3 Helpful Inventory Management Techniques for Online Stores

3 Helpful Inventory Management Techniques for Online Stores via @heroicsearch

It’s impossible to find a guide to inventory management techniques perfectly suited to your company, and in most cases you find business owners combining different methods for smooth operations. The following methods guarantee efficient processes while minimizing the cost of running your business. Here are a few techniques to try.

First, Some Thoughts About Inventory Management Techniques

It’s not the 1990’s – technology is here to help simplify your inventory management processes. You need to first understand the pros and cons of each of your options. Then, you need to choose the best inventory management procedures to drive your business to the next level and ensure a trustworthy online store. As you learn about the following methods of managing stock, think about what’s best suited to your company right now, and how easy it might be to transition to another process if you should have to make changes down the road. 

Method #1: Just in Time

The Just in Time (JIT) method ensures that companies only order what is necessary. Goods bought are meant to be used in a short period ensuring there is no chance of having deadstock around. For this management technique to work, you should have carried out detailed research on clients buying practices, the current trends, demand chains and unforeseen factors that can affect the buying habits.

The JIT technique works best when you have suppliers who can deliver goods on short notice, or when your company is located near the providers. Depending on your warehouse management and order picking systems, this could be the right inventory management method for you.

JIT is more suitable for startups and smaller businesses that do not have enough capital to buy a larger inventory. It is also appropriate for firms that deal with slower moving and bulky goods that require more storage space. It helps solve the issue of operating capital and storage area.

Pros of JIT

  • Lowered Inventory Cost – You only buy what you need. The investment is also smaller because you only invest in the required inventory.
  • No Risk of Dead Stock – Only the required quantities are purchased as and when there is demand.
  • Less Waste – Goods do not get damaged or obsolete when in the store or on the shelves.
  • Lowered Warehouse Costs – Because the purchased inventory is in smaller batches, there’s significantly less space required. Thus, a company wouldn’t have to invest in storage units.

Cons of JIT

  • Can be Difficult to Acquire Goods – When there is unprecedented demand influx, it might be hard to get the goods on short notice. At times, suppliers may have their internal issues that may hamper smooth and quick delivery of the inventory. This method also leaves you at the mercy of providers. You are forced to have an excellent relationship with them to ensure you get the goods delivered fast.
  • High-Level Management Skills Required – To ensure the inventory is always available in the right quantities, proper planning is required. You need to go deeper into your clients’ buying history. Sometimes, your projections may fail.
  • Risk of Losing Clients – When orders or reception of goods is delayed, customers may lose patience with you. They could end up checking out what your competitors have to offer.

Method #2: The ABC Analysis

The ABC Analysis methodology assumes that not all the inventory in a company is of the same value. According to this principle, the stock is divided into three categories, A, B, and C depending on the importance of the company.

Category A products have 70% value and are only 10% quantity

Category B products have 20% value and 20% quantity

Category C items have only 10% in the business, but volume goes up to 70%

This method allows for selective effort and capital input into different categories depending on the value allocated.

This method works best for larger organizations with different products. A company will be able to track the movement of the inventory and the value it brings on board better. The technique solves the problem of having too many stockpiles that are unaccounted for.

Pros of ABC Analysis

  • Control of Higher Revenue-Generating Inventory – This maximizes profits.
  • Better Resource Allocation – You are better able to decide on resource allocation to the different categories.
  • Best Overhead Control – Not only are you in control of inventory, but you have a clear picture of what’s going on with your expenses and can make informed decisions quickly.

Cons of ABC Analysis

  • Only Works for Larger Companies – Not a suitable method for smaller companies with lower inventory needs.
  • High Initial Investment – It requires more resources to set up and manage the system.
  • Monopolizes Accounting Across Operations – It does not work well with other accounting methods.

Method #3: Stock Review

The stock review method involves checking the stocks available at a given time and projecting future demand habits. You can do it manually where you can count the available stock or use a tickler or click sheet control method when the inventory is extensive.

This technique is suitable for large businesses that do not have capital issues. Also when the ordering and supply of goods take time, it is better when a company has enough stock to last for a while.

Pros of Stock Review

  • Stay in Control of Your Inventory – You have the goods at your disposal meaning that you can never run out of stock. When the inventory reaches dangerously low levels, you can reorder.
  • Save on Bulk Orders – Suppliers give discounts when you order in bulk.
  • Personalize Customer Orders – Because you have the goods with you, packaging and customizing orders becomes easier.
  • Deliver Products On-Time – Supply hitches may not affect you because you have your inventory to last you for days or months. Clients can trust you more when you make timely deliveries.

Cons of Stock Review

  • Demands Capital – You need to invest more in the stock.
  • Requires Significant Space – You should invest in warehouses and storage units.
  • Goods Can Become Obsolete – This happens when they sit on the shelves for too long.

Final Thoughts

These three inventory management techniques can be combined depending on the needs of the business and its capital strength. Choose the tactic that’s best for you and watch your business soar.


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