Inventory management plays a vital role in the success of any product-based business. For eCommerce brands in particular, it’s one of the key factors that influences profitability and operational efficiency.
Whether you’re managing stock across multiple channels or looking to reduce warehousing costs, understanding how to handle your inventory effectively is essential. In this blog, we’ll cover everything you need to know about inventory management, the challenges businesses often face, and the strategies that can help you stay in control.
What is Inventory Management?
So, what is inventory management? Put simply, inventory management is the process of ordering, storing, tracking, and selling stock – whether it’s raw materials or finished goods. The goal is to balance stock levels in a way that meets customer demand without having excess inventory or having the risk of stockouts.
So, what is inventory management? Put simply, inventory management is the process of ordering, storing, tracking, and selling stock – whether it’s raw materials or finished goods. The goal is to balance stock levels in a way that meets customer demand without having excess inventory or having the risk of stockouts.
Why Inventory Management is Important
Effective inventory management goes beyond simply knowing how much stock you have on hand. It has a direct impact on almost every aspect of your eCommerce business. This might include:
– Preventing stockouts and overstock: Running out of a high-demand item leads to lost sales. Overstocking, on the other hand, results in higher holding costs.
– Improving cash flow: Excess stock locks up money that could be used for marketing, staff, or expansion. Better planning allows for more efficient use of cash.
– Reducing warehousing and storage costs: Accurate inventory levels reduce unnecessary storage fees and the need for additional space.
– Enhancing customer satisfaction: Orders that are delivered quickly and accurately result in fewer returns which means higher repeat purchase rates.
– Enabling data-driven purchasing: With better visibility into which products are selling, you can make more informed decisions about reordering, bundling, or phasing out items.
Common Inventory Challenges:
Most businesses, particularly eCommerce businesses, will come across inventory related issues at one point in their business. These challenges can significantly affect growth if they’re not addressed.
– Overstock and dead stock: As we mentioned before, excess inventory that doesn’t sell leads to markdowns, waste, and reduced margins.
– Inaccurate stock counts: Manual tracking or disconnected systems result in discrepancies that impact order fulfilment and financial reporting.
– Fluctuating seasonal demand: Seasonal trends can cause sharp demand spikes or slow periods, making forecasting more complex.
– Limited visibility across channels: Multi-channel selling introduces complexity. Without unified tracking, it’s difficult to know what stock is available where.
– Managing different stock speeds: Some SKUs move quickly, while others remain static. Each requires different planning and replenishment strategies.
Key Inventory Management Methods
There are several proven inventory management techniques that businesses can use depending on their model and the nature of their products:
– FIFO (First-In, First-Out): Ensures older stock is sold before newer stock—especially important for perishable or season-sensitive items.
– LIFO (Last-In, First-Out): More relevant for accounting purposes in some industries, although less common in eCommerce.
– Just-in-Time (JIT): A lean inventory model that minimises storage but relies on precise demand forecasting and reliable suppliers.
– ABC Analysis: Categorises stock into three groups (A, B, and C) based on importance, cost, or frequency of sales. Helps prioritise higher-value stock.
– Dropshipping vs Stock-Holding: Some brands reduce overhead by shipping directly from suppliers, while others benefit from the speed and control of managing their own stock.
– Safety stock: Keeping buffer inventory to protect against demand surges or supply delays can reduce risk but must be balanced against cost.
The Role of Inventory Management Systems
Technology plays a vital role in managing stock efficiently. Warehouse inventory management systems (WMS) and inventory management software are essential tools for maintaining accuracy, automating processes, and gaining visibility across all touchpoints.
An effective system will:
Provide real-time inventory updates across all channels
Help manage pick, pack, and dispatch workflows
Track stock movement across multiple storage locations
Integrate with major eCommerce platforms like Amazon, Shopify, and eBay
Generate reports to support forecasting and reordering
Reduce reliance on manual entry and the errors that come with it
These systems are particularly valuable for eCommerce sellers managing high SKU counts or operating across multiple fulfilment centres.
Key Inventory Metrics to Track
To improve inventory performance, you need to track the right metrics. These will let you know how well stock is being managed and where there may be room for improvement. Some important metrics to track include:
– Inventory turnover rate: Indicates how quickly inventory is sold and replaced. A high rate typically suggests healthy sales.
– Days of inventory on hand (DOH): Reflects how long your current stock will last based on average sales.
– Stockout rate: Measures how frequently products are unavailable when needed.
– Holding cost: Includes all expenses related to storing unsold inventory—rent, insurance, labour, and depreciation.
– Gross Margin Return on Inventory (GMROI): Evaluates profitability by comparing gross margin earned to the average inventory cost.
Strategies for Better Inventory Management
Implementing the right processes can have a major impact on operational efficiency. Here are several practices that can support better inventory control:
– Regular stocktakes and cycle counts: Helps maintain accuracy and spot discrepancies early.
– Demand forecasting: Using historical sales data and market trends to predict future demand more reliably.
– Setting reorder points: Automating restocks before inventory dips below critical levels.
– Using barcodes or RFID: Increases efficiency in tracking, picking, and reporting stock movements.
-Supplier collaboration: Working closely with suppliers to improve lead times and plan for surges in demand.
‘When Should I Consider a Fulfilment Partner or a 3PL to Manage My Inventory?’
The more your business grows, the more complex inventory management becomes – particularly those selling across different marketplaces. If you’re spending more time managing logistics than focusing on growth, it may be time to partner with a fulfilment provider – and that’s where PackPro Fulfilment comes in.
At PackPro, we help eCommerce businesses take control of their inventory using advanced inventory management system that provide full visibility across your entire operation. Our integrated approach supports eCommerce inventory management by syncing stock across platforms, automating order flow and reducing delays.
If you’re scaling fast or struggling to manage order volumes, a partnership with a 3PL provider can streamline your operations. As a trusted name in 3PL logistics UK, PackPro supports businesses with reliable fulfilment, accurate inventory control, and flexible services that grow with your brand.
