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Ecommerce inventory management: Making it work for you

Written by Erika Ellacott on October 26, 2023 Sell Online.

Running a successful online store requires a solid inventory management system. Whether you plan to remain one of the beloved small businesses that cater to a local neighborhood or you have your eyes set on becoming a large enterprise, you’ll need to manage inventory efficiently.

Without an effective inventory management system, you’ll likely experience problems like running out of your best products, being unable to fulfill orders, and not knowing what you have in stock.

Ecommerce inventory management systems can help you monitor all of these variables and keep customers happy. Plus, when you implement an automated solution, you can free up your time to focus on other aspects of your business — like gaining new customers and developing the next award-winning product line.

In this article, we’ll cover: 

  • the components of inventory management and its challenges, 
  • key features to look for in an ecommerce inventory management system,
  • and how to implement this system on your site. 

What is inventory management?

Ecommerce inventory management is a process that dictates the organization, tracking, and control of products intended for online sale. 

man reviewing inventory in a warehouse

It encompasses several key dimensions, including:

  • Stock tracking. At its core, inventory management involves knowing precisely how many units of each product you have on hand, including variants like sizes, colors, or models.
  • Order fulfillment. Once a customer makes an order, the inventory management system ensures that the product is reserved, packed, and shipped. This also involves updating the stock levels in real-time to reflect the number of items that have been sold.
  • Reordering mechanisms. Effective inventory management software often has provisions for alerting operators when a particular product reaches a specified low threshold, signaling the need to reorder. Advanced systems might even automatically place reorders based on set criteria.
  • Warehouse organization. For businesses that manage their own stock (as opposed to dropshipping models), effective warehouse organization allows you to keep track of your products and storage space. This includes aspects like bin management, shelf spacing, and product retrieval processes.
  • Returns and restocking. Handling returns is another facet of inventory management. This involves ensuring that returned products are inspected and restocked, and that stock levels are adjusted accordingly.
  • Multichannel sales inventory management. Many ecommerce entities sell on multiple platforms, including their official website and marketplaces like Amazon and eBay. This requires inventory to be synchronized across all platforms to prevent overselling or stock discrepancies.
  • Demand forecasting. Advanced inventory systems might incorporate predictive tools to estimate future product demands using past sales data and other variables. This aids in proactive stock management.
  • Reporting and analysis. Data is the backbone of sound inventory management. This includes generating reports on sales trends, stock movements, best-performing products, and so forth, aiding in informed decision making.

In essence, ecommerce inventory management is a multifaceted discipline, balancing the dynamic demands of online consumers with the logistical challenges of product storage, asset tracking, and delivery. 

The goal is to ensure that products are available when customers want them, are stored efficiently, and move seamlessly from storage to delivery, all while keeping an accurate count at every step of the process.

two people searching for products based on orders

Why is ecommerce inventory management important?

The importance of a good inventory management system in ecommerce cannot be overstated. For one, it can help you avoid running out of stock, which could lead to a lot of missed sales and opportunities. With so many options online, if you aren’t able to immediately satisfy a customer’s need, someone else certainly will.

It can also help you prevent overstocking. Holding too much stock can tie up capital, lead to increased overhead, and result in other losses like spoilage or obsolescence. 

Furthermore, accurate inventory management can ensure that what’s displayed as available on the website is truly in stock, which directly impacts customer satisfaction. 

When consumers see an item listed as available and place an order, they expect a timely delivery. Failing to meet these expectations because of inventory mismanagement can damage your brand’s reputation and trustworthiness. 

To sum it up, inventory management is a key component to both the operational and financial success of an ecommerce business, influencing everything from customer satisfaction to the bottom line.

two men packing orders in a store

What are the challenges of inventory management?

Inventory management is perhaps a bit more complex than most people think. That’s why understanding its importance and finding the right extension is so important. If you need additional help, Woo is here to support you. With Woo, high-volume stores qualify for unique benefits like dedicated support and discounted extensions. Learn more about how our team can help your business grow.

The availability of robust options that help you with this aspect of business becomes a major advantage to merchants using WooCommerce. From major retail and wholesale businesses to small, local creators, let’s take a look at some of the challenges associated with an inventory management solution.

Stock visibility

Ensuring real-time and accurate visibility into stock levels is vital for ecommerce operations. Without a clear view, businesses risk overselling products they don’t have or under-selling and missing out on potential revenue.

The biggest challenge with stock visibility involves real-time syncing across multiple channels. This can be due to the natural lag of manual systems, discrepancies in recorded and actual stock, and inefficient asset tracking mechanisms that can obscure stock visibility.

There are entire enterprise resource planning software systems available that help take on complex supply chains and other similar challenges, but choosing the best inventory management system can help. 

Supplier reliability

Suppliers can make or break an ecommerce business. When working with suppliers, you may have to deal with unforeseen delays, subpar product quality, and communication barriers that can disrupt operations and erode customer trust.

It usually takes time to develop a sound working relationship with suppliers. However, it’s worth the investment to source and cultivate strong relationships with suppliers who can consistently deliver high-quality products.

forklift in a warehouse

Storage and warehousing

Efficient product storage can help ensure that they’re easily accessible and in optimal condition for shipping. Some of the difficulties you might run into when it comes to storage include: 

  • Limited space 
  • Ineffective layout design
  • Environmental concerns, like temperature or humidity controls

Growing businesses might need to upgrade their storage solutions at some point. However, moving from one storage or warehouse location to another can be a significant time sink for any business. It can disrupt orders and cause delays in fulfillment, which might impact your customer experience. 

So, as you plan your most effective inventory management system, be sure to consider your future goals and how your decisions now will impact your ability to grow down the line.

Inventory costs

Inventory costs encompass both the expenses of buying and storing stock. Overstocking ties up capital and can lead to increased holding costs, while understocking can lead to lost sales opportunities. Predicting optimal stock levels without precise forecasting tools is a common difficulty.

Ecommerce management systems should be able to minimize sunk costs by using inventory forecasting to help you crunch the numbers and see how much of each product you need to order. 

Product lifecycle management

Product lifecycle management involves monitoring a product’s journey from introduction to the moment when it’s discontinued. The biggest issue with predicting a product’s lifecycle lies in forecasting demand. 

You also have to decide when to introduce discounts or promotions, manage stock for phased-out products, and launch new product variants. All of these things can complicate inventory planning and stock management.

It’s important to note that product lifecycle management might not be a significant issue for some ecommerce stores. If you sell products that you don’t plan on discontinuing or replacing with newer variants, you might not need to worry about these complex inventory conundrums.

woman talking to customer service on the phone

Return management

This is perhaps the biggest challenge with ecommerce inventory. Online stores (even successful and well-regarded ones) tend to have high return rates, with figures often crossing the 20 percent mark.

If you manage inventory for an ecommerce store, you’ll need to factor these numbers into your predictions. You’ll also need to optimize the inventory processes that deal with handling returns efficiently, inspecting products, managing inventory restocks, adjusting inventory levels, and addressing customer dissatisfaction.

Scaling issues

As an ecommerce business grows, its inventory management needs may become more complex. A system that works for a small-scale operation might not suffice for a larger one. 

Rapid growth can strain existing processes, and expanding into new markets or product lines can introduce further complications. In practical terms, this means that as long as your store is growing, you’ll need to adjust your ecommerce inventory management systems accordingly.

Technology integration

Modern inventory management often requires integrating various software solutions. Ensuring compatibility between systems (like CRMs, ecommerce tools, and inventory software), managing inventory data flow between platforms, and handling software updates or migrations can be tech-intensive and time-consuming.

The good news is that WooCommerce has many reliable extensions designed to bring together all types of essential softwares. You can largely avoid issues by researching compatibility and integration options before locking yourself into using specific tools.

Regulatory compliance

Regulatory compliance is especially relevant for businesses that sell internationally or deal with regulated products. Staying up-to-date with varying regulations across regions, ensuring that products meet local and international standards, and managing documentation add layers of complexity to an effective inventory management system. 

Plus, you could face legal repercussions for non-compliance. This may be a smaller or bigger challenge depending on what products you sell. Some markets are notoriously more regulated than others. Dipping into markets with stricter regulations will affect how you approach your search for the best inventory management software.

The essential features of an ecommerce inventory management system

An ecommerce inventory management system is software that enables you to tackle most, or ideally all, of the inventory challenges outlined so far. With that in mind, let’s discuss the most important features to look for when selecting an efficient inventory management system for your online business.

Real-time inventory tracking

Real-time stock tracking is the cornerstone of any effective ecommerce inventory management system. It enables businesses to have a live view of stock levels, so they know the exact quantity of products available at any given time. 

This minimizes the possibility of running out of stock, reduces excess inventory, and prevents situations where customers purchase products that are currently out of stock. The benefits are twofold: improved customer satisfaction and maximized sales opportunities.

Multi-channel management

These days, a retail business likely sells on multiple platforms: their own websites, marketplaces like Amazon or eBay, social media channels, and even in brick-and-mortar shops. Multi-channel management can help ensure that inventory levels are synchronized across all sales channels. This means that, when a product is sold on one platform, its stock level automatically updates across all other channels, preventing overselling and stock discrepancies. This is essentially the ability to track inventory in real-time, but connected across multiple sales channels.

grid of WooCommerce extensions

Some ecommerce platforms like WooCommerce offer solutions for connecting with third-party services. You may also need to use a custom solution that can integrate with all of your storefronts. 

In any case, using software is much more efficient than having to manually update stock across the board.

Automated reordering 

Running out of stock is a bummer for any store, particularly if it’s one of your best-selling items. Automated reordering uses preset rules to place orders for products when they fall below a certain threshold. 

This not only reduces manual oversight but ensures that popular items are always in stock and ready for purchase. The result is a smooth buying experience for the customer and consistent revenue streams for the business.

laptop with analytics data

Reporting and analytics

Understanding sales trends, product performance, and stock movements is crucial for any ecommerce business. Reporting and analytics tools within an inventory management system provide insights into these key metrics. 

With this inventory data, businesses can make informed decisions about which products to stock up on and which ones to discontinue, and identify any potential issues before they become major problems.

In terms of analytics, you want to use an ecommerce inventory management system that provides as much data as possible. There’s no such thing as having access to too much information! 

Different metrics can provide insights into weak and strong areas of your business, like bounce rates, cart abandonment, and user engagement.

Product categorization

As ecommerce businesses grow, they often expand their product range. Product categorization allows businesses to organize their inventory into meaningful groups, making it easier to track, manage, and analyze.

Dryft dropdown menu example

Categories can be based on product type, brand, season, or any other relevant classification. This not only improves backend management but also enhances the shopping experience for customers.

It’s important to note that for product categorization to offer a great experience, different categories need to be easy to navigate. That means customers should be able to seamlessly move from one product category to another and find the items they want without any issues.

Supplier management

Ideally, an ecommerce inventory management system should offer features for supplier management. This can help your business track and manage all of your supplier interactions in one place. 

From recording contact details to monitoring order histories and evaluating supplier performance, these features are essential for maintaining a good relationship with suppliers. Plus, they can help you ensure that you don’t run into supply chain management issues.

two men packaging food products

Batch and expiry tracking

This advanced inventory feature is vital for businesses dealing in perishables or products with a shelf life. Batch and expiry tracking lets you monitor products based on their manufacturing or expiry dates. 

This can be an effective way to ensure that expired products are not sold to customers. Plus, it can help in maintaining product quality and facilitating efficient recall processes if needed.

You may have to enter this information into the inventory system manually or have your suppliers provide it to you digitally. In either case, the management system will help you track inventory expiry dates without having to spend countless hours checking up on products.

Demand forecasting

Predicting future sales is key to optimal inventory management. Demand forecasting uses historical sales data, seasonality, market trends, and other factors to predict future demand for products. 

With accurate inventory levels and forecasts, businesses can make smarter purchasing decisions, reduce holding costs, and maximize sales opportunities.

The best inventory management systems will improve their demand forecasts over time. Note that the forecasts might not be very accurate at first, as the system is still gathering key data.

woman using a phone

Mobile access

Nowadays, having mobile access to an inventory management system is not just a luxury, but a necessity. Being able to track sales and inventory from your phone means you can do so at any time.

This access isn’t necessarily for monitoring stock and sales only. Depending on which system you use, you might also get notifications when there are issues with your store, like returns, customer complaints, and other problems.

Integration capabilities

The best ecommerce inventory management systems do not operate in isolation. Integrations ensure that they can seamlessly connect with other business tools, like selling platforms, ecommerce accounting software, customer relationship management (CRM) systems, and more. 

This interconnectedness can help ensure data consistency. It can also reduce manual data entry and streamline business operations.

The integrations you should look for will depend on the tools you use to operate your business. This is something you’ll need to research beforehand, as the cost of switching between different ecommerce management systems will increase as your store grows.

How to implement inventory management for ecommerce

Now that you know what to look for in an inventory management system, let’s explore how to implement it in your online business. 

1. Understand your inventory needs

Finding the right inventory management system depends on your ability to understand the specifics of what your business requires. Every ecommerce business is unique, and what works for one might not work for another. 

Start by assessing your product range, the frequency of your sales, your peak selling periods, and the typical lead times from suppliers. 

Even if your business is relatively new, you can try to estimate and outline these things to identify potential pain points. If there are areas in which you lack clarity, you can look for inventory systems that specialize in those things. 

Also consider specific functionality you might need from your inventory management system. Do you need a tool that will sync inventory between different platforms?

What about one that catalogs your in-person sales as well as those online? 

These, of course, are just examples. Sit down and make a list of anything specific that applies to your business.

2. Understand what’s possible with built-in functionality

Once you have a clear understanding of your store’s business needs, you’ll be better positioned to create the right inventory management system for your business. There are numerous options available, from simple spreadsheet templates to more sophisticated software solutions. 

But before you reinvent the wheel or spend weeks learning complicated new software, you should start with a grasp of the basics already provided by your ecommerce software of choice.

If you use WordPress, WooCommerce is the best way to start an online business and it comes with some essential stock management tools. 

inventory options in WooCommerce

You can add inventory levels to each product and any variations you have, and the software will automatically decrease that level as items are sold. Additionally, WooCommerce enables you to either hide an item from your shop when it’s out of stock, or just mark it as “out of stock” and prevent customers from purchasing.

3. Enhance the built-in functionality

Showing customers when a product is out of stock is a good start, but with a few WooCommerce extensions, you can unlock tons of additional features that drastically improve the customer experience. Let’s take a closer look at just a few of the options:

inventory level badges

Custom Stock Status

Custom Stock Status enables you to display customized information, messages, and even icons to communicate inventory levels to visitors. You could notify shoppers that an item is low, let them know that it’s coming soon, or display a date that they can expect a SKU to be back in stock.

option to subscribe to stock notifications

Back in Stock and Price Alert

Running out of stock is a bummer — especially if it means giving up sales from customers who showed up eager to buy. With Back in Stock and Price Alert you can allow customers to subscribe and get notifications once out of stock items are available again. This can go a long way towards recapturing sales.

inventory management preview

Inventory Management for WooCommerce

Inventory Management for WooCommerce can provide you with advanced performance reports and automatic stock replenishment. Its more advanced analytics capabilities help you predict demand and optimize inventory accordingly. You’ll also get some useful supplier management tools.

Scanventory inventory management extension

Scanventory

Do you have warehouse inventory you want to sync with WooCommerce? You can use a proven extension like Scanventory to get the job done! 

This tool generates QR codes for all of your products, which you can then use to label each of your items — even in multiple warehouses. Then, your team can simply scan these codes to update information directly in WooCommerce, all from a smartphone.

grid of marketplace sync extensions

Marketplace sync extensions

There are also extensions that can connect WooCommerce to other marketplaces. For example, you can use Etsy Integration for WooCommerce or eBay Integration for WooCommerce to connect your store to seller accounts on either platform.

These tools will sync all of your product information and inventory levels so that everything’s accurate no matter where someone makes a purchase. See a full list here.

Woo In-Person Payments extension

Woo In-Person Payments

If you’re running an omnichannel business (you sell both in person and online), you’ll want to sync inventory so you don’t sell a product on your WooCommerce store that just went home with someone else via your retail location. 

Woo In-Person Payments lets you make both online and in-person sales using the same merchant account. Use your phone or get a physical card reader, and instantly get a POS system that works anywhere from your brick-and-mortar shop to a festival, food truck, parade, or sidewalk run-in with a favorite customer. 

And yes, Woo In-Person Payments syncs your online and offline inventory so everything’s always up to date. 

4. Establish inventory policies

Inventory policies are guidelines and rules that dictate how your inventory is managed. This includes minimum stock levels to maintain inventory (preventing “out-of-stock” scenarios), reorder points (when to reorder products), and maximum stock levels (to avoid overstocking). 

One example of such a policy would be to notify store managers to reorder a specific product when inventory goes below X number of units. Ideally, you’ll use a demand forecasting tool to calculate the number of units you should order for restocking.

These policies can be based on historical sales data, anticipated growth, storage capacities, etc. Clearly-defined inventory policies can help streamline procurement processes and maintain optimal stock levels.

5. Train your staff

Your inventory management software is only as good as the people using it. Therefore, you’ll want to make sure that your team understands the importance of accurate inventory management and is familiar with the system you’ve implemented. 

Training your staff can ensure that they know how to carry out tasks like adding new products, updating stock levels, processing returns, and handling damaged goods. Continuous training sessions, especially after system updates or when onboarding new team members, will help keep everyone on the same page.

6. Monitor and adjust

An efficient inventory management system isn’t a “set it and forget it” process. To make sure that the system works properly, it’s important to monitor and adjust it based on real-world results. For instance, if a product’s sales velocity increases, you might need to adjust its reorder point. 

Similarly, if you notice that certain items are consistently underperforming, it may be time to reconsider their place in your product catalog. 

You can use the data from your inventory system to make informed decisions about products that aren’t worth stocking or to adjust inventory policies. This information can also help you decide if you need more storage space.

people working in a warehouse

7. Regularly audit your inventory

Even with the best systems in place, there may be occasional discrepancies between the recorded inventory and what you actually have in stock. This is why it’s vital that you audit your inventory regularly. 

Physical counts, whether done annually, quarterly, or even monthly, can ensure that your system’s inventory data matches the actual stock on hand. Regular audits not only catch discrepancies but also help you identify potential issues in the supply chain or within your operations.

Typically, these discrepancies arise due to human error. Someone might forget to enter a return or ship the wrong product and the issue might not arise until the next audit.

When planning, keep in mind that full inventory audits can be time-intensive processes. The larger your store and the more products that you stock, the longer it will take to conduct an audit. Nevertheless, it’s a process that must be done.

Frequently asked questions

While we’ve covered the basics of ecommerce inventory management systems, you might still have some questions.

What is inventory management for ecommerce?

Inventory management is the practice of keeping track of the products you have available. It involves tasks like demand forecasting, warehouse management and organization, tracking inventory across multiple storefronts, and more.

Can you forecast demand using inventory management?

Yes, some inventory management systems are capable of helping you forecast customer demand. Typically, these tools access historical sales data and use it to make predictions.

It’s important to understand that demand forecasting is not an exact science. Some ecommerce inventory management tools can make highly accurate forecasts, but there’s always a margin of error involved.

What kind of inventory management system do I need to use?

Your choice of inventory management system should depend on the features your business needs, the kind of website you run, and the integrations the system requires.

If you’re using WooCommerce, there’s a straightforward inventory management feature built in that’s often enough to get you started. For example, you can set inventory levels for each product and associated variation, then they will automatically decrease as sales are made.

WooCommerce stores can access a plethora of additional pre-built inventory management features with extensions like Scanventory, Inventory Management for WooCommerce, and Woo In-Person Payments.

Improve operations with ecommerce inventory management

If you’re working on your first ecommerce project, it can be easy to underestimate the importance of managing inventory effectively.

A lack of proper inventory practices can drastically slow down your store’s growth because customers won’t be happy if they have purchase orders for products that aren’t in stock or that take too long to be fulfilled.

WooCommerce includes a few built-in features that make it easy for you to manage basic inventory. The plugin can track inventory automatically and hide products that are out of stock. 

If you want more advanced inventory management software solutions, you can choose from a wealth of extensions to let you track inventory across multiple warehouses, in-person and online sales, and more. 

Are you ready to take control of your inventory? Get started with WooCommerce today!

11 Responses

  1. Aayush
    September 5, 2018 at 7:02 pm #

    Amazing tips for Improve Operations with eCommerce.Thanx a lot.

  2. Hena
    September 6, 2018 at 2:37 pm #

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  3. Astralreisen
    September 7, 2018 at 6:47 am #

    Yeah it is really important to manage the inventory of woo commerce store

  4. luckypatcher
    September 8, 2018 at 3:07 pm #

    Thanks for the awesome inventory management guide; helped me a lot.

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  6. jackyanke
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    • Marina Pape
      September 24, 2018 at 3:36 pm #

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  10. John
    September 27, 2018 at 7:21 pm #

    Having tools are awesome, but with 30 years of inventory management you still need to physically count your inventory. Theft, transactional, receiving and other human errors lead to discrepancies that lead to customer dissapoints and shrink. Those businesses that rely only upon what a report says are those that don’t last because they did not accurately track their inventory and keep an eye on actual versus virtual. Track your inventory with software – raw and finished goods for manufacturer-sellers. Create a Cycle Count system that puts real eyes and hands on your inventory on a consistent basis. Within every quarter, all inventory should be counted at least once, high value/high risk items should be counted weekly. Track and report discrepencies, know the dollar value of all adjustments. I consult on inventory management for small businesses on the side of my own business – this is a huge factor for even large corporations that has lead to bankruptcies. I have seen a business trust their software, order raw goods assuming they were low and end up overstocked because someone did not accurate complete a receiving. The opposite is worse, accidentally double receiving inventory and then having to tell customers that you cannot ship their product costs you the sale and a bad reputation. Don’t throw away your pen and paper just because you have software!