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Inventory management for ecommerce

By Annapoorna


Updated on: Apr 5th, 2022


4 min read

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Inventory is the backbone of every business, whether large or small. Thus, implementing an efficient inventory management system is one of the most important aspects of running any business. This article throws light on inventory management aspects for an e-commerce organisation.

Meaning of inventory management

Inventory management is a process businesses follow to manage the procurement of raw materials, storage of goods, warehousing, managing appropriate inventory levels and final selling of products in the market. Thus, in simple words, we can say that it is a complete process of monitoring and handling inventory from raw materials to finished goods. It prevents wastage and thus helps to streamline inventory. 

Special aspects of inventory management for e-commerce

Ecommerce inventory management is the act of measuring the amount, location, pricing, and mix of products available from your business.

These could be products hosted in your warehouse, provided through a third-party logistics fulfilment centre (3PL), or housed in a separate business and purchased through dropshipping.

Below are some of the special aspects of inventory management for an e-commerce industry:

  • Keep safety stock: Something unexpected may happen anytime. So, it is good to keep a safety stock to meet unexpected demand and supply situations.
  • Knitting techniques: Use knitting techniques to get rid of overstock at a good price. For example: Give offers such as buy two get one free.
  • Use convenient storage: Keep goods at a place from where you can easily pack and post them to the customers. This will help you to deliver greater customer satisfaction.
  • Make appropriate forecast: Study the past purchase trends and, based on them, predict the future stocks. This helps to meet consumer demands and also avoids overstocking.
  • Balance inventory: Balancing inventory and demand is the biggest priority of any e-commerce company. Running short may lead to missing sales, whereas carrying too much stock may cost more capital. 

Challenges with inventory management in e-commerce

Here are some of the challenges faced by an e-commerce industry with inventory management:

1.Overstocking: In the e-commerce industry, if you do not have proper knowledge about your target customers, you will be able to pile up stock that is not in demand or outdated. You may overestimate the demand for a particular product, but the demand may decrease due to a change in shopping behaviour.

Immediately, on the other hand, there is a chance of overselling, i.e., allowing the customers to buy goods out of stock. This may affect your reputation adversely in the market. The best solution for this is to mark the products out of stock so that customers can get a clear picture of product availability.

2.Scalability issues: Manual inventory management is effortless in the early stages of e-commerce. But, as the business grows, it becomes challenging to manage inventory manually. Proper inventory management with automation is required if an e-commerce business wants to widen its sale channel, work with multiple vendors and manufacturers, manage warehouses at different locations in the country, etc. Manual inventory management may lead to overstocking, data entry mistakes, no real-time updates etc. 

One must invest in an automated inventory management software compatible with fast-growing business demands to avoid such challenges.

3.Visibility challenge: This is another major challenge faced by e-commerce business owners. When selling products on multiple channels, it is difficult to track orders and sales coming in from each channel. Also, you might have to keep various warehouses to meet the customers’ growing demands. All this is possible only if you use inventory management software that allows visibility across all business channels.

Setting up inventory management in e-commerce

To set up an efficient inventory management system for your e-commerce business, follow the below steps: 

  • Understand the product demand: The first thing one should do is understand the demand fluctuations for your category of products. Study the past trends and how the customer interests have changed over time. You can also use Google Analytics to check which pages on your e-commerce website are visited the most.  
  • Forecast: The second thing to do is to forecast the future demand based on past sales. Accordingly, you can store inventory to prevent overstocking or to go out of stock during times of peak demand. 
  • Set up minimal stock levels: Set the minimum to meet demand on time and avoid delays. This number can be adjusted from time to time according to changes in market demand and supply.
  • Prioritise products: Prioritise the products that account for the company’s major revenue. Give more attention to such products based on the inventory management perspective.
  • Implement inventory management software: Investing in good inventory management software is essential to scale an e-commerce business. It helps in inventory tracking and avoids overstocking or understocking. It provides real-time inventory data, which can boost your e-commerce business.
About the Author

I preach the words, “Learning never exhausts the mind.” An aspiring CA and a passionate content writer having 4+ years of hands-on experience in deciphering jargon in Indian GST, Income Tax, off late also into the much larger Indian finance ecosystem, I love curating content in various forms to the interest of tax professionals, and enterprises, both big and small. While not writing, you can catch me singing Shāstriya Sangeetha and tuning my violin ;). Read more


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