inventory management best practices

If you’re starting a new ecommerce business and have stock to manage, but don’t know exactly how to do it, you’re in the right place.

Implementing a pro-level inventory management system can be costly and most businesses aren’t in need of a robust software in the early days. That’s where implementing good inventory management practices becomes very important.

These best inventory management practices can help you organize and keep track of all stock from the time a purchase order is created to when the product is delivered to a customer.

When your inventory is properly managed, you’ll avoid unnecessary pitfalls and watch your profits increase. Let’s dive in.


Basic Product Types

Before we get started with the best practices, let’s review the basics. Understanding the four standard product types will simplify implementation in the long run.

  • Item – This is a single product that requires no assembling and is ready to be purchased. It is also known as a simple product.
  • Assembly – These are items that require assembly, can also be referred to as a built or finished product. It requires components (raw materials) that are then assembled to create the final sold product.
  • Family – These are groups of similar items. For example, if you have a product that comes in different sizes or colors, they’re part of one family. These types of products are also called variants or variations.
  • Case Pack – These are bundled items, typically multiple of the same type of product sold as a set or a group of related items. You may see these referred to as a multipack or bundled items.

Now that you know the basics types of products that are sold online, let’s review how to manage them.


Beginner’s Guide to Inventory Management

Below are a few best beginner practices to start managing your online inventory better.


1. Use SKU Numbers

Every one of your products has to be identifiable. It’s best practice to assign each product a unique ID number. This number is known as a Stock Keeping Unit, or SKU. The most important thing to remember with SKUs is that the ID should be unique to your business.

It is also best practice to create SKUs that make sense to you. This helps quickly identify products when picking them off the shelf and packing boxes for fulfillment. Here’s a great article that reviews everything you need to know about SKUs.

As your business grows, using SKUs becomes even more important as you add more products, especially similar items that need to be differentiated such as a family of products.

The goal is to make it as easy as possible to identify the product, find where it is stored, and keep tabs on the quantities on hand.


2. Forecast Accurately

Forecasting is an essential component of inventory management. Accurately forecasting leads to

  • more efficient business operations
  • less chances of overselling and poor customer experiences
  • avoiding overstocking and paying too much in storage fees
  • unnecessary stale inventory

The basics of forecasting include analyzing past data (if applicable), identifying higher sale seasons, calculating your average sales, and monitoring various trends. These four elements will help predict what the demands for your products will be in the future, in other words, you’ll determine your brand’s seasonality.

To become a pro at forecasting, check out our article, Inventory Forecasting 101.

While you may run into some unforeseen trends, you’ll largely have a scope on what’s needed to run your business smoothly on a day-to-day basis.


3. Maintain Emergency Stock

Now that you’ve accurately forecasted your product needs, it’s time to add in emergency stock, also known as safety stock. It’s likely you’ll find yourself short on a product with outstanding orders. This could happen because of the unforeseen trend we mentioned above, or maybe you experience a shipping delay from your supplier, or, worse, the product is discontinued.

You need to have a buffer. Having emergency stock on hand ensures that if a product listing isn’t updated in time and an order comes in, you have a backup. This prevents any unhappy customers, negative reviews, and marketplaces suspensions!

You can either keep some emergency stock on-hand and fulfill orders yourself, or maintain a backup supplier or dropshipper for emergency fulfillment.


4. Conduct Inventory Audits

Conducting routine inventory audits, no matter the size of your business, ensures you’re working with accurate data.

An audit on a basic level means counting the number of physical stock you have on hand and then updating your records so you’re analyzing accurate data and making better business decisions.

Just be sure you inventory audits are conducted on a consistent basis. The more uniform, the less headaches you’ll have, and the more efficient your business will run.


5. Invest in a Software Solution at the Right Time

Many ecommerce retailers begin managing their inventory manually with spreadsheets and checklists. That may work for a while, but as your inventory and sales grow, you’ll find that it becomes increasingly difficult and time-consuming.

You’re business will also be marred with a ton of mistakes. And it is impossible to keep all your product listings updated 24/7.

In order to have the time needed to dedicate to other aspects of your company, investing in an ecommerce inventory management software is well worth the expense. But If you’re still on the fence, try out some of these free inventory management platforms.

Not only will it allow you to quickly see exact quantities of your products, no matter how many sales channels you use, it will also help eliminate errors, fast-track inventory audits, and let you know when you need to reorder inventory.


Final Word

Now that you have these 5 best inventory management practices in your back pocket, it’s time to start organizing! Having this area of your business streamlined helps so many different aspects of your business, but most importantly, it gives you time to spend growing your business.

If you haven’t already, check out our Ultimate Guide To Inventory Management for Multichannel Retailers guide to learn more about the principles of inventory management and how to manage products when selling across multiple channels. You’ll be an ecommerce inventory pro in no time!


Editor’s Note: This blog post was originally published May 2017 and was updated in February 2021 to reflect more accurate and relevant information.

The Ultimate Guide To Inventory Management for Multichannel Retailers
The Ultimate Guide To Inventory Management for Multichannel Retailers

The ins and outs of managing inventory are overwhelming. That’s why we’ve put together the only guide that covers inventory management basics, accounting methods, pricing strategies, multichannel marketing strategies, and more.

You will receive an email with your download shortly!

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