Inventory management

Inventory management techniques and best practices

Inventory management is the process of organizing and maintaining stock on its way through a supply chain. Whether you sell portable phone chargers, gourmet pickles, or high-end cosmetics, having the right inventory process in place to meet demand can help keep your business running smoothly, increase customer satisfaction, and avoid profit loss.
Lofi Ui illustration of inventory management
Have you ever been excited to try a new product only to find the dreaded “out of stock” icon when you go to place the order online? Did you remember to check back to purchase that product or did you just go find a similar product elsewhere? As an ecommerce business owner, proper inventory management can help prevent missed sales opportunities like this and keep customers coming back.

What is inventory management?

Inventory management is the process of tracking and storing products to meet customer demand quickly and efficiently. It applies to how you source, store, and process products to get them ready for sale.
Man looking at computer with inventory behind him

The inventory management process

There are several stages in the ecommerce inventory management process. From stocking products to fulfilling customer orders, each step is key to help keep your business humming: receive and inspect your products, sort and stock products, accept customer orders, fulfill packages and ship orders, and reorder new stock.

1. Receive and inspect your products

First, your raw goods and products are delivered to your facility or warehouse. After the order arrives, inspect the products, making sure product quantity and serial codes are correct, and that there aren’t any irregularities or defects.

2. Sort and stock products

After receiving and inspecting products, store them in your warehouse and note them in your tracking system so you can easily see what you have in stock. You can organize products based on SKU or product type.

3. Accept customer orders

You’ve made a sale! Now it’s time to process orders through a point-of-sale system or an inventory-management system.
Someone placing a shipping label on a box

4. Fulfill packages and ship orders

As soon as possible, pack and ship orders. Consider your product’s packaging needs and fulfillment options so your product arrives safely and on time.

5. Reorder and manage existing stock

Minimize the risk of having too much, too little, or no stock, which can result in profit loss or a poor customer experience. Certain inventory-management systems can also automate the reordering process so you don’t have to worry about replenishment. They can also help you predict future demand to optimize stock levels for holidays and key sales moments like Black Friday.

Proper inventory management takes time, but will help increase your store’s performance and customer satisfaction. The results of poor inventory management may not show up for weeks or months, but when they do, it can be ugly: dead stock, high storage costs, unfulfilled customer orders, and damage to your reputation. Additionally, storage fees, holding costs, or the inability for customers to place orders can decrease your profitability.
woman looking at her tablet

What are inventory-management systems?

Inventory-management systems track products from procurement to shipment. An inventory-management system can help you make critical business decisions such as how many units you need, your optimal inventory levels, when to reorder items, and which products to liquidate or remove.

The right inventory system can give you a realistic picture of what stock you have available to sell and help you run your business efficiently. An inventory system can be a manual count and ledger, a spreadsheet, or an automated digital solution.

When an inventory-management the system works correctly, you know what products you have available at a glance, along with important metrics like available shelf space, the amount of units in stock, and the precise storage location of individual products.

Inventory management benefits

Inventory management helps ensure there is rarely too much or too little stock on hand, limiting the risk of running out of stock or paying to store stock in warehouses that you aren’t selling. It helps you save money, improve cash flow, and meet the needs of your customers.

Here are several benefits of efficient inventory management.
photo of a warehouse

1. Reduce warehouse costs and improves cashflow

Buying the right amount of products at the right time to fulfill customer orders can reduce the cost of storing excess inventory or missing out on sales opportunities. You can also improve your cash flow by paying your suppliers on time and avoiding penalties or fees.

Warehouse storage costs include the rent, utilities, maintenance, security, insurance, labor, equipment, and software to organize and track your inventory. Inventory management optimizes the use of your storage space, reduces the risk of stranded or dead inventory, and increases the efficiency of your operations.

Learn the lingo:

Stranded inventory and dead stock

Stranded inventory: Sellable inventory that may be in a fulfillment center or warehouse but isn’t listed for sale on your site

Dead stock: Merchandise that's never been sold to a customer. It often cannot be returned to the supplier because it's outdated, out of season, or has little to no demand.

2. Improve fulfillment efficiency

Accurate inventory helps avoid out-of-stock items, overstocks, and misplacements. It also optimizes warehouse layout, storage, and replenishment that helps cut down on fulfillment and travel time.

Learn the lingo:

Overstock and misplacements

Overstock: When a business buys more of a product than it sells

Misplacements: When recorded items in your stock are placed in the wrong rack or aisle. Misplaced inventory may occur when items aren't monitored and recorded in-stock after arriving at the warehouse.

3. Create a positive customer experience

Shipping delays, errors, and out-of-stock products can cause customer dissatisfaction and harm your reputation. Knowing how much inventory you have on hand and fulfilling orders swiftly helps meet customer needs and expectations when they place an order.
woman scanning inventory

4. Prevent inventory aging

“Inventory aging” is a term used to describe items in a warehouse that are not selling quickly or at their full retail price. Inventory management can help prevent this by tracking sales velocity, forecasting demand accurately, and improving stock replenishment.

5. Create efficient reordering

An automatic reordering system will simplify the inventory tracking process. It can automatically order products as they run low, which avoids the risk of losing track of which products have been ordered and which ones haven't.

6. Detect problems early

Auditing your inventory regularly helps fix inventory errors and discrepancies, and it can detect problems early. Be sure to inspect your products when they first arrive for defects, and check your actual inventory against your system records.
Amazon fulfillment conveyor belt with Amazon package

Inventory control techniques for selling with Amazon

Inventory control is the process of ensuring you have the right amount of products to fulfill customer orders. Optimizing your inventory is necessary for understanding how much product you have at any given moment, when to expect your next shipment, and how to fulfill customer orders quickly. Amazon offers several solutions to get your inventory and fulfillment under control.

Fulfillment by Amazon (FBA)

Fulfillment by Amazon (FBA) lets you outsource order fulfillment to Amazon. When a customer makes a purchase on Amazon, we pick, pack, ship, and handle customer service and returns. Shipping with FBA costs 30% less per unit than standard shipping options offered by major US carriers and 70% less per unit than their premium options comparable to FBA.

FBA can not only help you lower costs, but it can save you time so you can focus on growing your business. You can also use FBA programs like Subscribe & Save to help to increase sales and secure repeat customers. Or use Buy with Prime to offer the Amazon experience on your other sales channels.

Fulfilled by Merchant

Fulfilled by Merchant is a suite of Amazon solutions that helps you save time and money when you fulfill customer orders yourself.

Use tools and automation to sync your inventory and streamline the orders you receive from Amazon, as well as other sales channels. Get great shipping rates and offer customers fast, reliable delivery while enjoying increased account-health protection for delivery-related claims.

Supply Chain by Amazon

Supply Chain by Amazon is a fully automated set of supply chain services that gets your products from manufacturers to customers around the world. It’s a complete end-to-end solution that includes programs like FBA and Multi-Channel Fulfillment (MCF). Supply Chain by Amazon keeps products in stock, automates inventory replenishment, provides faster and more reliable shipping, and can significantly lower costs.

Multi-Channel Fulfillment

Multi-Channel Fulfillment (MCF) lets you outsource fulfillment for orders placed on your websites or another sales channel. With MCF, we use your pooled FBA inventory to provide fast, low-cost, and reliable fulfillment for multiple ecommerce channels.

For sellers who sell across multiple channels and websites, Amazon provides a free software called Veeqo that syncs and tracks inventory across channels, locations, and FBA. When you make a sale on one channel, Veeqo makes sure your inventory levels are reduced across all your channels, preventing overselling.
woman in a warehouse checking inventory

Common inventory problems and how to avoid them

Having stock on hand is a must for a product-based business. But inventory can also hurt your business if mismanaged. As your ecommerce business grows, poor inventory tracking can lead to:
  1. Excess inventory
  2. Low stock levels
  3. Stranded or dead stock
  4. Spoilage
  5. High storage costs
Let’s explore these common inventory problems and some ways you can avoid them.

1. Excess inventory

Having enough stock to ship out customer orders quickly is a good thing—but having too much inventory can cost you.

Excess inventory can tie up resources and run up storage costs. Aside from incurring unnecessary fees, you may be unable to respond quickly to shifts in customer demand, while aging inventory could force you to liquidate.

Did you know?

Amazon offers an excess inventory calculation report through FBA

We evaluate product demand, price elasticity, seller costs, and seller inputs to help ecommerce sellers manage their inventory effectively.
Amazon considers you to have excess inventory if you have:
  • Over 90 days of supply
  • At least one unit aged over 90 days
  • A better ROI opportunity (such as reducing the price to increase sales)
Ensure you have about two months of supply available, are selling your products in a timely manner, and are exploring opportunities to increase sales to help you earn a return on your investment and avoid storage fees.

Learn the lingo:

Sell-through rate

Sell-through rate is a measure of how well you are balancing your inventory levels and sales. It’s calculated by dividing the number of units sold by the number of units received.
The FBA sell-through rate is a measure of how well you are balancing your FBA inventory. For Amazon sellers, it’s updated daily in a Seller Central dashboard. Whether you use FBA or not, a high sell-through rate can show you carry popular, fast-selling items.

2. Low stock levels

On the flip side, it’s essential to have enough inventory in stock to meet customer demand. Low stock levels can hurt your sales and brand reputation. No one likes to order an item only to find it’s out of stock.

The right inventory level for your business may depend on seasonality, sales history, or customer demands. Run a demand-planning analysis to arrive at the optimum inventory level.

3. Stranded or dead stock

Stranded inventory is sellable inventory that may be in a fulfillment center or warehouse but isn’t listed for sale on your site. It hurts your business because it ties up your cash. You paid for the products and are paying for storage, but customers can't buy.

Stranded inventory leads to lost sales, storage costs, and lost storage capacity. As an Amazon seller, you can easily track and fix stranded inventory through Seller Central.

4. Spoilage

Some products like food, supplements, and cosmetics have sell-by or expiration dates. When you hold inventory past its sell-by date, your investments go down the drain.

Tracking your products through a system can help you avoid spoilage, allowing you to run promotions or discounts on items at risk of spoiling in the near future.

5. High storage costs

Optimizing your storage space can help you lower costs and stock fast-selling items. Not tracking your inventory can lead to higher costs for storage, removals, and liquidations. Even if you use a third-party inventory management system, you still want to track how much inventory you have in storage to avoid incurring unnecessary costs.

Use an inventory system to track info like:
  • What you have in stock
  • How your inventory is aging
  • Optimum inventory levels
This type of tracking will go far to help you avoid high storage costs.
man and woman at warehouse

7 inventory management best practices for ecommerce sellers

Achieve profitability, scalability, and sustainability by improving inventory management for your ecommerce business. Here are some tips to help you run your business smoothly and efficiently.

1. Conduct regular inventory audits

By doing regular audits, you're able to catch issues before they become an even bigger problem. This also ensures inventory is at the right level.

As a rule of thumb, you should conduct inventory audits at least one to two times a year. If you can audit quarterly—even better.

Cycle counting is a process that requires you to count a small amount of your inventory at a specific time, usually on a set day, without handling your entire stock in one go. It can be a more manageable way to ensure your inventory is accurate and up to date at all times.

2. Implement an inventory-management system

Having an inventory-management system in place ensures you’re able to fulfill incoming or open orders and increase profits. It helps:
  • Track your inventory so you know how much you have and what you need
  • Control costs
  • Improve delivery speed
  • Aid in planning and forecasting
  • Reduce time spent on inventory management
There are many software options out there to choose from. Be sure to select a system that:
  • Syncs with your order fulfillment or selling system
  • Provides demand forecasting
  • Alerts you when items are running low
  • Allows quick and easy barcode scanning
  • Tracks all relevant product information
Amazon has several inventory-management solutions.

3. Build and maintain relationships with suppliers

Your suppliers are vital stakeholders in your business. Your success can help their business too. Here are a few ways to sustain healthy relationships with suppliers:
  • Pay your bills on time.
  • Treat your suppliers with respect.
  • Communicate frequently and regularly.
  • Offer constructive feedback.
  • Build goodwill by referring business.
Promote positive interactions with the key players in your supply chain to get the right products on time and anticipate any manufacturing or shipment issues.

4. Sync inventory across multiple online platforms

Multi-channel inventory systems can help you scale your business by making it easier to sell across more channels. Tools automatically sync your sales and inventory so you have more time to expand to new selling platforms and reach new customers. This also helps avoid overselling and underselling across multiple platforms.

Amazon's Multi-Channel Fulfillment (MCF) has an inventory management system, Listing Mirror, that helps prevent these issues by synchronizing inventory levels across multiple channels.

5. Automate order fulfillment and tracking

Ecommerce businesses can reduce the risk of errors and improve inventory accuracy with an automated fulfillment system, like FBA, that automatically updates inventory levels in real time, tracks sales and purchases, and generates accurate reports.

6. Manage returns and reverse logistics

How your business handles returns is just as important as fulfilling products you’ve sold.

Reverse logistics moves goods from customers back to the seller or manufacturer. Once an item is received, it can include product repairs and maintenance, refurbishing or remanufacturing defective items, or repackaging products.

When managed properly, reverse logistics can help improve customer satisfaction and build customer loyalty, reduce costs by recycling and reusing material, generate revenue, and improve your brand's reputation. With FBA, you can make it easier by outsourcing customer returns to Amazon.

7. Reduce excess inventory and restock popular products

Avoid sunk costs (money that has already been spent and cannot be recovered) by marking down prices or creating special deals to liquidate aging inventory or overstock products.

Stocking popular products and tracking how many days of supply you have on hand can also help your business stay profitable. Monitor sales and gauge past order quantities to plan how much inventory you need throughout the year. Keep enough backup units to ensure you won’t run out of inventory due to supply chain mishaps.

Learn the lingo:

Sunk costs

The phrase “sunk costs” refers to money you have already spent and can’t recover. If stock sits on the shelf for over three months, you may not be able to recover the expenses you’ve incurred in acquiring and storing the item.
“Amazon’s inventory management tools use world-class machine learning algorithms to create customized restock strategies, taking into account current inventory levels, restock preferences, supply chain constraints, and anticipated demand.”
Kevin G.
FBA Inventory Optimization Team
woman holding packages and looking at her phone

How does Amazon inventory work?

When sellers choose to use FBA, they automatically gain access to Amazon’s machine learning-based inventory-management system. This system uses inputs like the cost of goods sold, shipment time, and other Amazon data to forecast customer demand and set optimum inventory levels.

Amazon’s inventory management tools can help you manage stock efficiently

For FBA sellers, Amazon offers a suite of inventory-management tools right in Seller Central. These tools help entrepreneurs and ecommerce businesses manage their FBA inventory efficiently and offer faster order fulfillment.

The Inventory Performance Dashboard in Seller Central sends an alert when stock quantities are running low and provides demand planning and forecasting to suggest recommended inventory levels and shipment timelines. The dashboard displays essential inventory information such as sell-through rates, aging stock alerts, and recommended actions to optimize storage.

Automatically track how well you manage your inventory with Amazon

Inventory performance is a measure of inventory management and replenishment. The Inventory Performance Index (IPI) is a metric for Amazon sellers that measures how efficiently they manage their FBA inventory—similar to a credit score for inventory efficiency.

Improve your Inventory Performance Index score to minimize storage costs

Your Inventory Performance Index (IPI) score is based on how well you:
  • Replenish popular products
  • Maintain healthy inventory levels
  • Fix listing problems
inventory performance index illustrative graphic
Just as a high credit score will give you benefits, so will a high inventory score. Keep your IPI score high to lower storage costs and make more profit.

Streamline inventory management and reduce costs with FBA

FBA helps businesses manage inventory in one place, without the need for additional software. It offers a free suite of inventory management tools for ecommerce business owners.

You can access this suite of tools through the Seller Central dashboard or the Seller App on your smartphone.

Along with daily inventory and storage reports, Amazon uses machine learning models to provide data-driven recommendations through features such as:
  • FBA Restock Tool
  • Inventory Performance Index
  • Inventory Age Report
There is a lot to learn about inventory management, but by starting with these tips and best practices you can reduce your costs, increase customer satisfaction, and keep your ecommerce business running smoothly.

Amazon programs like FBA are also here to help remove the guesswork and provide you with the inventory tools that you need to keep you business healthy.

Inventory Management FAQs

How do you measure to see if you are successfully managing inventory?
There are several ways to measure your inventory management. One of the most common methods is looking at your sell-through rate to ensure you’re balancing inventory levels with sales. You can calculate this by dividing the number of units sold by the number of units received.
What’s the difference between order management and inventory management?
Order management refers to how you receive and process customer orders. Inventory management refers to how you manage products through your storage facility or warehouse. Integrating your order management and fulfillment management systems and processes can help you run your business smoothly.
What is supply chain management?
The supply chain is the combined network of people and processes that take an item from the raw materials to a final delivered product.

Supply chain management is how you manage your process for acquiring or creating products up until the products are sold.
What’s the role of the supply chain in relation to inventory management?
Inventory management is part of the supply chain and refers to overseeing the process of acquiring products for sale.

The supply chain affects many aspects of your inventory, including sourcing quality items at a lower cost, shipping times, and increasing positive customer reviews to help build your brand and ecommerce business.

Start selling today

$39.99 a month + selling fees