11 Tips and six tools for stress-free inventory management

Do you sell physical products in your WooCommerce store? Then you already know that inventory and order management is key to a successful shop. But as your store grows, you’ll need to pay even closer attention to the efficiency of your ecommerce inventory system, supply chain management, and order fulfillment process. 

Thankfully, you can take advantage of tools that go beyond the basics so you can keep stock levels optimal and fulfill orders with confidence and speed.

Effective management of your sales and inventory will ultimately save you time and money and lead to more satisfied customers. To do this, your information streams need to be synced and organized to function as a cohesive system — even if you’re selling on multiple channels. 

Here are some of benefits of inventory management:

• You’re not losing sales. Keeping accurate, real-time inventory levels enables you to successfully manage your supply chain and make sure you never lose a sale due to out-of-stock products.
• Your customers trust you. If your customers know that you’ll have what they want, when they want it, your shop will be their first — and only — stop when placing an order.
• You understand what’s working for your business. When you track inventory effectively, it means that you’re also tracking business growth. You can use this inventory visibility to better manage cash flow, avoid excess inventory, and focus on your best-selling products.
• You’re able to automate business processes. Don’t waste time with manual inventory management work and rushing to restock products before they run out. By automating this process, you’ll be much more efficient.

Ready to take your online shop to the next level? Read on to learn about advanced inventory and warehouse management techniques. Then, implement those strategies using inventory control software, warehouse management systems, and other automations.

The right inventory management software is critical to ecommerce business owners’ success.  Your system should enhance operational efficiency, help reduce associated inventory costs, and improve customer satisfaction. When researching what inventory management software is right for your needs and goals, it’s important to consider all the areas where you can improve your efforts.

Some tips to consider for developing an effective ecommerce inventory management process include:

1. Know your inventory turnover ratio

Calculating your inventory turnover ratio (cost of goods sold divided by average inventory balance) helps evaluate inventory performance and how efficiently inventory is moving, and provides visibility for forecasting demand. 

A high turnover rate is an indication of a strong inventory management strategy while a low rate may mean that a store has a poor strategy or execution.

2. Use demand forecasting

Accurately predicting customer demand is crucial to good inventory management and ensuring you have the right amount of product on hand. Recognizing seasonal fluctuations in demand for specific product categories and trends in the broader retail landscape can help you adjust your inventory levels and product mix accordingly.

Specialized software can analyze historical sales data, market trends, and other relevant factors to create reports that help you make informed decisions about how much to order and when.

3. Accurately determine order quantities

Once you know what your customers buy and when, you’ll need to figure out how many products to purchase with each order. Deciding on how much inventory to order each time you restock is a balance between minimizing carrying costs (e.g., storage, insurance) and avoiding stockouts.

Common order quantity methods include economic order quantity (EOQ) and just-in-time (JIT) ordering.

EOQ inventory management

The EOQ inventory management formula helps your ecommerce business determine the ideal amount of raw materials, parts, or finished products that should be ordered when restocking while minimizing carrying costs.

The EOQ formula is:

√ [(2 x demand x setup cost) ÷ holding cost] = EOQ

JIT inventory management

JIT inventory management is all about minimizing the amount of inventory in storage. It’s a bit riskier, but the goal is to time orders so they arrive right before they’re needed. You’ll be able to reduce overhead costs with this strategy, but you’ll need a great deal of confidence in your supply chain.

Safety stock

Managing safety stock is another important part of the inventory management process. In addition to making sure you have enough stock on-hand to fulfill expected orders, you need to be able to accurately determine how much safety stock you need.

Safety stock is an extra quantity of inventory kept on hand to account for unexpected fluctuations in demand, supply chain disruptions, and product replacements. Determining the appropriate amount is essential to prevent stockouts and customer dissatisfaction, but you also don’t want to have too much inventory on hand taking up warehouse space and gathering dust.

4. Classify your inventory by priority

Segmenting inventory into different categories — based on factors like demand, value, and turnover rate — allows you to work more efficiently by using more than one strategy simultaneously. 

Inventory management techniques like the ABC analysis method are often used for this purpose.

In the ABC classification system “A items” are very tightly controlled with precise record-keeping, “B items” are slightly less controlled with good (but not always detailed) record-keeping, and “C items” use the simplest controls and records.

You might place high retail value items that have long manufacturing processes and lead times in the “A items” category, low retail value items that are quick to produce in the “B items” category, and cheap, minimal value retail items, parts, and packing supplies in the “C items” category.

5. Determine your reorder points

The reorder point is the inventory level at which you should place a new order to replenish stock before running out. It’s determined based on lead time, expected demand during a given period, and inventory classification.

For instance, popular products that have a high profit margin for your business but have longer lead times may need to be reordered when stock levels are higher. Products that sell more slowly, have a lower profit margin, and quicker delivery times can likely wait until they are much lower in stock.

There’s actually a formula for this — the reorder point formula — which uses three variables to calculate your reorder point:

(daily sales velocity) × (lead time in days) + safety stock = reorder point

What this formula calculates is the inventory level at which you need to reorder your product, inclusive of safety stock in case of a sudden spike in demand or delayed shipping times.

Exceptions: There may be products that you intentionally let go out of stock to create higher demand and maximize inventory cost savings (e.g. McDonald’s McRib sandwich) or that necessarily go out of stock due to seasonal availability (e.g. tulip bulbs). These types of items may not be ideal use cases for the reorder point formula. In the case of the McRib, the reorder point is when pork prices fall below a certain amount.

6. Manage your lead time

You know what your customers want and when they need it. You know how much to order when you restock and you know when to look out for the best deals on products and raw materials. The next important thing to consider is your lead time so that you can optimize your supply chain management.

Lead time refers to the time it takes for an order to be fulfilled — from the moment it’s placed until it’s received. Managing inventory and lead times effectively is essential to avoid stockouts and ensure timely deliveries to customers.

Good lead-time management also reduces the pressure on your team, keeps warehouse operations running smoothly, and improves relationships with wholesalers and manufacturers in your supply chain.

7. Build good supplier relationships

Building strong relationships with suppliers can lead to better terms, more reliable deliveries, and improved overall supply chain efficiency. When your multichannel inventory management software gives you an accurate picture of your inventory turnover ratio, keeps track of your average lead-time on orders, and accurately predicts customer demand, you can consistently submit orders to your suppliers in a timely manner.

Your suppliers may be willing to work with you on rush orders, but they’ll charge you more for them, become increasingly annoyed, and potentially deprioritize your orders if your order cycle is unpredictable and often requires expedited production. This could lead to reduction in quality, higher costs, and fractious relationships with your manufacturing sales reps.

8. Use inventory valuation methods for financial reporting

You’ll also want to keep an accurate valuation of your inventory throughout its lifecycle for financial reporting and taxation purposes. Inventory valuation methods like first-in, first-out (FIFO), last-in, first-out (LIFO), and average cost are used by businesses to determine the value of their standing inventory when doing financial reporting. 

Choosing the right method is important for maintaining inventory quality over time as well as accurate financials.

First-in, first-out (FIFO)

FIFO assumes that you sell the oldest inventory first (the first goods to arrive) and the cost of goods sold (COGS) of that inventory is what is reported as the value for your ending inventory on your balance sheet. In a period of inflation, your inventory costs for older items may be lower. 

Using those figures to report inventory value in a given period can reduce the overall cost of goods on your balance sheet, increasing your reported net profit. But it can also result in higher taxes, as your reported taxable income will be higher.

Last-in, first-out (LIFO)

LIFO assumes that you sell the newest inventory first (the last goods to arrive) and you use the most recent inventory’s COGS as the valuation reported on your balance sheet for ending inventory during that period. Valuating inventory in this manner reduces your net profit and can lower your earnings tax liability, but it’s usually not a great overall cash flow strategy for most businesses.

If your company is based in a country that uses International Financial Reporting Standards (IFRS), the LIFO method is not allowed (it’s only allowed in the United States). It’s also an impractical strategy if your products are perishable or have parts that degrade significantly over time, as you will end up with a lot of unsellable aging stock that you then have to dispose of at additional cost to your business.

However, if your items keep their quality for a very long period (e.g. fine jewelry, pottery, glassware) and you always sell out of your inventory and don’t keep much safe stock around, you could take advantage of LIFO to potentially reduce your tax liability.

Average cost method

The average cost method takes the weighted average COGS of all similar inventory purchased in a reporting period to determine the overall value of all inventory sold and remaining in stock during that period.

Let’s say you’re a screen printing company and you buy t-shirts, sweatshirts, and tank tops from a mix of suppliers in multiple sizes. Tracking COGS for hundreds or thousands of variations in product can be a huge hassle, so it might be easier for your company to simply average out all those COGS for reporting purposes. It also provides some of the benefits of both FIFO and LIFO methods and also makes manipulating financial data more difficult.

Whichever method you choose, you’ll need to pick one and stick with it. Most small businesses use the average cost method as it is easier and less costly to manage while staying close to actual costs.

9. Perform manual inventory audits

If your inventory and warehouse management system is all automated, you can just sit back, relax, and go back to watching cat videos, right? Well, maybe a couple cat videos. But you do need to do manual audits from time to time to make sure products have not been damaged or spoiled (if you’re dealing with perishable goods), lost in transit from one warehouse to another, or stolen.

There are some things even the best automation software can’t predict and plenty of situations will arise that require manual intervention.

10. Develop a plan for disposal and obsolescence

Developing an inventory management plan for obsolete or slow-moving inventory is crucial to prevent losses and free up valuable storage space. First, define specific criteria and thresholds for identifying items that are approaching obsolescence or that need disposal. 

These criteria could include factors like slow-moving items, perishable items approaching an expiration date, or items that have components that may degrade over time in storage. Then, set up disposition rules, automated alerts, and inventory aging reports.

Disposition rules

Develop automated disposition rules for different categories of inventory. For example:

• For slow-moving items, set a rule to automatically mark them for clearance or discount.
• For perishable items, set rules to trigger disposal when they approach their expiration dates.
• For items with no sales for an extended period, consider automating donation or recycling processes.

Automated alerts

Configure your inventory management system to send automated alerts when items meet or exceed the predefined criteria. These alerts can be sent to inventory managers, personnel responsible for disposal decisions, and even to your suppliers and vendors to help automate the reorder or returns process.

Inventory aging reports

Regularly generate automated reports that categorize inventory by age. This can help you identify items that have been in stock for an extended period and need attention.

Return, donate, or dispose

Some suppliers may offer return agreements for unsold or outdated inventory. Always check with your suppliers first as you may be able to recoup some of your investment by returning inventory.

For items that are beyond salvaging or selling, set up automated processes for donation or disposal. Partner with relevant organizations or waste disposal services to streamline this process.

11. Control your costs

All of the considerations in inventory management ultimately come down to one goal — cost control. Ecommerce businesses need to balance the costs associated with purchasing inventory and dead stock against the costs of stockouts and inventory loss due to damage or theft.

In addition to the previously mentioned tips, there are a few other cost-saving points to consider as you develop your inventory management system:

Buy low

Track price fluctuations and sales on products, supplies, and raw materials and buy inventory when prices are low (as long as it doesn’t conflict with your expected demand).

Order in bulk

If you have a product that sells well and isn’t perishable, you might get a better deal from your suppliers if you order in larger quantities. Keep in mind if you order too much in bulk, you risk ending up with dead stock on the shelves.

Automate with inventory management tools 

Whether you’re a global enterprise or a small business owner, all of the formulas and schedules that go into your inventory system can be very complex and time-consuming — especially if you aren’t taking advantage of modern inventory management technology.

If you’re a solopreneur or have a very small staff, focus may be split across multiple roles in the business and it can be easy to become distracted with other tasks, leading to costly mistakes like missing important ordering deadlines or misjudging how much to order when replenishing inventory.

The whole point of a proper inventory management solution is to minimize costs and stress. So, instead of trying to keep a mental list or trying to remember to manually update a variety of spreadsheets with multiple formulas, let inventory management software and point-of-sale systems automate this process for you.

Even when you start implementing some inventory management software, you may run across issues in your inventory management solutions as your business grows. Let’s review six of the most common pain points in ecommerce inventory management and explore the best software for solving these problems.

1. Syncing inventory with your physical location

One of the biggest challenges in successful inventory management systems is balancing stock levels and availability between multiple sales channels, including your online storefront and your physical shops. You can overcome this challenge with point of sale (POS) integration extensions from the Woo Marketplace.

Point of Sale for WooCommerce

With Point of Sale for WooCommerce you can share one cohesive interface — and all of your data — with your WooCommerce store and physical locations to help you manage inventory. 

Convert any tablet or phone into a checkout station, or use tools like credit card scanners. Your point-of-sale terminals can scan barcodes, enter customer loyalty information, and handle manual changes like discounts and refunds with ease.

When multiple warehouses, retail locations, and your online store share the same WooCommerce data, inventory management and tracking customer orders is much more streamlined. You’ll keep your supply chain running smoothly, customer orders flowing, sales happening, and customers happy.

Square for WooCommerce

The Square for WooCommerce extension is a useful integration if you are already using the Square POS and want to manage your online and in-person sales together. This plugin is designed to seamlessly integrate inventory data and orders from your Square POS with your WooCommerce store.

After installing and activating this extension, you’ll only need to manually import your WooCommerce products into Square once. When you create new products in WooCommerce, they’ll automatically be added to Square. All changes made in either WooCommerce or Square will be reflected on both systems.

FooSales Point of Sale (POS) for WooCommerce

FooSales is a secure POS system that syncs with WooCommerce and can be used on any computer or tablet. Sell your products from all your in-person retail locations and sync inventory, order, and customer data with WooCommerce.

FooSales also integrates with popular printers, barcode scanners, card readers and other devices and works with both Stripe and Square for accepting payments.

2. Updating inventory in bulk

Online shops can sometimes feature hundreds of products, and keeping track of just how much stock and how much inventory there is for each variation can become a full-time job. You don’t want to have to manually update the stock levels and information for each and every product when it comes in.

Even if you have automated tools for tracking inventory as it’s sold and replenished, there may be times after a manual inventory audit where you need to update several hundred products at once. The Bulk Stock Management extension makes this process much easier. Update your stock information for multiple — or even all — of your products at once.

Also handy? The inventory report feature, which gives you an up-to-the-minute snapshot of what’s in your store.

3. Knowing when to reorder

Don’t want to handle the day-to-day numbers of inventory management yourself? Keep your support staff in the loop using the Advanced Notifications extension. 

You’ll be able to let the right people know when inventory is low and it’s time to re-order, whether it’s someone on your own staff, a third-party supplier, or a manufacturer. Easy rules allow you to set up notifications for various thresholds and control exactly who receives which notifications. 

Instead of hovering over numbers all day, you’ll be able to spend your time on the more important parts of your business, knowing that your order management, inventory control, and supply chain processes are being taken care of behind the scenes.

4. Predicting your future inventory needs

As a business owner, you need strong inventory management tools to both monitor the current state of your business and forecast the future. Proper inventory management doesn’t just mean keeping items in stock, but knowing what’s selling well, what’s likely to sell well in the future, and what just isn’t working.

WooCommerce

Out of the box, WooCommerce offers a variety of detailed analytics reports, which are key to understanding your business needs. These reports can help you improve your inventory system and guide your decisions by giving you access to data in easy-to-read, sortable charts. You can learn:

• What your total sales were for a given time period
• How many items you sold on an individual or category basis
• How many refunds you issued
• Which coupons were the most popular
• And more!

With these key metrics and proper inventory and order management tools in place, you can accurately forecast customer demand and decide what to reorder, and when, for maximum profit margins.

Inventory Management for WooCommerce

If you need more detailed analytics, forecasting, and enterprise resource planning tools, Shelf Planner’s Inventory Management for WooCommerce could be your solution.

In addition to advanced demand forecasting features, it includes:

• Inventory management
• Automatic replenishment
• Advanced performance reports
• Purchase order management
• Supplier management
• Net and gross profit reports
• Calculation and tracking of COGS

Inventory Management for WooCommerce uses forecasting algorithms created with machine learning to forecast future demand and help ecommerce businesses optimize inventory, automate reorders, improve profit margins, and decrease dead stock.

5. Tracking shared stock levels across multiple product variations

If you have variable products on your WooCommerce store that share inventory with other products or variables, it can be difficult to keep track of your overall stock levels. 

If you’re selling print-on-demand products manufactured in-house with different designs on the same base product, it can be difficult to keep track of stock levels across multiple products and variations because they all use the same t-shirt stock, but are set up as different SKUs.

For instance, if you’re offering five different designs all printed on demand using the same T-shirt stock, you’ll have to keep a daily eye on inventory levels and it can be easy to accidentally oversell.

Implementing shared inventory tracking removes the headache of trying to manage inventory shared across multiple products and product types, saving you time, effort, and money. In WooCommerce, you can do this by managing inventory at a shared attribute level or at the variation level.

Let’s take a look at two different extensions that can help with attribute and variation level stock management.

Attribute Stock Manager

If your store sells products with shared components or ingredients, Attribute Stock Manager can help you keep track of inventory across multiple products and variations that share the same attribute.

This extension helps you:

• Manage stock at the attribute level
• Share stock across products and variations
• Track inventory of products and attributes for simple and variable products as well as simple and variable subscriptions

The extension is also compatible with WooCommerce Memberships and Woo Subscriptions.

Shared Attribute Stock

Looking for more advanced attribute-based stock management? With Shared Attribute Stock for WooCommerce, you can manage stock by variation attributes.

You can group attribute inventory at the global level and share it across multiple variations. Stock levels for each attribute can be configured individually or you can use rules to add stock and assign it to different attributes.

Variation Shared Inventory for WooCommerce

In some cases, it may be ideal to manage shared stock at the variation level rather than the attribute level. Variation Shared Inventory for WooCommerce gives you the ability to accurately manage a product’s stock when selling variations in differing quantities.

For instance, if you are selling pasta in bulk you might have 100 lbs in inventory and sell each type of pasta in 8 oz, 1 lb, 2 lb, and 5lb bags. But each item added to a customer’s cart would normally decrease your inventory by one, even though the lbs measurements differ.

Variation Shared Inventory for WooCommerce gives you the option to set the inventory reduction amount per each variation sold. When each variation is sold, the stock levels for the parent product are updated based on the variation reduction amount you have set for that variation.

This extension also has a cart validation system that prevents products from being oversold and a dedicated dashboard that shows all your variation groups so you can efficiently manage their stock levels.

6. Providing a good customer experience

Sometimes it’s the little things in inventory management that can help boost sales and improve customer experience. The way you present product quantities and availability to customers can help engage buyers and increase revenue.

Allow shoppers to reserve products for a limited time prior to purchase and display custom stock statuses like, “Arriving tomorrow!” or “Almost gone!” to help customers better manage their expectations and prepare for the purchases they want to make.

Let customers reserve stock

With Reserve Stock for WooCommerce you can temporarily reduce stock when a product is added to the cart. Use rule-based inventory management techniques to restrict reserving stock to specific products, categories, user roles, and time limits.

Once the time limit for the product reservation expires, the product will be automatically removed from the cart and added back into your inventory. This extension also includes the ability to send customizable messages to customers to communicate their stock reservation status and display a reserve count timer on the cart page.

Display custom stock statuses

The WooCommerce Custom Stock Status extension gives you the option to add varied stock statuses that communicate more precise information about your product availability. Assign custom stock statuses for certain stock ranges that are triggered when the inventory count falls within that range.

Add text, dates, images, badges, and icons to your stock statuses to draw customers’ attention. Create rules attaching statuses to multiple products, categories, and user roles and choose how these statuses display on shop and product pages.

Some examples of formulas for custom stock messages you might add to your products include:

• Almost gone! Only {stock_qty} left (for a range of 2-20)!
• You’re in luck! Last one (when one item is left)!
• Back in stock on January 1 (when no items are left).
• Just arrived (for a range of 90-100)!

Implement strategies for when you run out of stock

Running out of your most popular items can — and will — happen from time to time. Make sure your customers are always kept up to date with the latest stock information, to avoid disappointment and encourage future sales. 

Consider adding extensions like:

• WooCommerce Waitlist. Notify customers when an item they want is back in stock and export a list of customers waiting for each product.
• WooCommerce Pre-Orders. Make sure you have enough stock on hand for product launches by allowing your best customers to place their orders in advance.
• AutomateWoo. Set up follow-ups to alert past purchasers about popular items that are back in stock.

When you’re on top of what’s coming in and going out, you can keep operations running smoothly. Reduce missed sales because of out-of-stock items while maximizing efficiency by identifying and eliminating underperforming products. 

Most importantly, an automated, accurate, and efficient inventory management system is a major requirement if you want to scale your store. By using intelligent inventory management software and perpetual inventory management processes, you can delegate responsibilities and reclaim your time for the most important tasks.

With just a few of these tools, you’ll be on your way to a better performing and more efficient store. 

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Lynn Jatania