12 August 2024 8 mins read Your online business is buzzing with activity, orders pouring in daily, and a promising future on the horizon. Yet, there's a challenge you might face – running out of stock. This is where online inventory management steps in, serving as a significant strategy to prevent lost sales and keep customers happy.
Want to know the tips and tricks to keep your shelves stocked and your customers coming back for more? Let Flipkart Seller Hub be your guide, with comprehensive insights, tools and services designed to optimise and streamline your inventory and supply chain management.
In this blog, we will discuss everything, from what is the meaning of inventory management to how you can leverage it to gain a competitive edge in the online marketplace. Let us begin by delving into its core aspects that every online business needs to learn and master.
What is Inventory/Stock?
Inventory or stock refers to the goods and materials a business holds for resale, production or utilisation. It includes raw materials, work-in-progress items, and finished goods that are considered part of a business's assets, either prepared or ready for sale.
Smart inventory management is crucial for maintaining optimal stock levels, ensuring product availability, and minimising costs associated with excess storage or stockouts. The need for inventory management further boils down to balancing supply and demand efficiently — essential for success.
What is Inventory Management?
Inventory management is the systematic process of ordering, storing, using, and selling a company's inventory. This includes managing raw materials, components, and finished products, as well as warehousing and processing such items.
Effective inventory management helps reduce costs, increase returns, and manage cash flow effectively by keeping track of stock levels, orders, sales, and deliveries. It ensures that there is always enough stock on hand to meet demand without overstocking, which can tie up capital unnecessarily.
For example, in jewellery inventory management, a store must balance the need to have a diverse selection of items to attract customers and meet their tastes. On the other side, you don't want to spend too much money stocking up on expensive pieces that might not sell.
The trick is to keep a close eye on which jewellery sells the best and stock up on those while ordering less of the pieces that aren't as popular. This way, the store can make sure customers are satisfied with the selection, and at the same time, the store doesn't waste money on items that stay on the shelves.
How Does Inventory/Stock Management Work?
Now that you have understood what is stock management, let us go through the process and the stages involved. This will help you get a clear idea and understanding of the concept. Following is a breakdown of the key steps involved in stock management:
- Set Up and Categorise Inventory
Implementation: Choose an inventory management system, either manual or software-based. Categorisation: Organise inventory into categories based on value, turnover rate, or other relevant criteria.
- Determine Stock Levels
Reorder Points: Define minimum stock levels to trigger new orders, ensuring a balance between avoiding stockouts and minimising excess stock. Safety Stock: Calculate extra inventory to safeguard against demand fluctuations or supply delays.
- Ordering and Receiving Stock
Order Placement: Based on determined stock levels and forecasted demand, place orders with selected suppliers. Receiving and Storage: Inspect and store incoming inventory efficiently for easy access and tracking.
- Inventory Tracking and Control
Real-Time Monitoring: Use inventory management software to track stock levels and movements continuously. Incorporate various types of barcodes to streamline this process. Cycle Counting: Perform regular partial inventory counts to maintain accuracy without a full inventory recount.- Review and Optimise
Performance Analysis: Regularly review inventory reports to assess the effectiveness of management strategies. Optimisation: Make adjustments to inventory practices based on analysis, aiming for improvements in efficiency and cost reduction.
Advantages of Inventory Management
Effective inventory management is crucial for businesses looking to streamline operations and enhance their market presence. Here's how it can significantly benefit an organisation:
- Improvements in Cash Flow
By keeping track of inventory levels and reducing excess stock, businesses can free up capital that would otherwise be tied up in inventory. This leads to better cash flow management, allowing for more strategic investment and financial stability.
- Customer Satisfaction
Accurate product inventory management ensures that stock is available when customers need it, leading to faster delivery times and reduced backorders. This reliability can greatly improve customer satisfaction and loyalty.
- Helps in Saving Money
Efficient inventory management reduces holding costs by minimising the amount of unnecessary stock kept in warehouses. Additionally, it can lower the risk of obsolescence and spoilage, leading to significant cost savings over time.
4 Major Challenges in Inventory Management
While inventory management offers numerous benefits, businesses often face several challenges that can impact efficiency and profitability:
- Changes in Customer Demands
Fluctuating customer demand can make maintaining the right inventory level challenging. Overestimating demand can lead to excess inventory, while underestimating can result in stockouts and lost sales.
- Effective Use of Warehouse Space
Optimising warehouse space to accommodate inventory levels while ensuring easy product access is complex. Inefficient use of space can lead to increased operational costs and slower order fulfilment times.
- Accurately Getting Stock Info
Maintaining accurate stock information is crucial for effective inventory management. Challenges arise from manual errors in data entry, theft, or damage, leading to discrepancies affecting sales and replenishment decisions.
- Inadequate Procedures
Without proper inventory management procedures, businesses can struggle with overstocking, understocking, and mismanagement of resources. Developing and implementing adequate procedures is essential for overcoming these challenges.
There is nothing that a good strategy cannot overcome, turning challenges into opportunities for improvement and innovation in inventory management. If you want to understand what are inventory management practices and how they can benefit your business, it's essential to explore the various strategies and tools. Let us go through some of the best practices now.
20 Strategies For E-commerce Inventory Management
Effective inventory management is essential when you want to sell online, especially on an e-commerce platform where millions of buyers shop for various products. Here are several strategies, each illustrated with an example for more precise understanding:- Economic Order Quantity (EOQ)
EOQ determines the optimal number of units to minimise the total inventory costs, including holding and ordering costs. The strategy uses a formula to find the point at which these combined costs are at their lowest.
- ABC Analysis
ABC Analysis categorises inventory into three categories (A, B, and C) based on importance and value. For instance, a store that sells electronics online may categorise expensive items as 'A', moderate-priced items as 'B', and accessories as 'C'.
- Just-In-Time (JIT)
JIT minimises inventory costs by ordering only what's needed for production. For instance, a clothing store orders next week's inventory based on the current week's sales data and upcoming fashion trends.
- First-In, First-Out (FIFO)
FIFO ensures that the oldest stock is sold first. For instance, if you sell groceries online, use FIFO to sell older produce before newer shipments to minimise spoilage.
- Last-In, First-Out (LIFO)
Unlike FIFO, LIFO first sells the most recently produced or purchased items. This method can benefit companies during inflationary periods, increasing the cost of goods sold and reducing taxes.
- Minimum Order Quantity (MOQ)
MOQ is the smallest amount a supplier is willing to sell. For instance, if you sell T-shirts online, you might have to buy at least 100 units of a specific fragrance oil or wax from your supplier. This ensures that the supplier's production and selling costs are covered, making the transaction profitable for them, while you maintain a stock level that meets customer demand without overburdening your storage space.- Large Shipments
Buying in bulk can reduce shipping and handling costs. For instance, a retailer selling fashion accessories might order a year's supply of popular items to negotiate lower prices and reduce per-unit freight costs. This approach secures a better deal from suppliers and ensures a steady stock of in-demand accessories.
- Consignment Inventory Management
In consignment inventory management, retailers display goods without buying them first; the supplier owns the stock until it sells. For example, a business owner who sells books online showcases famous collections and pays the creators only when a piece sells, reducing the risk of unsold stock and allowing a wide product range with minimal upfront investment.- Perpetual Inventory Management
This approach involves continuous tracking of inventory levels. For instance, a pharmacy could use software to update stock levels in real-time as prescriptions are filled, ensuring accurate inventory data.
- Barcode Inventory Management
Barcode inventory management uses barcodes to track inventory efficiently. For example, a clothing retailer scans barcodes at checkout, automatically updating inventory levels and simplifying restocking processes.
- Periodic Inventory Management
Periodic inventory management involves checking stock levels at specific intervals. An online store selling Indian clothes might conduct inventory audits to decide which items require restocking based on past sales data and upcoming fashion trends.- RFID Inventory Management
RFID inventory management utilises radio-frequency identification for tracking. For example, a large warehouse can implement RFID tags on pallets to track products' movement and location in real-time.
- Lean Manufacturing
Lean manufacturing focuses on minimising waste within manufacturing systems while maintaining productivity. For instance, an electronics manufacturer might streamline its production process to eliminate unnecessary steps and reduce waste.
- Six Sigma
Six Sigma aims to improve the quality of process outputs by identifying and removing causes of defects. A packaging company uses Six Sigma to reduce errors in its packing process, enhancing customer satisfaction.
- Lean Six Sigma
Lean Six Sigma combines lean manufacturing principles with Six Sigma quality standards. An online retail company could implement Lean Six Sigma to streamline its order fulfilment process and enhance customer service.
- Cross-Docking
Cross-docking involves unloading products directly from a supplier or manufacturing plant to a customer or retail chain with minimal storage time. A logistics company uses cross-docking to quickly redistribute products from incoming trucks to outgoing trucks, reducing storage costs.
- Demand Forecasting
Demand forecasting helps predict future customer demand using historical data. Sellers can use demand forecasting to stock up on high-demand products before peak shopping seasons, ensuring availability.
- Dropshipping
Dropshipping involves retailers selling products without holding them in stock, with orders shipped directly from the supplier to the customer. Budding entrepreneurs use e-commerce dropshipping to offer a wide range of products without maintaining inventory.
- Reorder Point Formula
The reorder point formula helps determine when to order new stock based on lead times and safety stock. For example, a hardware store can calculate reorder points for fast-moving items to avoid stockouts.
- VED Analysis
VED Analysis categorises inventory based on its criticality to the production process as Vital, Essential, or Desirable. This approach helps prioritise resources, reduce costs, and ensure popular items are always in stock.
Strategic Inventory Management: Unlocking Success with Flipkart Seller Hub
These inventory management practices are not just techniques; they are transformative strategies that can propel your business to new heights of success. By applying these methods, you can ensure your inventory aligns with what your customers are looking for.
Gradually implementing these strategies can lead to discovering new ways of managing costs more effectively, improving inventory turnover rates, and boosting your overall financial success.
Now, it's time to harness the full potential of your business on Flipkart Seller Hub. Implement these inventory management practices and watch as operations streamline, customer satisfaction soar, and your sales figures rise. Embrace the change, unlock the door to unprecedented success, and step into the future of e-commerce with confidence.
Join the ranks of top sellers on Flipkart Seller Hub who have already discovered the power of strategic stock management with the Inventory Health feature — which gives valuable insights into your stock levels and helps identify trends and make informed decisions. Register as a seller today.
FAQs - Inventory Management
1. How to keep a track of all your inventories?
Here are some of the best practices to keep track of inventory:
- Implement an Inventory Management System
Utilise software that enables real-time monitoring of stock levels, tracks the movement of goods, and maintains accurate inventory records. This helps in maintaining up-to-date information about inventory and improving overall management efficiency.
- Utilise Barcode Scanners
Barcode scanners allow for quick and accurate data capture, facilitating efficient inventory tracking and reducing the likelihood of errors associated with manual data entry. They enhance the speed and accuracy of inventory updates.
- Embrace RFID Technology
RFID technology enables automatic identification and tracking of inventory items using radio waves. This provides real-time visibility into inventory movements and improves inventory accuracy, making it easier to manage stock efficiently.
- Conduct Regular Stock Audits
Schedule periodic stock audits to reconcile physical inventory counts with recorded inventory levels. This helps identify discrepancies and address issues promptly, ensuring data accuracy and reliability in inventory records.
- Optimise Inventory Processes
Streamline inventory management processes by establishing a clear workflow for receiving, storing, picking, and replenishing inventory. This helps minimise errors, reduce handling time, and improve overall inventory accuracy.
2. What are some common challenges with inventory management businesses deal with?
The following are some challenges with inventory management:
- Forecasting Accuracy
Difficulty predicting demand can lead to overstocking or stockouts. Inaccurate forecasts can disrupt inventory levels, causing either excess inventory that ties up capital or insufficient stock that leads to lost sales.
- Tracking Problems
Manual methods of inventory management often cause discrepancies between physical stock and recorded inventory. This can result in inaccurate inventory records, which affects stock availability and decision-making.
- Supplier Issues
Reliability problems with suppliers can disrupt supply chain operations. Delays, inconsistent quality, or communication issues with suppliers can impact inventory levels and disrupt the flow of goods to customers.
3. How does inventory management impact working capital?
Inventory management directly impacts working capital by tying up funds in inventory. Efficient management practices, such as maintaining optimal stock levels, reducing excess inventory, and improving inventory turnover, can free up cash flow and improve overall working capital.
4. What are the different types of inventory management systems?
Below is a list of the different types of inventory management systems:
- Periodic Inventory System
- Perpetual Inventory System
- Just-In-Time (JIT) Inventory System
- ABC Inventory System
- EOQ (Economic Order Quantity) System
- RFID (Radio Frequency Identification) Inventory System
- WMS (Warehouse Management System)
- ERP (Enterprise Resource Planning) Inventory System
5. What does poor inventory management mean?
Poor inventory management refers to inefficient practices resulting in overstocking, stockouts, inaccurate inventory records, and excessive holding costs. This can lead to decreased profitability, customer dissatisfaction due to product unavailability, and operational inefficiencies.
6. How do you reduce inventory costs?
To reduce inventory costs, businesses can implement strategies such as optimising inventory levels to prevent overstocking or stockouts, negotiating better supplier terms to lower procurement costs, improving demand forecasting accuracy, and implementing lean inventory management techniques. These measures help minimise holding costs and enhance overall cost efficiency.