Are physical products part of your WooCommerce store inventory? If so, you’re likely aware of the crucial role inventory and order management play in running a successful shop. However, as your store expands, maintaining efficiency in your ecommerce inventory system, supply chain management, and order fulfillment becomes increasingly important.
Fortunately, there are advanced tools available to help you optimize stock levels and fulfill orders swiftly and confidently, going beyond the fundamental requirements.
Why managing inventory is essential
The significance of inventory management lies in its ability to save both time and money while enhancing customer satisfaction. Achieving this requires synchronized and organized information streams to function seamlessly as a unified system, even across multiple sales channels.
Developing an effective inventory management system and strategy offers several benefits:
- Preventing lost sales: Maintaining accurate, real-time inventory levels ensures effective supply chain management, minimizing the risk of losing sales due to out-of-stock products.
- Building customer trust: Consistently having desired products available instills confidence in customers, making your shop their preferred destination for placing orders.
- Gaining insights into business performance: Efficient inventory tracking facilitates monitoring of business growth. This visibility allows for better cash flow management, reduction of excess inventory, and a focus on top-selling products.
- Automating business processes: Manual inventory management tasks and the urgency of restocking products before depletion can be time-consuming. Automating these processes significantly improves efficiency, enabling better allocation of resources.
Are you prepared to elevate your online store to new heights? Explore advanced inventory and warehouse management techniques to enhance your operations. Then, put these strategies into action by leveraging inventory control software, warehouse management systems, and various automation tools.
Tips for Effective Inventory Management
Selecting the appropriate inventory management software is vital for the success of ecommerce business owners. Your system should not only boost operational efficiency but also aid in reducing inventory costs and enhancing customer satisfaction. When exploring options for inventory management software that align with your needs and objectives, it’s crucial to assess all areas where improvements can be made.
Here are some tips to consider when developing an efficient ecommerce inventory management process:
1. Understand your inventory turnover ratio
Familiarize yourself with your inventory turnover ratio, calculated by dividing the cost of goods sold by the average inventory balance. This metric helps assess inventory performance, indicating how efficiently inventory is moving, and offers insights for demand forecasting.
A high turnover rate signifies effective inventory management, whereas a low rate may suggest deficiencies in strategy or execution.
2. Employ demand forecasting
Accurate prediction of customer demand is essential for effective inventory management and ensuring optimal product availability. Understanding seasonal fluctuations in demand for specific product categories and broader retail trends enables adjustments in inventory levels and product mix.
Utilizing specialized software that analyzes historical sales data and market trends helps generate reports for making well-informed decisions regarding order quantities and timing.
3. Determine order quantities accurately
Once customer buying patterns and demand patterns are understood, it’s crucial to ascertain the appropriate quantity of products to order with each replenishment cycle. Balancing the need to minimize carrying costs (e.g., storage, insurance) with the goal of avoiding stockouts is key.
Common methods for determining order quantities include economic order quantity (EOQ) and just-in-time (JIT) ordering strategies.
EOQ Inventory Management:
The EOQ (Economic Order Quantity) inventory management formula assists ecommerce businesses in determining the optimal quantity of raw materials, parts, or finished products to order during replenishment cycles while minimizing carrying costs.
The EOQ formula is:
√ [(2 x demand x setup cost) ÷ holding cost] = EOQ
JIT Inventory Management:
JIT (Just-In-Time) inventory management focuses on minimizing the inventory held in storage. This approach involves timing orders to arrive just before they are needed. While it carries some risk, it allows for reduced overhead costs. However, implementing JIT requires a high level of confidence in the reliability of your supply chain.
Safety Stock Management:
Effectively managing safety stock is another critical aspect of the inventory management process. Beyond ensuring sufficient stock levels to meet anticipated orders, accurately determining the necessary amount of safety stock is imperative.
Safety stock refers to the additional inventory quantity maintained to accommodate unexpected fluctuations in demand, supply chain disruptions, and product replacements. It’s essential to strike a balance in determining the appropriate amount to prevent stockouts and avoid customer dissatisfaction. However, it’s also important not to overstock and occupy valuable warehouse space unnecessarily.
3. Manage Your Costs
The ultimate goal of inventory management is cost control. Ecommerce businesses must strike a balance between the expenses associated with purchasing inventory and dead stock against the costs of stockouts and inventory loss due to damage or theft.
In addition to the previously discussed strategies, here are a few more cost-saving measures to consider when refining your inventory management system:
Purchase at Lower Prices:
Monitor price fluctuations and sales of products, supplies, and raw materials, and acquire inventory when prices are favorable, aligning with anticipated demand.
Bulk Ordering:
For non-perishable products with strong sales, consider ordering in larger quantities to potentially secure better deals from suppliers. However, be cautious not to over-order and risk accumulating dead stock.
Implement Automated Inventory Management Tools:
Whether operating on a global scale or as a small business, managing the formulas and schedules involved in inventory systems can be complex and time-consuming. Utilizing modern inventory management technology can streamline these processes.
Particularly for solopreneurs or small teams with multiple responsibilities, automation can help prevent costly errors such as missed ordering deadlines or inaccurate replenishment estimates.
The essence of a robust inventory management solution is to minimize costs and alleviate stress. Instead of relying on mental lists or manual updates across various spreadsheets, leverage inventory management software and point-of-sale systems to automate these tasks efficiently.
5. Utilize Inventory Valuation Methods for Financial Reporting
Maintaining an accurate valuation of inventory throughout its lifecycle is essential for financial reporting and taxation purposes. Businesses employ inventory valuation methods such as first-in, first-out (FIFO), last-in, first-out (LIFO), and average cost to determine the value of their existing inventory for financial reporting.
Selecting the appropriate method is crucial for ensuring inventory quality over time and producing accurate financial statements.
First-in, First-out (FIFO):
Under FIFO, the assumption is that the oldest inventory is sold first (i.e., the goods received earliest), and the cost of goods sold (COGS) associated with that inventory is reported as the value for ending inventory on the balance sheet. During periods of inflation, this method typically results in lower inventory costs for older items.
Reporting inventory value based on these figures in a given period can decrease the overall cost of goods on the balance sheet, thereby increasing reported net profit. However, it may also lead to higher taxes, as reported taxable income will be higher.
Last-in, First-out (LIFO)
LIFO operates under the premise that the newest inventory is sold first (i.e., the goods received most recently), and the cost of goods sold (COGS) associated with the latest inventory serves as the valuation reported on the balance sheet for ending inventory during that period. Utilizing this inventory valuation method typically results in lower net profit and can decrease the earnings tax liability. However, it’s generally not considered a favorable cash flow strategy for most businesses.
For companies adhering to International Financial Reporting Standards (IFRS), the use of the LIFO method is prohibited, except in the United States. Furthermore, LIFO is impractical for businesses dealing with perishable products or items prone to significant degradation over time, as it may lead to accumulating unsellable aging stock, resulting in additional disposal costs.
Nevertheless, for products with enduring quality over extended periods (e.g., fine jewelry, pottery, glassware), and where inventory turnover is high with minimal safety stock maintained, LIFO may be advantageous in potentially reducing tax liability.
Average Cost Method
The average cost method calculates the weighted average cost of goods sold (COGS) for all similar inventory purchased within a reporting period to determine the overall value of inventory sold and remaining in stock during that period.
For instance, consider a screen printing company that purchases t-shirts, sweatshirts, and tank tops from various suppliers in multiple sizes. Managing COGS for numerous product variations can be cumbersome, making it simpler for the company to average out all these COGS for reporting purposes. Moreover, the average cost method offers some of the advantages of both FIFO and LIFO methods and adds complexity to manipulating financial data.
Regardless of the method chosen, consistency is key. Many small businesses opt for the average cost method due to its simplicity and cost-effectiveness in managing while remaining closely aligned with actual costs.
6. Conduct Manual Inventory Audits
While automated inventory and warehouse management systems offer convenience, it doesn’t mean you can completely kick back and relax—maybe just a few cat videos. Manual audits are still necessary periodically to ensure products haven’t been damaged or spoiled (especially if dealing with perishable goods), lost during transit between warehouses, or stolen.
Even the most advanced automation software can’t foresee everything, and various situations will arise that demand manual intervention.
7. Categorize Your Inventory by Priority
Segmenting inventory into distinct categories based on factors such as demand, value, and turnover rate enables more efficient management through the simultaneous application of multiple strategies.
Inventory management methodologies like the ABC analysis are commonly employed for this purpose.
In the ABC classification system, “A items” are tightly controlled with meticulous record-keeping, “B items” are somewhat less controlled with good, albeit not always detailed, record-keeping, and “C items” employ simpler controls and records.
For example, high retail value items with lengthy manufacturing processes and lead times may be classified as “A items,” while low retail value items that are quick to produce could be categorized as “B items.” Items of minimal value such as parts and packing supplies might fall under the “C items” category.
8. Establishing Reorder Points
The reorder point denotes the inventory threshold at which initiating a new order becomes necessary to replenish stock before depletion. It is determined by considering lead time, anticipated demand within a specific timeframe, and inventory classification.
For example, products with high profit margins but lengthier lead times may warrant reordering when stock levels are relatively higher. Conversely, items with slower sales, lower profit margins, and shorter delivery times can typically wait until their stock levels are much lower.
A formula known as the reorder point formula is employed to calculate this metric, incorporating three variables:
(daily sales velocity) × (lead time in days) + safety stock = reorder point
This formula determines the inventory level at which reordering becomes imperative, accounting for safety stock to accommodate sudden demand spikes or shipping delays.
Exceptions may arise, particularly with products deliberately allowed to go out of stock to stimulate demand and optimize inventory cost savings (e.g., McDonald’s McRib sandwich), or items subject to seasonal availability (e.g., tulip bulbs). In such cases, the reorder point formula may not be suitable. For instance, with the McRib, the reorder point is triggered when pork prices dip below a specific threshold.
9. Efficiently Manage Lead Time
Understanding your customers’ needs and timing is crucial. You’re adept at determining the appropriate order quantities and seizing the best deals on products and raw materials. However, optimizing your supply chain management requires attention to lead time.
Lead time refers to the duration from placing an order to its fulfillment and receipt. Effective management of inventory and lead times is vital to prevent stockouts and ensure timely deliveries to customers.
Furthermore, it alleviates pressure on your team, enhances warehouse operations, and fosters better relationships with wholesalers and manufacturers in your supply chain.
10. Foster Strong Supplier Relationships
Developing robust relationships with suppliers yields numerous benefits, including favorable terms, dependable deliveries, and enhanced supply chain efficiency. With accurate insights provided by your multichannel inventory management software—such as inventory turnover ratio, average lead time on orders, and customer demand forecasts—you can consistently place orders promptly.
While suppliers may accommodate rush orders, frequent unpredictability and the need for expedited production can strain relationships. This may result in compromised quality, increased costs, and strained relationships with manufacturing sales representatives.
Here are 5 prevalent inventory management challenges and the most effective solutions offered by inventory management software
Even upon initiating the integration of inventory management software, encountering challenges in your inventory management solutions is possible as your business expands. Let’s examine six of the most frequent pain points in ecommerce inventory management and delve into the optimal software solutions for addressing these issues.
1. Managing Shared Stock Levels Across Multiple Product Variations
When dealing with variable products in your WooCommerce store that share inventory with other products or variations, maintaining an accurate overview of your overall stock levels can pose a challenge.
For instance, if you sell print-on-demand products made in-house with different designs on the same base product, tracking stock levels across multiple products and variations becomes complex.
Despite utilizing the same T-shirt stock, these products are assigned different SKUs, making it challenging to monitor stock levels effectively. This scenario often necessitates constant monitoring to prevent overselling.
Implementing shared inventory tracking alleviates the burden of managing inventory shared among multiple products and product types, thereby saving time, effort, and resources. In WooCommerce, this can be achieved by managing inventory at a shared attribute level or at the variation level.
Let’s explore two different extensions that offer solutions for attribute and variation level stock management.
Attribute Stock Manager
Attribute Stock Manager is a valuable tool for stores selling products with shared components or ingredients. This extension facilitates the tracking of inventory across multiple products and variations that share the same attribute. Key features include:
- Stock Management at the Attribute Level
- Shared Stock Allocation
- Comprehensive Inventory Tracking
Moreover, the extension seamlessly integrates with WooCommerce Memberships and Woo Subscriptions, enhancing its compatibility and functionality.
Attribute Stock Sharing
Seeking a more sophisticated approach to attribute-based stock management? Consider Shared Attribute Stock for WooCommerce, offering the capability to oversee stock based on variation attributes.
This extension allows you to consolidate attribute inventory at the global level, distributing it across numerous variations. Moreover, you have the flexibility to configure stock levels for each attribute separately or utilize predefined rules to allocate stock to various attributes.
WooCommerce Variation Shared Inventory
In certain scenarios, managing shared stock at the variation level may be more suitable than at the attribute level. WooCommerce Variation Shared Inventory offers the capability to precisely oversee a product’s stock when selling variations in varying quantities.
For example, if you’re retailing pasta in bulk with 100 lbs in inventory and offering it in 8 oz, 1 lb, 2 lb, and 5 lb bags, each item added to a customer’s cart typically reduces your inventory by one, regardless of the differing lbs measurements.
WooCommerce Variation Shared Inventory allows you to specify the inventory reduction amount for each variation sold. Upon the sale of each variation, the stock levels for the parent product are automatically adjusted based on the reduction amount configured for that specific variation.
Moreover, this extension features a cart validation system that prevents overselling of products and provides a dedicated dashboard showcasing all variation groups, facilitating efficient management of their stock levels.
Enhancing Customer Experience
Small details in inventory management can significantly impact sales and enhance the overall customer experience. How you present product quantities and availability to customers plays a crucial role in engaging buyers and increasing revenue.
Enable customers to reserve products for a limited time before purchase. Additionally, consider displaying custom stock statuses such as “Arriving tomorrow!” or “Almost gone!” This approach helps customers better manage their expectations and prepare for their desired purchases.
Enable Stock Reservations
Utilize Reserve Stock for WooCommerce to allow customers to temporarily reserve stock when adding a product to their cart. Employ rule-based inventory management strategies to limit stock reservations to particular products, categories, user roles, and time durations.
Upon expiration of the reservation time limit, the product will automatically be removed from the cart and replenished back into your inventory. This extension also offers customizable messaging options to inform customers about their stock reservation status, along with the display of a reserve count timer on the cart page.
Customize Stock Statuses
The WooCommerce Custom Stock Status extension provides the flexibility to incorporate various stock statuses that convey more precise information regarding product availability. You can designate custom stock statuses for specific stock ranges, which are activated when the inventory count falls within that range.
Enhance your stock statuses with text, dates, images, badges, and icons to capture customers’ attention effectively. Utilize rules to assign statuses to multiple products, categories, and user roles, and determine how these statuses are displayed on shop and product pages.
Here are some examples of formulas for custom stock messages you might integrate into your products:
- “Almost gone! Only {stock_qty} left” (for a range of 2-20)!
- “You’re in luck! Last one” (when one item is left)!
- “Back in stock on January 1” (when no items are left).
- “Just arrived” (for a range of 90-100)!
Implementing Strategies for Out-of-Stock Situations
Running out of your most popular items is inevitable at times. It’s crucial to ensure that your customers are always informed about the latest stock information to prevent disappointment and encourage future sales.
Consider integrating the following extensions:
- WooCommerce Waitlist: Notify customers when their desired item is back in stock and generate a list of customers waiting for each product.
- WooCommerce Pre-Orders: Ensure sufficient stock for product launches by allowing loyal customers to place orders in advance.
- AutomateWoo: Set up follow-ups to inform past purchasers about popular items that are back in stock.
3. Streamlining Bulk Inventory Updates
Managing inventory for online shops with numerous products can be overwhelming, requiring constant attention to stock levels and variations. Manually updating stock information for each product can be impractical and time-consuming.
Even with automated inventory tracking tools, occasions arise, such as after manual inventory audits, where bulk updates for several hundred products are necessary. The Bulk Stock Management extension simplifies this task significantly, allowing you to efficiently update stock information for multiple, or even all, of your products simultaneously.
Furthermore, the inventory report feature offers valuable insights by providing an up-to-date snapshot of your store’s inventory. This feature proves invaluable for effective inventory management, ensuring you stay informed about stock levels and product availability in real-time.
4. Harmonizing Inventory across Locations
Achieving seamless inventory management entails maintaining balance and availability across various sales channels, including online storefronts and physical shops. This challenge can be addressed through the integration of point-of-sale (POS) extensions available in the Woo Marketplace.
Point of Sale for WooCommerce
Point of Sale for WooCommerce offers a unified interface that seamlessly integrates your WooCommerce store and physical locations, facilitating efficient inventory management.
Transform any tablet or phone into a checkout station, or utilize tools such as credit card scanners. Your point-of-sale terminals can effortlessly scan barcodes, input customer loyalty details, and handle manual adjustments like discounts and refunds.
By synchronizing data across multiple warehouses, retail outlets, and your online store within WooCommerce, inventory management becomes streamlined. This ensures smooth operation of your supply chain, facilitates order tracking for customers, promotes sales, and ultimately enhances customer satisfaction.
Square for WooCommerce
The Square for WooCommerce extension is a valuable integration for businesses leveraging the Square POS system and seeking to unify online and in-person sales operations. This plugin facilitates seamless synchronization of inventory data and orders between your Square POS and WooCommerce store.
Upon installation and activation of the extension, manual importing of WooCommerce products into Square is required only once. Subsequently, any new products created in WooCommerce will automatically be synchronized with Square. Additionally, modifications made in either WooCommerce or Square will be instantly reflected across both systems, ensuring consistency and efficiency in managing inventory and orders.
FooSales Point of Sale (POS) for WooCommerce
FooSales presents a secure POS solution seamlessly integrated with WooCommerce, compatible with various devices including computers and tablets. This system enables you to conduct sales at all your physical retail outlets while synchronizing inventory, orders, and customer information with WooCommerce.
Additionally, FooSales integrates smoothly with popular printers, barcode scanners, card readers, and other devices. It supports payment processing via both Stripe and Square, enhancing flexibility in accepting payments across your retail operations.
5. Automate Inventory Notifications
Prefer not to micromanage inventory numbers on a day-to-day basis? Keep your support team informed with the Advanced Notifications extension.
This tool allows you to notify relevant personnel when inventory levels dip low and it’s time to reorder. Whether it’s your internal staff, a third-party supplier, or a manufacturer, you can easily set up notifications for different thresholds.
By establishing simple rules, you can ensure that the right individuals receive the appropriate notifications. This frees up your time to focus on more critical aspects of your business, with the peace of mind that your inventory management, order control, and supply chain processes are being managed efficiently in the background.
Effective inventory management is the cornerstone of a successful retail operation
By staying informed about incoming and outgoing inventory, you can ensure seamless operations. Minimize lost sales due to stockouts while optimizing efficiency by identifying and phasing out underperforming products.
Moreover, an automated, precise, and efficient inventory management system is indispensable for scaling your store. Leveraging intelligent inventory management software and perpetual inventory management processes allows you to delegate tasks and focus your time on critical activities.
With the adoption of these tools, you can propel your store towards enhanced performance and operational efficiency.
