Is Inventory Management Essential to Supply Chain in eCommerce

John Davier
John Davier

Last updated on

July 29, 2023

Inventory management is crucial for maintaining a healthy supply chain. Yet this vital area of eCommerce is often a stumbling block for companies, even if they have the best of intentions.

No business is an island. Every inventory management decision you make impacts someone else further along the chain.

Remember how frustrating it is to order a product, but it doesn’t arrive on time? Or worse, when you are you told it’s actually out of stock? Having limited scope to find a replacement can leave even the best-laid plans in a pickle.

In this guide, we’ll discuss why inventory management is so important to the online supply chain. The intention is to help you reassess how to keep tabs on your stocks and supplies. We’ll look at:

  • What inventory management is and why it’s important
  • How your actions impact everyone in your supply chain
  • The importance of collaboration between suppliers and customers
  • How you can integrate professional software
  • The benefits of changing your approach to inventory management

Buckle up and take a fresh look at where you stand in the supply chain.

A Slice of the Action

At its core, inventory management is all about knowing how much stock or capacity you have. You need to be aware of what you can deliver to consumers, and how many products or how much raw material you’ll need to meet demand.

If you’re new to inventory management, think about the process involved when you order a pizza. As the customer, you’re only present at the very end of the chain, via payment and by far the best bit…consumption.

Yet you can track your order from start to finish — from preparation to cooking and delivery.  You can also watch real-time updates to arrival times, and see the online availability of your favorite toppings.

You’re able to do this because the pizza restaurant knows what ingredients and equipment they have in stock. They also know the capacity of cooking and delivery staff on any day, and when the next shipment from suppliers will arrive. All this is possible through the magic of inventory management.

If you’re asking, we like ours with extra jalapeños.

Pile of boxes in stock showing the benefit of inventory management

Source: Unsplash

Know Where You Stand so You Can Progress

Of course, the length and complexity of the supply chain in which your own business operates is different. And the process will be much more complex than ordering a pizza.

But the move away from physical retail outlets, to online shopping, has changed everything. Omni-channel retail is now driving the future of eCommerce.

This makes on-the-ball warehouse management and optimizing your facility operations more important to eCommerce companies than ever before. To run as an efficient online operation, you need to know:

  • Where all your products are at any given time, in real-time
  • How much stock you have available and how quickly it will dispatch
  • That ordering can occur on multiple channels, with all needing to be updated
  • When you need to reorder your own supplies
  • When to expect a change in the market eg seasonal trends, general shopping trends
  • What you can do if demand drops or rises.

As the stats above reveal, a whopping 43 percent of retailers ranked inventory management as the biggest day-to-day challenge. But it doesn’t have to be that way.

Chain Reaction

Knowing whether you are understocked, overstocked, or out of stock, can transform your company. Simply put, as your stock level changes, so does your ability to make a profit. And having that information at your fingertips is invaluable.

It will inform all other aspects of your business. You’ll be more aware of warehouse space and storage equipment, as well as how to coordinate website and social media updates.

But the effect is not limited to within your own team. Inventory management is also time management. Getting better organized means you’ll be respecting your suppliers and customers’ time, too which can be done by efficient inventory management software.

Picture the supply chain as a bicycle chain that needs regular oil. There are many moving parts, including suppliers, creators or producers, wholesalers and retailers, distributors, and consumers.

There are pressure points throughout the chain when selling products online. And the challenge is to do everything in as short a time frame as possible. From sourcing materials to production, storage, selling, delivery, and usage, these are key steps to follow:

  1. Weigh up investment and outlay before buying.
  2. Install a professional system to track the raw materials or items you buy.
  3. Regularly check and update your system; control your sales.
  4. Double-check everything when preparing for shipment or delivery.
  5. Track sales and keep checks on the order status, utilizing customer feedback.

Everything is Connected

There’s a lot of trust involved in eCommerce. The customer has nothing in their hands following the virtual exchange of money for goods.

So what’s the simplest thing you can do to boost your reliability ratings? Keep track of stock so you won’t promise what you can’t deliver. Don’t let people down further along the chain. We are all connected, and disappointed customers may never return to you again.

As the graph by MotoCMS below illustrates, finding out that a product is out of stock is one of the top mistakes that lead to lost customers.

Graph by MotoCMS on out of stock items

Image source: MotoCMS

It can be more than a case of once bitten, as bad online reviews can snowball in an instant. But getting those good online reviews? It’s worth its weight in gold.

Collaboration between customers and suppliers is at the heart of the supply chain. The more in-tune the relationship is the smoother the chain at the top, and its ability to withstand any sudden market upheaval.

Keep talking to your customers, so that you can predict their changing wants and needs. Some of the most common eCommerce marketing mistakes include not taking into account the user experience.

Within online business, there’s a great need to work in tandem, with inventory management at the center of it all. Whether it’s sales, manufacturing, shipping & logistics, or ordering — you’ll all need to be on the same page.

Open, continuous conversations and teamwork allow for the most effective planning. Everyone needs to be aware of what inventory is available for sale and distribution. This ensures no over-promising or unrealistic expectations.

Sharing is Caring

It’s not all about peering further along the chain to customers and the end product. There’s also a need to look behind you, too. It’s crucial that your inventory management doesn’t cause issues for your own suppliers. Nobody wants to be the one that causes a log-jam in other areas of the supply chain.

Good communication is essential. This is where the sharing of data, and timely consistent updates, comes in. Through such sharing, you can let your suppliers know exactly what you’re doing. Give them the chance to improve their inventory management, maximize their end to end supply chain visibility, and reduce chinks in the supply chain.

It’s a balancing act. Sharing data about your sales allows others to look ahead. They can predict timescales for reordering, and when your stock will need replenishing. All of which is only good news for your business.

By doing this, you’ll end up making logical decisions based on the latest, most reliable information. And you’ll help your suppliers to do the same. After all, you’re not their only customer.

Being considerate is simply good practice. And, in this case, it will keep supply smooth to meet any demand. It also makes it more resilient in the event of any unexpected twists and turns in the market. You may not be able to predict every problem, or sell every piece of stock, but you can plan for bumps in the road.

How Can Inventory Management Software Help?

Shareable content and relevant information are key. The easiest way to ensure this? Invest in professional software. There is a range of companies that can provide this and many provide solutions to suit different types of organizations. But what suits you best will depend on your business size.

From order to delivery, aim to log all your processes using the latest technology. AI will streamline your customer service and make transactions seamless. A good piece of software should also:

  • Constantly update your data in real-time.
  • Forecast your future needs.
  • Predict your profits and losses.
  • Analyze your data for use in other areas across the business.
  • Reduce the risk of human error, eg miscounting, forgetfulness, miscommunication.
  • Be more precise and quicker when it comes to bookkeeping and tracking orders.
  • Help with customer, supplier and distributor management, and warehouse control.
  • Allow everything — from planning and marketing to HR — to be done on one platform.

As you can see from the below image, operations supply chains are important — but can also be improved on. They will become one of the biggest areas of economic value in the future. At least in relation to AI’s impact.

Graph from The Economist on economic value in next 20 years

Image source: The Economist

Large companies will obviously find it easier to afford software. But if you’re the owner of a small to medium-sized company, you’ll need to make sure that your software is bespoke. It must suit the size of your business — and your budget.

Despite the outlays, however, smaller companies can arguably see a greater return on investment. AI can reduce the risk of human error, which smaller and medium companies may struggle to recover from. By doing that, and also potentially speeding up processes, these businesses can reap dividends.

Simplify your ordering and take charge of your goods, and you’ll have much more potential for profit. Who doesn’t want that?

People Power

However much you come to rely on AI for your supply chain management, don’t forget to include people in the process.

During all stages of planning and implementing software, make sure to encourage feedback at all levels of your business. Your software may be smart, but it’s not psychic; for it to be at its most effective, you’ll need to feed it information.

Ask your colleagues and employees about what they need. And find out how they believe an updated inventory process can improve their roles.

This will make sure your systems aren’t operating in the dark and can predict potential problems. The more information you can provide, the more you’ll get back.

Source: Unsplash

The Benefits of Inventory Management

In a nutshell, what can you take away from all this? Still not sure how important it is to spend time and money investing in inventory management? Remind yourself of the overall benefits of inventory management.

The plus points can lead to:

  • Greater efficiency. You’ll know exactly how much you can sell, how much you need to order, and how quickly you can deliver. And so will everyone else.
  • Repeat custom and increased customer lifetime value. Who wants to buy from a business that is repeatedly late, or that lets you down? Nobody. But if you can get your products to a customer in a pinch, they won’t forget it.
  • Reduced costs. You can avoid overbuying, or paying over the odds after under-buying. You’ll lower the risk of missing out on extra sales, and lessen wastage of operational costs. There’s also less chance of having to fork out compensation for mistakes.

Improving inventory management, whether that’s at a basic level or by using the latest software, will give you a much smoother supply chain.

You’ll be quicker at moving goods and services. This will allow you to make more sales. And the more sales you make, the more data there will be to analyze. This should help you make better decisions. And also reduce the risk of those costly errors.

Inventory management has a cyclical effect. All of this good practice will, in turn, make you more efficient still. Cutting costs and boosting revenue through this process will hopefully lead to an increase in sales and profits even further down the line.

Ultimately, inventory management is a case of the chicken and the egg. Eventually, the aim is to not realize which came first; but to invest in maximizing the system and supply chain to its full potential, and reap the rewards from doing so.

Inventory management summed up in one phrase?

Easy: knowledge is power.

Author Bio

John Davier

Content marketing guru at Mailmunch. I’m passionate about writing content that resonates with people. Live simply, give generously, stay happy.


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