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When we think of inventory management, we immediately imagine a guy stocking piles of boxes in a backroom and updating a complex spreadsheet. That’s actually not that wrong! Many new entrepreneurs are focused on creating demands for their products which is why they use Excel or spreadsheet to keep track of the sold goods and suppliers. 

Other established brands, who are growing are looking to automate and optimize their work and larger enterprises make the operation a company-wide responsibility starting from supply chain to accounting to even HR and marketing. 

Most eCommerce merchants and business owners today face challenges in the development process including manual errors in order management, unpaid vendor invoices, high sales projection, extra labor, and materials. Among all these, inventory management is the most critical for any goods-based company. 

If you have a high demand for the product and insufficient stock then it could mean losing a significant number of customers to your competitors. On the contrary, if you too many products and not enough sales, you will be losing money because of inventory equal cash. Unsold goods will also make you pay extra for the storage and security thereby blocking the cash flow. 

What is Inventory Management and How it’s Done?

Inventory management is a systematic way to obtain and store raw materials, finished goods and other non-capital assets and them profiting on them. To get it right you need the right amount of stock at the right time and place with the right cost.

When it comes to retail, there are broadly two types of retail i.e. online retail and offline retail. In online retail, the purchase takes place digitally on a computer or smartphone and in offline the purchase takes place in a physical store from a salesperson.

A wholesale, on the other hand, is a B2B selling and knowing this difference between retail and wholesale is the key to inventory management success. 

Many businesses keep or maintain inventory across multiple channels in multiple locations. This diversity in the retail inventory makes it complicated and affect the brand likewise. 

If you are new to inventory management, we would like to jog up your knowledge with some basics and terminologies and formulas. 

Basic Inventory Terminologies

  1. Barcode Scanner: It’s a device used to check-in and out inventory at a fulfillment center and warehouses.
  2. Bundles: It refers to a group of product which can be sold as a single product such as cameras which along with lenses and flashlights can be sold as one unit. 
  3. COGS: ‘Cost of Goods Sold’ is the cost of production plus the cost of storing goods.
  4. Deadstock: These are the items that have never been sold to a customer
  5. Decoupling Stock: it refers to the inventory which is set aside for emergencies in case there is a halt in the production. 
  6. EOQ: ‘Economic Order Quantity’ refers to how much you can reorder considering the demand for the product and the inventory holding cost. 
  7. Holding Costs: This is the cost to the business for storing and holding the inventory in a warehouse until it is sold to a customer. 
  8. Landed Costs: It includes the cost of shipping, storing, import fees, taxes and other expenses included in buying and transporting inventory.
  9. Lead Time: It is the time it takes for a supplier to deliver goods after an order is placed. 
  10. Order Fulfillment: This involves the complete lifecycle of an offer from the point of sale to shipping to delivery. 
  11. Order Management: This back office process governs the orders, payments, fulfillment, tracking and everything in between. 
  12. PO: Purchase Order is the document that mentions the types, quantities, and prices for products and services
  13. Pipeline Inventory: This inventory is in the pipeline i.e. in the supply chain which hasn’t yet reached its final destination. 
  14. Reorder Point: It is a set of inventory quotas that will decide when a reorder should take place considering the existing and future demand and lead time. 
  15. Safety Stock: It’s also called a bugger stock which means the inventory that is held in reserve to fill up during shortages. 
  16. Sales Order: This document is sent to the customer after a purchase is done before fulfillment. 
  17. SKU: Stock Keeping Unit is the unique tracking code which is assigned to each product that indicates their size, color, type, and other attributes. 
  18. 3PL: Third-party logistics refers to using an external provider to handle warehousing, fulfillment, shipping and everything in between. 

Your business is more likely to have varying needs and will face numerous challenges at every stage of development. Here we have provided some operational consideration and recommendations that will help you thrive and perform in each stage. 

A New Idea is Born

If you are just starting out, you could start with dropshipping to make market research. This kind of strategy will enable you to provide a better range of products without actually purchasing or storing any inventory. Just in a few months, you will find enough consumer demands that you will be well established with your non-branded products. 

This validation will enable DIYers to develop their own prototype and even create a small batch of products in-house to sell. They could also take the help of a manufacturer to do that. 

When you are making your own products, you are more likely to enjoy low production costs which actually is the biggest expense in any startup business in the ecommerce industry. This also gives you full control over how your product and business will function and how you will handle product demands. On the other hand, the production volume is limited to the skills and resources you currently have and it leaves you much less time to work on other aspects of the business. 

For those who have confidence in their product’s marketability but not on their production skills, would more likely outsource the prototyping work to an established manufacturer. This, in turn, helps new entrepreneurs to achieve big margins over another process such as dropshipping or purchasing wholesale. 

However, it poses the risk of over budgeting because manufacturers need at least a minimum order quantity. Moreover, the process of prototyping, sampling, production takes time which further amplifies the difference in culture and time zones if you doing it overseas.

During this stage, many business owners or entrepreneurs would pre-sell their products to generate an initial momentum of awareness with the early adopter. The early adopters are the group of customers who like to own a product I hand that’s brand new in the market, that different and compelling. If they believe in your product, you have leverage that but you should know that they are your greatest advocates as well as you worst critics. 

You should make sure to listen to their queries and keep the communication channels open for suggestions. Give them a platform where they can share their reviews, feedback as this will help build the next generation of your product. You could use their feedback to modify your product before the official public launch. 

Figuring Out Your Customers

The next step in the iteration would be to figure out your customers and understanding their demands. Learn what problems they face in their daily lives and try to solve that problem. Figure out what they should expect when using your product.

If they are already using similar products, figure out what they are and why are they using it. Find out if your product can be better than the ones they have. What is the demography of customers you will target and where will they shop?

This will help you create a buyer persona and help build a better brand value much easier. For example, if you are creating a line of self-grooming product, you should avoid any childlike funny icons. If you know that your customers are moms-to-be you can create an icon or logo that is smooth and probably in Pink. To get your buyer persona you have researched well in order to create a brand that connects with your customers. 

After introducing your product to the world it will take some time to reach out to everyone. If the market of the product is small, it suggests that the sales are low and they tend to be slow which makes it important to keep inventory levels low as you work with your suppliers who can facilitate rapid prototyping at a cost-effective rate. This is necessary for your early success.

On the other hand, the cost or research and development can be high in a competitive niche. 

During this stage, it is common to use an excel or spreadsheet to manage your purchase orders, inventory to keep track of your vendors. You can find many free inventory management templates online which are good enough for new businesses. If you know how to utilize it you can generate a number of valuable inventory formula to keep track of stock, purchase orders, vendors, sales and more. 

It’s Time to Launch Your Product

Now it’s time to take off with your product and now you should make it available for purchase. But make sure that you create a demand for your product, otherwise, you will not get any customers to your store. 

In order to jumpstart your brand awareness, you need to engage with customers and make strategies such as media relations, influencer marketing, celebrity outreach, direct mail, etc. You should also look into digital marketing such as paid ads, PPC campaign, social media management, etc to drive traffic or visitors to your eCommerce store. With a good strategy, you can quickly turn your visitors to customers, although it is going to take some time. 

Most direct to consumer brands have considered a new marketing approach and are taking advantage of the millennial audience who form a large chunk of social media users. Businesses are encouraging customers to post photos of themselves wearing their products be it shoes or dress or rings, moreover, they are integrated to each of the product pages.

Seeing photos of real customers using product definitely creates a different vibe about the product and the millennials tend to trust the brand more. However, you may have to incentivize this to convince users to post their photos. 

If you are planning to launch your own popup shop or a showroom instead of carrying physical goods, the spaces often have the highly engaging staff to help driver shoppers into the eCommerce experience for more detailed information and an opportunity to purchase. This is a great strategy that would successfully get valuable customer data and help build a relationship with customers. 

But first, you have to be prepared to face upcoming challenges. During the initial stages, you should start small with the first production run. Next, maintain a low inventory level and increase the inventory as the demand grows. Then you have to take care of how the orders will be fulfilled, shipped or delivered to the storage vendors. 

Many companies start with just a spreadsheet calendar to store all customer names and data and manually keep track of everything. But, sooner or later they realize how inefficient manual work is and then they would go for professional software that provides more visibility and control over inventory, SKUs, invoicing and other processes. 

If you find yourself spending most of the time in managing Excel spreadsheets, it is time for you to upgrade your system to a dedicated inventory management system. It will automate most of your manual and time-consuming task and will also enable you to integrate all the tools together to assist with everything from bringing supplies to fulfillment. 

As demand for your product increases, you too will have to upgrade your transportation, labor costs and manage risks to provide world-class service. You will need to consider managing stock and inventory efficiently across multiple warehouses. 

Having additional warehouses is not just for multinational companies, even many startups have to today and you too should consider having multiple warehouses if you experience high-volume sales. Moreover, if you are operating in hard to reach places you have to have a backup warehouse with premium insurance plans to recover during calamities such as fire, flood, and earthquake. 

The Growth of Your Business

So, by now, you have an effective marketing plan as a steady flow of orders and a large workspace for your increasing labor force. But, it’s worth noting at this point that most businesses fail during the time they are succeeding the most because they are not set up for sustainable growth. 

Now, it’s time to optimize your business processes and automate your activities to boost your sales and margins. You will also have to manage various inventory to get the most profit at the lowest cost. There are many Inventory analysis and management services that will enable you to view your inventory depending on the best-selling or least-selling, at the same time, at a lower inventory cost. This optimization approach is efficient for all aspects of inventory management and will help to give more attention to critical products. 

It will enable you to strategically price your products and forecast future demands for your products. Your inventory can be classified into three sections with item number A that comprises 20% of all your products and accounts for nearly 70% of the sale. Item B comprises 30% of the product that accounts for nearly 20% of the sale. Item C comprises 50% of all products and accounts for nearly 10% of the sale. 

However, this model can be adjusted to best fit your business and product needs. It has a key focus on determining and nurturing best sellers in order to drive higher profitability. You could consider hiring more people to keep up with the growing demand and volume of sales. Without a good system in place, it will make mistakes and will accrue over time. 

It is estimated that business who are under $1 Million spend nearly 90 hours just on inventory management, product sourcing, maintaining sales and orders every month. The order management process is much more complex than it seems. It’s more than just taking sales and filing them to a spreadsheet. 

It represents the plethora of events that take place in the organization throughout the year in its operational ecosystem. It includes receiving and tracking sales orders, forecast the potential of demand, maintain customer data, update various sales channels in real-time, fulfill orders in a timely manner, and others.

Next, you have to make sure that you run a flawless sales and marketing operation. For that, you have to optimize and automate the back-end of the business and implement an order management system. You will eventually be able to get back the resources and time you’ve wasted on mismanagement. 

Next, you need a robust inventory and order management solution which will help you avoid the common pitfalls such as stockouts, insufficient capital, decreased customer satisfaction. 

This will give you real-time visibility of your orders and inventory levels, you can forecast demands and integrate with your existing tools, warehouses and other third-party logistics partners for a seamless operation. 


In order to grow and expand your business, you have to examine the foundation which is used to build the system and services. You shouldn’t be waiting until later stages to implement inventory management solutions to your business. 

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