eCommerce Inventory Management: Tools, Tips, and Techniques

eCommerce Inventory Management

eCommerce Inventory Management is a complex process.

Be it WooCommerce or Magento Store, it could cost your business a lot if you don’t do it wisely.

What is eCommerce Inventory Management?

In eCommerce inventory management, you analyze the volume of products in the store and the demand for the product. To always have the product in storage whenever the demands arise, and not ordering an excessive amount of products, is the core of inventory management.

eCommerce Inventory management refers to the process of ordering, carrying, and managing the products. It is an essential process in supply chain management.

Importance of eCommerce Inventory Management

eCommerce Inventory Management Techniques

If the demand peaks, you have to have the product to fulfil the demand. But you do not want to order more than you can sell.

Handling inventory is critical for business as if you don’t do it smartly; you may lose the money:

  • By stocking inventory that loses value with time
  • Or losing sales due to the lack of stock.

#1 Cost-cutting

You can cut various costs with Inventory management.

With sound sales forecasting techniques, you can estimate the quantity of the product to stock.

It becomes more vital when you are selling a product with a short life. You do not want your product to expire while sitting in the store.

Be it spoilage, or dead stock, or carrying cost, you can cut inventory costs with the eCommerce inventory management.

#2 Estimating the Sales

You need to have a record of inventory to estimate future sales.

If you keep the stats related to the flow of the products, you can easily read what product is selling at what rate.

You can forecast the demand for the product and be able to fill the stock at the right time.

Not all products have the same transportation time. Some products take time to arrive, and you have to know the future demand to order the right quantity for the right time.

#3 Multiple Channel

If you are selling only on one side, things are not that complicated, and you can work around it. 

But when there are multiple channels of sales (Amazon, eBay, Offline Store, Etsy), soon you will find yourself pulling your hair. In confusion, you may order more than you need, or you may go out of stock.

eCommerce inventory management seems more important when you are buying types of products from various sellers. 

Inventory management means having a detailed record of all the goods that are coming and going out of your warehouse. 

Let’s see how to manage the eCommerce inventory:

eCommerce Inventory Management Techniques

Inventory management is a time taking process, but there is no going around it. Ignoring it or not doing it will surely hurt your eCommerce business.

For that, you need to go with a technique that fits best with your business.

#1 Just In Time (JIT)

How about ordering the product only when the customer orders the product?

JIT is a widely used eCommerce inventory management technique. The store only orders or stock the product when there is a very imminent demand.

Another aspect of JIT is that it doesn’t use much space in a warehouse. Just In Time reduces the risk of overstocking and contribute to cost-cutting.

The product does not sit in the stockroom for long as its presence is a proof that someone has already ordered the product.

This lowers the carrying cost of the product too.

But it is not easy to implement. You need to have a detailed insight into customer buying behaviour. Demand forecasting plays a vital role in JIT technique. 

The transportation time has to be considered so the product could arrive in time.

#2 ABC Analysis

ABC Analysis ECommerce Inventory Management

ABC is a simple process of inventory management, where we divide the products into three categories.

Do you know the Pareto principle?

It is also known as the 80/20 rule. It means that 80% of the sales come from 20% of the items. In other words, 20% of your products bring in 80% of your total revenue.

This principle inspires ABC analysis.

You have to find that 20 % of products and put them in class A.

  • Category A: 20% of all goods contribute to 70-80% of the revenue.
  • Category B: 30% of all goods contribute to 15-25% of the revenue.
  • Category C: 50% of all goods contribute only 5% of the revenue.

After knowing this, you can separate the valuable product. Then you can make them your priority product and make sure that they always remain in stock.

But you have to be responsive; the product could change categories with seasons.

For  Eg:- An Umbrella could be Category C product but could jump to Category A  in the rainy season.

#3 First In First Out

When the life cycle of the product is short, FIFO is used for eCommerce inventory management.

FIFO is the process where those products are sold first that comes first in the inventory. It is done to protect the product from any damage that could happen because of long storing time. 

So, if the order comes, the store sends the longest sitting product they have in the warehouse.

#4 Dropshipping

In this popular process, the owner of the eCommerce store does not maintain an inventory. However, when the order arrives, he redirects the order to the supplier. 

The supplier ship the order to the customer.

Dropshipping eliminates the need for warehousing for the dropshipper.

Setting up a dropshipping store is not that complicated; you can read our complete guide on dropshipping. It is a growing business model that you can begin in meagre investment.

#4 Minimum Order Quantity

Maintaining a minimum order quantity for each product is also a way of eCommerce inventory management. 

When the eCommerce store is selling lots of products, and the demand of the product does not make any pattern, seller keep the minimum number of product in the storage.

A business that works with products that take time to ship or order, they use the minimum order quantity technique.

This way online store ensures that they never run out of the product.

How to do Demand Forecasting?

If you are a seller, you have to estimate the demands of the products. Demand forecasting is an essential part of the business.

These predictions are not random. It depends on past behaviour patterns of the customer and the continuing trends in the present.

The forecast is made after reading the data scientifically and trends, with objectivity in mind.

Popular ways of demand forecasting:

#1 Buyer Survey

The most insightful method is surveying customers.

It is costly and time-consuming but gives the best results. The forecasting done based on the surveys are often the most exact.

Various sites like Amazon and eBay run surveys on their website to study the consumer more deeply.

#2 Barometric Method

In this method, demand is forecasted after studying the past.

It also includes the following market trends and market factors that can affect demand.

After looking at the past demands and future trends, a guesstimate is made.

#3 Expert Opinion Method

Expert opinion methods might look nonstatistical, but the owner of the eCommerce store knows how much product his store sells at what time. 

His experience and his precision in his field help him to make a decision.

The more expert he is in his area, the more accurate guess he makes.

#4 Economic Order Quantity Model

Inventory management is not complete without knowing the EOQ model. 

EOQ model helps the business by calculating the number of units a company should add to its inventory with each batch order to reduce the total cost of its stock.

The Formula for Economic Order Quantity is:

EOQ Formula

S= Ordering Cost, D= Total Cost and H= Holding costs

EOQ Model Graph

As you can see,

If you do a large order, the order cost would be less.

But when you do large order, you need more resources (big warehouse, more human resources, etc) to hold the products.

EOQ Model helps in finding the optimum balance between them.

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SMART TIP: Relations with Suppliers

Having a good relationship with your supplier goes a long way.

You have very less or no control over the demand, but you can use the help of supplier in case of rising demands​

Magento Inventory Management Extensions

Magento is itself a powerful eCommerce platform and provides you with various functions:

  • Reducing the number of the product when a product is sold
  • Increasing the product volume in case of return of a product
  • Alerting you if the product number goes down the assigned number

But when it comes to the more complex issues, you need to install an extension on your Magento store.

Best Magento 2 Inventory Management Extensions

  • Advanced Inventory for Magento by Wyomind
  • Multi-Location Inventory by Aitoc
  • Magento Inventory by Magestore
  • Multiple Warehouse Extension by Magenest
  • Magento 2 Inventory Management by Mageplaza

Best Magento 1 Inventory Management Extensions

  • Multi-Warehouse Management by Ahead Works
  • Multi-Location Inventory by Aitoc
  • Multiple Warehouse Extension by Magenest
  • Multi-Warehouse Inventory by Safemage
  • Advanced Inventory for Magento by Wyomind


WooCommerce Inventory Management Plugins

WooCommerce is another popular eCommerce plugin with lots of functionality.

Many plugins are available that can help in managing the inventory of a WooCommerce store.

A decent plugin can automate various processes and offers you real-time updates.

Best WooCommerce Inventory Management Plugins:

  • TradeGecko
  • Orderhive
  • WooCommerce Stock Manager
  • Atum Inventory Management
  • Katana for WooCommerce

Best Free Open Source Inventory Management Software

If your business is significantly large, you need more than extensions and plugins to manage your inventory.

You need comprehensive eCommerce Inventory Management Software.

The good inventory management software could help you gain more control over the inventory. They cultivate amazing reports that help in forecasting the demand for the products.

The best thing is, there is free and open-source inventory management software available in the market.

Free Open Source Inventory Management Software

  • Odoo
  • PartKeepr
  • inFlow
  • RIghtControl
  • ABC Inventory
  • Stockpile
  • Skyware
  • Delivrd

Final Words

In the eCommerce business, there are multiple channels and many suppliers. Product order and the return rate is prone to randomness. The trend is difficult to study, and there are no geographical boundaries.

However, with the help of tools, you can automate various tasks and even scale your business.

Though we sell the fastest Magento hosting and best WooCommerce hosting, we have helped many businesses grow.

If there is any query, leave it in the comments.

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