Ecommerce Inventory Management: what it is and why it matters in today’s omnichannel retail landscape

What is ecommerce inventory management in today’s retail landscape?

Over the past decade retailers across all spheres have changed how they operate, but it’s fair to say that none have experienced the sheer rate of accelerated transformation as much as ecommerce.

In itself, ecommerce was the gamechanger and the cause of transformation making a huge impact on the high street. And then, upon the breakout of the pandemic, ecommerce not only became the only option, but it sparked a host of new digital-only service providers, apps, and the rise of omnichannel. The result in terms of inventory management was a hugely complicated and hard to predict landscape. Not just an accelerated push towards ecommerce-only offerings, but a more chaotic relationship between physical and online retail, with each business needing to choose their optimal path. It’s why we saw the likes of Bose closing all of their brick and mortar stores, while others actually reignited their physical presence post-COVID as part of a pledge to provide more experiential settings.

All of this confusion and bespoke strategy puts emphasis on a present-day inventory management situation which requires agility, visibility, and data clarity.

Common ecommerce inventory management challenges

Reliable, informing data is crucial to create an accurate demand plan, which then contributes to a more tailored, achievable and cost-effective inventory management strategy. When creating a forecast, insights from website traffic, POS data and customers are essential. When you operate an ecommerce platform, you have all that data within arm’s reach in near real-time, a clear advantage over the high street model where the data is a lot harder to attain, consolidate and then utilise.

However, there are still challenges to combat from an ecommerce inventory management perspective as well. As the middle ground between what’s coming in and what’s being shipped out, you still need that accurate data around what’s in demand and what’s needed. Those two metrics will inform what you have to store, manage and handle in-between, and it’s often where retailers fall down. Overstock, and it puts strain on capacity, labour and handling costs. Understock, and you’re wasting the inventory capacity available to you while also risking availability through a channel that demands immediacy and flexibility.

Stocking policies are also therefore a challenge. Again, you want to always ensure availability, and safety stock calculation fall under that consideration. But by oversubscribing through poor demand forecasts, you’ll then be forced to markdown prices in a bid to free up space, or – even worse – you could succumb to obsolescence.

You also need to keep your own business objectives in mind. Promotions on new items, or sunsetting of old items still connects to the inventory decisions you make as it all relates to the smooth throughflow of those items.

In omnichannel environments, the challenge is ramped up a few notches more. Not only are you weighing up all of the above trade-offs with the end goal of online shipments, but also the demand that you’re anticipating through physical stores. Strategic network balancing, multi-echelon inventory optimisation (MEIO) and EOQ (economic order quantities) all come into play at that point.

Of course, most businesses do indeed have both an online and physical presence, meaning all of these challenges are ever-present, across changing seasons, demand patterns, industry disruptions and customer preferences. Keeping on top of it all in a way that maximises profit margins requires a lot more than manual guesswork, or even legacy tech. It calls for AI, automation, data consolidation and a holistic supply chain platform.

Top benefits of effective inventory management in ecommerce

The best exponents of ecommerce can balance their online and physical offerings to such an extent that they maximise sales opportunities across both: continuous availability of in-demand goods, sold at their optimal price. All of this relies on equally optimal inventory management, to ensure those goods are where they need to be, at the volume required, to an extent that is manageable according to internal capacity, and handled in the most cost-effective way.

Sparking seamless movement from supply, across channels, warehouses, stores and distribution centres, and across the last mile to the end user, effective inventory management is the control centre for customer satisfaction, and therefore long-term profits.

Intelligent multi-channel forecasting software lends to this ambition at the start of the process by analysing customer behaviour patterns and channel dynamics separately, then intelligently aggregating forecasts to optimise both central distribution and channel-specific inventory. This approach ensures reliable product availability while avoiding the compounding errors that occur when simply stacking inaccurate individual forecasts.

By harmonising forecasting and inventory management, the ultimate upshots are fewer overstocks which eliminate unnecessary storage costs, obsolescence and waste; fewer stockouts which could lead to missed sales opportunities and dissatisfied customers; and greater control over your supply chain thanks to real-time visibility, enhanced scenario planning, and more proactive decision-making.

Inventory management techniques for e-commerce businesses

To this end, when embarking on an inventory management transformation programme, there are six key targets you should be striving towards through your chosen approach, model, and solution.

First is that more refined balance between excess and obsolescence, calculated automatically and continuously in real-time, based on reliable forecasting and clear insights into internal capacity.

That key theme is then complemented by the capability to balance stock optimally across the network, inclusive of all physical and online channels. Ultimately you need to make sure you have the right products in the right place at the right time.

This leads directly into improved product availability at that localised level, targeting product movements according to granular trends and where demand truly is.

Greater control over your stock movements across DCs, warehouses and stores allows for more dynamic recalculations of stock parameters. This might mean a ramping up of operations you previously didn’t realise was possible, or more of a sudden pivot in line with the real-time landscape.

That real-time landscape might be disruptive, suffering material shortages or strained by seasonal shifts and customer behaviour changes. Your future inventory management operation should be agile to any and all of it.

And, finally, it all comes down to visibility. All of this agility, balancing, stock movement and data-based strategy depends on a single source of truth and complete end-to-end visibility of what’s needed and what’s achievable in that moment.

Future trends in ecommerce inventory management

To get ahead of the curve when it comes to ecommerce inventory management, you should also look to more advanced advantages that would come from forming complete end-to-end synchronisation of the supply chain through a holistic platform. This includes the ability to automate stock policies by implementing your own specific rules and criteria into the platform. Beyond that, advanced prioritisation would see multidimensional ABC and XYZ analysis conducted automatically to identify high-value and high-demand products. Sales, order line numbers and profitability are weighed up against KPIs to inform the best prioritisation strategy for you.

Advanced calculations of stock parameters based on demand volatility, future forecasts, supplier lead times and constraints, desired customer service levels and historical performance is also achievable. As are automatic recommendations for future orders based on current stock, sales priorities, real-time demand, and inventory capacity.

Ultimately, all of this means a greater level of agility and personalisation in the future when it comes to supply and demand planning, with inventory management optimised between the two.

The best inventory management software for ecommerce

So, what should you look for in a ecommerce supply chain platform that will unlock all of these baseline and more advanced benefits, to get the most out of your inventory management?

Modules that cater for MEIO, network balancing, advanced inventory allocation, automatic replenishment and granular item management should all be staples as part of your chosen supply chain solution.

They will reflect a new status quo where you have complete visibility based on a single source of reliable, connected data. A status quo that injects renewed dynamism and agility into your ecommerce inventory management.