September 1, 2023
min read
Written by: 
Nikolaus Hilgenfeldt
Ecommerce Growth

Ecommerce Inventory Management - The Definitive Guide

Ecommerce inventory management is the behind-the-scenes process that keeps your online store running smoothly.

It involves carefully tracking and controlling the products in stock, ensuring you don't run out of popular items or end up with excess that's hard to sell.

Neglecting this aspect can result in missed sales opportunities and disappointed customers due to out-of-stock items.

Conversely, overstocking can tie up resources and lead to unnecessary costs. 

Efficient inventory management is an absolute necessity in the cut-throat world of ecommerce.

It is the key to fulfilling customer demands, maximizing cash flow, and achieving business triumph.

This definitive guide will provide a comprehensive overview of ecommerce inventory management strategies, best practices, and tools.

Importance of Ecommerce Inventory Management

Inventory management is an absolutely critical component for the success of any ecommerce business for several reasons:

  • Financial Efficiency:
  • Meeting Customer Demand:
  • Maintaining appropriate inventory levels ensures products are available to meet customer demand promptly, avoiding lost sales opportunities.
  • Preventing Overstocking:
  • It prevents excessive inventory, reducing holding costs and the risk of obsolescence.
  • Improved Cash Flow:
  • Efficient inventory management minimizes excess inventory and allocates resources wisely, leading to improved cash flow.
  • Seasonal and Promotional Planning:
  • Analyzing historical data and trends helps adjust inventory levels to match increased demand during peak seasons or promotions.
  • Competitive Advantage:
  • Effective inventory management enables prompt order fulfillment, leading to positive reviews and customer loyalty, giving a competitive edge.

Challenges You Might Encounter in Ecommerce Inventory Management

Managing your ecommerce inventory can present a multitude of challenges that you must tackle head-on to ensure continued growth.

Be aware of the following common obstacles that can hinder your business's expansion:


2. Ecommerce Inventory Management Strategies

To manage your ecommerce inventory effectively, you should have a strong inventory management strategy.

Here are some standard methods for handling your ecommerce inventory:

1. Just-in-Time (JIT) Inventory

The just-in-time (JIT) inventory method originated through Toyota Motor Corporation's practice of ordering raw materials only when there were customer orders.


In ecommerce businesses, the JIT inventory methodology allows you to maintain minimal inventory levels, procuring goods just in time to fulfill specific orders.

In theory, JIT presents advantages like cost savings and operational efficiency, but implementing it can pose challenges.

Remember that JIT demands high precision in demand forecasts and a dependable supply chain.

These factors are necessary to fulfill orders promptly, and unforeseen surges in demand could lead to missed sales opportunities.

2. ABC Analysis

The ABC Analysis method categorizes inventory into 3 groups based on profitability.

  • Category 1 includes items with high value but low quantity.
  • Category 2 contains items with moderate value and quantity.
  • Category 3 includes items with low individual value but a substantial quantity.

This categorization strategy enables businesses to offer a diverse range of product lines. 

For example, you sell $1,000 sunglasses and $50 accessories in the same store.

In that case, different fulfillment tactics are necessary for these distinct products due to their differing values.


To determine ABC's inventory levels, we multiply a particular item's cost by its annual sales.

The resulting numbers help determine the priority levels and assist in allocating resources efficiently in terms of labor and capital.

3. Safety Stock

Many businesses use safety stock as a way to manage their inventory, which involves holding extra products in reserve.

Unlike the just-in-time (JIT) approach, safety stock serves as a backup plan for unexpected delays or changes in demand. Thus, it ensures that you can maintain a consistent output.


For retailers, having safety stock is essential to manage risks that may arise due to inaccurate forecasting. It can also help you navigate fluctuations in consumer demand.

Additionally, having a surplus inventory can be helpful when dealing with varying lead times for different raw materials.

Safety stock inventory provides an extra buffer to tackle these challenges.

4. Dropshipping

Dropshipping is a popular inventory management solution, especially for new ecommerce sellers, since it eliminates the costs of maintaining a warehouse.

However, the process can be complicated as business owners don't physically handle the merchandise.

Instead, they coordinate the transaction with the manufacturer or supplier when a customer places an order.


One concern with dropshipping is the limited control over the customer experience.

After the order is placed, the manufacturer oversees the entire process. 

In cases where customers receive defective or incorrect products, as a business owner, you are responsible for any issues that arise.

5. FIFO – First in, First out

The FIFO method means that the first products that arrive in a warehouse are the first to be sent to customers.

If you want to sell your products quickly, you can use this method. However, monitoring the prices of your items and materials is crucial.

Fluctuations in pricing may result in discrepancies between the cost of purchased products and the cost of items sold, ultimately leading to overestimated earnings.


6. Third-party Logistics

Third-party logistics, often called 3PL or TPL, encompasses a broader scope than mere logistics.

These providers offer a comprehensive array of services to ecommerce businesses, encompassing distribution, warehousing, and order fulfillment tasks.


Collaborating with a 3PL provider entails entrusting your inventory management to them as they store and manage your goods within their warehouse facilities.

How To Incorporate Strategies Into Efficient Ecommerce Inventory Management

Mastering ecommerce inventory management is a skill that relies on a blend of strategies, experience, and tools. Follow these steps to commence effective inventory control.

1. Grasp Product Demand

As a new ecommerce vendor, figuring out what products to order from suppliers and how much to order can be daunting.

Although there is no foolproof method for tackling these questions, understanding your product demand is crucial to making wise choices.

Here are some steps you can take to decipher consumer demand for your merchandise:

1. Analyze Historical Sales

Reviewing the sales performance from the previous quarter can give you valuable insights into the amount of each product you may need in the next three months, assuming demand remains relatively stable.

2. Incorporate Seasonal Trends

Seasonal fluctuations lead to predictable shifts in consumer demand for certain products. For instance, winter prompts declining swimsuit sales, while the holiday season triggers increased shopping activity.

3. Factor in Marketing Influence

Product promotion is closely related to inventory management. Successful marketing campaigns can increase sales, affecting your inventory needs.

2. Establish Reorder Point

The reorder point (ROP) is the level of inventory that triggers the need for replenishment. By helping to schedule supplier orders, it reduces the likelihood of running out of stock.


3. Make Regular Inventory Audits

Checking physical inventory involves counting the stock in your warehouse and comparing it to the recorded levels. By doing this, you can ensure that the theoretical and actual stock levels match.

Regular audits, whether you do them daily, weekly, or monthly, are crucial for maintaining inventory accuracy.

4. Harness the Power of Inventory Management Software

As a small ecommerce business, you may start by managing your inventory manually due to budget constraints.

However, as your business grows, it becomes impractical to continue with manual methods.

To streamline the process, it's better to implement inventory management software.


It tracks individual items or bulk inventory, providing real-time insights into your supply chain. You can benefit from features like barcoding, real-time tracking, low-stock alerts, and comprehensive reporting tools.

3. Tailoring Ecommerce Inventory Management to Your Sales Channels

How you manage your ecommerce inventory is closely tied to the sales and distribution channels you use.

It includes managing inventory across multiple channels, retail inventory management, or focusing on specific marketplaces like Amazon or Shopify.

1. Amazon Inventory Management

When selling on Amazon, keeping track of your inventory is crucial.

You can use specialized inventory management software that tracks sales on the platform and aligns them with your inventory levels, order dispatches, and overall sales figures.

Also, you can manage your own inventory or use FBA (Fulfillment By Amazon) as your inventory hub. 

2. Shopify Inventory Management

By employing a reliable Shopify inventory management system, you can accurately track inventory needs and prevent losses from misplaced stock, returns, excess inventory, or spoilage.

3. Retail Inventory Management

This is relevant to businesses with physical retail stores needing to track inventory levels, pricing, and locations.

Proper retail inventory management helps store owners and managers determine when restocking is necessary for their stores and warehouses.

It also involves transferring inventory between warehouses and retail stores.

Keeping inventory organized in brick-and-mortar stores attracts more customers, increases sales, improves the customer experience, and optimizes cash flow.

4. Multi-Channel Inventory Management

This strategy combines the methods mentioned earlier. It closely monitors inventory levels across different sales channels and storage locations, including ecommerce, retail, marketplaces, and wholesale sources.


This approach helps identify the appropriate inventory reorder points and plan for stocks based on projected sales, making the process more efficient.

4. Costs Associated with Ecommerce Inventory Management

It's important to understand that the cost of each product in inventory is only one aspect of overall inventory expenses. All expenses related to inventory operations - including ordering, storage, fulfillment, and management - should be considered for an accurate assessment.

1. Inventory Ordering

Whenever your company purchases items from a supplier, there are costs associated with managing inventory that can add up quickly.

Even if each cost seems small, they can quickly accumulate.

Before placing an order, it's important to calculate the expected expenses, like:

  • Purchase requisition,
  • Procurement processes,
  • Invoice handling,
  • Transportation charges,
  • Processing fees,
  • Labor costs.

2. Excess Inventory Holding

Maintaining surplus inventory can be risky for an ecommerce business.

It's crucial to balance stock levels by having enough to meet possible demand surges while avoiding overstocking.

Keep in mind that if your inventory has items that quickly lose value or have expiration dates, overstocking can lead to increased expenses from depreciation and wastage.

3. Inventory Storage and Warehousing

If you have extensive inventories or plan to expand, you know the storage and warehousing costs.

Consider outsourcing warehousing to a third-party provider to reduce these expenses.

This option allows you to pay only for the space you need within a shared facility.

It also provides flexibility in storage space, which you can adjust to match changes in inventory levels, such as those caused by seasonal sales trends.

5. Essential Inventory Key Performance Indicators (KPIs) and Metrics

Focusing on the most relevant inventory KPIs and metrics is essential for extracting actionable insights despite the abundance of options available.

Noteworthy inventory KPIs and metrics that deserve attention include:


To increase their effectiveness, ensure that KPIs follow the SMART criteria - specific, measurable, achievable, relevant, and timely.

Concentrate on the inventory KPIs most closely related to your business goals, focusing on the ones that provide the most value to your company and aspirations.

Final Thoughts

Managing your inventory doesn't have to be complicated.

By following a few best practices and choosing a system that fits your ecommerce needs, you can provide a better customer experience.

Plus, tools like inventory software, automation and monitoring platforms, and fulfillment partnerships can improve your operations seamlessly.

As you advance in your ecommerce journey, you might notice that the connection between inventory management and cash flow is pivotal.

It enables you to acquire, store, fulfill, and analyze inventory, enhancing your business's overall efficiency.

That's why, to thrive, it is essential to make sound financial investments and maintain a steady cash flow that supports efficient ecommerce inventory management,

The Bridge to Financial Empowerment: Asset-Based Financing

Asset-based financing is a financing solution for businesses seeking to improve inventory management while keeping their finances stable.

Myos, a dependable growth partner, presents an innovative solution: financing based on the collateral value of your merchandise.

Myos: A Funding Revolution

  • Adaptable Funding: Myos extends working capital loans from £100,000 to £2,500,000, without fixed or hidden costs.
  • Tailored Repayment: Repayment terms up to 12 months, aligning with your business cycles and without early payment penalties.
  • Credit Flexibility: Myos considers product check data, eliminating the need for credit history or personal guarantees.
  • Collateral Leverage: Harness the potential of your inventory as collateral, unlocking untapped value.
  • Swift Application Process: Benefit from a seamless 3-step application process, yielding responses within 72 hours.

Smart Funding Empowered by Innovation

Powered by machine learning and artificial intelligence, Myos evaluates inventory worth and forecasts performance.

This data-driven approach expedites lending decisions, sidestepping traditional credit checks and personal risks.

Myos equips you with versatile funding options:


Ready to propel your business to new heights?

Unleash your ecommerce potential with Myos' non-binding, free offer today!

Keep Learning

5 Best Alternative Business Funding Options for Small Businesses

14 Best Ecommerce Marketing Tools to Grow Sales

6 Best Small Business Loans - Which One to Choose In 2023

Also interesting

This is some text inside of a div block.