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5 Ways to Improve Inventory Management

Jake Rheude

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One of the best ways to increase the profits from your eCommerce business in 2023 is to improve your inventory management. Even if you think you’ve got a good inventory management process, a few tweaks could take your profits to a higher level. If you could predict the timing and amount of your future sales with 100% accuracy, managing your inventory would be a breeze.

Inventory management ecommerce fulfillment

The longer you’ve been in business, the more inventory data you have to help forecast your sales in 2023. A good forecast will incorporate your business’s growth curve, market trends that could affect your bottom line, consumer confidence, and your sales and promotions calendar. However, the one thing you know to expect is the unexpected. Good inventory management techniques won’t solve every small business problem you will face in the coming year, but it can go a long way towards smoothing out the rough patches. Here are five ways (plus a bonus way) you can brighten your business’s supply chain with improved inventory management.

What is inventory management?

Inventory management includes all the practices that touch your inventory, from initial orders and restocking through receiving, storage, and use to fill orders. The effort requires a significant amount of information, such as your sales volume plus current stock levels. That data collection makes inventory management a core part of demand forecasting and sales projections.

The better your inventory management practices, the more accurate and useful this information is. Put simply, knowing your inventory and how it’s managed helps your business fill today’s orders and grow to meet tomorrow’s. Work with a 3PL that provides real-time inventory visibility to gain actionable insights and drive your decisions. 

Now, let’s dive into five practices chosen to help you capitalize on growth opportunities.

1. Set minimum stock levels

If Suzie from Savannah has her heart set on a red polka dot dress, you’ll crush her polka dot-loving heart if you have to tell her you’re out of stock in her size. Worse yet, the manufacturer who supplies your red polka dot dresses sews to order, so it will take seven weeks to get the dress Suzie wants in Suzie’s size. You’ve just lost a customer. On the other hand, you don’t want to tie up all your cash and warehouse space with red polka dot dress inventory.

There is no perfect solution to the dilemma of balancing carrying costs against the need to have enough product on hand when an order comes in — how to have just enough stock but not too much. There is no way to achieve the perfect inventory level, but minimum stock levels are a great way to approach this balance. Set a minimum stock level for each item that allows you to order new stock before you run out. Base your minimum stock on sales data combined with the time needed to acquire new stock. If you sell about one polka dot dress per size per week, then you need to order when you have seven (or eight) on hand, so the new stock will arrive before you sell out.

Dive deeper into eCommerce replenishment practices with this post

2. Understand your supply chain

Before a red polka dot dress arrives on the shelves of your fulfillment warehouse, a number of things must happen. Your supplier needs to order red polka dot fabric to have enough on hand to make the dresses you ordered. Then there’s the time to ship from the manufacturer to your fulfillment warehouse and get the dresses logged into inventory. This is your supply chain. When it’s working perfectly, order management to maintain a good stock of finished products is a breeze. When something goes wrong, it can throw your inventory management into chaos. An actress wears a red polka dot evening dress on the red carpet, and there’s a sudden run on red polka dot fabric, so your manufacturer can’t restock. A series of storms grounds the freight airplane carrying your package, and your order is delayed.

Any number of glitches can throw a wrench in your otherwise orderly supply chain. Some events are unavoidable, but understanding all the links in your supply chain can help you stay ahead of the extraordinary events that will sometimes come together to mess it up. At Red Stag, we think this is key to keeping your inventory fresh and moving smoothly. That’s why Red Stag works with our customers to understand their supply chains.

By analyzing past inventory data, we have helped small businesses develop a plan for order quantity and a schedule for reordering to minimize supply chain hassles. Carrying the smallest amount of inventory you need in order to turn over the most product is the best practice to reduce your carrying costs and increase your eCommerce success.

3. Get flexible with your SKUs

Even the best inventory management system can’t anticipate every spike in demand. For example, let’s say you sell artisanal plum vinegar by the bottle, and you also sell cases of 12 bottles each. You ship 1,000 bottles and 100 cases to your fulfillment warehouse and start taking orders. Perhaps the cases are such a good deal that you sell out more quickly than you expected, but you still have 500 single bottles left in stock. The individual bottles have a different SKU from the cases. Orders keep pouring in faster than you can get more cases of plum vinegar delivered to your fulfillment center. What do you do?

At Red Stag Fulfillment, we can change the SKUs and convert individual items into cases and vice versa. We find this is particularly helpful when our clients hit a crunch time, and there isn’t time to ship more stock in. And we don’t charge for SKU management, so you get flexible inventory management without a lot of add-on charges.

See how to optimize SKU allocation through improved inventory planning

4. Move slow-moving and obsolete inventory out!

When your inventory balloons out of control, it costs your business in several different ways. If you have $100,000 in inventory, and $70,000 of that is tied up in products that are just sitting on the shelf, that’s a terrible use of your cash. Your carried inventory doesn’t appreciate in value and can even lose value as style, or packaging changes make older products difficult to sell. That’s not the only carrying cost of inventory that sits dead on the shelves. There’s also a huge opportunity cost component to cash tied up in inventory.

The money you’ve spent on this zombie inventory could be more effectively spent on advertising or website upgrades that would boost your sales and truly improve the bottom line of your eCommerce business. It’s easy to forget about this inventory since you aren’t at your order fulfillment warehouse every day. That’s another reason that Red Stag works with our customers on inventory management. We don’t make money when your stock sits on the shelf either; we want your inventory to turn over quickly, so we make money, and so do you.

Keep tabs on what’s not moving, and put zombie inventory on sale. Clear the deadwood from your fulfillment center shelves, and you will be nimbler this year versus last!

5. Minimize shrinkage

One of the most frustrating aspects of inventory management is managing the inventory that is no longer there. Shrinkage is a nice way to say damage, breakage, loss, and petty theft: all the reasons that a red polka dot dress size 10 isn’t on the shelf, even though your inventory says it should be.

Most fulfillment centers have an allowance for shrinkage. This means that your inventory management system is likely to have ghosts: items that appear in your inventory but aren’t on the warehouse shelf waiting to ship. At Red Stag, we have a zero-shrinkage policy. Once we log your item into inventory, we guarantee it will be there.

Our system tracks inventory so that not one item is unaccounted for. In the unlikely event that one of our client’s products gets damaged or goes missing on our watch, we will reimburse them for the wholesale price of the item. Stock that turns over constantly is the lifeblood of a thriving eCommerce enterprise. Maintaining the optimal inventory level may not be the sexiest part of running your eCommerce business, but it is one area where an investment of time can bring you big financial returns.

Bonus: Choose the right inventory management software

Inventory management software will help you keep up with your stock without losing your head. There are a number of good programs available. If you run a very small business, a free program might work for you. If you have a bit more inventory to manage, you’ll probably want to pay for a more sophisticated inventory management app. Here are some questions to help you pick the right inventory management software for you.

Can I take a test drive?

Most inventory software programs will give you a free trial. Take advantage of this — it could save you money, time, and headaches. Try out two or three programs to see which has the features that fit your needs most closely.

Is it easy to use?

Allow for a learning curve. The inventory management app that is best for your business in the end may not be the easiest one when you first open the dashboard. This is why it’s important to give any new system that tracks inventory a thorough test run before you adopt it. That said, if the software seems intuitive and easy to learn, give it bonus points.

Does it integrate with my point of sale (POS) systems?

Your inventory software needs to plug into your eCommerce website seamlessly. Find out how well a program integrates with your sales platform or platforms before you adopt it.

Does it provide real-time inventory data?

ECommerce is all about speed. If there’s a sudden surge in your sales of size 10 red polka dot dresses, you need to know about it right away, so you can place an order for more.

Can it generate purchase orders?

It won’t make you toast in the morning and pour you a cup of coffee, but your inventory management software should be able to automate many of the tasks that take up your time right now. Let your inventory app generate purchase orders and help you determine your order quantity while you generate profits to pump up your bottom line.

Inventory Management Improvement FAQs

What is the inventory management process?

The inventory management process includes a series of five steps, which are: 

  1. Receiving inventory from the supplier or suppliers, and inspecting the incoming products. 
  2. Once the incoming products have passed inspection, and are all accounted for, they are stocked on the shelves. 
  3. The next step in the inventory management process is taking orders from customers. 
  4. The fourth step is to fulfill and ship customer orders
  5. The final step in the process is reordering inventory, which is when the cycle restarts. 

What is the meaning of inventory control?

Inventory control is the process of tracking and managing the count of products in inventory throughout the entire inventory management process; from the time products are received, and stocked to the time they are purchased, shipped out to customers and then reordered. With the proper inventory control and forecasting, products are ideally available in just the right amount in order to meet customer demand. 

What inventory optimization techniques can I use to improve inventory management?

Inventory optimization techniques include: 

  • Reducing shrinkage by using a warehousing and fulfillment service, such as Red Stag with a zero shrinkage policy, which guarantees products are not lost once they are entered into inventory. 
  • Eliminate slow moving or obsolete inventory that isn’t selling or is selling to slowly to justify keeping in inventory. 
  • Be willing to change SKUs when there are spikes in demand. 
  • Set minimum stock orders. 
  • Become familiar with your supply chains to anticipate glitches or disruptions before they happen by analyzing patterns from the past.  

Where do you start?

Inventory management can be difficult, especially as you expand operations and offers. When you get stuck, it’s time to ask for help. Use the button below to reach out and ask us about inventory management practices, metrics, or that burning question you’re not sure how to answer.


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