Inventory management made simple for online retail 

Getting your product delivered within days of ordering it is a convenience like no other. It feels great, and is almost expected, if you’re the customer. But there are many complex factors behind this seemingly simple process that the customer never has to think about… while the seller does.

From supply or production to stocking, all the way through to delivery – inventory is a common key factor that binds it all together.

Managing stock – from past to present

We live in an age where inventory management has changed dramatically. In the age of brick-and-mortar stores, keeping stock was fairly simple. But with more sales channels opening up online as well as the emergence of virtual storefronts that are run alongside your physical stores, inventory becomes a complicated and challenging process.

Retail is one of the few industries where inventory can be a lingering headache. The number of products and categorizations can leave you puzzled and overwhelmed. 

In this article we aim to address and alleviate some of your concerns. We’ll help you form better conclusions around how to go about inventory management. You’ll also have a clearer picture of what tools and strategies you can use to improve the way you measure and regulate stock.

Best practices in inventory management

Stock alerts on fast-moving products

For sellers that have growing businesses, there are POS (point-of-sale) systems that can automatically alert you when your stock is approaching a concerning low level. This way you can know when to reorder a product that is running out. It also gives you an idea about how many you need for each sales cycle based on how fast the product is depleted. 

Bulk orders for in-demand products can also attract suppliers who’d be more willing to allow discounts, thereby enhancing your profit margin as well.

Gauging each product’s profitability

Profitability and demand are two of the key decisive factors that aid you in determining when to sell, how much to keep in stock, and what range to price your products at.

One thing to note if you’re a beginner is that your most sold item isn’t necessarily your most profitable. That depends entirely on your margin – the gap between your selling price and the cost of selling. This is why when it comes to deciding which items to keep in stock, you can take a look at the individual bottom line of each item. 

For example, handbags might do great when they are in stock but it’s probably custom shirts that fetch you a better profit, even when low in stock.

Know your potential revenue. Find your spending limit.

You can’t decide how much to spend without knowing how much you stand to gain. At any given time, using a personal finance tool can help you figure out how much your unsold inventory is worth. It’ll give you a ballpark figure that shows what your revenue potential is. You can then decide how much you’re willing to invest into getting it off the shelf. 

Again, in today’s fast-paced world of sales, knowing your spending limit should be instantaneous. There’s hardly any time to do a manual count before you arrive at a number. Remember, retail is a continuously ongoing business. You need quick and snappy answers to make fast decisions. 

The only way to get live reports is to use an automated tool for updates combined with a centralized database that’s updated in real-time. We’ll talk about some of our favorite inventory software in our next blog.

You may not realize it, but the size and timing of your order can greatly affect your costs. This is why getting accurate reports on demand, stock depletion, and product profitability are so important. 

Turnover ratio – helping you decide what to turn down

The inventory turnover ratio is the rate at which your stock is converted into sales. This is different for each product. You cannot rely on the total ratio when you’re selling more than one product. You’d have to calculate the turnover ratio of each product separately, especially when you’re dealing in retail.

While you can get an average turnover rate that combines all of your products, the number might not accurately represent where your business stands.

To continue our previous example, selling a lot of handbags doesn’t necessarily mean your business is profitable. It could be that the handbags don’t bring in much in terms of revenue. So what happens when your total turnover ratio indicates a high number, but 80% of it is made up of low-profit sales? This is a key point that a lot of online retailers tend to overlook.

Separate fast-moving from slow-selling

Find out which products are fast.sellers and which ones are barely moving. A decent POS or finance tool can help you decide which products are always in demand so that you can increase your order size and frequency accordingly. The slow sellers can be delayed and deprioritized for minimal re-orders, based on performance.

Past data to inform present decisions

Use predictive tools that use past sales data to project potential future performance. However, make sure you don’t rely completely on the conclusions of algorithm-based forecasts. There are certain patterns such as seasonal trends and festive surges in sales that only a trained human eye would be able to spot. 

Nevertheless, it is still useful for getting a visual idea of how your business is doing, which products are worth reordering, and which ones can be sidelined. 

Holding cost: an invisible expense

Carrying costs can sometimes drain away your hard-earned revenue. This is why it’s important to individually calculate the carrying cost for each item, on average. If a certain product has been sitting too long on the shelf, maybe it’s time to rethink keeping it in stock. 

You can instead choose to make them available on demand. Sure, you might lose out on a few random or sudden orders, but it would offset the excess carrying costs that the product is taking. 

A general formula for inventory carrying costs is the sum of the product’s cost, opportunity costs, a percentage of your insurance, and a percentage of your taxes. 

Spot pilferage before it’s too late

Make sure you keep an eye out for inventory shrinkage periodically. This happens when products go missing from the shelf or the store and are not recorded on your database. None of the reasons for it are good. It could be a mistaken entry or a case of theft that goes unnoticed. 

Compare demand with speculative data

It is also ideal to regularly test how accurate your demand forecasts are compared to the actual orders you received for the period. This way, you’ll know the degree to which you can rely on the predictive tool and even identify what elements you may have missed or forgot to add to the database. 

Unified data leads to well-informed decisions

Interconnected processes drive today’s world of retail business. A ripple in one step of your retail store’s supply chain might cause a wave in another. This is why you cannot have mutually blind and disparate warehouse operations anymore. 

Every step you take; every product that’s lifted off the shelf and into the cart; and every item that’s returned needs to be tracked, monitored, and recorded. The fastest way to do it is by using digital tools that reduce time – barcode scanners, GPS trackers for delivery vehicles, and mobile app-based management for quick changes.

Get rid of error-prone intervention

Online retailers should invest first and foremost in obtaining accurate data. Without it, stock updates can go haywire and customers can become dissatisfied when their product doesn’t arrive at the promised time. 

Excessive manual entries in inventory pose a huge threat to business, especially when you’re dealing with large-scale retail. It is simply too error-prone, and you lose way more in rectification than you save in the software. It is way more efficient to invest in a cost-saving and error-proofed solution that does all the work for you. This also allows for a better allocation of your staff’s time.

Automation can accelerate things

Every time an order is made online, it should automatically trigger a pick-pack-and-ship process. Every in-store purchase should simultaneously be reflected in your inventory. Gone are the days when you could set aside a day of the week for cross-checking stock. 

When you’re dealing with sales through multiple channels, staying successful requires that your updates be in real-time. It will save you a lot of hassle down the line and keep your supply-to-sale flow running smoothly.

Large-scale orders? Live tracking is key

eCommerce giants like Amazon and Shopify have set the bar high for small-scale retailers as well. Customers do prefer the convenience of being able to track the products they’ve ordered. 

Barcode slips are a quick and easy solution to this problem. They can easily be scanned and updated on the database for maximum product visibility. Bear in mind that it is the sellers who depend on real-time tracking the most, especially for keeping inventory checks accurate. 

Representation affects reputation

Online marketplaces are fairly strict about falsely representing inventory levels. The negative experience can blow back on the third-party provider as well. On the other hand, it is difficult to keep track of sales and falling stock levels every minute. Instead, it is more convenient to have an automated system in place that alerts you when the stock falls below a certain threshold.

Let pricing include overlooked costs

Online sellers need to have a good understanding of how their various product prices are feeding into the stocking charges. A well-thought-out pricing strategy that takes into account stocking, shipping, and delivery expenses depending on where the order is placed can help mitigate excess costs.

Centralize data for maximized convenience

The best way to manage inventory when you’re selling on more than one channel is to use a centralized dashboard. This should ideally give you a real-time bird’s eye view of all your channels, orders and inventory in each center. Make sure you’re able to automate most of the routine processes so that you only have to intervene where it is necessary.

Allocate safety stock for emergencies

It is always wise to hold out and allocate a portion of your in-demand stock for emergency cases. Unexpected shortages are part and parcel of doing retail, which is why an optimum level of safety stock can set your mind at ease. It also gives you a little bit of extra time to rethink a new inventory strategy.

Stock visibility helps brand transparency

Trying to close sales with stock you don’t have isn’t a good idea. It leads to more dissatisfied customers and a poor reputation down the line. What you can do instead is gain visibility into the true state of your stock levels by integrating all your channels. 

e.g. Every sale you close through the Instagram funnel is instantly reflected in stock levels so that you can maintain the same transparency with your customers. You wouldn’t receive an order unless the product is available at the time of booking, and is instantly separated in storage.

Offer a balanced return policy

A reasonable return policy can also help you with maintaining optimum inventory levels. If you’re prone to expect a certain percentage of returns with every sales cycle, you can allow for it and redirect the stock to customers who you would otherwise turn down.

Customers are also more inclined to trust retailers who have a viable return policy. This doesn’t necessarily equate to getting more returns than you would. Some sellers consider it too risky to include, reasoning that with the option on the table, customers are bound to opt for returns at a higher rate. Even if that is true, there’s an element of trust and transparency that comes with a return policy, which you otherwise wouldn’t attain.

Solving the problem of high return volume

One way to work around the shipping and stocking costs that come with a high volume of product returns is to make it conditional. Allow your customers to return the product(s) they’re unhappy with at the nearest outlet. This way, you can save up on the cost of pick-up and unexpected storage. The product can be funneled into the outlet’s physical inventory.

This can also be helpful to get more customer footfall to your store and interest them with products that they might find interesting.

Speed up distribution. Scale up business.

One thing that’s remarkable about online retail channels is that you get orders from locations all around. You are not restricted to the region where you’re based. This allows you to open up more distribution centers, and locate them in areas that are most convenient for fulfilling orders as well as in line with demand. That way, you’ll be able to save up on delivery time, storage costs, and shipping expenses. 

Real-time updates are crucial

One thing sellers often overlook is that with each sale in your physical store, you need to keep your online store’s inventory updated as well. Otherwise, one of two things could happen: 

  1. Customers visiting your store will have trouble locating the product they’re looking for (if it’s already been pre-ordered and shipped online); or
  2. You won’t be able to fulfill your online orders on time (if you run out of inventory by selling at the outlet).

Both are bad for business. The only way to solve this is by ensuring all your sales are updated on the database and automatically reflected on the inventory. 

This also depends on your business model. If you’re more comfortable allocating a certain set of stock for each channel based on past successes, go for it. But be sure to have an automated inventory tracking system in place. This will give you insights on whether it would be better to switch to a “first come, first serve” model, where you empty out inventory based on who orders first.

Another point worth noting is to keep track of customers who were rejected because the product they wanted was out of stock. Ensure you automatically notify them whenever the stock is replenished. This way, you won’t miss out on too many potential sales.

How to shuffle and balance orders with returns

Let’s say you’ve got customer A who’s ordered a product online, which is currently out of stock but will be replenished by the weekend. On the other hand, you have customer B who’s returning the very same product to your store within two days. By investing a little bit in doorstep pick-up, you can expedite the process, complete the return from customer B, and redirect the same product to customer A.

The above example is simply to illustrate how, with online retail, some benefits simply don’t come with a strictly brick-and-mortar enterprise. Furthermore, this is how a decent return policy can help you with inventory management.

Scan to save valuable time

If you’re an online retailer who’s aiming to scale, there’s no way you can do without some form of digitization technology. There simply is no time to keep track of stock manually. Tracking products from one location to another becomes a whole lot simpler. 

Locating missing stock becomes easy. And you won’t have to worry about doing an inventory check every 10 minutes. 

All of that becomes easier when you have a centralized dashboard that gets updated every time the product is scanned and cleared for shipping or delivery.


Online retail is shifting towards an age where technology, strategy and business adapt to meet and suit customer convenience. The competition can get extremely tough, but there’s still plenty to be excited about. As local sellers can now cater to both customers near and far, online and in-store, they may need to rethink how they approach inventory management.  

While the industry and demand are fast evolving, the best strategy for inventory is one that’s flexible and easy to adapt whenever the need arises. 

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