As an ecommerce startup, you know that effective inventory management is critical for you to succeed long-term. By learning how to effectively manage stock levels, startups like yourself will be able to scale and grow more quickly and effectively. Let’s discuss the crucial role of ecommerce inventory management in your company’s success and uncover key strategies to thrive in the competitive online retail space.
Why is Ecommerce Inventory Management Important?
Startups often lack historical data to make the accurate forecasts necessary for robust demand planning. Manual and outdated processes are also time-consuming and error-prone. These inefficiencies in inventory management can lead to low productivity, wasted resources, higher costs, and lost opportunities. Ultimately, your customers will go someplace else.
Businesses that prioritize inventory management are better equipped to meet these challenges. They can avoid stockouts, enhance the customer experience, and make strategic business decisions. With a solid inventory management strategy for ecommerce startups, you can overcome these initial hurdles, achieve your sales targets, and win big.
Core Inventory Management Strategies
Enhance your business outcomes with these proven ecommerce inventory management strategies:
Just-in-Time (JIT) Inventory
Just-In-Time Inventory (JIT) involves receiving inventory “just in time” to fulfill customer orders. By accurately forecasting demand and closely monitoring inventory levels, you can minimize storage costs and the risk of obsolescence. Because just-in-time inventory shortens lead times between order placement and product delivery, your turnover is faster, boosting your cash flow.
To make this strategy work, you’ll need accurate sales forecasts. Get a good baseline by:
- Researching and understanding your market well
- Using any early sales data you have, even if it’s limited, to spot initial patterns.
- Measuring your performance by constantly comparing it with the industry’s and those of similar startups.
- Consider other factors that can affect demand and supply, like economic conditions, consumer trends, new technologies, and competitors’ moves.
Dropshipping
Another effective approach in ecommerce inventory management is dropshipping. This strategy involves partnering with reliable suppliers to have your products shipped directly to customers instead of holding inventory. With zero inventory-associated costs, you can invest more resources into your marketing and sales efforts.
Dropshipping also allows you to adapt to market changes quickly. Since you don’t have to invest in large quantities upfront, you can test new offerings and add these to your product line. More products means higher sales, which means more revenue that you can reinvest in your startup.
ABC Analysis
ABC analysis categorizes inventory into three groups (A, B, and C) based on value and importance. This method helps you prevent stockouts or excess inventory and increase turnover.
This strategy requires correct product classification. First collect sales data, including quantity sold and sales revenue, for a set period, such as the last 12 months. Then, compute the annual consumption value of every item by multiplying the quantity sold by its unit price. Using these values, you can correctly place each product under one of the following categories:
- A Items – Top performers that make up a small percentage of your inventory but contribute most to your revenue (around 20% of your items generating 70-80% of your revenue).
- B Items – Middle performers, around 30% of your items, contributing around 15-20% of your revenue
- C Items – The largest group, possibly 50% of your inventory, but only contributing around 5-10% to your revenue
Closely monitor A items for quick restocking. Then, pay less frequent but regular attention to B items. For C items, you can just automate ordering.
Utilizing Safety Stock
Unexpected demand spikes or supply chain issues can affect your forecast accuracy. Safety stock, or the extra inventory you maintain at above-average quantities, helps prevent stock outs. To set the correct safety stock level, apply these tips:
- Identify highs and lows in demand to predict when you might need extra inventory
- Calculate your average sales and average lead time (the typical sales during a specific period and the typical time it takes for new stocks to arrive once ordered)
- Consider how much your sales and lead times vary. High variability means you need more safety stock to cover sudden spikes or delays.
- Set your desired service level or how often you want to have enough inventory to meet demand without dipping into your safety stock. If you’re targeting a higher service level, you’ll need more safety stock.
- Apply a basic formula such as:
Safety Stock = (Max daily sales x Max lead time in days) – (Average daily sales x Average lead time in days).
This calculation gives you a starting point, which you can adjust based on your risk tolerance and storage capacity. - If necessary, increase your safety stock based on seasonality and market trends.
Lowering Storage and Overhead Expenses
Inventory management is all about optimizing your operations. By cutting storage and overhead costs, you can increase your profits and strengthen your cash flow. This opens up opportunities for further growth investments.
Here are several inventory management techniques to help you minimize unnecessary expenses:
- Adjust your warehouse layout to enhance space use and workflow, reducing time spent on product handling.
- Leverage inventory management software for ecommerce businesses to automate stock tracking and control
- Merge similar products to decrease SKU variety, simplifying management and freeing up storage space.
- Strengthen supplier relationships for better prices and bulk purchasing benefits, lowering storage costs.
- Refine the order fulfillment process to minimize labor costs and increase efficiency.
Getting the Right Financing
Adequate funds allow you to maintain optimal inventory levels, adopt the latest technologies, and streamline operations to grow your business. But as an ecommerce startup, you can’t be tied down by how quickly your inventory turns or how soon you get paid. You want to free up your cash flow without the constraints of immediate or inflexible repayment terms or limited financing. What you need is inventory funding, an innovative financing solution that allows you to use your inventory as collateral. Using certain platforms, business users fund your inventory on consignment. However, you have to understand that to secure optimal inventory funding, you need the right partner—this is where Kickfurther comes in.
Why Kickfurther?
You have a great product and a growing company. But as a CPG entrepreneur, getting the capital you need to achieve that growth can be hard. Let Kickfurther be your trusted funding partner, and get funding for up to 100% of your inventory at competitive rates.
- No immediate repayments – Do not pay until your product sells. Other providers may debit your account daily as part of a repayment schedule. Loans require repayment before your sales cycle has even begun. With Kickfurther, you control your repayment schedule.
- Non-dilutive – We don’t take your equity. We do not require equity in your business to access inventory funding.
- Not a debt – This is not a loan, so it does not put debt on your books, which can sometimes further constrain your working capital/access to capital or lower VC valuation.
- Quick access – You need capital when your supplier payments are due. Kickfurther can fund your entire order(s) each time you need more inventory.
Kickfurther puts you in control of your business. Across the US, CPG (Consumer Packaged Goods) companies who work with Kickfurther eliminate stockouts, keep up with demand, and move into growth mode. Learn more about how Kickfurther can help you achieve your goals—talk to one of our experts today.
