Managing inventory for an ecommerce business isn’t easy. In fact, it’s much like a complicated balancing act. Too little stock means you run the risk of losing out on sales, overselling, and suspension. Too much stock means you’re wasting money that could be better spent somewhere else. Not only that, but there are many misconceptions out there about how to best manage your stock, which only makes the balancing act even harder.
To help you understand what is truth and what is fiction, we’ve put together a list of some common myths about inventory, and the facts that debunk them.
Common Myths About Inventory
Myth #1: Inventory management can be started after a business has launched.
Fact: Having an inventory management strategy in place isn’t a priority for some ecommerce beginners. The truth is, you need to have a plan before your business grows. Managing disorganized inventory can become difficult and can stunt your business’s growth. Mismanaged inventory is actually one of the top reasons small businesses fail. When you have an efficient inventory management strategy already set, it will grow along with your business.
Myth #2: Maintaining more stock equals better service.
Fact: Preventing stock outs is important. It keeps customers happy and prevents bad reviews and loss of sales. But, that doesn’t mean you should keep more stock on-hand. When you have too much stock, you not only have your capital tied up in products sitting on shelves, you are also likely paying for storage fees. Plus, you must keep in mind that trends change, customers can be fickle, and product packaging changes all the time, not to mention the shelf life of products. You don’t want to be stuck with a surplus of products that you can’t sell.
Myth #3: Locally managed inventory is best.
Fact: Where you store inventory matters. Unfortunately, some ecommerce sellers believe that using local warehouses are the best way to store products. That way of thinking isn’t always the most effective. When deciding where to store your stock, it will serve you better to consider where the customers are located. Which location is going to help you get products to the customers the quickest way, while providing great order fulfillment services? Even if you fulfill the orders yourself, it may be worth it to research a hybrid fulfillment operation. When profit margins are low, saving a few dollars on shipping can be worth outsourcing fulfillment to certain parts of the country.
Myth #4: Inventory management isn’t necessary for forecasting.
Fact: Some ecommerce retailers believe they can accurately forecast future sales with only past sales data. That isn’t true. Effective and accurate inventory management will help you maintain the right quantities of stock, follow trends, calculate lead time for restocking, and most importantly, know what is no longer selling and should be removed from your inventory.
Myth #5: Buying stock in bulk is a money saver.
Fact: While it is true that you will often get a better price per item when you buy inventory in bulk, it doesn’t always equate to saving money. If you have so much stock that it sits on your shelves collecting dust, or it falls out of fashion, or is discontinued, then you really haven’t saved anything. Only buy in bulk if your forecasting data proves the need for that amount of stock and the profit margins easily cover the storage fees.
Myth #6: The supplier with the lowest prices is the best option.
Fact: Cost is only one consideration when you are choosing a supplier. If the quality of the products you obtain from a supplier is subpar, or they have excessive lead times for ordering, or they are unreliable, you could end up losing money in the long run. Even though the price you paid was lower, the amount of mistakes, upset customers, and a ruined online reputation isn’t worth it. Choosing the right suppliers is more than just cost. It may be tempting to go with the lowest price, but that isn’t always the best decision for your company.
Myth #7: You don’t need an inventory management software solution.
Fact: Many ecommerce business owners – especially those with a small amount of inventory – don’t think that it’s necessary to have an automated inventory management system. They may have their own way of manually tracking inventory (for example, spreadsheets or checklists). While that may work for a while, manually tracking inventory is not a good use of your time. Technology provides some extremely helpful inventory management tools that integrate easily with ecommerce selling platforms. Not only does a software solution provide more accurate information due to the elimination of human error, it also frees up the time it takes to manually track inventory and hunt down discrepancies.
Final Thoughts on Inventory Management Misconceptions
Believing the above misconceptions about inventory management can have some seriously negative consequences on the success of your ecommerce business. Carefully thinking through decisions, considering all aspects before choosing the one that seems easiest, and using an efficient software solution, will help your business and bottom line grow.