Seven ways to improve e-commerce inventory management and fulfillment
Effective inventory management and fulfillment can be the difference between making money and losing it, and gaining customers and losing them. Use these guidelines to help you save money, meet customer demand, and compete in an e-commerce world.
1. Put someone in charge of inventory management.
43% of small businesses don’t track inventory at all.1 As much as not managing inventory is problematic, assuming automatic inventory control software can do the job alone is even more dangerous. If you don’t have a person counting and checking the data that goes into your software, you’ll get poor data that can lead to out-of-stock and overstock problems.
2. Pick the right inventory management software.
You’ll want software that includes:1
- Programmable min/max Periodic Automatic Replenishment (PAR) levels
- Low inventory and reorder alerts
- Automated reordering
- Cross-channel inventory sync
- Just-In-Time (JIT) inventory management
- Interfaces for point of sale and mobile scanning
- BIN IDs and pick lists
- Multi-warehouse/multi-site inventory tracking
It’s possible that your inventory management software may be built into your e‑commerce platform.
3. Consider different ways to manage your ideal or targeted inventory levels.
- Set a Periodic Automatic Replenishment (PAR) level. A PAR level is the minimum quantity of products to have on hand. Some inventory management software will automatically trigger a reorder when a product is sold down to the PAR level. PAR levels should be set based on sales history and whether you are in or approaching your peak sales season. You’ll want to evaluate your PAR levels several times a year.
- Use First In, First Out (FIFO) rules. These rules are most helpful for perishable items, such as dairy products, fruits, vegetables, wine, etc. They ensure the oldest stock is sent out first. But they’re also helpful for non-perishable items. You don’t want to fulfill orders with dusty boxes or out-of-date packaging.
- See if Just-In-Time (JIT) inventory is right for you. You keep only enough inventory on hand for current orders. Many small businesses use JIT inventory management to control costs, and it’s a great choice if you have limited space for inventory. To make JIT effective, though, you must monitor suppliers and orders closely and know exactly how long it takes to replenish your inventory.
JIT is also helpful for a drop shipping model of fulfillment. You don’t keep products in inventory, you pass the orders on to the manufacturer, and they ship directly to the customer. It also works with handmade items, like on Etsy. You make the item once it's ordered. But keep in mind, while shoppers are willing to wait for customized items, they generally are not willing to wait extra days for ready-made items.
4. Do regular inventory audits.
Full inventory counts usually happen once a year for tax purposes. You can also use inventory cycle counting where products are counted on a rotating basis throughout the year. Spot checks are also a good way to double-check that your inventory levels are accurate and the easiest way to discover possible theft. You’ll want to choose between a yearly inventory count or cycle counting. Then decide if you want to supplement with spot checks.
5. Classify your inventory and concentrate on fast movers.
Sort your inventory by picking size (pallet, case, or piece). Then classify the products by how fast they sell. You’ll have categories for fast, medium, slow, and very slow. The majority of your sales probably come from your top-selling 20% of SKUs. You'll get the most bang for your buck if you concentrate on implementing optimized fulfillment for those top-selling items.2
6. Make sure you’re using the best storage for your products.
Make sure you are using the most efficient storage, not just for space, but to optimize picking time. Ideal storage for fast-moving products is very different than for slow-moving items. Pallet racks and shelving are traditional answers to storage. But drawer systems work well for small items. And there are newer gravity-fed pick modules and carousels that save your pickers time. They’re ideal if you’re using FIFO rules.
7. Audit your fulfillment process.
Two rules of thumb for optimizing fulfillment are:
- Reduce the times a human has to touch a product.
- Reduce the footsteps a person must take to fulfill the order.
Be open to evaluating your process and changing procedures.
- Pay attention to how orders are picked. Note where workers are delayed and bottlenecked. Are they taking extra steps to get the product and bring it back?
- Do you have good lighting and general cleanliness? Clean, well-lit spaces function more efficiently and safely.
- Talk to your employees. They see where problems are and can offer suggestions you might not have considered.
- Gather data. Review customer service complaints, turnaround reports, and inventory control reports. Analyze the data and use outside benchmarking to see how your company is performing. Just make sure you compare your stats to companies of similar size, selling similar products.
1 Source: Logiwa
2 Source: Kardex Remstar