Now more than ever, the sales of products online have become very popular. The onslaught of the COVID-19 pandemic also greatly contributed to the increase of online businesses. The pandemic had a hard impact on businesses and this cost business owners a lot of money in not just inventory management alone, but other aspects of business too. 

Businesses struggled to find a profitable way forward in the wake of the pandemic, but, in as much as 2020 has been written off as the worst year in history, it was a very good example showing the value of apt inventory management for ecommerce businesses.

Having a good inventory management system is very necessary for any brand to satisfy customers while building a profitable and sustainable ecommerce business. With the increase in sales of goods and services online, businesses need to have up-to-date knowledge of their products to enable the efficient organization of their products and know when to restock to avoid unfortunate circumstances.

Ecommerce inventory management is the systematic process of sourcing, storing, pricing, and tracking the quantity of products of ecommerce businesses. Ecommerce inventory management enables ecommerce businesses to operate smoothly. But as much as inventory management may be beneficial and necessary for ecommerce businesses, it may also be a bit overwhelming and confusing.

But don’t worry! This article will provide you with the top techniques and best practices for ecommerce inventory management.

Ecommerce Inventory Management Top Techniques and Best Practices

When it comes to inventory management for ecommerce businesses, there are different techniques involved. Keep in mind that poor inventory management can pose a difficult challenge to overcome. Making the wrong choices can be quite costly, but the right choices will benefit your ecommerce business. Let’s dive in.

  1. First In, First Out (FIFO)

This strategy simply means that older inventory depletes first. According to Shopify, FIFO is defined as “…an accounting method that assumes that saleable assets, such as inventory, raw materials, or components acquired first were sold first. That is, the oldest merchandise is sold first, with its associated costs being used to determine profitability. Here, the first products received or stocked for sale are the first to be delivered to customers.

This is a good strategy for ecommerce businesses if they don’t want to keep products in the storehouse for any longer than is necessary. It is also a great way to keep inventory fresh, especially when dealing with perishable goods. It prevents waste because products are not stored for longer than necessary.

  1. Dropshipping

The idea of dropshipping is that the business owner doesn’t touch the product. There isn’t actually a warehouse to store inventory. Rather, whenever an order is placed, the business owner purchases the item from a third party who could be a manufacturer or wholesaler, and has it shipped directly to the consumer.

The ecommerce business owner can transfer orders and shipment details to the wholesaler or manufacturer, who then ships the products to the customer directly. This cuts out the middleman completely. Dropshipping eliminates the need for warehouses, thus reducing business costs.

  1. Just-In-Time (JIT)

As the name implies, this method entails stocking a product when the need arises or when it is ordered. Here, inventory is ordered a few days before it is needed. Inventory orders are made just in time to keep up with consumer demands.

This is risky because it may be difficult to fulfill a sudden surge of orders. But despite the risk, JIT could be a great way to reduce inventory costs. When businesses receive inventory based on specific quantity orders, then the risk of ordering too much inventory is significantly reduced.

This also reduces the risk of capital being tied up in dead stock. With this, businesses don’t need a lot of space to store inventory and there is less inventory to manage.

  1. Inventory Management Software

One common mistake ecommerce businesses make is managing inventory manually. When starting, it is totally understandable to manage inventory manually, especially if the business owner can’t bear the cost of software for inventory management.

But as the business grows, it doesn’t make any sense to still be manual about it. There would be a point where manual procedures become insufficient. Maybe in the past, you may have gotten away with just using paper and pen or even Excel spreadsheet. But for real-time growth, inventory management software is needed.

This is very necessary, especially for busy ecommerce business owners. With inventory management software, you can significantly reduce the risk of omission and accurately track forecast demand, lead time, sales, and turn-over ratio better. 

  1. ABC Analysis

This is a useful method for prioritizing products into three categories according to their order of importance. These three categories identify products and their value based on the impact they have on inventory cost. These three categories are:

Category A: these are products with high value but are low in quantity.

Category B: these are products with moderate value and moderate quantity.

Category C: these are products that have low value but are high in quantity.

Category A is the most valuable and category C is the least valuable. Not all products have equal value, so, the more popular products should be given more attention. Categorizing these products shows their order of importance and value thereby showing where the most effort should go.


These top techniques and best practices for inventory management are beneficial to ecommerce businesses because it ensures customer satisfaction, thereby creating positive customer relationship.

In ecommerce, not having a good knowledge of your inventory and forecast demand of your consumers makes it very easy to fall into unfortunate situations where you can’t supply demand due to understocking or you don’t meet your target profit because products are more than sales.

That’s why these techniques guarantee concise inventory knowledge. Up-to-date knowledge of the inventory of your ecommerce business ensures positive growth. Also, these top techniques and best practices maximize the potential to increase revenue. With these techniques, ecommerce business owners can prevent overstocking or overselling inventory.

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