How does ecommerce affect inventory management?

4 min read

Inventory management for ecommerce


Better inventory management for ecommerce

Ecommerce is a rapidly growing phenomenon across the globe. In 2020 UK online sales hit 27.5% of total sales with the Coronavirus pandemic driving many people to shop from home, But it’s not just the B2C sector experiencing rapid growth. B2B ecommerce sales have also accelerated due to Covid-19, with B2B online purchases increasing by 24% last year.

As more and more businesses sell online, they are starting to see the impact that ecommerce has on their inventory management operations.The effect of ecommerce on inventory

In this post we discuss how ecommerce is affecting inventory management strategies. In our next post we then discuss how to improve inventory management for ecommerce.

Ecommerce impacts inventory management in many ways. Here are five top challenges experienced by companies:

  • Price sensitivity
  • Stock availability
  • Managing the customer experience
  • Multi-channel shopping
  • Supply chain transparency and digitalization

Let’s take a look at each in more detail.

How does ecommerce price sensitivity affect inventory management?

Ecommerce can increase price sensitivity. It’s very easy for online shoppers to conduct extensive product research and use price comparison websites before making a purchase.

Whilst there are strategies to reduce price sensitivity, ecommerce businesses also need to have lean and efficient supply chains, to keep their cost of sale to a minimum and sustain competitive prices. This can affect inventory management tactics in a number of ways.

Firstly, you need to have cost-effective inventory management processes in place, so forecasting and ordering are as efficient as possible. This may include having automation to speed up manual tasks and reduce human error.

Secondly, you need to order your inventory as economically as possible. This may include weighing up the benefits of ordering in bulk for supplier discounts, versus the limitations of larger order sizes, such as increased carrying costs and lower turnover rates.

Finally, inventory is a major area of investment for ecommerce businesses. The more capital you invest in stock sat in a warehouse, the less you have for investment in other areas of your business. Plus, if the stock doesn’t sell, you risk it becoming obsolete and having to be sold off at discounted rates. Inventory management teams therefore need to balance their goal of fulfilling orders first time without holding excessive amounts of stock.

Why does ecommerce make it crucial to prevent out-of-stock scenarios?

With such extreme competition in the ecommerce marketplace, stock availability is a number one factor to success. Ecommerce has driven customers to expect products to be in stock – 24/7 – and that businesses can deliver within days of the order being placed. When goods are out of stock they will simply take their order elsewhere.

In the world of inventory management, your service-level metric is the probability of not having a stockout, or the probability of not losing sales e.g a 100% service level means you’ll fulfil 100% of your orders.

Realistically, ecommerce inventory managers should be aiming to achieve a service level of 95% or more. By aiming for a high service level to ensure stock availability, you can avoid most out of stock scenarios and consequential lost sales.

How are ecommerce customer reviews affected by inventory management performance?

Customer reviews are very closely linked to online buying processes and purchasing behaviour. With nearly 95% of shoppers reading online reviews before making a purchase, ecommerce companies are particularly vulnerable to negative feedback. But at the same time online reviews can also be extremely positive for businesses because they can influence customers to buy at precisely the moment when they’re actively looking to spend money.Inventory management affects ecommerce customer reviews

Ecommerce therefore makes it more important than ever to deliver a great shopping experience and generate positive feedback to boost sales. Effective inventory management is the backbone of your ecommerce supply chain strategy to make this happen.

How is multi-channel shopping complicating supply chains?

Many ecommerce businesses sell via more than one channel, including physical stores, websites, or online marketplaces, such as eBay or Amazon. This makes forecasting and order management much more challenging for inventory management teams.

For starters they have to track demand for each product across a range of channels and aggregate this to ensure cost-effective reordering from suppliers. They also need to optimise inventory levels at each stock location, whether it’s a store, warehouse or 3PL, to prevent excess stock building up across the supply chain.

How is ecommerce driving the need for inventory management transparency and digitalization?

As more businesses move into the world of ecommerce, they’re finding they need to digitalize their inventory management processes. Tools such as enterprise resource planning (ERP) systems, inventory optimisation software, warehouse management systems (WMS) and ecommerce platforms are all important to provide accurate and transparent data and promote efficiency.

As well as the specific ecommerce challenges we’ve discussed in this post, businesses also have to deal with ‘inventory management basics’. These include accurately forecasting customer demand (which can often be erratic) and managing supply disruption, such as production or logistical delays.

With so many factors to consider, traditional inventory management processes – e.g using spreadsheets and manual number crunching – is not going to cut it any longer. Instead inventory managers are turning to software to forecast demand, optimise inventory levels and automate ordering.

Find out how inventory optimisation software could help you deal with the impact of ecommerce on your inventory management. For more information on EazyStock email us or call 0121 312 2992.

Want to know more about ecommerce inventory optimisation?  Download our latest eBook below:

Whitepaper - Introduction to Inventory Optimisation for ecommerce


Tracey Baker, Marketing Manager

4 min read

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