Keeping track of all items that come into and go out of your business is a complex process.
A notepad and pen won’t cut it when you’re trying to manage inventory across multiple locations. Whether you oversee your fulfillment in-house, sell through a marketplace and use their platform-specific solution, or use a third-party logistics (3PL) provider, successful inventory management is crucial for keeping your eCommerce store operating smoothly.
As your business grows and changes, your inventory needs will change as well. You might jump from selling on one platform to juggling multiple. Or, increasing order volumes may result in more complex order fulfillment. Whatever your eCommerce business looks like, you need a robust inventory management process.
By following inventory management best practices, you’ll understand how to handle stock efficiently and effectively, whether you employ in-house, marketplace, or 3PL inventory solutions.
In-house, marketplace, and 3PL inventory management: What’s the difference?
eCommerce inventory management has no hard-and-fast rules. Store owners are presented with an array of inventory management options, and the best configuration depends on their eCommerce setup, needs, and future growth plans. Essentially, the best way to manage inventory depends on the store.
To decide which method is best for your store, let’s first look at the different types of inventory management you could use. These are:
In-house inventory management
As its name implies, in-house inventory management is the process of managing your inventory in-house or from your internal warehouse, garage, or retail store.
The key characteristic is you’re the one in control — you’re responsible for managing every aspect of your inventory.
Marketplace inventory management
You’ll likely use marketplace inventory management if you sell products through Amazon, eBay, Walmart, or other platforms.
Each marketplace typically comes with their own inventory management tools, and sometimes even a fulfillment solution, to handle incoming and outgoing stock.
You can also implement multi-channel inventory management solutions if you sell across more than one marketplace.
3PL inventory management
Alternatively, you could opt for 3PL inventory management. 3PL management involves outsourcing fulfillment and/or warehousing to a third-party logistics partner.
Equipped for the most complex supply chain processes, your 3PL partner will handle every aspect of your inventory so you can focus your time and energy elsewhere in your business.
Each inventory management method requires different practices to ensure you get the most out of your chosen strategy.
What is multi-channel inventory management?
Multi-channel inventory management is the tracking of all incoming and outgoing inventory across numerous sales channels and storage locations.
With multi-channel inventory management, you can keep tabs on sales data from multiple sales channels, including marketplaces, direct-to-consumer eCommerce websites, wholesale buyers, and retail. You’ll also be able to track inventory throughout various warehouses if you store stock in more than one location.
Multi-channel inventory management lets you unify your inventory management strategies under one well-oiled system.
Best practices for inventory tracking across multiple locations
Manually tracking inventory across multiple locations is a recipe for disaster. You’ll waste hours of manpower, run the risk of human error, and miss out on valuable real-time updates.
Instead, you can tap into inventory management best practices based on whether you use in-house, marketplace, or 3PL inventory management.
Small eCommerce stores might be able to handle stock with strategic in-house inventory management processes. Meanwhile, large or high-growth merchants may find 3PL inventory management best suits their needs.
Each type of inventory tracking requires a tailored approach to improve the efficiency, accuracy, and effectiveness of managing inventory.
In-house inventory management best practices
Merchants managing their inventory in-house can improve their inventory operations by following a few general best practices. These tips can streamline business operations while keeping costs low by handling inventory processes internally.
Organize your floor plan
Create an organized warehouse floor plan to maximize inventory efficiency.
Consider the type of inventory you’ll hold as well as the stock volumes, size, weight, and popularity. Use this information to devise a warehouse floor plan that flows seamlessly.
When planning your layout, it should be easy for people to pick stock. Moving popular items to an accessible location on the floor can make it simpler and faster for your team to put orders together.
Along with considering how stock will be stored, think about your aisle layout. Long rows of parallel racks with no cross-aisles or cut-throughs can increase the time it takes to gather stock.
Optimize warehouse space by establishing storage areas that flow seamlessly from one to the next (and, of course, store related products close to one another).
Introducing a clear signage system and labeling stock will also increase efficiency while minimizing errors.
Set up prep stations
When designing your in-house inventory management, set up stations for key operations such as picking and packing, shipping, and returns processing.
Having designated workstations will improve the efficiency of your inventory operations.
Even if you handle stock from your garage or spare room, you should still establish a designated station for preparing orders. Doing this will increase the accuracy of order fulfillment and give you ample space to pick and pack orders.
Audit stock frequently
With in-house inventory management, it can be easy to think you have everything under control because it’s all under one roof.
Although you’re responsible for managing your stock, that doesn’t mean you can check out and assume your stock levels are correct.
Frequently audit your stock when managing inventory in-house to ensure their levels are as accurate and that the current and expected numbers match.
Performing audits regularly will also help you forecast stock requirements so you can minimize the risk of selling out or overselling products.
Cross-training is one of the most underrated methods for increasing productivity and mitigating risk.
Cross-training employees in various warehouse and inventory management operations frees you from relying on one person or team to perform a specific function.
Instead, employees from other teams can support inventory management.
This level of flexibility allows other employees to step in and assist with order fulfillment and stock counts as needed.
Avoid just-in-time inventory management
The just-in-time (JIT) inventory management method is a process where merchants keep as little inventory in stock as possible.
Rather than holding lots of products, merchants using JIT will order or replenish stock as customers place orders. This inventory management strategy means retailers only maintain enough stock to produce what they need when they need it. The attraction of JIT management is that it reduces waste and increases efficiency.
However, while small retailers with tight budgets or limited storage facilities may be tempted to use the JIT method, it does come with limitations.
Just-in-time inventory management is unable to withstand supply and demand shocks. You can’t fulfill a large influx of orders if you use this strategy. Similarly, if your supplier experiences production delays, this could hurt your stock availability.
Protect your eCommerce store against unprecedented changes by steering clear of just-in-time inventory management.
Adopt a warehouse management system (WMS)
Managing your inventory in-house doesn’t mean you have to do everything manually. Pairing your in-house strategy with a robust warehouse management system will streamline order management and minimize human error.
Most warehouse management systems can produce real-time reports to give you accurate insight into your current stock levels and forecasted stock requirements. You’ll see exactly what stock is coming in or going out of your warehouse, providing visibility over your entire inventory operations.
A manual inventory management process is inefficient for business growth. Swapping to a warehouse management system will allow you to overcome the downfalls of manual inventory management through automation.
The most powerful advantage of implementing a warehouse management system is its ability to minimize human error. By automating various inventory management procedures, your warehouse management system will speed up your processes and reduce the risk of human error.
Marketplace inventory management best practices
You’re likely already familiar with marketplace inventory systems if you sell through marketplaces such as Amazon or Walmart. But do you know how to use this software efficiently?
Pair your marketplace inventory software with these marketplace inventory management best practices to make your marketplace sales operate smoothly.
Create standard operating procedures (SOPs)
Juggling several marketplaces at once is a straight line to burnout. Develop standard operating procedures (SOPs) for each of your marketplace inventories to prevent eCommerce overload.
When selling products through places like Amazon, Walmart, eBay, or Etsy, each marketplace has its own rules about how inventory is managed. As a result, merchants need to remember the exact process for handling stock every place they sell (this is in addition to managing product updates, stock levels, and order fulfillment for each channel).
SOPs ensure merchants know exactly what they need to do to manage inventory across multiple marketplaces effectively. Team your marketplace inventory management software with efficient SOPs to transform this chore into a pain-free operation.
Forecast stock needs
Out-of-stock products can be costly to your business. Don’t fall victim to the “currently out of stock” notification on Amazon (or your chosen marketplace) by forecasting your inventory needs in advance
Forecasting stock needs means you’ll always know the minimum inventory threshold for each of your products so you can avoid stockouts. This minimum threshold acts as your safety stock, ensuring you always have enough products to fulfill expected orders.
At a basic level, you can use this simple formula to forecast your stock needs:
Average service level x Standard lead time x Demand average
Average service level is the act of balancing inventory costs against the cost of stockout to determine the correct service level. This level might change depending on the product being sold.
Lead time refers to how long it takes from the point of purchase to the point of delivery. Finally, demand average is based on sales volume and how often a product is ordered. Remember, demand might change throughout the year, so frequently check and adjust your formula.
Together, these three figures will help you calculate your minimum inventory needs so you never have to worry about going out of stock again. You can also calculate your inventory turnover ratio to improve restocking operations.
Conduct daily checks
Selling via marketplaces is a relatively easy and profitable way to sell your goods online. That doesn’t mean you can set up shop and never look at it again though.
Successfully selling on a marketplace requires daily checks. Stay on top of your marketplace inventory by checking stock levels, shipments, returns, and product conditions daily. These daily checks will ensure orders go through without any hiccups.
Clear poorly performing stock
Whether you hold stock in-house or send it to a marketplace fulfillment center such as Fulfillment by Amazon (FBA), it’s important to stay in control of individual stock levels.
Minimize how much space you take up in your warehouse by clearing poorly performing stock and performing diligent checks on stock condition and spoilages.
If you have old stock that’s gathering dust while taking up valuable shelf space, consider creating a marketplace offer to increase uptake for this product. Alternatively, write the stock off and clear space in the warehouse for new inventory.
Introduce multi-channel management software
One of the best pieces I can offer to merchants selling on several marketplaces is to use multi-channel management software.
Keeping numerous marketplace product listings up to date, managing orders for each channel, and repeating processes from marketplace to marketplace is a long and arduous task for any eCommerce owner. Multi-channel management software lets you seamlessly oversee all your marketplaces and online stores from one central location.
See inventory levels and requirements across sales channels at once and make updates that’ll automatically be distributed across all your marketplaces. With multi-channel inventory software, you’ll easily be able to identify inventory reorder needs, forecast stock requirements, update product stock levels, and fulfill orders.
Utilize the marketplace fulfillment options
Some marketplaces have their own logistics solutions, such as Fulfillment by Amazon (FBA) for Amazon merchants. These are excellent options to streamline your logistics, while also getting marketplace perks.
For example, utilizing FBA can give listings access to the famous Prime shipping badge, and boost your chances of winning the Buy Box, since Amazon can rest assured about the customer delivery experience.
Tip: Even if you utilize a marketplace fulfillment solution, work with a prep partner to ensure your items are properly prepared to standard and compliant with all requirements. This helps to avoid delays and additional “fix it” fees.
3PL inventory management best practices
Outsourcing inventory management to a 3PL is an effective way to alleviate the pain points associated with personally managing your eCommerce inventory.
But partnering with a 3PL still requires you to handle certain inventory responsibilities. The best-performing 3PL inventory management strategy is a collaborative effort between you, the merchant, and your 3PL partner.
Here are best practices you should follow when outsourcing inventory management to a 3PL.
Implement 3PL inventory management software
Most 3PLs offer inventory management software as part of their service so you can have real-time visibility and control over your inventory and orders.
This software will give you an in-depth understanding of the stock needs your 3PL has to meet and the orders being prepared.
Your chosen partner’s 3PL inventory management system should integrate with other tools and systems within your eCommerce business. Ideally, you want to implement inventory management software in sales and finance so you can maintain control of your inventory requirements and current performance at all times.
Perform regular cycle counts
Performing regular cycle counts is imperative to ensuring your physical inventory counts match their records. Regular cycle counts are conducted by counting and recording the stock adjustments of several items in a specific area of your warehouse without completing a full physical inventory audit. Over time, you’ll have counted all stock without halting operations.
Regularly counting stock by hand is time-consuming (and difficult if stock is stored externally with a 3PL). Perpetual inventory counting lets you automate cycle counting so you can maintain accurate inventory levels.
With perpetual inventory counting, real-time inventory adjustments will occur whenever a product is sold or received. Use perpetual inventory management alongside your 3PL to prevent discrepancies between how much stock your 3PL warehouse has versus how much stock you think it has.
Plan seasonal inventory in advance
Support smooth operations with your 3PL inventory management partner by planning seasonal inventory needs.
Sales fluctuate throughout the year for eCommerce businesses. Whether it’s due to a spike in sales during Black Friday, increased orders over Christmas or a wildly successful launch campaign, plan for high-volume periods.
Predicting seasonal inventory allows you to make arrangements with your 3PL to increase warehouse allocation for certain products, temporarily scaling your business to cope with demand. Giving your 3PL a forewarning of seasonal demand expectations also lets them prepare logistics and fulfillment.
Analyze 3PL performance
Analyzing 3PL performance is crucial to ensure your inventory operations run at optimal levels.
When using 3PL inventory management, don’t rely on your 3PL partner to keep everything in order. Having someone else managing your inventory doesn’t mean you can take your foot off the gas.
Frequently monitor 3PL performance by analyzing metrics that determine its efficiency. Consider reporting on metrics such as:
- On-time percentage
- Inbound receiving time
- Inventory accuracy
- Shipping accuracy
- Order accuracy
- Order time to fill
- Returns processing rate
- Cost per units shipped
- Shipment and product spoilage
You might want to measure other metrics too; whatever you analyze, it should help you accurately determine the value-add of your 3PL partner. This analysis will show you where standards need to improve, or whether you need to find a new inventory management partner or strategy.
Run ABC inventory analysis
Running an ABC inventory analysis allows you to see which inventory items have the highest value based on consumption.
The ABC method of controlling inventory ranks all inventory items based on demand, cost, and risk. Based on their scores, products are grouped into one of three classes:
- A – The highest-value items
- B – The next most important items
- C – The least important items
The ABC ranking follows a pyramid structure whereby A should contain the smallest percentage of your inventory (approximately 10%–20%) while C contains the highest percentage of your total inventory (approximately 50%). Items in class B sit in the middle, at about 30% of your total inventory.
While the total number of items increases as the class decreases in importance, the annual consumption value rises. Products with the highest consumption value fall into class A, and the lowest consumption-value products will be in class C.
You can use the ABC inventory analysis to determine which inventory items to prioritize and how to distribute inventory between various warehouse locations.
Choose a scalable 3PL partner
Finding the right 3PL partner can be difficult, but scalability should be a major factor in your decision. Opt for one who can satisfy your inventory and order fulfillment while accommodating your future growth potential.
A 3PL partner who can scale alongside your eCommerce store is key for ensuring you avoid any operational bottlenecks during high-growth periods.
You could overpay for inventory management if you select a 3PL partner whose services outweigh your forecasted needs. Likewise, a 3PL partner who can’t meet your needs will hinder progress and negatively impact shipping performance.
Ultimately, you want a 3PL partner who’s equipped to support your eCommerce goals.
Use your anticipated growth over the next few years to decide what your ideal 3PL partner looks like. Search for one who can assist with fulfillment across wholesale, marketplace, and eCommerce. Your chosen 3PL provider should also be able to handle various customer order flows and shipping volumes.
Stay close to customers
Improve shipping performance by positioning inventory closer to your most-populated customer locations.
When choosing a 3PL provider, explore their warehouse locations. Select your partner based on their warehouse locations and the areas they can service. Make sure you also check average shipping times to typical customer regions and the associated labor costs.
You’ll reduce shipping time by distributing stock between warehouses close to your customers too. This network of strategically placed warehouses will allow you to satisfy consumer demand as your eCommerce store grows.
Wrapping up — Utilize inventory management best practices for headache-free ops
Manually managing stock will stunt the progress of your eCommerce business: Tracking inventory with spreadsheets and recording inventory counts in a notebook are major hazards — you risk human error, lack real-time updates, and could miss out on sales or, worse, oversell products.
Additionally, your inventory management needs will change throughout the life of your business. You may find yourself moving from in-house to 3PL, or perhaps you’ll decide to leverage a mix of inventory management strategies at once. However you handle it, keep everything aligned using inventory management software.
Inventory management software will make your life easier by automating operations, streamlining inventory management, and saving on labor costs.
Implement the above best practices and create SOPs to follow to manage eCommerce inventory successfully across multiple warehouses.