Inventory Management

Managing inventory is the monitoring of a company’s stocked goods. Activities include tracking inventory levels, ordering and restocking inventory, and demand forecasting to ensure you never run out of stock. Inventory management systems use software that helps businesses easily obtain this information without having to manually track or calculate it.

Inventory management is not picking, packing, and shipping orders.

Managing inventory, the right way is crucial, especially for growing ecommerce businesses. Here are the 6 key reasons

1. It ensures you never run out of stock

Part of inventory management is figuring out how much inventory you should have on hand at all times. Too much inventory, and you risk ‘dead stock’: inventory that can no longer be sold due to being outdated. Too little, and you’ll run out of stock, fail to meet customer demands, and miss out on potential sales.

By using a reorder point formula, you can ensure that you keep an eye on your inventory so that it doesn’t dip below a critical level.

2. It helps you save money on storage

Too much inventory can result in too much money spent on storage space. Storing inventory is a variable cost — it’s based on how much space your beginning inventory takes up at any given time. When you have more product on hand than you need, you end up paying more for inventory storage. Being smart about inventory levels can help you reallocate those funds.

3. It prepares you for the unexpected

It pays to be prepared. Do you know what you’d do if any of the following supply chain mishaps took place tomorrow?

• You unexpectedly sell out of a product
• You miscalculate your storage needs and run out of space
• Incoming inventory from the manufacturer is delayed
• You run into a cash flow issue and can’t purchase more inventory
• Strategic inventory solutions can help you get out of these sticky situations. Tracking inventory over time and having contingency plans in place for potential inventory problems will prepare you for situations that would otherwise seriously impact your business.

4. It shows trends in customer behaviour

Keeping track of what inventory sells like hotcakes versus what ends up covered in metaphorical cobwebs can share some important insight about what your customers are — and aren’t — into. You can also gauge the success of prior promotions or product launches by assessing inventory levels before and after those events.

5. It predicts the future

Well, kind of. Good inventory management lends itself to good inventory forecasting, which can help you predict and plan for demand. You can leverage past inventory trends on a monthly, seasonal, or SKU-by-SKU level to better prepare for future levels of sales and demand. Make sure to keep any planned marketing promotions or new product launches in mind, too.

6. It helps you track costs of goods sold

Inventory accounting is when you track and account for changes in the value of inventory over time as it relates to manufacturing and costs of goods sold. If you don’t have an accurate method for keeping track of the value of your inventory, you can’t properly value your assets or goods sold and budget for the inventory you need to buy for your business.