Human error affects 46% of all warehouses, yet only 18% of ecommerce businesses use inventory management software to keep track of their inventory.
This shocking fact highlights the importance of using inventory management software and how it can help businesses stay ahead of the competition.
As I discussed before, I used a spreadsheet to manage my inventory when I started selling online. I would manually track stock quantities in and out of the warehouse and update them when I moved stock around.
This business process worked great when I was only stocking a few SKUs on Amazon and in a warehouse, but as the business grew and became multichannel, I started having stock in multiple warehouses and orders from various countries.
Your ecommerce business can grow quite quickly if one of your products takes off, and you might suddenly find your inventory management process becomes very complex overnight.
This is why it is so important to have a solid inventory management process; inventory management software is the key part of this process.
What Is Inventory Management Software?
Inventory management software is a tool that helps business owners automate many tasks that make up an inventory management system. The software helps to save time, reduce costs, and stop costly mistakes.
Many tasks in an inventory management system can be automated, such as stock movements, order fulfillment, and returns. Good inventory management software will also track the stock levels in your warehouses and help you reorder your products at the right time.
Inventory management software can also integrate into other systems and modules in your business, such as order management, warehouse management, ERP, CRM, accounting software, point of sale (POS system), and even your supplier’s systems for reordering.
How Can Inventory Management Software Benefit Your Ecommerce Business?
As your small business grows, managing your inventory will become increasingly complicated. On top of this, the larger your business is, the more expensive potential mistakes can be.
Understanding your stock levels, and keeping them at just the right level, is key to maintaining a healthy cash flow in your business.
If you overstock, there is a risk that you’ll be left with lots of inventory held in a warehouse for a long period, going out of date or out of fashion. All of these can add unnecessary costs to your business. Ordering too little can result in you going out of stock, causing you to miss out on potential orders and lose future customers.
Having a great inventory management system with the right software helps you to keep just the right amount of stock to maximize your profit and keep your customers happy.
Key Features Of Inventory Management Software
Many different inventory management software products are available on the market, and choosing one that is right for your business can be quite stressful. After all, this could be an expensive purchase that will affect every aspect of your business!
That is why it is so important to understand the software's different inventory management features. This is a list of the nine key features your inventory management solution should have.
1. Inventory tracking
The main function of inventory software is to enable you to understand where your stock is located at any one time and track your inventory levels.
You need to understand how many units of each SKU you have and where they are in the supply chain management system. It also needs to show any stock movements, such as stock in between warehouses, on its way to Amazon FBA or being collected by a wholesaler.
I would expect inventory management software to provide the following information:
- General stock levels: Do you have stock so the customer is able to buy the product? You need real-time data to avoid stockouts and backorders.
- Sales and returns: It is very important that your inventory management system is connected to your order management system. Otherwise, you might sell stock that you are unable to fulfill.
- Synchronization: If you have multiple sales channels such as wholesale, FBA, your own website, and other marketplaces and ecommerce platforms, you need to streamline your stock levels so you can understand what is happening with your business.
- Inbound stock tracking: You want to have your stock available for sale as soon as it is in the warehouse, especially if it is a new product range you are launching.
- Components tracking: If you manufacture the products yourself, you might want to track individual components or raw materials, especially if they come from different manufacturers, providers, or wholesalers.
- Packaging tracking: If you have specialized packaging for a particular product, you need to track this, as the product can’t be shipped without suitable packaging.
- Stock transfer tracking: You need to understand where your stock is, especially if it is moving between warehouses. You also might want to know how much stock is being held by wholesalers, distributors, or retail partners, so you can encourage them to buy more stock when their stock levels are low.
2. Product categorization
Many businesses use the ABC inventory analysis method. This method is based on the 80/20 rule, where 80% of your results come from 20% of your actions, or in ecommerce, 80% of sales orders come from 20% of products.
This rule is a big generalization, but the point is that some products will sell faster than others, so you need to give different inventory types different categories. ‘A’ products would be your fastest-selling and ‘B’ and ‘C’ products the slower-selling.
With these classifications, you can set different replenishment times for each category, which saves you from having to have different replenishment times for each SKU. It will also help with stock placement in the warehouse, as faster-selling items might all be stored together.
You could also categorize your products by style or product type. This will help the warehouse team with locating stock in the warehouse.
Product categorization is an effective way to manage your stock, and good inventory management software will help you categorize effectively.
3. Barcoding and tagging
Barcode scanning is the most efficient way to scan products in and out of the warehouse. This will save time, improve inventory control, and reduce human error when entering products into the system.
Barcodes usually take the form of a universal serial number, which helps integrate your products with your partner systems.
However, sometimes you need alternative barcodes, especially using a third-party system such as Amazon FBA. A good inventory management system can scan all your barcodes to help manage your stock.
4. Inventory alerts
When your stock starts to get low, you need to get notifications from the system to decide whether to restock.
Good warehouse management systems will let you set up an alert system to notify you when your stock hits a certain level. More advanced software will use sales velocity to predict low stock levels and send alerts when they think you will run out.
Once the alert has been generated, a reorder point report can be automatically generated so you can create a purchase order to send to your supplier.
Reorder reports have saved me a lot of time as it means I can see exactly what needs reordering and when and in what quantities—without me having to do loads of time-consuming analysis.
5. Automatic replenishment of stock
When your business becomes more advanced, you can improve efficiency by automatically reordering stock.
This is a particularly useful function if you have your products selling in lots of stores in small quantities, as it will save you from having to manage multiple small orders and allow your stores or partners to keep a regular level of inventory.
Some software has advanced features that allow you to:
- Store all supplier and partner details.
- Create automatic fulfillment requests for the warehouse.
- Use dynamic pricing so partners can get discounts on higher quantities.
- Manage all previous supplier transactions.
- Automatically send purchase orders to manufacturers or suppliers.
Some of these functionalities will be too advanced for a small ecommerce business, but you can see how they could save a huge amount of time once your business has scaled.
6. Inventory forecasting
Inventory optimization and demand forecasting are key business decisions an ecommerce business owner needs to make. Forecasting is often made particularly complicated by changing demand throughout the year.
Seasons such as Christmas and Black Friday increase the demand for all products, but some products are particularly susceptible to seasonal changes. For example, if you own a fashion brand, cashmere sweaters and bikinis will be popular at different times of the year!
A great inventory management system will be able to forecast the demand throughout the year and automatically create replenishment inventory reports when you are running low on stock. It will also help you optimize inventory levels, ensuring you always order the correct amount of stock.
7. Inventory security and backups
Protecting your ecommerce data with bulletproof security and regular backups of all inventory data is important. Great inventory management software automatically backs up all the data and stores it securely.
8. Stock returns handling
Unfortunately, returns are an inevitable part of an ecommerce business. But returns don’t have to mean the end of the customer’s relationship with your business. Having a great returns system will build consumer trust in your brand so your customers return again and again.
Some businesses, such as Asos and Amazon, have great returns processes, making it super easy for customers to return unwanted products. As a result, customers are more likely to purchase from them first and return products in a sellable condition if necessary.
A returns system is vital as manually tracking all returns can be extremely time-consuming, especially if customers initiate a return and then forget to send it back.
When choosing inventory management software, you might not need all the features of a very high-end solution when you’re still a small ecommerce business.
However, many software companies scale their pricing structures so that for a cheaper price (or sometimes for free), you can have basic access to the inventory management system and upgrade as your business grows.
Advice For Choosing Between Vendors
When choosing an inventory management software system, it's important to consider how your business will use the software.
For most businesses, enterprise-level inventory software such as Netsuite would be massive overkill. Yet, a system like Zoho might be too simplistic if your business is already working with many different suppliers, warehouses, and manufacturers.
The main factors you need to consider are inventory tracking and scalability, which are the key functions you need as your business grows.
Of course, price is also a major factor in making a decision. It’s worth looking for software that scales as you grow, allowing you to start with a basic but affordable package that you can upgrade as you grow.
Another factor you should consider is how the inventory management software will integrate with the other software and systems in your business, especially if you sell products through multiple channels.
If you are new to inventory management, I highly recommend this article comparing the best inventory management software with a breakdown of the features of each one.
Keep Your Inventory in Check to Grow Your Business
Inventory management is one of the most important parts of an ecommerce business to get right, and choosing the right software that works for your business will improve your workflow and save you a lot of time and money in the long run.
The most important part of choosing the right software is ensuring it has all the functionality you need for your business and can scale with your business.
So before you purchase any expensive software, ensure you understand exactly what you need.
Need more tips and advice about inventory management? Sign up for The Ecomm Manager newsletter today!
More great ECM content:
- Inventory Management Software: Benefits And Key Features
- 10 Best Inventory Management Software For Ecommerce
- 10 Best Warehouse Management Systems
- 10 Best Cloud-Based Inventory Management Software
- 10 Best Free Warehouse Management Software
- 10 Best Free Inventory Management Software
- 10 Best Cloud-Based Warehouse Management Systems
- 10 Best Order Tracking Software For Online Stores