by Nicolette V. Beard `
November 4th, 2024
Managing fixed assets like inventory can be as challenging as playing whack-a-mole. You think you have a handle on the mole's location, i.e., your business's stock items, only to find that products keep popping up where you don't expect.
Inventory managers can't rely on assumptions — they must always know where the inventory is. Conducting a regular inventory audit is not just a task; it's a relief. It's the key to avoiding costly disruptions to supply and, ultimately, your bottom line.
Good inventory management requires meticulous planning. The level of complexity is based on business size and type and will determine the inventory management method to choose.
Ecommerce companies looking for inventory management support can choose from many SaaS applications and even predictive analytics to help manage everything from procurement and pricing optimization to customer satisfaction and retention.
Inventory management takes the guessing out of stock levels, places you squarely in control of the game and has the potential to not just improve, but to smash previous sales records. This sense of accomplishment can be a powerful motivator for your business.
What is inventory management?
Inventory management — a crucial component of supply chain management — means tracking stock levels and the movement of goods, whether delivering raw materials to manufacturers or fulfilling orders for finished products. It represents the fundamental building block to longevity, helping businesses minimize costs, improve cash flow and boost profitability.
When you organize your inventory correctly, the rest of your supply chain will fall into place. With it, you can avoid mistakes like mis-shipments, shortages, out-of-stocks, spoilage (when dealing with perishable stock items), overstocks, mis-picks, etc.
Nonetheless, 43% of small businesses still don't track their inventory, and, on average, US retail operations have a supply chain accuracy of only 63% — which means many retailers aren't taking advantage of the inventory management software available.
Unlike an enterprise resource planning (ERP) system, an inventory management system focuses on one supply chain process. They often come with the ability to integrate with other software systems — POS (point of sale), sales channel management and shipping — so you can build a personalized integration stack to meet the unique needs of your business.
Why is inventory management critical?
Good inventory management not only communicates a positive signal to customers and investors (for publicly held companies), but also promises business leaders and employees a strong balance sheet and favorable business outlook. While competitors can't look behind the curtain, a healthy standing within your sector tells them you are making and/or selling products consumers want.
On the surface, inventory management may seem secondary to the customer experience. But nothing says "we don't value your business" to a customer like an out-of-stock message.
Process of inventory management
Before building an inventory management plan, you'll need to understand each step in the inventory management process. Clarity is crucial to minimizing errors and choosing your business's most effective inventory management software.
Goods are delivered to your facility. This is when raw materials and subcomponents for manufacturers (or finished goods for consumers) enter your warehouse — these goods are in process. I.e., work in progress, is then transformed into a finished product.
Inspect, sort and store goods. Whether you use dropshipping, cross-docking or a different warehouse management system, this is when inventory is reviewed, sorted and stored in their respective stock areas.
Monitor inventory levels. This may be through physical inventory counts, perpetual inventory software, or cycle counts and helps minimize the chance of error.
Stock orders are placed. Customers' orders are submitted either on your website or in-store.
Stock orders are approved. This is when you pass the order to your supplier, or it may be automated through your POS system.
Take goods from stock. The necessary goods are found by SKU number, taken from stock and shipped to the manufacturer or customer.
Update inventory levels. You can automatically update inventory levels and share them with necessary stakeholders using a perpetual inventory system.
Low stock levels trigger purchasing/reordering. Restock inventory as needed.
Creating an inventory process map is one way to visualize and understand these eight steps better. This tool can help you track and review each process step, which helps to minimize out-of-stock and overstocked inventory and ensure a smooth flow of goods through your business.
Inventory management techniques
Inventory management can become complex, especially for larger apps with many moving parts, encompassing several techniques and strategies. Let's look at some inventory control techniques you may utilize in your warehouse.
Economic order quantity.
Economic order quantity (EOQ) is a formula for how much inventory a company should purchase, and it includes variables like total production costs, demand rate, and other factors. The formula identifies the most significant number of units to minimize buying, holding and setup costs.
Minimum order quantity.
Minimum order quantity (MOQ) is the smallest inventory a retail business will purchase to keep costs low. However, remember that inventory items that cost more represent a smaller MOQ than cheaper items that are easier and more cost-effective.
ABC analysis.
This technique splits goods into three categories to identify items that heavily impact inventory cost.
Category A is your most valuable product, contributing the most to overall profit.
Category B is the products that fall between the most and least valuable.
Category C is for small transactions vital for overall profit but only matters a little individually.
Just-in-time inventory management.
Just-in-time (JIT) inventory management is a technique in which companies receive inventory on an as-needed basis instead of ordering too much and risking dead stock (inventory that was never sold or used by customers before being removed from sale status).
Safety stock inventory.
Safety stock inventory management is extra inventory ordered and set aside if the company lacks enough replenishment. This helps prevent stock-outs typically caused by incorrect forecasting or unforeseen changes in customer demand.
FIFO and LIFO.
LIFO and FIFO are methods to determine the cost of goods. FIFO, or first-in, first-out, assumes the older inventory is sold first to keep inventory fresh.
LIFO, or last-in, first-out, assumes the newer inventory is typically sold first to minimize warmed-over inventory.
Reorder point formula.
The reorder point formula calculates the minimum amount of stock a business should have before reordering. A reorder point is usually higher than a safety stock number to factor in lead time.
Batch tracking.
Batch tracking is a quality control technique wherein users can group and monitor similar goods to track inventory expiration or trace defective items back to their original batch.
Consignment inventory.
If you're thinking about your local consignment store here, you're exactly right.
Consignment inventory is when a consigner (vendor or wholesaler) agrees to give a consignee (retailer) their goods without the consignee paying for the inventory upfront. The consigner offering the inventory still owns the goods, and the consignee pays for them only when they sell.
Perpetual inventory management.
Perpetual inventory management simply counts inventory as soon as it arrives to deliver real-time insights.
It's the most basic type of inventory management system and can be recorded manually on pen and paper or an Excel spreadsheet. Or, by using handheld devices that scan product barcodes and RFID tags, you may use an inventory system that automates inventory balances as soon as stock is moved, sold, used or discarded.
Dropshipping.
Dropshipping is an order fulfillment method in which the supplier ships products directly to the customer. When a store makes a sale, instead of picking the item from their inventory, they purchase it from a third party and have it shipped to the consumer.
Lean manufacturing.
Lean manufacturing is a broad set of management practices an owner can apply to any business. Its goal is to improve efficiency by eliminating waste and any non-value-adding activities from daily business.
Six sigma.
Six Sigma is a method that gives companies tools to improve the performance of their business (increase profits) and decrease excess inventory.
Lean six sigma.
Lean Six Sigma enhances the tools of Six Sigma but instead focuses more on increasing word standardization and the flow of business.
Demand forecasting.
Demand forecasting is based on historical sales data to forecast customer demand. Essentially, it's an estimate of the goods and services a company expects customers to purchase in the future.
Cross-docking.
Cross-docking is a technique whereby a supplier truck unloads materials directly into outbound trucks to create a JIT shipping process. This eliminates warehousing, and there is little to no storage between deliveries.
Bulk shipments.
Bulk shipments are a cost-efficient method of shipping in which a business palletizes inventory to ship more at once. To see some examples of effective inventory management, check out our BigCommerce case studies page, where you can find success stories from B2C and B2B merchants.
Benefits of inventory management.
Automating your inventory tracking unlocks a world of benefits for your business. Automation can help build a more resilient business untouched by supply disruptions. Businesses employing a well-oiled inventory management system will see the upside in productivity, cash flow and happy customers.
Customer satisfaction.
Having the right products in stock when your customer is ready to buy and meeting that demand at the right time increases customer satisfaction. Customers who visit your website want to trust the information they see. Consequently, accurate stock levels can boost overall confidence in your brand. Conversely, with accurate forecasting, you can avoid stockouts, damaging customer relationships, representing lost opportunity costs and impacting your bottom line.
Improve cash flow.
You don't want to tie up your working capital. Maintaining the right amount of stock helps you manage cash flow effectively. You can put that freed-up cash to work for you in other business areas.
Increase efficiency and productivity.
Using integrated order processing for inventory systems can increase productivity by 25%, and addressing overstocking and understocking issues can reduce inventory costs by 10%.
Reduce stockouts and overselling.
Say goodbye to the frustration of selling out-of-stock items and disappointing customers with backorders. With real-time visibility across all your sales channels, you minimize the risk of overselling. A seamless shopping experience builds customer trust and loyalty, and your repeat customers fuel growth.
Better demand forecasting.
Good inventory management operates like a well-oiled flywheel. The more refined your tracking, the better it serves your customers and bottom line. Tracking sales trends and customer buying habits allows businesses to forecast future demand better. This helps them avoid having too much or too little stock, keeping inventory at the ideal level.
Automating demand forecasting can help you optimize your supply chain, too. Powerful inventory management tools often use data analytics to assist with demand planning and adjusting for seasonal changes.
Businesses using machine learning for demand forecasting have achieved 90% accuracy compared to only 60% with manual forecasting.
How BigCommerce supports and elevates inventory management
Intuitive. Integrated. Custom.
That sums up how BigCommerce empowers your business. Manage your storefronts in a single place with apps and integrations optimized to work seamlessly with BigCommerce's inventory management.
Our solution can integrate with your unique ERP and PIM to centralize data, which makes your inventory management work even better.
Product catalog management and organization.
Manage your product catalog with bulk actions like adding, editing and deleting products. You can easily create and manage unlimited products, file storage and bandwidth, ensuring seamless scalability for your growing business. This allows you to effectively organize and showcase your products, improving customer satisfaction and increasing potential sales.
Flexible product and SKU management.
BigCommerce offers flexible product and SKU management, allowing you to efficiently handle variations within your product offerings. With up to 600 SKUs per product and 250 options, you have ample flexibility to manage complex product variations, such as size, color or material. This ensures accurate representation and tracking of your products, promoting precise inventory management and preventing stock discrepancies.
Multi-channel inventory management.
A centralized hub allows you to manage product listings across all your sales channels. With the modern CSV import/export tool, you can easily manage stock updates across one or multiple inventory locations, ensuring consistency and eliminating the risk of overselling. This centralized approach simplifies inventory management across platforms, allowing for efficient stock tracking and updates.
Digital product and downloadable file support.
Beyond physical goods, BigCommerce facilitates the sale of digital products and downloadable files, expanding your product offerings and reaching a wider audience. This feature streamlines the process of selling digital content, such as ebooks, software or music, allowing you to diversify your inventory and capitalize on the growing demand for digital products.
Custom views for simplified management.
Create custom views that simplify your day-to-day management tasks. This feature lets you personalize your inventory interface according to your specific needs, streamlining data visualization and enabling more efficient inventory management. This customizable approach empowers you to create a user-friendly interface that optimizes your workflow and enhances productivity.
Multi-location inventory management.
If you've struggled with inventory management because you operate multiple locations, your struggle is over. Our multi-location feature helps you track stock across different warehouses or physical locations, ensuring accurate representation and promoting efficient stock management. This functionality is crucial for businesses with multiple fulfillment centers or those operating in diverse geographical areas.
The final word
Whether you're a brick-and-mortar, ecommerce or multichannel retailer, inventory management is crucial to compete strategically and give your customers their desired experience. You need to implement inventory management techniques to get ahead.
Sign up with an inventory software that masters the basics of inventory management and acts as a catalyst for your growth, or choose an ecommerce platform like BigCommerce that allows you to centralize your store's inventory management across all channels.
FAQs about inventory management
We realize you may have questions about a topic as broad and complex as inventory management. Here are commonly asked questions and our answers:
Nicolette V. Beard
Nicolette is a Content Writer at BigCommerce where she writes engaging, informative content that empowers online retailers to reach their full potential as marketers. With a background in book editing, she seamlessly transitioned into the digital space, crafting compelling pieces for B2B SaaS-based businesses and ecommerce websites.