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05 Nov 2023

The Challenges of Ecommerce Inventory Management

10 Inventory Management Conundrums and How to Overcome Them

Ecommerce is booming—and, alarmingly for online businesses, its explosive growth is propagating an increasing set of new challenges.

These include extra demands relating to last-mile delivery, sustainability, sourcing, warehousing, customer satisfaction, and especially germane to ecommerce logistics and inventory management (IM).

Such challenges can impact online businesses significantly, and if not overcome, can lead to sales losses through poor inventory optimization—typically as a result of overselling due to stock shortfalls, or of overstocking, which ties up capital.

The stakes are high. According to Statista projections, a whopping 5.3 billion people will be shopping online by 2027 in a global ecommerce market valued by then at 5.56 trillion USD.

So to help you succeed in the sometimes confusing ecommerce sales environment, we’re highlighting ten primary ecommerce inventory management challenges and outlining potential solutions—most of them involving automation and the latest in IM technology.

1. Variability in Demand

Unpredictable customer demand presents a key challenge in ecommerce inventory management. Seasonal fluctuations, trends, promotions, and unforeseen events such as natural disasters, pandemics, and industrial action can lead to sudden changes in demand. Such acute fluctuations add complexity to the already knotty problems involved in managing inventory.

Solution: Implement demand forecasting and analytics tools to better understand and anticipate consumer demand. That can help in adjusting inventory levels to meet customer expectations.

2. Stockouts and Overstocks

Balancing inventory to avoid overstocking and understocking is a delicate act. Overstocking ties up capital and storage space, while understocking—an even worse scenario—can result in lost sales and dissatisfied customers who have come to expect immediate deliveries. Ecommerce businesses need to strike the right balance.

Solution: Utilize inventory management software (IMS) and interpret historical sales data to establish reorder points and safety stock levels. IMS processes can help you collect and analyze data from various sources, such as your sales history,

website traffic, customer feedback, and social media. The data management tools allow you to collect, store, and analyze a large quantity of data related to your inventory, such as product details, stock levels, costs, sales, orders, and returns.

3. Multi-channel Sales

Ecommerce businesses often sell their products through multiple channels, such as their websites, third-party marketplaces, social media platforms, and physical stores. Coordinating inventory across these channels can be challenging, as stock-level changes in one channel can affect others.

Solution: Invest in an integrated inventory management system that connects all sales channels. That allows for real-time synchronization of inventory levels, ensuring consistency across all platforms.

4. Product Complexity

Ecommerce businesses often deal with vast product portfolios with myriad attributes and variations, such as sizes, colors, and models. This complexity can easily prove overwhelming for inventory managers, especially when an enterprise is scaling up.

Solution: Employ product information management (PIM) systems to maintain accurate and consistent product data. These systems provide a single place to collect and manage product information and allow you to create a product catalog you can distribute to your sales channels and add to your website. PIMs also streamline the handling of product variations and help prevent errors in inventory management.

5. Seasonality

Like many ecommerce enterprises, your business probably experiences seasonal sales patterns. Preparing for these fluctuations can be a considerable challenge, as you need to stock up for the high season while avoiding excess inventory during the slow months.

Solution: Ensure your demand planning considers seasonality. Analyze historical data to identify peak periods and prepare inventory accordingly. You can also offer pre-order options to customers to gauge demand and adjust your stock levels accordingly.

6. Supply Chain Disruptions

The COVID-19 pandemic and the war in Ukraine have been instrumental in exposing supply chain vulnerability. Such disruptions can have a profound effect on logistics activity and especially on inventory restocking.

Solution: Diversify your suppliers and implement contingency plans. Having access to multiple sources for essential products and materials can help mitigate the impact of supply chain disruptions. Furthermore, it pays to monitor your supply chain regularly to identify potential pressure points and take proactive measures.

7. Returns and Exchanges

With the explosion of online shopping, the challenge of dealing with returns from customers has been magnified. For some companies, reverse logistics has become an expensive nightmare as returning items must be received from a variety of locations in conditions that range from good to unsellable.

Furthermore, managers must deal with refunds and make decisions on whether returned items should be scrapped, recycled, resold at a markdown, or returned to the warehouse.

Solution: Implement efficient returns management procedures and make your policy clear to customers at the point of sale. Categorize returned products based on their condition and resale value. Some items may need to be scrapped or recycled, while others may need refurbishing. Some can be resold immediately, thus reducing the financial impact of returns and helping maintain inventory accuracy.

8. Dead Stock

Over time, some products may become obsolete, losing their value or relevance. Dead stock takes up valuable storage space and ties up capital.

Solution: Dead-stock management involves regularly auditing your inventory and identifying items that have become obsolete. Consider discounting or bundling them to encourage sales, or liquidating them through clearance sections, liquidation auctions, or other alternative sales channels.

9. Warehouse Space

Effective inventory management depends on efficient warehouse space utilization. Running out of storage space will substantially hinder your ability to manage inventory.

Solution: Invest in warehouse optimization techniques like the use of vertical storage, efficient racking systems, and layout improvements. These measures can help maximize storage capacity and streamline your operations.

10. Inventory Theft and Shrinkage

Inventory theft, whether by employees or external actors, can generate significant losses for ecommerce businesses. Shrinkage is a common issue, and it can be hard to detect and prevent.

Solution: Implement strict security measures in your warehouses and employ inventory tracking technologies like RFID and barcoding. Audit your inventory regularly to identify discrepancies and deploy surveillance systems to deter theft.

The Bottom Line

Ecommerce inventory management is a critical component of a successful online business. Challenges like unpredictable demand and supply chain disruption, which all-too-often result in overstocking, understocking, and other inventory management issues, can be addressed by investing in technology, implementing robust forecasting and demand planning,

and adopting efficient warehouse management practices.

Along with Shipa’s last-mile delivery services, we offer our expertise and business systems to help our business customers improve inventory management performance. Why not contact us to discuss how we can help you excel at this important aspect of online sales activity?