What is Inventory Management in Online Stores?

When the outflow of goods is constant or comes from several warehouses, as is often the case in online retailing, inventory management for online stores is one of the biggest operational challenges for the business.

Of course, in practice, managing inventory is much more complex than simply listing stock.

Fortunately, there are techniques and methods for inventory control, which have been specialized for each type of e-commerce, as we will see in this article.

What is Inventory Management in Online Stores?

Inventory is the products that make up the assets of a physical or online store. Therefore, inventory management consists of efficiently managing the input, storage and output of these materials and goods.

It should be noted that profits, productivity and response to product demand depend on this process.

When it is not done properly, the company suffers:
  • Lack of stock
  • Financial losses
  • Dissatisfied customers
  • Shortages due to ant theft and expired products.
On the other hand, successful inventory management makes it possible to:
  • Increase sales
  • Increase customer confidence
  • Reduce costs and shrinkage
  • Guarantee an adequate commercial flow
Depending on the needs of the business and the type of products, there are several types of inventories. In the case of online stores, there are three main categories of inventory:
  • Own inventory
  • Consignment stock
  • Dropshipping or drop shipment
1. Own Inventory Management

In this modality, the retailer stores its own goods, either produced by itself or acquired from suppliers. As the stock is supplied to the same store (online or physical), the logistics are simpler.

However, own inventory control also carries some risks:
  • Financial losses when demand is low.
  • Ant theft.
  • Stock-outs if the reorder point is not calculated.
  • High storage costs.
One solution to avoid them is to keep an inventory that records the entry and exit of each item in real time.

2. Consignment Stock

Online stores with consignment stock buy the merchandise from the supplier with the condition of returning it if it is not sold within a certain period.

Undeniably, the advantage here is that the retailer saves the losses it would have if the inventory were its own, but there are two disadvantages to consider:
  • Not all items can be managed using this type of stock (e.g. perishable goods). In reality, it works for the most durable and slow-moving goods.
  • The cost is often higher, because the supplier thus transfers the risk he takes.
3. Dropshipping

Finally, dropshipping or drop shipment is a marketing model in which the online store does not carry the inventory.

Business opportunities with this model are for:
  • Manufacturers: Most do not sell directly to the public.
  • Wholesalers: They buy the product from the manufacturer, add a profit margin and sell it to retailers.
  • Retailers: Merchants who sell directly to the public, with a profit margin.
Online stores, in this case, promote products belonging to third parties (usually manufacturers and wholesalers). In making the sale, they purchase the product and have it shipped directly to the customer.

Although the seller does not manage its own inventory, it is in charge of several processes that require stock management:
  • Makes the sale.
  • Places the order with the supplier (manufacturer or wholesaler).
  • The supplier ships the goods to the customer's address.
  • Notifies the customer that his order is on its way.
So, the challenge for dropshippers is to manage inventory with multiple suppliers.

The Most Suitable Inventory for E-commerce

As we can see, the three common inventory types for online stores are very different, but they also share some challenges unique to e-commerce.

Yes! Because of the very digital dynamics, the online consumer expects from the online retailer:
  • 24-hour availability.
  • Immediacy of responses.
  • Transparency in product information.
  • Accuracy in shipping dates.
  • Availability of promotions or offers.
Indeed, if there is one thing that distinguishes e-commerce, it is its immediacy: customers expect online sites to be available 24 hours a day. In addition, knowing instantly whether a product is available - and how much shipping costs - is already a basic part of the shopping experience.

To meet these challenges, the online store needs to manage a permanent or real-time inventory, synchronizing stock from all its warehouses and suppliers.

Fortunately, there are Warehouse Management Software such as Bind ERP or Infor WMS among others, that allow to digitize and automate the stock, so that every movement is reflected in the system instantly. If the store manages several warehouses, these platforms also synchronize product catalogs, with virtually no margin for error.

These are some of the most common benefits of a good inventory management system:
  • They prevent stock-outs.
  • They facilitate purchase planning, because they accurately report the available quantity of each item.
  • They help to make an accurate valuation of the warehouse.
  • Provide valuable data for sales management.
  • Save time and money.

Inventory management is a challenging task in any business. However, the online retailer who seeks to be competitive has a greater burden on his back, as he must manage the stock of various suppliers, delivering as accurate information as possible to his customers in real time.

The good news is that, just as the shopping experience in the digital world has evolved, so have stock management systems. Now, companies can rely on tools that respond to all their inventory needs, whether they are in their own stores or selling through a Marketplace.