The benefits of using an inventory management system

Get more digital commerce tips

Tactics to help you streamline and grow your business.

What lies at the heart of every growing product-based ecommerce business? It’s not your online presence or a killer social media strategy — but your inventory management system.

As you grow your ecommerce business by moving into new sales channels and different markets, your order volumes will increase but so will the complexity of fulfilling orders from multiple selling channels. If you’re still manually managing your inventory, there will be a point where this tips over from manageable to out-of-control.

Manual inventory management brings with it a whole host of problems. From having to process orders from each sales channel separately to regular manual stock checks so you can adjust your stock levels across each platform, this all takes a significant amount of time. And that time would be better spent building your business. The time taken to reconcile this information can also result in a lack of visibility on realtime stock levels, lags in reordering when stock levels are low, and therefore stockouts and missed sales.

Not to mention the risk of human errors leading to problems like overselling, which can result in disappointed customers, wasted marketing budget and reputational damage, and could lead to your suspension from specific marketplaces. Another potential risk is missing out on valuable sales but not automatically reactivating listings when the product is back in stock.    

The answer lies in implementing an inventory management system to automate the hard work for you.  

There are key benefits to automating this core part of your business. In this article, we’ll unpack the key benefits of automating your inventory management and the impact it can have on other parts of your business.

What is inventory management?

Inventory management is a crucial part of your overall supply chain that allows you to track the acquisition, storing, and selling of your products — at any point.

Once you know the location of each product, you’ve also gained the ability to monitor your stock levels at any given point at a precise, granular level.

When you can automatically track how much stock you have and exactly where it is, the process of managing your inventory transforms from a challenging, manual process to a core part of your business growth strategy.

Once it’s possible to maintain accurate inventory details across each and every sales channel, you can utilize this information to forecast inventory planning and automate the reordering process, creating even more efficiencies within your stock management process. . Once those products have been purchased, you can also track them from your supplier, into your warehouses (down to the exact shelf), and through the fulfillment process to the customer and back through the returns process.

Why is inventory management important?

Inventory management allows you to keep track of your stock levels across all warehouse locations and across all inventory cycle stages (physical stock available at hand, stock requested from suppliers and stock booked in open orders) and make sure that you never run out of a product. At the same time, it can help prevent over and understocking by forecasting demand based on consumption data. It also helps you to process orders more quickly and efficiently, which can save you time and money.

In addition, using an inventory management system helps prevent overselling, which can damage your reputation. Finally, an inventory management system can help you to make better decisions about your stock levels and improve your overall business efficiency.

Benefits of using an inventory management system

Using a software for a key business process like inventory management brings with it a huge host of benefits, including:

Automated inventory management

Potentially the biggest benefits to an inventory management system is automation. Automation avoids risk of human error, saves you endless hours, and ensures you don’t make mistakes. This is a system that is capable of executing repetitive tasks with little manual help, once a set of rules have been set up. This not only helps you have real time visibility on your inventory levels as your stock count automatically updates when a sale is made. This feature is critical not only to accurate forecasting, but also to delivering a good customer experience by avoiding overselling. Automated inventory management also gives you real time visibility on where your stock is, which is essential particularly if you store stock in multiple locations like a warehouse and a physical store, or with more than one selling channel.  

Inventory forecasting for holiday and peak season readiness

When order volumes increase substantially because of holidays or events throughout the year like a major marketing push from an influencer, the amount of inventory you have will keep up with demand because of accurate demand forecasting. Historical and seasonal data can also be utilized to understand any sales patterns that require adjustments in stock levels at different times of the year.

Preventing stock outs and overselling

Overselling is a major challenge for growing ecommerce businesses. When you don’t have an accurate handle on your inventory, it’s very easy to run out of products without knowing it, leading to stock outs. Not only will your customers be unlikely to return, resulting in wasted marketing budget and customer acquisition costs, but you could also be suspended from certain marketplaces. An inventory management system manages the orders and inventory across all of your sales channels simultaneously so you’ll know when to replenish stock.

Reducing ecommerce business costs

Advanced inventory management reports tell you what you have in stock so your warehouse staff isn’t wasting their time looking for inventory that isn’t actually at the warehouse. This makes the pick, pack and ship process run smooth, so you fulfill more orders as efficiently as possible.

Another way you save money is by not ordering too much of a product that has low sales volumes. With accurate data and insights reporting, you’ll be able to have a clear understanding of the products that your customers are buying.

Better inventory planning and forecasting

Accurate reporting and information is key to any successful business. A software system that integrates with all of the marketplaces and sales channels you sell on, plus shipping and third-party logistics (3PL) providers, will ensure all information is accurate and provide realtime visibility across your business. This will allow for better business decision making, accurate inventory forecasting and planning and therefore less waste in costs for holding unsold stock, or holding stock in the wrong locations.

Improving supply chain operations

Unexpected challenges are normal when it comes to the supply chain. With a system in place for inventory management, retailers and ecommerce businesses can more effectively establish a supply chain diversification strategy. More suppliers means that you reduce the risk of long wait times for products if one supplier can’t deliver on time. You can prepare well ahead of a specific time period, like peak season, to order the right amount of stock from a supplier and mitigate any issues.

Adding new selling channels easily

Want to try a new sales channel to list your products on, such as a marketplace? An inventory management system makes adding new channels more simple as it centralizes your inventory management into one central place so you can still have a real time view on your inventory, even if it’s being sold in multiple locations. Features like real time inventory sync, and forecasting are even more essential to maintaining inventory control once your stock can be sold in multiple locations at once.  

Inventory management techniques    

When it comes to inventory management, it’s not a case of one-size-fits-all. One of the truly great things about using this system is that you can pick and choose from a variety of inventory management techniques. Select the one that suits your business set up so you can focus on driving growth.

Establish par levels

Par levels are also known as Periodic Automatic Replenishment levels. These allow you to set an amount of inventory that must be available all the time. When your stock levels reach this number, it’s time to reorder. This allows you to balance the standard demand rate for specific items with the risk of overselling. The par level for individual items will vary, but you can calculate these using a reorder point formula using your average daily sales volume and the lead time and safety stock number for each product in your inventory.

First in First Out

The First In First Out (FIFO) technique tracks the sequence by which inventory is booked and then dispatched. This can help decrease obsolete inventory and help you monitor the value of your inventory. Leaving products on the shelf can lead to discrepancies between market values and the value of your stock. The FIFO technique makes it easier to align your prices and reduce the impact of inflation. It’s also one way of managing products with an expiry date and minimizing the storage time of these.  

First Expired First Out

A variation to FIFO, the First Expired First Out (FEFO) technique involves shipping products closest to their expiry date first. Favored by businesses selling perishable items like cosmetics, pharmaceuticals, food, and drink, this technique ensures that you’ll rarely be left with unsellable, expired products in your inventory. This technique needs to be paired with an inventory management system that can track expiry dates to work best.

Just in Time

The Just in Time (JIT) technique is sometimes called lean manufacturing. The premise is to increase efficiency and decrease costs by only ordering and receiving stock when required. JIT allows for lower inventory holding costs and also reduces your reliance on warehouse storage. This technique is popular with eCommerce businesses that create customized products. It’s not for everyone, though, as it does leave only a small margin for error which can create order fulfillment issues.

ABC Analysis

The demand for different products is rarely distributed evenly between all your stock. This ABC Analysis technique allows you to account for this by categorizing your products into three categories: A, B, and C. This can be based on their demand, value, or cost-significance. Splitting your stock into different classifications allows you to prioritize the ordering of specific items that you’ve identified as a priority.

Develop a contingency plan

If the past few years have taught ecommerce businesses anything — it’s that you need to prepare for the unexpected. An unexpected spike in online sales due to a global pandemic causing the shuttering of physical retail? Supply chain challenges due to a cargo ship blocking one of the most significant shipping routes? Would your business survive if you had a sudden sales surge you couldn’t fulfill, or customer demand for goods you can’t get hold of? Having mitigation strategies like alternative suppliers or the ability to pivot your operations to different sales channels is key to business survival.    

Manage surplus inventory and dead stock

Dead stock refers to products that are taking up valuable warehouse space and ramping up extra associated costs, despite having been removed from selling to customers. These products are dead stock because they may be outdated or do not have the quality that customers expect.

Surplus inventory is having too much inventory and this leads to dead stock. Surplus inventory happens when you don’t have the visibility over your sales and inventory levels to be able to accurately forecast your stock levels. An inventory management system with real time visibility allows you to foresee when and where to shift products on different marketplaces or sales channels so that surplus inventory doesn’t build up. This is particularly important for marketplace selling as slow moving stock held with the marketplace may result in increased stock holding costs or penalties.

KPIs for inventory management

To improve workflows and inventory planning, you should be sure to report on important business KPIs. Here are the basic and essential KPIs we recommend you track:

Inventory turnover rate refers to stock rotation. This measures the amount of times that inventory is sold and replaced within a set time period.

How to calculate inventory turnover: formulas & examples

Lead time is the amount of time between a purchase order for stock replenishment and when your supplier delivers the products to you.

Why you need an inventory management system

As we’ve mentioned, an inventory management system will streamline the entire back-end ecommerce process for you. So, rather than manually updating each sales channel with your stock levels, you can easily sync them all together and let the inventory management software do all the work for you.

For example, when a customer buys an item from one of the channels you sell on (like Amazon or eBay), then those items will automatically be deducted from your stock levels across all platforms. This means that you never have to worry about overselling again, and it also frees up your time so you can focus on other areas of your business.

Here is an example how an inventory management can easily streamline your operations, using Shopify as an example: Gym+Coffee automates inventory management with Linnworks Shopify integration

Integrating an inventory management system into your ecommerce tech stack

How easy it is to integrate with the other ecommerce tools you use should be one of the most important features you look at when choosing an inventory management system. You have sales channels, CRM systems, customer service software and 3PL and fulfillment providers you use to help run your business. The more integrations an inventory management software can support, the better it will be for the efficient operations of your ecommerce business.

The features of Linnworks inventory management system

The benefits of using an inventory management system are pretty clear. But it’s important to choose an intuitive system with all the right tools to help you scale your business. Linnworks inventory management software enables you to capture every revenue opportunity by connecting and automating your ecommerce operation using a range of advanced features.

Update inventory in real-time

Real-time, granular data allows you to update your inventory levels the second an order is processed. Linnworks offers a central dashboard where you can access everything you need to know about the specific stock levels of individual products. This allows you to smoothly manage your sales across all channels, confident in the knowledge that you know exactly how much stock you have and where.

Reporting and insights

Accessing insights around historical sales or seasonal trends allows you to maximize your potential sales. Forecast the demand of specific products using reporting features and inventory metrics to better understand your selling patterns. Data like this gives you the ability to make strategic decisions that can help you stay one step ahead of the competition.  

Demand planning

Forecasting the demand for specific products might sound like being able to read the future. But with the right inventory management system, it’s not actually that complicated. There are many different techniques to choose from when it comes to demand forecasting, including time series and casual forecasting. The good news is that it’s possible to effectively control your stock and maximize your profitability using demand planning with robust inventory management software.  

Prevent overselling

Stop overselling in its tracks by monitoring real-time consumption data across each of your selling channels. By synchronizing your orders and inventory, you’ll have an accurate picture of your stock levels. Optimizing your inventory management in this way also helps reduce the risk of overstocking and underselling, which ultimately helps improve the customer experience and maintain your reputation with marketplaces.  

Automate the purchase order (PO) process

Maintaining good relationships with your suppliers makes a huge difference. You can instantly streamline your inventory management by storing essential information about each of your suppliers in one central location. Make informed decisions on what products need reordering by applying quick availability filters.Streamline the process by selecting a list of items and making Linnworks automatically generate purchase orders to restock products to minimum or optimal stock levels. Track and manage the entire timeline of individual POs from one central dashboard for the ultimate ease of use.  

Inventory tracking

Know exactly where your inventory is, even if you stock products in different locations both nationally and internationally. This dramatically reduces the time needed to manually track individual products across your supply chain. Tracking your inventory also makes it possible to reduce shipping costs and supplier lead times, which means you can maintain lower stock levels and reduce your warehousing costs.

Transform your business with the right inventory management software

Harness the power of the right ecommerce inventory management software — and you can reduce costs, increase profitability, and improve efficiency, all at the same time. Automating your inventory management leaves you more time to focus on marketing and growth, while giving you full visibility into the data on your sales and stock movements to spot sales opportunities or mitigate stock issues even before they arise.