E-commerce Inventory Management

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Have you ever pondered over the question, what is inventory management? Straightforwardly, inventory management refers to an organized method of keeping the right things in the right place at the right time and in good condition. There are various intermediate steps in this whole process.

In a nutshell, inventory management e-commerce solutions are essential for any online business to keep up with the day-to-day operations and carry out the process of order fulfillment with efficiency.

What is E-commerce Inventory Management?

The organized process and approach of tracking, storing, sourcing, and shipping the inventory of an e-commerce business is known as e-commerce inventory management. Sourcing and storing various inventory management strategies and plans can help leverage their business and reduce operational costs by increasing efficiency. 

Online inventory management considers the requirements of an online retailer that may need the tracking system for inventory to keep a tab on the various online sales channels. 

Hence, inventory management e-commerce is a system that helps online retailers grow their e-commerce business by streamlining the operations of a warehouse and also by making smarter financial decisions.

Why is It Important?

Before searching for and implementing an inventory management technique or strategy for your business, you must know what business operations you are into and what kind of inventory management strategy will help you grow your business. This is because online inventory management is deeply rooted in your company and goes through almost every aspect.

You never want to lose a customer because of a bad shopping experience. E-commerce and inventory management are essential because it provides the following benefits for businesses:

Greater productivity and efficiency

Effective control over the inventory helps in better storage and management of the inventory. So the products are quickly identified, collected, packed, and dispatched because they are organized. So the buyers receive the products as soon as possible because of adequate supply.

Increased visibility

With effective e-commerce inventory management, you can make quick and better decisions. Locating and counting the inventory in the warehouse is easier, and the stock tracking becomes transparent. You can effectively maintain the order list, shipping statuses, and stockouts. 

Customer satisfaction

With the right amount of inventory in your warehouse, you can quickly carry out the process of order fulfillment. The quicker the customers receive their packages, the more trust they will have in your business. This will increase customer satisfaction, and they can be your repeat customers because you offered them good service.

Increased profit margin and revenue

With effective inventory management, you can manage the overstocks and stockouts by correctly predicting the amount of inventory you will need for a specific time. Reduce the supplier lead time by reducing the cost and maintaining proper inventory. 

Efficient inventory management for an e-commerce business is a tough job to do. You have to keep in mind various inventory management techniques and strategies that can be helpful for your business, ultimately resulting in its growth and profitability. But the advantages of it are worth doing all the hectic work. 

Common Challenges of E-commerce Inventory Management

Not having enough stock

It is a common problem of poor inventory management. In this situation, you do not keep track of the inventory that you have in your warehouse. It ultimately leads to stockouts or understocking. Because of stockouts, you do not have the required product in stock that the customer desires, and ultimately a delay occurs in order fulfillment.

Having too much stock

Another common problem of poor inventory management for e-commerce sites is overstocking inventory. This means you have more than the stock required in an inventory at that particular time. It increases the business’s operational cost as more inventory must be managed in the warehouse than required.

Having stock in the wrong place

Keeping and tracking your inventory with the help of simple manual techniques can often result in maintaining the stock in the wrong place. This wastes a lot of time as the warehouse picker might not find the desired products from where they should have been sourced. A digital inventory management process may solve this problem and increase efficiency.

Having inconsistent safety stock

You must keep some stock in your warehouse for safety purposes so that the delivery process does not take much of your and the customer’s time. Ensure the safety stock does not become inconsistent and always has a place in the warehouse. Also, you cannot keep obsolete products as safety stock because people do not want to use them anymore. Try not to be inconsistent with the safety stock.

You must overcome all these common inventory management challenges to attain efficiency and effectiveness in the order fulfillment process. 

7 Inventory Management Best Practices to Ensure Seamless Operations

There are some best practices for inventory management and ensuring industry-specific seamless operations. Here are seven techniques that result in the best inventory management for e-commerce that can be beneficial for optimizing your warehouse process.

1) Calculate your inventory turnover ratio

It is essential to calculate your inventory turnover ratio. It is the measurement of the number of times you have sold your inventory in a given period, generally in the span of 1 year. The formula for estimating the inventory turnover ratio is:

Inventory turnover ratio = Cost of goods sold * 2 / (Beginning inventory + Final inventory)

Calculating the inventory turnover ratio helps you understand the market demands better to get a hold of it. It will help you take obsolete stocks out of your warehouse and fill them with the new ones in demand. 

You can successfully increase your inventory turnover ratio by:

  • Performing experiments with the pricing of your products,
  • Liquidating obsolete stocks from the warehouse,
  • Predicting the customer demand in the future,
  • Redistributing your inventory to other warehouses.

2) Run an ABC inventory analysis

ABC inventory analysis is a process in which you arrange the inventory in your warehouse from a hierarchy of the most important to the least important. The ABC analysis looks like this when you practice it:

Items considered the most precious and in demand are of higher priority. These are placed in List A and are known as List A items. These items are of prime importance and are recorded daily.

The products given medium priority are placed in List B. These items are moderately valuable and recorded monthly.

The low-priority products are placed in List C. Customers rarely order them. These products require minimal recording and are carried in high volumes.

3) Avoid just-in-time inventory

If your business demands to keep a large inventory, avoid using the Just-in-Time inventory method. This technique involves keeping the stock only when the customer asks for it. It’s closed down the process of order fulfillment. This method is very much prone to expensive stockouts in times of emergency. 

For instance, during the COVID-19 pandemic, when there was a surge in demand for surgical masks, the Just-in-Time inventory was not applicable for such businesses. You should avoid using this strategy if buyer trends drive your company.

4) Plan your seasonal inventory

Plan and manage the seasonal inventory per the weather. Keep only those items in the warehouse suitable for that particular season. Choose and categorize your seasonal products keeping in mind the product’s life cycle, lead time of purchases, and the length of the season. It is important to sell and clear the stock for the seasonal inventory before the season gets over. This is because if those items are not sold, they will eventually become obsolete and remain unsold.

5) Stay on top of your 3PL inventory

A 3PL inventory is software that manages inventory and tracks all warehouse activities. It includes all the functions such as the management of physical inventories, the picking, and packing of items so that they can be dispatched, and also the processing of any returns that may have come. Ensure that you have the upper hand in your 3PL inventory compared to your competitors.

6) Install an inventory control system

An inventory control system is fundamental to managing and tracking the inventory in a warehouse effectively. You can do it with the help of inventory control software that will help drive the inventory across the warehouse. You can perform the activity of inventory control efficiently by installing software in the warehouse and by resorting to the following steps:

  • Have a definite floor plan,
  • Apply clear labels,
  • Execute cycle counting,
  • Implement warehouse management systems.

7) Switch to perpetual inventory as soon as possible

Perpetual inventory is a type of accounting practice that records the inventory and the changes that have occurred to it in real-time. It does not require any traditional bookkeeping on a physical method of accounting, but the constant changes in the inventories are recorded so that the amount of stock is shown in real-time. This also helps reduce the errors in recording inventory, as manual methods of recording inventory are avoided.

Follow these best practices for effective inventory management and level up your game. This will help you to make a mark in the market and ultimately result in increased profits.

5 Essential Inventory Management Methods for E-commerce

1. Keep an inventory of safety stock

Maintaining a safety stock is always advisable for emergencies. There can always be a surge in demand for some items due to unforeseen or unexpected reasons. For situations like these, and not lose customers, you must always maintain a safe stock to deliver products to the customers even in times of emergency.

2. Balance inventory

It means maintaining the balance between overstocking and understocking items in your warehouse. It aims at getting the correct balance of inventory. You don’t want to understock your warehouse so that when a customer comes to you, you cannot deliver the product to them. Also, you don’t want to overstock, as it may be difficult to liquidate those items. Thus, you need to find the correct balance.

3. Use a kitting technique

Selling the excess stock in a warehouse as a deal is known as kitting. Various kitting methods help to get rid of the overstock at reasonable prices. For instance, deals like buy one get one free, 50% discount on certain products, etc., are examples of kitting techniques. It also gives the customers a sense of satisfaction that they are getting a great deal.

4. Look at past purchases to predict future stock

By looking at past purchases, you may know which items work in your favor. By analyzing the customers’ past purchases, you can make future predictions for your stocks so that you can choose the stock of what items to boost and reduce respectively.

5. Be smart with storage

When storing the items physically, it is essential to keep the storage system so that the items become easy to locate. They should be kept in a place where the items can be picked and packed easily so that the customers receive the packages quickly. 

Resorting to an effective inventory management method can make your job much easier. Also, it results in customer satisfaction and raises your company’s goodwill.

Why Implement Inventory Management Software?

Inventory management software will automate the inventory management process and track current inventory levels accurately. Here is why you should implement inventory management software for your business:

  • Improved accuracy: With inventory management software, you know what inventory is exactly present and what the customers want. You don’t have to worry about overselling products.
  • Increased productivity: When orders from customers are constantly pouring in, the inventory management software makes it easier to manage such huge orders. The risk of human error is removed from the process.
  • Cost savings: Your company can save money in the long run by automating the process of inventory management. 
  • Customer satisfaction: With inventory management software, you can manage the customers’ orders effectively, and as a result, they receive their orders quickly. This results in a better customer experience.
  • Insights into your products: With better inventory management software, you can get insights into the sales trends and see which products are selling quickly. 

Thus, automating the inventory management process with software helps you identify the sales trends, locate the inventory, and also analyze what inventory is more profitable for your business. 


In the age of multi-channel selling and e-commerce, you must use technology to up your game in this competitive business market and supply chain management. For any company, inventory is its biggest asset, so it would be best to treat it like one. Understand and implement inventory management techniques and strategies to make better purchasing decisions. 


How does e-commerce manage inventory?

Any e-commerce company manages inventory by keeping track of its warehouse stock and being alert to acquire new stocks. It builds the balance between understocking and overstocking.

What are some e-commerce inventory management strategies?

 Some major e-commerce inventory management strategies are enumerated as follows:

  • Six Sigma implementation,
  • Adopting FIFO or LIFO systems,
  • Implementing ABC analysis,
  • Applying just-in-time inventory management technique,
  • Practicing dropshipping.

What is inventory management software?

It is a software system developed for tracking the orders, inventory levels, sales, and delivery of items to the customers of a business from a warehouse for order fulfillment.

 What is multi-channel inventory?

Multi-channel inventory is a process by which businesses track orders and account for sales from various sources of inventories stored in several locations. For instance, goods are stored in multiple locations like the marketplace, e-commerce, wholesale, retail, etc.

What does inventory mean in business?

The accounting of items, raw materials, components, and parts that a company uses either in production or sells in the market is called inventory. The inventory can be a finished good and a work in progress as well.

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