How much inventory to stock for your eCommerce business?

Introduction

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On time deliveries are extremely important for improving the credibility and reputation of any eCommerce company, and this is only possible by maintaining your inventories efficiently.  Inventory management ensures that you maintain optimum levels of all the resources such that neither there is a shortage nor there is a surplus of them.

There is one quantity that meets all your business requirements, however, there are certain industry best practices that help you in deciding the ideal quantity that meets your business objectives.

Best Practices for determining the Optimum inventory

t2The goal of inventory management is to maintain enough stock that addresses 3 important aspects:

  • Planned sales
  • Sudden surge in sales
  • Delays in vendor deliveries

We can determine the ideal quantity by calculating the forward weeks of supply or the number of weeks of planned that the current inventory represents.

Here are a few industry standard practices that help you to maintain the right levels of inventory at any point of time:

Forecast

Demand

Forecasting is the process where we observe the market demand and understand the ideal quantity that will allow us to meet the demand. As a thumb rule, maintain at least one or two products as a stock so that you do not receive out of stock notifications. Make sure to delist the products that are out of stock and display friendly notices such as “Only one piece left” etc. to inform your customers about the exact number of products available for sale. You may also try and work on improving your product descriptions and images. Better images will receive more attention through search engines and on market places, and the viewer count can help you to determine the possible demand for your products.

Inventory Auditing 

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Regular audits help us to ensure the exact number products that we have in hand. It is advisable to conduct these audits atleast once a month in order to get a realistic picture of the numbers, however this frequency again depends on the average weekly sales.

Centralized Inventory System

Centralized Inventory management systems, like an ERP, integrated with your eCommerce platform are highly advisable, especially if you sell in different geographies and on multiple channels. These systems will give you real time information on the exact quantities available in hand.

Drop Shipping

Drop Shipping

Drop shipping is a great technique, especially if you are a start-up and would like to share your inventory costs with your suppliers. Drop shipping method is based on the “endless aisle” concept where in the suppliers maintain the inventory and ship the products as and when an order is placed. In the entire transaction, the supplier remains anonymous and the customer feels that the eCommerce store made the sale.

Conclusion

While there is no set rule on the ideal quantity, we can always arrive at a number by considering various factors such as average weekly sales, hikes in sales, unexpected cancellations or reorders etc. Since every retailer has a unique mix of products and customers, it is highly advisable to spend considerable efforts in terms of time and understanding on the ideal number of products required for meeting the demand of the business.

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We, Tenovians are passionate about all things eCommerce. While we aren't dabbling in our clients' eCommerce numbers and ops metrics, we keep ourselves busy learning on the latest in the industry.

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