bundles are when you sell multiple individual items together as one. For example, you might sell face soap, lotion, and scrubber as a face care kit. When you sell a kit, you can’t decimate the whole bundle as one item. Instead, you need to decimate inventory for each item individually. This ensures you don’t oversell any of your inventory.

Matrix and item bundles are pretty common among merchants, but most eCommerce platforms don’t handle them well natively for inventory tracking purposes. When you’re evaluating inventory management systems, be sure to see what capabilities they have to help you properly manage these more complex product types.

Bottom Line

Keeping accurate inventory is a challenge that most merchants face. You just need to the right processes and technology to deal with it well. If you follow these best practices, you’re on your way to improving your backend processes.

About the author:

Jillian Hufford is a Marketing Strategist and Partner Manager for nChannel, provider of eCommerce integration software to automate processes such as inventory management. Using both her writing and analytic skills, she assists the Marketing and Sales teams. Jillian performs competitor market research, provides analysis of key sales metrics, and writes informative posts on multichannel commerce trends. She holds a BA in Marketing from Otterbein University. You can connect with Jillian on LinkedIn at https://www.linkedin.com/in/jillian-hufford-a2173888/.