There is nothing easy about inventory management.
It could be the biggest headache for any E-Commerce business.
And many E-Commerce owners are throwing away millions of dollars every year due to poor inventory management.
Don’t let yourself wind up in this mess.
Let’s dive into the top 5 inventory management practices that can improve the cash flow of E-Commerce business.
5 Inventory Management Practices to Improve Your E-Commerce Cash Flow
Prioritize Your Products using ABC Analysis
The ABC Analysis allows you to optimize your usage of time and investment on specific products. It separates items that are making you more money from the ones that are costing you more money.
You can apply ABC Analysis by making a list of your products and divide them into three categories based on their value:
- Category A: High-value (best-selling) items with low quantity
- Category B: Moderate-value items that take up a moderate space of the warehouse
- Category C: Low-value items that take up the most of the warehouse
Now you can see that Category A requires constant restocking as it contributes the greatest revenue to your business while Category B requires less attention.
You would want to apply discounts or special offers to push the sale of Category C and even think about bundling it before it becomes outdated or obsolete.
Accurate Demand Forecasting
Accurately forecasting demand for your products plays a crucial role in effective inventory management.
It allows you to identify what items offer the most revenue at certain times of the year and what elements will influence your business in the upcoming time.
Reading the future is not easy as there are always unpredictable incidents, you will never know for sure what is going to happen.
However, based on elements like last year’s sales, economic trend & condition, and marketing promotions, you should be able to assess product demand and consider ordering inventory stock.
Alwasy be prepared for the fluctuation in demand
Set Par Levels
Par levels are the minimum amounts of each product that you should have on hand at all times.
They go as the warning lines of each product. Once your inventory crosses the warning line, you know it is time to order more.
Par levels vary by product, depending on its demand and by how long it takes for it to be back in stock.
You should review your par levels consistently to make sure that they stay aligned with the demand.
Setting par levels will help systematize your ordering process and avoid running out of stock.
First In, First Out (FIFO)
FIFO has always been the top inventory management strategy. It focuses on getting the stock that arrives at your warehouse first (first in) sold first (first out).
You may think this is the best practice for companies producing perishable goods only, but it is also a perfect fit for companies selling non-perishable goods.
FIFO makes sure you won’t end up with either spoiled products (food, drinks) or outdated items (clothes, shoes) that are unsellable.
For FIFO to work, you need to organize your warehouse in a reversed order in which the newest stock stays at the back, and the oldest stock is in front.
Regular Inventory Auditing
Most of the time, you rely on inventory management software and tools to supervise the stock in your warehouse.
However, it is essential to do a manual inventory audit regularly to make sure the data numbers on-screen match those in your warehouse. Many businesses count all their inventory at once, usually at the end of the year.
But, it can be incredibly tiring and time-consuming. Other more effective methods for you are counting your inventory throughout the year (cycle counting) and randomly choosing a product to count (spot checking).
If you have any other strategy for E-commerce inventory management, feel free to share with us in the comment section below!