The 2024 E-commerce Performance Report on Shopify merchants surveyed more than 100 SMB e-commerce leaders in the U.S. and Canada. It revealed that a staggering 98 percent of respondents are having trouble aligning demand with supply, and of those, 60 percent reported significant difficulty.
Consider a narrative stand-in for small business owners: Rachel the Retailer. She owns a growing ecommerce store with $20,000 in sales each year. While her inventory management needs are growing, she lacks the dedicated fulfillment infrastructure of her enterprise counterparts. Staying the course with manual management methods will lead to increased complexity, creating a self-sustaining inventory issue over time.
Let’s explore how Rachel and other small business retailers can implement inventory management systems to help streamline storage and drive more sales.
What Is Ecommerce Inventory Management?
Ecommerce inventory management is the practice of capturing, monitoring, and applying all data related to available stock. What sets it apart from traditional inventory management is the storage location of these products.
With a brick-and-mortar store, staff can manually check stock levels by looking on the shelves, and companies can adjust order volumes or frequency to account for demand.
In the case of small ecommerce stores, inventory management is digital. Owners typically don’t have the space to store inventory in their homes, and they can’t afford dedicated fulfillment centers like larger ecommerce counterparts. As a result, they often rely on third-party storage providers, meaning that all inventory management happens at an arm’s length.
SMB ecommerce retailers also face the challenge of evolving sales models and customer expectations. Many brands now sell through multiple channels, including websites, social media sites, and as part of larger online marketplaces, so they need inventory management solutions that can track sales in real time.
In addition, customers now expect deliveries to happen quickly, no matter where they are. McKinsey notes that 90% of shoppers are willing to wait just three days for delivery, after which their patience quickly runs out.
Why Ecommerce Inventory Management Matters for Small Businesses
Small business inventory management solutions offer multiple benefits for SMBs, including:
- Improved cost control: The more you know about what’s happening across your inventory, the lower your chances of overspending.
- Increased cash flow optimization: Getting more inventory to customers quickly means increased cash flow, which can help pay for new supplies and increase your ability to meet growing demand.
- Enhanced customer satisfaction: Customers won’t stick around after a bad experience — and that includes ordering an item that appears to be in stock but (after ordering) is suddenly on backorder. PWC research found that 32% of customers would walk away after one bad experience, even if it’s from a brand they love. More reliable inventory data means increased customer satisfaction.
- Expanded competitive opportunities: Customers don’t care if you’re an ecommerce giant or an up-and-coming small business — they want the same level of service and the same type of experience. SMBs are often expected to improve on the enterprise experience because customers expect to be treated as unique individuals rather than simply statistics in a revenue spreadsheet.
Effective inventory management lets small retailers see exactly what they have in stock at any moment and make changes to incoming inventory or material orders to ensure they can meet demand. This provides a competitive edge. If SMBs can tell customers exactly what’s in stock, when it will arrive, and when they can get more of the same, they can stand out in a competitive ecommerce field.
Common Inventory Management Methods and Systems
There are two common approaches to inventory management: manual and automatic. Companies can also leverage the cloud to streamline inventory processes.
Manual methods vs. automated systems.
Manual methods include physical or digital spreadsheets that require staff to collect, enter, and verify data. Many small businesses use manual methods because they’re low-cost and can handle low order volumes. For example, if your business only sells $5,000 worth of goods per year and you store products in your garage, manual systems may be sufficient. Just make sure you have commercial property insurance to protect your stock from fire and other incidents.
Automated software solutions are capable of collecting data from multiple sources and entering it into centralized systems without manual assistance. Many of these tools also offer data analysis to help track demand spikes and inventory levels. Plus, they allow companies to set notifications, such as alerts for reordering material or stock.
If you’re storing your inventory outside your home or using multiple fulfillment partners, consider automated solutions.
Cloud-based inventory management.
Cloud-based inventory management tools can be accessed anytime, anywhere. They aren’t tied to local systems or machines, and they include real-time updates as new features are introduced.
These solutions are typically Software as a Service (SaaS). You pay a monthly fee each month for access to cloud systems, storage, and inventory management features.
Challenges and Solutions
Inventory management presents four common challenges for small online retailers: multi-channel selling, seasonal demand fluctuations, supplier reliability issues, and operational scaling challenges. How significant each challenge is will depend on your particular business.
The challenge: Multi-channel selling.
Multi-channel selling can complicate inventory management, especially if stock isn’t tracked in real time. This creates the risk of stockouts that could leave orders unfilled.
Consider inventory management tools that capture and integrate data from multiple sources in real time.
The challenge: Seasonal demand fluctuations.
Small online retailers are often disproportionately affected by seasonal demand fluctuations. If they don’t properly track these fluctuations, they may experience costly overstocks.
Look for online retailer inventory control tools that include demand and supply analytics to anticipate seasonal changes.
The challenge: Supplier reliability issues.
Not all suppliers are created equal. Some may experience challenges in procuring materials, while others may struggle to deliver on time. At best, this means inventory delays. At worst, it means lost customers.
Consider track supplier performance using cloud-based solutions that can integrate data provided by suppliers.
The challenge: Scaling challenges.
As your inventory volumes scale, you may find that manual systems can’t keep pace. This can lead to inaccurate inventory reporting and the inability to fulfill sales obligations.
One way to address this is to make the move to automated or cloud-based solutions that don’t require manual data entry.
How to Implement Effective Inventory Management
Effective inventory management doesn’t happen by accident. Instead, it requires a measured approach to new benefits and current budgets. Here are five helpful steps to get started.
Step 1: Assess current processes.
First, analyze your current processes. What’s working? What isn’t? How often do you experience stockouts or overstocks? This can help you identify the type of solutions you need.
Step 2: Choose the right system for your needs.
Next, pick the system that works for you. If you’re still operating out of your home or a local office space, manual processes may be enough. If you’re using third-party ecommerce fulfillment solutions, consider automated tools or cloud-based solutions.
Step 3: Create tracking methods.
No matter what type of tools you choose, create an effective tracking method for your inventory. Some retailers use barcodes, others use RFID, and still others rely on spreadsheets. Be consistent.
Step 4: Establish reorder points.
With tracking methods in place, establish reorder points. These are conditions that trigger alerts to reorder certain products or materials. They may be time based, inventory based, or based on customer demand.
Step 5: Train staff.
Finally, train staff in your new system and processes. The more familiar staff are with your solutions, the better prepared they are to effectively manage your inventory.
Taking Stock of the SMB Situation
Small business owners are pressed for time and short on resources. While many recognize the need for improved online retail inventory controls, they continue to use outdated processes because they work “well enough.”
The problem? As small ecommerce stores scale, previously managed processes quickly become complex and cumbersome, putting them at risk of costly stockouts or expensive overstocks. Small business inventory management solutions can help your business scale without breaking the bank.Take the first step by exploring inventory management software, then make sure you have the right insurance to protect your business. Request a quote today.