Optimized Inventory For eCommerce Businesses- Complete Guide

Virginia Miller

October 11, 2023

In this article

Are you looking for ways to optimize your eCommerce inventory? Managing an online business can be challenging, especially when maintaining and tracking Inventory. Having a well-planned and organized inventory is essential for success in the world of digital retailing. Luckily, there are many tools available that make inventory management more accessible than ever! In this comprehensive guide, we'll discuss everything from best practices to expert tips on how you can create optimized inventories for your eCommerce business. Read on for our ultimate guide to successful online shopping today!

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What Is Inventory Optimization?

Optimizing Inventory is keeping the right amount on hand to meet demand while keeping logistics costs low and avoiding common inventory issues like stockouts, overstocking, and backorders. Inventory optimization is an eCommerce best practice and strategy that ensures efficient stock control by technology, processes, implementing inventory optimization tools, and techniques to track Inventory in real-time, better forecast demand, and optimize storage.

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Elements Of Inventory Optimization

To ensure that you always have the right amount of product available for the fulfillment, you must consider storage capabilities, supplier lead times, current inventory levels and schedules, seasonal trends, and future campaigns.

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The following is an overview of the stock optimization process.

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Demand Forecasting

Demand Forecasting is a method of predicting future demand for goods and services. It involves analyzing current trends, market conditions, customer behaviors, and other factors to forecast product demand over a certain period. Demand forecasting can be done using one or more techniques, such as qualitative methods (surveys, interviews), quantitative methods (time series analysis), or combination approaches (econometric models).

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Demand forecasting helps businesses make informed decisions about pricing strategies, inventory levels, and production planning. Using predictive analytics techniques allows organizations to predict changing industry trends more accurately to anticipate customer needs before they arise and take appropriate measures to tackle them effectively. Additionally, it reduces the risk associated with operations with sufficient data about expected sales volumes. Ultimately, accurate demand forecasting enables companies to remain competitive in their respective markets while providing customers better service quality due to improved supply chain management practices.

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Inventory Replenishment

The process of moving your products from inventory storage to picking shelves or even receiving more Inventory from the manufacturer is known as inventory replenishment.

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The inventory replenishment process is critical because it ensures enough Inventory is available to be picked and packed as soon as each order arrives. Backorders and delayed deliveries can be avoided by restocking Inventory at the right time to meet demand.

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Inventory Levels

More Inventory necessitates a significant investment—meanwhile, poor inventory results in lost sales opportunities and dissatisfied customers. Optimizing inventory levels by keeping the optimal amount of each product on hand can reduce the risk of common inventory issues, such as high storage costs and out-of-stock items. Healthy inventory levels indicate efficiency and profitability. It boosts cash flow, increases warehousing capacity, and fosters brand loyalty and trust.

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Inventory Storage

Inventory storage optimization is necessary for running any business that sells physical goods. A low-cost inventory storage system assists you in managing your Inventory to meet customer expectations while allowing your business to grow.

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Remember that storage requirements will differ from company to company, depending on sales volume, product attributes, and locations shipped to and from. Finding ways to be more strategic with storage is essential to inventory optimization.

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Importance Of Inventory Optimization

The growing popularity of multichannel retailing, combined with the unpredictability of natural disasters, raw material shortages, manufacturing closures, and other factors, can make optimizing your supply chain difficult.

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Fortunately, by putting the right tools and resources in place, you can plan better for the unexpected while still meeting the demand and keeping logistics costs low. Five reasons why inventory optimization is critical for supply chain planning and growth in the future.

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Reduce Operational Costs

Storage, warehousing, and general inventory management costs are all expenses related to how well you optimize Inventory.

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Suppose your company needs a better inventory flow and high carrying costs. In that case, inventory optimization can assist in determining which items are slow-moving or fast-selling, as well as which warehouse locations make the most sense to store certain things based on the demand to reduce the time the products sit on shelves.

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Boost Customer Satisfaction

It is the deepest desire of most direct-to-consumer (DTC) brands to keep customers satisfied. Optimizing Inventory ensures orders are picked, packed, or kitted immediately.

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To be on the safe side, it's tempting to overstock Inventory. However, by figuring out how to optimize Inventory, you can become more knowledgeable about how much of each item to stock and where to store your products geographically. This allows you to meet demand consistently, avoid inventory issues, and reduce storage costs.

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Gain Faster Delivery Options

Inventory optimization can assist you in tracking SKU performance across your distribution network. This enables you to strategically allocate Inventory to warehouse locations with the highest demand, ensuring that most of your orders can be shipped quickly and at a lower cost.

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Because inventory levels fluctuate constantly, it's critical to consider technology and automation to track Inventory, especially if you store Inventory at multiple locations. A good inventory allocation strategy that is tech-enabled and provides valuable insights can have a significant impact on your shipping strategy.

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Balance Inventory Levels

Knowing which SKUs are available at any given time in your warehouse or distribution center aids in inventory accounting, profitability, and meeting customer demand. Inventory optimization aims to balance inventory levels, so you stock up only a little.

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Balancing inventory levels can help you improve cash flow, optimize warehousing capacity, and meet customer demand consistently.

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Prevent overstocking

Without the proper resources to make better inventory decisions, it is expected to overstock Inventory to be safe. Overstocking, on the other hand, can result in higher carrying costs and a deadstock caused by items that become unsellable due to seasonality, being past their expiration date, or declining demand over time.

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Inventory Optimization Techniques

Because inventory optimization is one of the most important aspects of running an eCommerce supply chain, businesses of all sizes can use many different techniques and best practices.

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Use Demand Forecasting

Having the right tools and technology to forecast demand can help you make more informed supply decisions that estimate total sales and revenue over time.

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The most important type of data to have access to when forecasting demand is historical order data, which provides insights into sales trends. With this data, you can make better business decisions, improve supply chain efficiencies, save money, and provide a better customer experience.

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Inventory forecasting can also help you decide when to hold a flash sale, hire more employees, or rent more storage space (or outsource fulfillment).

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Determine Safety Stock Inventory

Safety stock, also known as 'buffer inventory,' is excess Inventory kept on hand in an emergency or supply chain failure that results in less-than-average inventory availability. For each SKU, you will need the following information to calculate the optimal amount of safety stock:

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Maximum daily consumption
The longest possible lead time
Daily usage average
Lead time on average

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Implement Reorder Point Formula

While knowing how much minimum Inventory to keep (including safety stock) is critical, you must also determine the best times to reorder.

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Your reorder point must ensure that excess capital is not trapped in Inventory and must account for any lead times.

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The following is a simple formula for calculating reorder points:

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Demand during lead time + safety stock = reorder point (ROP).

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Carry Out Inventory Audits

Inventory audits regularly, and proper warehouse receiving procedures can assist you in tracking Inventory more efficiently.

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holding costs should be monitored and calculated to avoid significant discrepancies. Auditing can be time-consuming. Fortunately, there are solutions for online brands that automate and digitize the inventory monitoring process, such as the ability to sync your online store with inventory management software or use fulfillment software from a 3PL.

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Keep Tabs On SKUS

You can easily track, manage and update products across your distribution network by syncing your SKUs to an inventory management solution (and sales channels). This prevents overselling or running out of Inventory too quickly.

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Merging duplicate SKUs or managing Inventory across a distribution network is simple when you work with a 3PL like simpl fulfillment. Simpl quickly connects to all major eCommerce platforms; after connecting your store and syncing your products, you can view real-time inventory levels by SKU.

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Set the reorder points for each SKU based on the quantity you want to be notified of when it's time to restock. For promotions, group together different SKUs. Combine the same product across multiple eCommerce platforms. Before shipping, have different SKUs kitted and assembled.

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Distribute Inventory Across Warehouses

While centralized Inventory is easier to manage, keeping Inventory close to where it is needed is more critical. Orders can be delivered efficiently, lowering shipping costs when SKUs are strategically distributed across multiple fulfillment centers.

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Because the same technology powers most of the 3 PL's entire international fulfillment network, aggregating historical order data provides insights into SKU performance at each location compared to others. This allows you to make informed decisions about how much you have to store at each location based on demand:

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Use Inventory Management Software

You can sync SKUs and orders with inventory management software to see all Inventory, fulfillment centers or sales channels, and customers in one place.

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Depending on the actual size of your business and budget, several inventory apps and many other solutions can help you easily track Inventory in real-time. For example, 3 PLs not only store Inventory and fulfills orders but also include inventory optimization tools, allowing merchants to track Inventory across distribution centers easily, predict demand, set automatic to reorder notification points, and have the reports they need to prepare for tax season.

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How Does A 3PL Optimize Inventory?

eCommerce store owners who want to optimize their Inventory efficiently can get the resources, technology, and expertise they need by partnering with a best-in-class 3PL.

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Some 3 PL fulfillment technology includes inventory optimization solutions built-in and advanced data and analytics reporting tool that provides valuable insights to help you efficiently expand into new sales channels, global markets, and distribution locations.

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3 PL can manage the entire eCommerce fulfillment process for you, so you can focus on business growth rather than optimizing Inventory and packing orders. You can track Inventory in real-time by storing it in one or more of 3 PL fulfillment centers, all from one dashboard.

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Simpl fulfillment enables you to optimize Inventory in several ways. Firstly, it eliminates manual processes such as paper-based ordering systems and manual data entry by providing automated tools like order tracking software, and automatic reorder reminders, so you always have the right amount of stock on hand – no more overstocking or understocking problems! Secondly, its dynamic algorithms ensure accurate predictions for future customer demand based on past trends and constantly changing environmental factors such as holidays or seasonal changes in order, so you're never caught off guard by fluctuations in sales volumes. Thirdly, it's integrated with most major shipping carriers so that you can access real-time quotes from multiple carriers when booking shipments – saving time and money while improving delivery accuracy for your customers!

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Conclusion

Inventory management and optimization is a challenging yet essential requirements for success in the world of digital retailing. We hope this guide has helped you understand and implement the best practices when managing your online store's Inventory. From utilizing an inventory management software program to ensuring all product details are correct, there are numerous strategies to help increase efficiency in your eCommerce business. Although these tips may only guarantee success after some time, adequately managed inventories, have proven to improve performance and profits over time. So if you're feeling overwhelmed and need help fulfilling orders, getting in touch with an order fulfillment expert like Simpl can be a great start! With their easy-to-use system, you'll be on your way towards maintaining optimized inventories for your eCommerce business in no time.

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