While inventory management may not seem like the most exciting topic, it forms the epicentre of any eCommerce retail business.
Studies have proven that striking the correct balance between stock coming in and going out is a vital exercise in the context of your bottom line. One empirical analysis of 370,000 inventory records across 37 stores found 65% to be inaccurate, while further research indicates that accurate inventory records deliver a 4-8% sales increase.
Such statistics, which suggest that almost two-thirds of stores could be losing out on an increase of close to 10% in sales, points to the importance of strategic inventory management.
Why good inventory management matters
Having an accurate account of your inventory brings practical benefits, such as cost savings and increased opportunities. This becomes all the more apparent when it comes to making critical business decisions.
The presence of flawed stock records could contribute to poor decision-making, for example continuing or discontinuing a product line in error or selecting an inadvisable area of focus for a marketing campaign.
Another important practical benefit of organised inventory management is that it can have a hugely positive effect on the overall customer service experience. Imagine offering a dissatisfied customer a replacement product, only to learn that the alternative product is now also out of stock. This is not a risk you want to take.
In terms of cost savings, it is easy to see where finances could get muddled as a result of inaccurate inventory.
Aside from a surplus of unnecessary products or a lack thereof that leads to lost conversions, you might find yourself over or understaffed, depending on how much stock you think needs to be managed and distributed at any given time. Basic storage costs could also very quickly add up.
Ultimately, there is no greater “kick yourself” moment than attracting your customer all the way to the checkout but missing out due to stock deficits.
This has massive consequences for your business, directly affecting both customer trust and retention.
6 common inventory mistakes to avoid
The more we delve into the topic of inventory, the more it reveals itself as a central element to the profitability of an eCommerce business.
To help you remain on a positive path to success, we’ve identified six common inventory mistakes to avoid at all costs.
1. Lack of KPIs
As with all other areas of your business, setting a benchmark through KPIs can greatly assist in improving your inventory practices and processes. Taking time to separate the key areas of performance and setting goals against them can help to identify strengths and weaknesses.
Some important KPIs for stock management include the obvious ones like customer demand and inventory levels, along with more technical indicators such as fill rate, which signifies the number of orders that can be fulfilled at any given time.
2. Over-ordering and underselling
Over-ordering is where unnecessary storage costs can come into play. It can also impact profit levels when you are forced to discount prices to get rid of stock. This is particularly pressing when you are selling stock that relates to changing fashion or trends, has an expiration date, or is seasonal in nature.
Automating the stock ordering process means that you can set the optimum levels you need to prevent these problems from happening. Having an accurate record of inventory information can also be important at a management level to determine potential opportunities or losses.
3. Not forecasting
Forecasting is not a guarantee of what the future holds, but it helps to create informed strategies and decisions. Using the best information available, such as past sales and expected market conditions, management can form a strategy and prepare for different scenarios.
This is a vital step in inventory management to offset many of the other mistakes mentioned previously.
It is worth spending time considering the best type of forecasting method for your business. Many businesses will rely on historical performance and management expertise to forecast stock inventory, but some of the gaps in knowledge could be enhanced by using a statistical framework and considering important factors, such as product life cycles.
4. Lack of automation
With so many moving pieces surrounding stock coming in and going out, it’s easy to see how human error can lead to inaccuracies when it comes to inventory management. Even using detailed spreadsheets nowadays is considered old-fashioned and overly reliant on manual input.
Automated systems can generate information and reports at the touch of a button, reducing time spent chasing this information and helping to avoid miscalculations.
5. Warehouse mismanagement
Storage is more complex than just the size of your warehouse. It relates more to how efficiently you use the space that is available to you.
For example, if the nature of your business is seasonal, you should have the in-season products nearest to hand for order picking and packing.
6. Not having the time or the right skills
As your business grows, you may find that you no longer have the skills or time to manage inventory in-house. You may need the support of warehousing and inventory professionals who know what processes are effective in optimising your stock management. Not only can this impact your bottom line but also reduce the risk of dissatisfied customers due to problems with their orders.
While all these potential inventory mistakes can seem like a lot to overcome, the good news is that ParcelPlanet can take these problems off your hands. We provide our customers with outsourced warehousing facilities, product fulfilment, stock management and seamless software integration. Our knowledge and expertise can help you to optimise your inventory management and easily scale as your business grows.
Get a quote or talk to us to discuss your order fulfilment needs.