HOW TO SELL ONLINE

Your Essential Guide to Effective

Inventory Management + 18
Techniques You Need to Know

Picture a successful retail business in your head. Maybe you’re

picturing a small local shop, or a huge corporate business.

What do these two companies have in common?

Do they both consistently have the products in stock that you

want?

Do they both carry goods in-store and online?

If the answers are yes, both retailers probably have a good

handle on their physical inventories. And it’s even more likely
they’re using inventory management software to do so.

Inventory management is the basis of a well-functioning retail

business. Inventory management systems track the lifecycle
of inventory and stock as it comes and goes out of your
business.

When businesses don’t have a handle on the activity of their inventory, or

worse, track it with outdated spreadsheets and data entry, the rest of the
pieces, like order fulfilment, don’t fall into place.

When you don’t know how much inventory you have on hand,
you can’t make smart reorder decisions

You can’t list items accurately online because you don’t have
visibility into how much inventory you have to allocate to each
channel. You get stuck with too much inventory or an incorrect
amount of product. The list is endless.

Inventory management processes are imperative to succeed

as a retailer of any kind — ecommerce, multi-channel, brick-
and-mortar, omni-channel — if you want to seriously compete.

Let’s take a look at a few stats from actual retailers who have
experienced the hurdles of not using an inventory management
software.

 43% of retailers ranked inventory management as their

number one day-to-day challenge
 Over 1,600 new warehouses were opened between 2013
and 2017

With new warehouses opening every day, the amount of people

in need of proper inventory management processes grows in
congruence with the amount of people who don’t know how to
manage them. The importance of inventory management
simply cannot be ignored.

What Is Inventory Management?

Inventory management is a step in the supply chain where

inventory and stock quantities are tracked in and out of your
warehouse.

The goal of inventory management systems is to know where

your inventory is at any given time and how much of it you
have in order to manage inventory levels correctly.

Some companies may opt to scan in inventory via a barcode

scanner to increase efficiency along pick routes and accuracy.

Unlike an ERP system, an inventory management system

focuses on one supply chain process. They often come with
the ability to integrate with other software systems – point of
sale, channel management, shipping – so you can build a
personalized integration stack to the needs of your unique
business.

Why Is Inventory Management Important

Inventory management is the fundamental building block to

longevity. When your inventory is properly organized, the rest
of your supply-chain management will fall into place. Without
it, you risk a litany of mistakes like mis-shipments, out of
stocks, overstocks, mis-picks, and so on.

Proper warehouse management is key. Mis-picks result from

incorrect paper pick lists, disorganized shelf labels, or just a
messy warehouse in general. Mis-shipments are a direct result
of mis-picks at the beginning of the inventory process, and are
also a result of a lack in quality control procedures.

Out of stocks and overstocks occur when a company uses

manual methods to place orders without having a full grasp on
the state of their inventory. This is a not a good predictor for
inventory forecasting and results in too much stock or too
little.

All of these mistakes will not only cost you money, but also
cost you in wasted labor spent correcting the mistakes later.
When you don’t implement management tools, your risk of
human error mistakes goes up by the minute. And your
customer reviews and loyalty take a negative hit as well.

Inventory Management Techniques

That being said, inventory management is only as powerful as

the way you use it.

It’s well worth the extra time and money to have inventory
management set up by the experts who made the software.
Work with them to make sure you’re utilizing the proper
techniques and features to get the most bang for your buck.

Let’s take a look at some inventory-control techniques you

may choose to utilize in your own warehouse.

1. Economic order quantity.

Economic order quantity, or EOQ, is a formula for the ideal

order quantity a company needs to purchase for its inventory
with a set of variables like total costs of production, demand
rate, and other factors.

The overall goal of EOQ is to minimize related costs. The

formula is used to identify the greatest number of product
units to order to minimize buying. The formula also takes the
number of units in the delivery of and storing of inventory unit
costs. This helps free up tied cash in inventory for most
companies.

2. Minimum order quantity.

On the supplier side, minimum order quantity (MOQ) is the

smallest amount of set stock a supplier is willing to sell. If
retailers are unable to purchase the MOQ of a product, the
supplier won’t sell it to you.

For example, inventory items that cost more to produce

typically have a smaller MOQ as opposed to cheaper items that
are easier and more cost effective to make.

3. ABC analysis.

This inventory categorization technique splits subjects into

three categories to identify items that have a heavy impact on
overall inventory cost.
  Category A serves as your most valuable products that
contribute the most to overall profit.
 Category B is the products that fall somewhere in
between the most and least valuable.
 Category C is for the small transactions that are vital for
overall profit but don’t matter much individually to the
company altogether.

4. Just-in-time inventory management.

Just-in-time (JIT) inventory management is a technique that

arranges raw material orders from suppliers in direct
connection with production schedules.

JIT is a great way to reduce inventory costs. Companies

receive inventory on an as-needed basis instead of ordering
too much and risking dead stock. Dead stock is inventory that
was never sold or used by customers before being removed
from sale status.

5. Safety stock inventory.

Safety stock inventory management is extra inventory being

ordered beyond expected demand. This technique is used to
prevent stockouts typically caused by incorrect forecasting or
unforeseen changes in customer demand.

7. FIFO and LIFO.

LIFO and FIFO are methods to determine the cost of inventory.

FIFO, or First in, First out, assumes the older inventory is sold
first. FIFO is a great way to keep inventory fresh.

LIFO, or Last-in, First-out, assumes the newer inventory is

typically sold first. LIFO helps prevent inventory from going
bad.
8. Reorder point formula.

The reorder point formula is an inventory management

technique that’s based on a business’s own purchase and
sales cycles that varies on a per-product basis. A reorder point
is usually higher than a safety stock number to factor in lead
time.

9. Batch tracking.

Batch tracking is a quality control inventory management

technique wherein users can group and monitor a set of stock
with similar traits. This method helps to track the expiration of
inventory or trace defective items back to their original batch.

10. Consignment inventory.

If you’re thinking about your local consignment store here,

you’re exactly right. Consignment inventory is a business deal
when a consigner (vendor or wholesaler) agrees to give a
consignee (retailer like your favorite consignment store) their
goods without the consignee paying for the inventory upfront.
The consigner offering the inventory still owns the goods and
the consignee pays for them only when they sell.

11. Perpetual inventory management.

Perpetual inventory management is simply counting inventory

as soon as it arrives. It’s the most basic inventory
management technique and can be recorded manually on pen
and paper or a spreadsheet.

12. Dropshipping.

Dropshipping is an inventory management fulfillment method

in which a store doesn’t actually keep the products it sells in
stock. When a store makes a sale, instead of picking it from
their own inventory, they purchase the item from a third party
and have it shipped to the consumer. The seller never sees our
touches the product itself.

13. Lean Manufacturing.

Lean is a broad set of management practices that can be

applied to any business practice. It’s goal is to improve
efficiency by eliminating waste and any non value-adding
activities from daily business.

14. Six Sigma.

Six Sigma is a brand of teaching that gives companies tools to

improve the performance of their business (increase profits)
and decrease the growth of excess inventory.

15. Lean Six Sigma.

Lean Six Sigma enhances the tools of Six Sigma, but instead
focuses more on increasing word standardization and the flow
of business.

16. Demand forecasting.

Demand forecasting should become a familiar inventory

management technique to retailers. Demand forecasting is
based on historical sales data to formulate an estimate of the
expected forecast of customer demand. Essentially, it’s an
estimate of the goods and services a company expects
customers to purchase in the future.

17. Cross-docking.

Cross-docking is an inventory management technique whereby

an incoming truck unloads materials directly into outbound
trucks to create a JIT shipping process. There is little or no
storage in between deliveries.
18. Bulk shipments.

Bulk shipments is a cost efficient method of shipping when you

palletize inventory to ship more at once.

Examples of Successful Inventory Management

1. MB Klein

MB Klein, a historic retailer in Maryland of model trains, train

sets, and railroad accessories, is a mutual client of SkuVault
and BigCommerce. Mat Huffman, digital warehouse lead at MB
Klein, told us about his experience using a SkuVault and
BigCommerce integration to manage the company’s online
store and brick-and-mortar store.
“After having implemented SkuVault’s system, the task of
maintaining our inventory has become more straightforward
and efficient. Our customer satisfaction has improved with
accelerated shipping times and the ability to accurately
represent our stock in real-time with the BigCommerce
integration for our website,” said Huffman.
“The ease of only needing to upload new products into
BigCommerce that migrate into SkuVault has been a
tremendous advantage for dealing with workflow. One of the
most beneficial aspects of utilizing SkuVault has been the
ability to streamline, not only the inventory counts, but the
ordering and receiving processes as well,” he said. “Overall,
we have found the use of SkuVault to be invaluable, and the
benefits have had an extensive impact on MB Klein’s growth
during the past year.”

Common Inventory Management Questions

Below are frequently asked questions regarding inventory management.

Does BigCommerce integrate with inventory management software?

Yes! Click here to browse popular inventory management solutions we currently integrate with.
Don’t see a platform or have a custom solution? Get in touch to discuss your options.

What are necessary goals of inventory management?

The main goal of inventory management is to increase the visibility and organization of
inventory activity via automated and streamlined pick/pack/ship features.

This kind of change empowers your small business to grow with confidence and puts you in
front of the kind of customers you want.

Your business should run like a well-oiled machine upon implementing smart inventory
management techniques. And if you really want to do it right, implement inventory management
software with the software’s in-house support team. Let the experts lead you in the right
direction.

How do you measure to see if you are successfully managing inventory?

The proof is in the numbers when measuring the success rate of inventory management. After
you have implemented new inventory management techniques, compare the data from before
and after.

Have your level of mis-shipments, mis-picks, or out of stocks decreased? What about dead
stock? Have you eliminated the dead piles of inventory around the perimeter of the warehouse?
If you can answer yes to these, you’ve successfully conducted inventory management. As a
result, you can expect to see better customer reviews, improved customer loyalty, and even a
boost in Amazon Seller Rating Performance.

Who should be accountable for inventory management effectiveness?

It’s an all hands on deck approach when it comes to inventory management effectiveness.
Several teams are responsible for different pieces of the pie.

The purchasing team is accountable for making sure they are not over or under purchasing, and
are closely monitoring each purchase order.

The merchandising team is tasked to ensure the inventory is properly listed, promoted, and
priced to move.

The warehouse team, warehouse manager, and inventory specialists are responsible for handling
all inventory from FIFO to delegating proper stock levels in each location. This ensures less shelf
wear on packaging.

The warehouse team is also accountable for the obvious inventory management tasks –
managing proper receiving, correct picks, and correct shipments to create an ease of movement
throughout the pick/pack/ship process.

How do you determine if your inventory manager is spread too thin?

There’s a few alarming signs around a warehouse that signal your inventory manager cannot do
their job properly. And they all have to do with improper inventory management.

Here are a few signs:

 You have undersold inventory; meaning, there’s a hot item somewhere hidden in the backstock
you didn’t list in time for the season.
 Inventory levels are creeping up, but aren’t in line with sales levels. This is a sign of dead stock.
 The amount of shelf wear on packages forces you to mark down the price. This is a result of
stocking inventory incorrectly or sitting too long and becoming dead stock.
 The inventory manager is still using a manual spreadsheet. This method of inventory
management leads to huge amounts of manual error like mis-shipments and mis-picks.

What should determine ordering frequency?

Reporting, reporting, reporting.

It can’t be stressed enough how important reports are to inventory management processes during
peak season.
Historical sales reports from peak seasons past, and throughout the current year, should be used
to determine order frequency during peak season. Look back on what you sold the most and the
least in tandem with what items are popular this year to make more accurate purchasing
decisions.

Sales reports can be broken down by sales channels so you get a better understanding of what
items sold on each channel. This gives you a clear idea of the kind of order demand to expect and
right order frequency to establish.

How should I prepare for peak seasons?

Peak season for a business is arguably the most important time of the year. It’s the time of year
when most businesses make the bulk of their revenue, so it’s pivotal that you have proper
inventory management in place in order to succeed.

If you’re heading into your first peak season, here’s what you can do to prepare.

 Conduct a cycle count to make sure all inventory levels are correct.
 Ensure shipping supplies are properly stocked and ready to use. By the way, shipping supplies
should be inventoried as well.
 Hire temporary staff to account for a higher demand in orders.
 Utilize history reports to make sure you’ve ordered the right amount of inventory.
 Make sure all inventory, including backstock and picking, is in the proper locations.

And last, but not least, implement inventory management software. Inventory management
streamlines all the points above and better accommodates for high demand and fluctuation
throughout peak season better than a spreadsheet ever could.

Executive Summary

Inventory is the biggest asset to your company, so in order to

save money and make money, you need to protect that asset
and nurture it in the right direction. Without implementing
inventory management techniques, you’ll never get ahead.

Sign up with an inventory management software that masters

the basics of inventory management. The fundamentals are
key to a sustainable business. Software should be a catalyst
for your growth, not a hindrance.