May 9, 2019      4 min read

Successful inventory control enables retailers to meet customer demand by avoiding stockouts and reducing the risk of overstocking to free-up cashflow. It is crucial in the world of eCommerce, for even the smallest online retailer to have effective inventory control.

Following are best practice inventory control techniques to help online retailers maintain control over their stock:

ABC analysis

Based on the Pareto Principle or 80/20 rule, where 80 percent of sales come from 20 percent of products. ABC analysis is used to determine which products in your inventory stock represent the most and the least value.

An ABC Analysis divides your entire inventory stock into three categories based on the product’s total value to the company.

Here’s how to make the ABC analysis work for your inventory.

Inventory optimisation

Online inventory management optimises your eCommerce business by enabling real-time visibility, automating order fulfilment and the reordering of replacement stock. The software can be synced across multiple platforms, supply chains and sales channels. If sales are affected by seasonality, then online inventory management solutions will reflect for this and you can adjust reorder quantities accordingly.

Demand forecasting

Demand forecasting is not an exact science, it’s more of an educated guess, but that doesn’t mean you can’t improve the process. Effectively forecasting demand for your online store is the basis of good inventory control and online inventory management software will help reduce the pain of forecast analysis.

To further improve the accuracy of demand forecasting, you should systematically analyse previous forecasts and compare these with actual market results. This data will identify if predictions were correct or not, and what the actual demand was. By following a monthly process and evaluating results, you can minimise future errors.

Demand forecasting also helps determine minimum stock or par levels, to allow enough on-hand inventory stock to satisfy demand, without overstocking and tying up capital or risking inventory waste.

Par levels

Setting par levels mean assigning the minimum quantity of an inventory stock item to have on-hand to meet consumer demand. When the stock reaches or falls below that par level, reordering becomes a priority to avoid running out. Consistently evaluate par levels to ensure the quantities continue to align with current demand.

Par levels provide structure for your ordering process, assigning priority to items that need to be ordered immediately and should consider delivery and lead times of goods from the supplier.

Regular auditing of inventory stock

Even with all the online inventory management software and other inventory control tools at your disposal, it’s still good practice to undertake a manual inventory count. Manual counts of inventory will establish if the numbers in the software match the physical stock count.

Auditing doesn’t always mean you need to undertake full counts of every single item in stock. A partial audit in the form of cycle counting splits the task throughout the year. Cycle counting happens over time with small sections of inventory counted and checked on a rotating schedule.

Additionally, spot checking periodically tests to ensure stock numbers are accurate. This is done by randomly selecting products at any time to count and compare to the numbers in your software.

Dropshipping

Managing online retail via dropshipping is significantly easier because you are not holding any inventory stock. When products are purchased from your online store, you are buying the item from a third party who then ships it directly to the customer.

It is important, however, to still keep abreast of your supplier’s inventory levels to ensure that if they run out of inventory, you can update your product listings accordingly.

The most efficient way to do this is to use online inventory management software that offers ‘data feed’ capability. Providing automatic updates of product information and inventory quantities, to be fed from your supplier’s website to your own online inventory management system and ultimately to your sales channels.

Even if you don’t use dropshipping for your online business, eCommerce software systems allow you to centralise inventory control to easily implement dropshipping services to supplement your inventory. In the event that you do run out of any item, or there are delays in reordering deliveries, you can rely on the dropshipper to fill the gap while you wait for replacement inventory stock.

Best practice inventory control

There are numerous different inventory control strategies, but fundamentally their common goal is to keep track of what stock is coming in and what’s going out so you can manage inventory ordering according to demand.

Best practice inventory control ensures that inventory stock is managed in a way that increases the advantages and lowers the risk.

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