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Guide to Inventory Management for Ecommerce 2022

Guide to Inventory Management for Ecommerce 2022

Inventory chaos is one of the worst things that could ever happen to your business.

Fail to manage your inventory, and you create a boundary for your business to thrive. Do everything right, and your business will have brilliant chances to reach the desired level of profitability. Or even exceed it.

Thanks to a robust stock management system, you would always be in the know of the real-time inventory level. You would also see what is the right time to order this or that product from the supplier and in what quantity to meet the item demand. In this way, your eCommerce managers will be fulfilling orders more effectively without the risk of overselling. Besides, they will always know where they can find the required product to pack and send it to the buyer faster.

So, understanding the importance of accurate inventory for your business, we have put together a definite inventory management guide. We will explain all ins and outs of the eCommerce stock inventory management and how you can improve yours to boost your business performance.

Inventory Management Terms

Inventory operations are way easier when you understand what all the guides are telling you. That is why the SellerSkills team has put out the eCommerce warehouse management glossary to help you grasp all bits of wisdom without any comprehension gaps.

Inventory stands for all the items, raw materials, or component parts the company holds with the intention to sell or manufacture other goods.

SKU (Stock Keeping Unit) is a product identifier assigned by the seller to differentiate products from each other. Usually, this is an alphanumeric code that is given to the item based on its features like brand, category, color, size, and other variations.

Variant is defined as a combination of products of the same model with different features like the size, color, pattern, or some more.

Units of Measure, UOM, are product attributes that are used to define how products are tracked in your retail inventory management system. The most frequent units of measure include EA (eaches), which means that each product is considered to be one unit. There are also CA or CS (cases) that are used to measure items that come in cases rather than every individual piece. You can also set PL (pallets), LB (pounds), OZ (ounces), and more.

Supply Chain is known as a series of steps taken to deliver the product to the customer. It is also defined as a network between the company and its suppliers built to produce and then distribute the final product to the buyer. This network usually incorporates people, activities, entities, and resources.


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Dead Stock is the items that don’t turn over and are very unlikely to move from the shelves.

Buffer Stock is a scheme that is meant to cushion the price fluctuations for specific products in unstable markets. The items are purchased when there’s a certain surplus, kept, and then sold when the drastic price decrease or item shortage happens.

Minimum Viable Stock is the minimum amount of goods the company requires to have in stock to meet the customer demand.

Re-order Point, or ROP, is the minimum quantity of items that triggers the re-ordering process. In other words, when the quantity of specific goods falls to the defined amount, they must be re-ordered to avoid product shortage.

Lead Time is defined as the period of time that passes between the moment of ordering the goods from the supplier for inventory replenishment and the moment the items arrive.

First in First Out (FIFO) is a method of inventory management in which the items are sold in the order in which they were manufactured or entered the warehouse.

Just-in-Time (JIT) is an inventory management method that implies ordering new items from the supplier only when they are needed.

Dropshipping is a retail fulfillment method that allows a company or entrepreneur to run a retail business without the need to keep products in stock. According to the scheme, the shop sells the item and then passes an order to the supplier or manufacturer. The latter ships the package directly to the customer.

Centralized Inventory Control means managing inventory for all your channels from a central hub.

Inventory Management Software is an application that would facilitate and automate all inventory management processes and track supply chains. It is meant to optimize the full spectrum of inventory management operations including controlling the re-order point, placing an order for inventory replenishment with your vendor, fulfilling the order for your customers, and so much more.

Cost of Goods Sold (COGS) involves calculating the sum of your initial inventory and purchases carried within a specific period and then subtracting the ending inventory for the same period.

Carrying Cost/Holding Cost is the percentage of the total inventory value defined by the cost of carrying and maintaining inventory, which includes taxes, rent, utilities, salaries, and other factors.

Inventory Forecasting is the process of predicting the inventory needs to fulfill upcoming orders based on the previous product performance.

Third-party logistics, 3PL, encompasses outsourcing the logistics, inventory management, warehousing, and order fulfillment solutions from third-party contractors with an aim to cover supply chain gaps.

Bulk represents different meanings. When goods are stored in bulk, it means that they are kept without any boxes or containers. When talking about the quantity, bulk meaning a very large amount of something.

Inventory Management

Challenges with Inventory Management in eCommerce

An eCommerce business relies on stock inventory management heavily. An accurate inventory system will help you define the best time to order more goods and in what quantity, where you can store them, and so on.

Your business continuity literally depends on your inventory strategy. But there are some challenges you are to endure to make your business thrive.

Handling Multiple Marketplaces & Warehouses

As you are launching your business, you’ll probably start with one sales channel and a single warehouse for keeping your inventory. But as your business expands, you’ll be reaching new marketplaces and will be in the need of a greater number of goods, which will require a larger warehouse or even several ones.

If you don’t have a system for managing the multichannel inventory or do not use an inventory management tool, your business might get drown in chaos. You might have some difficulties in tracking how many items you have sold through several marketplaces (Amazon, Shopify, eBay, Walmart, Etsy) and how many of them are left at hand. It’ll be hard for you to define which goods perform better and how many of them you need to order from the supplier to replenish your inventory and have the right amount of products to meet the customer demand.

In the long run, this will affect the customer experience since the desired items will be not available from you. So, your potential buyers will be forced to purchase from some other brands, even though they are your loyal customers.

So, you run the risk of overselling, that is offering more goods for sale than you actually have in stock. Your customers won’t be pleased to hear that you ran out of items they’ve already paid for. Just imagine how disappointed your buyers will be, and you definitely do not want to be the reason for that sort of emotion.

Manual Management That Doesn’t Allow to Grow

Of course, you can carry store inventory control by performing all the operations manually. In fact, that’s not a big deal at the outset of your business when the turnover is not that huge and you have a limited number of items for sale.

But as your business grows, tracking your sales and inventory logs with a pen and paper might be driving you nuts. In fact, you or your managers will be busy doing such a vital but monotonous thing all over and over again – updating your inventory through all sales channels once the purchase happens or new items enter the warehouse, controlling the re-order point, and so on.

This cumbersome procedure will be stopping your business from rapid growth. Instead of focusing on business development strategies, you’ll be directing all your time and energy to handling stuff that could be easily optimized and controlled from a single panel with a touch of a button.

Overstocking & Overselling

Overstocking and overselling are the common issues of improper online inventory management. Overselling happens when you sell more items than you have in stock, while overstocking means that you’re keeping more goods than needed.

These two issues might have a negative effect on your brand’s reputation and the bottom line. Your customers are likely to be dissatisfied to hear from you that the items they have paid for are not available for sale. While some folks might agree to wait until you replenish your inventory, but the majority will be happier to give their money to the company that will fulfill their order immediately. In the case of overstocking, it might cost you extra money to store goods that are not likely to be sold out soon. That also means that the money you invested in dead stock doesn’t come back to your bank account.


Getting Started with Inventory Management

How to keep inventory accurate even when your business is growing? The right inventory management strategy can save the day. Whether you are an owner of a small or large online business, whether you are a dropshipper or working with your own inventory, these tips will come in handy.

Understand Basic Product Category Demand

Smart inventory management involves understanding the product demand at the outset. Product demand is the customers’ desire to buy a specific product at the set price. In fact, demand is the basic factor that drives the company’s revenue. So, before you launch your eCommerce business, you should analyze if there’s any demand for the product.

Here are a few types of product demand that would help you make up your mind:

  • Negative demand: is characterized by a general dislike of the product that results in no urge to get it.
  • Unwholesome demand: is when the customer has a desire for the product, but shouldn’t crave it because of the notorious nature (like cigarettes, alcohol, pirate movies, etc).
  • No demand: occurs when there is very little or no demand for the product at all because the customers do not see any value in it.
  • Latent demand: implies that the demand for the product hasn’t been created yet.
  • Declining demand: happens when the need for the item is fading over time.
  • Irregular demand: is characterized by frequent fluctuations and the change in the product demand like for seasonal or time-based items.
  • Full demand: this is a perfect demand type for every seller because it happens when the customer demand meets the supply.
  • Overfull demand: is when the demand for the unit is greater than the manufacturing capacity or supply.

If you find yourself planning to sell goods that fall into the first three demand types, you’d better think of some other stuff. You can try your hand in offering items with latent or irregular demand, but get ready that your undertakings might not meet your expectations. The best strategy is to go for the products with full or overfull demand.

Forecast Demand

But how do you actually define what type of demand your product refers to? You can’t just rely on your intuition. Demand forecasting involves carrying a predictive analysis that would help you understand if your item will fly and bring you the desired revenue.

Of course, the forecasting will never be 100% accurate, but it will help you get a better understanding of how to plan your budget, manufacturing or restocking, arrange inventory, and price your goods.

Businesses perform demand forecasting in many ways. Some evaluate external factors like the overall economic condition and some other forces. Others tailor their research to a specific industry or customer segment. Anyway, here are the tips that would help you carry effective demand forecasting:

  • Collect data: integrate data from all your sales channels to get a view of the product demand. You’ll see the number of each SKU ordered at a specific time period and through a definite marketplace to spot any growing or decreasing demand projection.
  • Identify assumptions: work out assumptions when launching a new product by analyzing qualitative and quantitative data from different resources like marketing researches, testings, and buyer surveys.
  • Also consider: when making an evaluation of the product demand, keep marketing trends, promotions, or other marketing efforts in mind.
  • Monitor & reforecast: stay on top of the product performance within the first days and weeks of the product launch. Monitor sales, product reviews, social media mentions, and other metrics that would help you understand the perspectives of the item sales.

Set Minimum Stock Level

No doubt, it’s critical for you as an eCommerce seller to have products in stock. When there’s nothing to sell, no purchases happen. Which means no revenue for your business.

That is why, by setting the minimum stock level, you protect your business from downtime. You define an inventory level at which goods need to be replenished to make sure they arrive by the time you run out of the previously ordered ones.

There are some formulas that would help you define the inventory level at which you should order more items. Here’s one of them:

Minimum Stock Level = Re-order Level – (Normal consumption per day X Normal delivery time)

Prioritize Products with an ABC Analysis

ABC analysis is a method of inventory categorization that gives you insights into what items should get the bulk of your attention since they are the most beneficial for the company.

When performing ABC inventory analysis, you assign a class to every SKU by using letters. The most frequently sold one gets A and the least consumed one is assigned C or any other letter that is the last in the queue.

This will help you control your inventory, enhance stock management, boost forecasting, and develop a robust pricing strategy for popular or less-consumed goods.

Inventory Management Software

A cloud-based eCommerce store inventory management software like SellerSkills will take the edge off controlling multiple selling channels and warehouses.

SellerSkills is great for multichannel sellers who would like to keep their inventory on all the selling channels neatly updated. Our app is connected directly to your sale points, so every time you make a sale the tool will automatically update the product quantity all over the marketplaces. In this way, you’ll avoid overselling since you’ll always have accurate inventory data at hand. The pleasant part of this that the whole inventory update process doesn’t require your direct involvement. Once the order arrives at our system, it triggers the mechanism to decrease the product quantity all over the marketplaces.

As you use SellerSkills, you can set minimum stock levels for every SKU and get notifications when the item quantity decreases and reaches the point when it’s time to order more. You’ll never miss the moment to replenish your inventory, so your customers will always find the desired items at your shop.

As new arrivals enter your warehouse, you can instantly update the item quantity in bulk throughout all the marketplaces. Use SellerSkills and update your inventory on Amazon, eBay, Shopify, Walmart with a click of a single button.

SellerSkills is free for small businesses with a turnover of 50 orders per month. Try it for free and upgrade a free plan to the one that meets your business needs.

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