Business Intelligence

Why Is Inventory Management the Backbone of Your E-Commerce Business?

Inventory management is a crucial element of any retail business. Planning the right inventory for your company can save a lot of money and increase your overall profit. Inventory management goes beyond stock holding, it means having an in-depth understanding of the market and your customer demands.


To begin with, you need to understand the ordering behavior of customers and ask yourself:


  • Is the demand more during weekends;
  • Does the demand increase, when you offer discounts; and
  • Are holiday seasons your biggest sale time.


Now based on the answers to these major points, you will further be able to understand the key aspects of inventory management:


  • The correct interval for reordering the product;
  • Which are the fast-moving products;
  • What is the appropriate quantity for reordering; and
  • What is the cost of warehousing these products.


For an e-commerce business, inventory management is the core success indicator. Here, unlike the physical store, customers can place an order any time of the day, they can select the urgency of their delivery and their repeat purchase would solely depend on the previous experience they have with you.  Therefore, to ensure that you can fulfill the demand of every customer, without over-stocking or over ordering your products, let’s look at a few best industry practices.


Perform an ABC Analysis of Your Products


The ABC analysis will give a clear idea of which products contribute to 80% of your sales and which are the products that bring the remaining 20%. By doing this analysis and getting a fair idea of the customer demand for your goods, you can focus on the high demand products and thus address these orders with prompt delivery. The ABC analysis will help you understand:


  • A – Which products contribute to your maximum revenue?
  • B – Which are the products that have only 15% sale but are always excess in stock?
  • C – Which are the products that are least moving and are thus consuming maximum space in your warehouse?


Now based on this analysis, you will be able to identify the products that needs to be reordered in bulk and which are the products that can be omitted from your inventory.


Use the FIFO Technique


FIFO (First in, First out) simply means, products that come in first should be the first ones to leave the warehouse. For example, you have 10 pieces of book covers in stock, you reorder 30 more. Now when you get a fresh order, you ship the item from the 10 pieces present in the previous inventory, rather than using pulling the piece from the fresh order. In this way, your products will have a logical and smooth flow of supply and none of them will get old or damaged, due to time. This technique is very important that companies that have perishable products and can become obsolete over time.


Adapt a Software to Manage Bill of Materials


We are all in a digital era, where all the important company data should be stored online so that it can be accessed from anywhere, anytime. To begin with, you can use the Quickbooks bill of materials software to track your finances, manage your production cost and handle your inventory effectively. 




These techniques are used by the best e-commerce businesses across the world. Try practicing them and you will surely be able to build and optimize your profits with a well-planned inventory.

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