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Inventory mismanagement: What it is and how to avoid it

Inventory management. At first glance, it’s not an exciting part of e-commerce. In fact, it may be a daunting task for many brands that have a plethora of moving parts. But, here’s the thing: inventory management is one of the most important parts of a successful e-commerce business.

Why? Because inventory directly affects the end consumer. It is one of a brand’s most valuable assets. Not enough inventory? A consumer might see that ‘out of stock’ notification and never return to your site. Too much inventory? Hello, dead stock and escalating storage costs.

But, not to worry. E-commerce brands, we have some good news. Inventory mismanagement can be avoided (with a few simple precautions). Let’s get started!

What is inventory management?

Inventory management refers to a business’s process of ordering, receiving, and moving inventory throughout the supply chain. It tracks products from the manufacturer all the way to the customer. The goal of inventory management is to keep products in motion to minimize storage costs and make sure there are enough assets for order fulfillment.

Essentially, inventory management ensures that products continue to end up in the happy hands of consumers!

Inventory mismanagement, on the other hand, is exactly what it sounds like: the mismanagement of inventory. We’re talking not ordering enough product, having a ton of excess stock on hand, using the ‘just in case’ forecasting method, little to no visibility into SKU movement, and more mistakes that could lead to potentially costly outcomes like mis-shipments, overstocking, and spoilage.

Why does inventory management matter in e-commerce?

The e-commerce industry in 2023 is completely saturated. For brands, this means that every facet of their operation counts in creating a positive customer experience and differentiating themselves from the crowd. This includes tracking inventory within their e-commerce fulfillment operation.

Picture this: you’ve done weeks of research on a pair of hiking boots for an upcoming trip. You’ve finally settled on a highly-rated pair from a well-known company. You head to the site, find your size, and check out seamlessly. A few hours later, you receive an apology email stating that your size is actually out of stock, and won’t be able to ship out until the week of your trip.

How would you rate this experience on a scale of 1-10?

The good news is that this type of mishap could have easily been avoided altogether with proper inventory management. With the right tools and processes, the brand could have immediately updated the item to ‘out of stock’ before the customer had a chance to purchase. Likewise, they could have seen this SKU running low and ordered more products from the manufacturer before they ran out completely.

Streamlined inventory management ensures an optimized fulfillment experience and customer satisfaction. It’s a win/win for brands and customers!

Common inventory management mistakes

Excess inventory or not enough inventory

One of the most common inventory management mistakes comes from poor demand planning. Without accurate forecasting, brands run the risk of overordering or underordering stock…each of which has its own downfalls.

Over-ordering inventory creates high storage costs for brands while increasing the risk of excess or dead stock. Alternatively, underordering can result in unhappy customers who aren’t able to purchase a sought-after product.

Tech stack is not up to speed/no visibility into inventory

Another common inventory management mistake? Human error.

Still relying on manual inventory management? Manual = more errors in the data. And inaccurate data is a surefire way to an inventory disaster.

In 2023, e-commerce brands should be able to know exactly where their inventory is at any given time. This means having an inventory management system (IMS) that tracks stock levels and optimizes storage location while maintaining robust reporting and analytics.

Inventory management systems also allow brands to keep an eye on their product at all times, no matter where it is in the warehouse. When inventory isn’t easily visible to your team on the ground, it’s much more likely that a shipment could be delayed or inaccurate. Why? Because the team may not be able to find the stock needed for an order. This, in turn, leads to an incredibly negative customer experience.

Brands that invest in inventory systems with ample visibility are bound to be more efficient. With more visibility, your associates can not only move more quickly to find products but reduce their order margin of error.

No regularly scheduled inventory audits

The more inventory audits, the better inventory control. Inventory audits check a brand’s physical inventory count against their records. While they are time-consuming, they can help identify issues like incorrect data on the number of products stored, damaged goods, and missing stock.

Without regularly scheduled inventory audits, e-commerce brands will fall victim to an inaccurate depiction of inventory that can come to the surface as poor customer experiences, revenue loss, and more.

3 ways to avoid inventory mismanagement

1. Conduct audits often

Physical counts are tedious in the short run, but extremely beneficial in the long run. Continuously matching physical inventory with inventory records can help brands spot inventory mistakes before they actually come to fruition. From stockouts to theft to spoiled products, an inventory audit ensures brands are noticing, understanding, and resolving inventory errors before they can negatively impact the bottom line.

2. Forecast wisely

With the right tools, technology, and communication, forecasting doesn’t have to be so difficult. And, with a better sense of which products will be in high customer demand, e-commerce brands can easily avoid having too much stock or warehouse space – something that eats up financials.

But, the golden question is ‘how can brands forecast wisely?’

  • Work in tandem with marketing. When brands are informed of various marketing pushes for particular products, they’re able to order safety stock and negate any chance of a stock out.
  • Dive into the data. Historical sales data is an e-commerce brand’s best friend. Of course, there’s no crystal ball when it comes to inventory turnover, but with the help of the previous years’ data, brands can begin to understand which seasons are most popular and which products are likely to sell out (or not).

3. Partner with a 3PL

Last but certainly not least, it’s never a bad idea to bring the experts in. Partnering with a tech-forward 3PL ensures e-commerce brands access to top-tier inventory management. Most 3PLs have a robust warehouse management system/order management system that will track products through their lifecycles, deliver real-time inventory visibility, and integrate directly with major e-commerce platforms.

Plus, the operational experience that 3PLs have is simply unmatched. Trained associated and warehouse management staff can easily manage orders on your behalf, giving you the time and space to focus on other areas of business – mainly, providing the best product and experience.

How brands can better manage inventory

The next time you’re shopping online and notice an ‘almost sold out’ tag on a product you’re eye-ing, instead of getting frustrated with low stock levels, take a moment to acknowledge that it’s a sign of great inventory management.

Managing inventory will vary from brand to brand, but one thing is certain – without the proper inventory management plan, thorough inventory management software, and efficient warehouse operations, things could get costly and tricky.

With a few simple updates to operations and technology, brands can identify inefficient processes and update them – all while improving customer satisfaction along the way.

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