Why Inventory Management Is So Important for Your Ecommerce Business

Running an eCommerce business means you buy and sell large quantities of goods. Understanding inventory management is essential to your business, and the key to success. If your inventory records aren\’t thorough and your financial reports lack key information, you risk running into serious problems.

Managing your inventory is a challenge, especially when you have online marketplaces, several brick-and-mortar store locations, and warehouses. Tracking inventory levels is tedious, but it is essential for an eCommerce business.

What is inventory management?

Inventory management is the process of making sure you know where all your products are and what condition they\’re in. It covers all aspects of the supply chain for both brick-and-mortar stores and online eCommerce retail, from purchasing goods to shipping products to customers.

Stock monitoring involves keeping track of the goods going in and out of a warehouse. Using inventory control gives you a complete overview of the products you have in stock, including where they are located in your warehouse.

Why is inventory management important?

If your inventory management systems are not working properly, it can affect every aspect of your business — especially sales. The most important purpose of inventory management is to maximise sales of the right stock and minimise costs associated with old stock.

When you are first starting out and have limited number of SKU’s, inventory management can be pretty simple. However, as your business grows and you sell on multiple channels – like Amazon, Shopify, WooCommerce, and also B2B – managing your inventory becomes complex.

When you buy inventory without consulting your accurate financial records, you risk making two mistakes: losing money from not being able to handle an unexpected surge in orders or having excess inventory that goes unsold.

According to Shopify, businesses lose nearly $2 trillion annually due to mismanaging their inventory.

What are the ways to manage inventory?

There are many ways to manage inventory, however, the most common among online sellers is by using spreadsheets to track product names and prices, along with quantities on hand. Every time a sale is made or a product is returned, eCommerce business owners need to ensure each transaction is reflected in all spreadsheets to maintain accurate inventory count and financials.

This approach is very cumbersome, labour-intensive and rarely effective and accurate. It poses a huge risk of incorrectly recognising inventory as cost and thus significantly reducing your profits.

Automating your inventory and order management process can help ensure that every transaction is accounted for properly, reducing human error and the paper trail that goes along with it.

What about COGS (Cost of Goods Sold) recognition?

Another significant issue is the recognition of COGS (Cost of Goods Sold). Even if your eCommerce business revenue is looking good, its costs of goods sold (COGS) may be sending out red flags.

When COGS are recorded correctly, they should be matched with the revenue from the same period. This shows up on the income statement as a profit margin that is reasonably predictable and stable.

Strange movements in this margin would indicate inventory is being expensed immediately at the time of purchase. An inconsistent margin is inaccurate. Correct expenses should match reasonably to the revenue from the same period and show very few turns in gross profit margins.

How to automate inventory management?

Cloud inventory management platforms, like Dear Systems, offer a valuable solution to these problems. They consider all available inventory information, including on-hand and committed items, while providing detailed financial and business reports.

Thanks to the proper inventory management process, business owners can have real time information about stock levels and make sure the warehouse runs at optimum efficiency.

There are other reasons why inventory control is essential for your business:

Centralized access to all products

Centralized access to transactions

Instant access to sales orders details

Automatic stock updates

Reorder notifications

Tracking order fulfillment status in real-time

Accept multi-currency purchase transactions

How to do inventory forecasting.

One of the most difficult parts of inventory management is knowing how much to order and when to place the order. Inventory forecasting feature can be helpful in overcoming this challenge. This is another reason to use inventory management software, like Dear Systems which enables to do inventory forecasting with ease.

Inventory forecasting helps you predict future demand by using sales projections, revenue and profit figures, financial reports, and existing inventory activity to create advanced models.

Proper inventory forecasting and management means you won\’t have to turn away orders and you can maximise your profits by ensuring you always have enough inventory on hand.

Summary

Inventory control is a key factor in the success of eCommerce businesses. It’s never good when you run into issues with inventory levels, because it can cause delays that affect customers. Automating inventory management will help you optimize your workforce and manage inventory right from purchase to sale.

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