Ecommerce Operations
7 Big Inventory Management Mistakes You’re Making (And How To Fix Them)
- Written by Duncan La Barre
At Veeqo, we speak to ecommerce retailers all the time. And when we ask them what their biggest challenge is, one thing that comes up time and time again is inventory management mistakes.
The struggle is real. The more sales you generate, the more inventory you need. It’s a nice problem to have. But it also means there’s more that can go wrong.
So what are the biggest inventory management mistakes that ecommerce retailers need to be aware of? And how can you you avoid them? Here are seven of the most popular that we hear day-in, day-out. Plus a few ideas on how to fix them (or avoid them all together!).
SEE ALSO: 7 Inventory Control Methods to Bulletproof Your Retail Operation
- Tracking inventory via an Excel spreadsheet
Keeping track of every single order received via an Excel spreadsheet might have been fine when you were starting out. But this strategy does not scale. It can lead to the horrendous issue of sending out the wrong order time and time again, and overselling products that you thought you had enough of - but actually don't.
Instead, do yourself a favor and invest in some decent software that can track all your inventory for you.
An inventory management system is great, because as soon as you sell something on one sales channel, it’ll update stock levels everywhere straight away. You’ll also be able to keep track of everything via a single dashboard.
This gives you far more control over your inventory, and frees up a crazy amount of time.
So take my advice - ditch the spreadsheets and start using inventory management software to manage and grow your ecommerce business. You can thank me later.
- Having too much inventory on-hand
Warehousing costs are expensive. Like, crazy expensive. Depending on your location, you can end up paying around £800 ($1,050) per month for a small 1,000ft2 of space. The bigger your operation, the more of a drain on cash resource storage space can become.
So having too much inventory on-hand is a real problem for any ecommerce retailer.
Good inventory management results in items spending less time sitting in the warehouse before being sold. And this means reduced costs for storing them.
Setting a clear reorder point for each item allows retailers to know exactly when to order new stock, meaning you should never have too much on-hand at any given moment. It is a specific point that acts as a trigger as soon as stock has diminished to that certain level.
It’s important to consider the lead time for new stock to be delivered when setting reorder points. Enough stock should be leftover to keep up with demand before the new inventory is available.
- Having too little inventory on-hand
Back in the heady days of 2004, I was working in a trendy record store in South West London. We used to sell these ancient things called CDs, DVDs and Vinyls (ask your grandma), before some guy called Steve Jobs came along and decided to revolutionize the way people consumed media.
Anyway, my boss at the time used to go absolutely crazy if we ever ran out of stock on the shop floor. Seeing a blank space on a shelf, or and empty gap where your latest bestsellers should be would massively grind his gears.
“You can’t sell blank space, Duncan!” he’d yell, before throwing a copy of the new James Blunt album at my head. And he was right.
Whether you’re selling James Blunt CDs (I won’t judge you), or something a little bit cooler - if you don’t have it on display, you can’t sell it.
In the world of ecommerce, “on display” translates to “marked as ‘in stock’ on your product page”. And with 70% of online shoppers saying they’d buy a product elsewhere rather than waiting for it to come back in stock, this is something you really can’t afford.
So having too little inventory on hand can be crippling for any retailer. To avoid that ever happening to you, use a simple Economic Order Quality (EOQ) equation to calculate the perfect amount of inventory you need on-hand at any given moment.
EOQ is a calculation that helps work out the ideal quantity of inventory to order for a specific product while minimizing carrying costs. The three variables involved are:
- Demand (D). The number of units sold over a given time period, usually a year.
- Relevant ordering cost (S). Total ordering cost per purchase order. This includes not just the actual order cost, but all fulfillment, staff, etc costs for that order too.
- Relevant carrying cost (H). Assume the item is in stock for the entire time period in question and decipher the carrying cost per unit.
Then put these into the following formula:
Use this equation to calculate the perfect amount of inventory to keep on hand for any of your SKUs, and you can sleep soundly in the knowledge that you’ll never sell out of product ever again.
- Not defining clear inventory management KPIs
KPIs are important. Without them, it’s impossible to know exactly how well your team is performing. And having a clearly-defined set of KPIs for your operations team can reduce inventory management mistakes.
At Veeqo, the KPIs that we set ourselves in the marketing team include: number of website visitors; number of new “book a demo” form submissions; conversion rate; percentage of Organic Traffic vs Direct.
It’s useful to know these stats what you’re managing a team. Because if anyone in my team is underperforming, I simply throw a James Blunt CD at their head (if anyone in our HR dept is reading this - only joking).
When it comes to ecommerce, you need to make sure everyone in your warehouse team are aware of the following KPIs, and being measured against them:
- Receiving efficiency
- Picking accuracy
- Carrying cost of inventory
- Inventory turnover
- Rate of return
It’s important that every member of your team is 100% clear on what these KPIs mean, and is able to give you an indication of how the warehouse is performing against these targets at any given moment.
For more information, read our guide to Inventory Management KPIs here.
- Not carrying out frequent inventory checks (or stock takes)
Inventory checks. Stock takes. Whatever you call them, they are a pain in the neck. You basically have to stop processing any orders in your warehouse, count every single item on every single shelf, in every single bin location, one-by-one, check that number matches what you’ve got in the system and update any discrepancies.
Carrying out these counts frequently is massively important. But it can become an incredibly time-consuming task - especially if you have a large warehouse with multiple stock locations. You’ll essentially need to make a decision:
- Shut down the warehouse for the day - this means you won’t be able to ship any customer orders that day #rubbish
- Get your entire team to stay late so that you can carry out a full inventory check. Not only will you have to convince your team to cancel their evening plans (and no one wants to be that person), you’ll also have to pay for everyone’s time to stay late until the check is finished.
It’s expensive. But a price worth paying. Can you imagine how many inventory management mistakes you’d have if you only did a count once a year? So regular inventory checks are a must for keeping errors to a minimum. Depending on the size of your warehouse, once a month is a good frequency to aim for.
You can speed up the process significantly by using an inventory management system with a fully-integrated scanner. This can remove the pain and hassle of inventory checks, so that it becomes a task that takes just an hour or so.
It just so happens that when you sign up to Veeqo, we’ll nourish you with a shiny new Veeqo Scanner. This has been specifically designed to revolutionize how you carry out inventory checks in your warehouse, and also provides enterprise-style logistics operations to retailers of any size.
- Hiring the wrong people in the warehouse
Any HR manager will tell you that a bad hire can be a big problem in your team. This is true whether you’re employing people to work in marketing, purchasing, sales - or in a warehouse
The solution is, clearly, hiring the right people. So what should you be looking for in a world-class warehouse operative? According to Vietnam Manpower, you need people who tick the following boxes:
- Physical strength and dexterity
- Strong hand-eye coordination
- Good sense of integrity and honesty
- Willing to take direction
- Customer-oriented attitude
- Possess a good attention to detail
Making sure the candidates you interview for roles in the warehouse can demonstrate these abilities will be key to making sure your operations team are a solid backbone for your ecommerce business.
- Not setting up inventory in your warehouse properly
Finally on this list of inventory management mistakes is how you specifically set up your warehouse.
Setting up inventory properly in your warehouse can be a game changer. Done right, a well laid-out warehouse can help minimize shipping errors, allow you to dispatch orders more quickly, and ultimately save you money.
Here are three quick tips that can help when it comes to setting up your warehouse:
- Arrange your best selling stock as close to the packing desks as possible. Veeqo research found that on average 20% of all products generate 60% of all sales.
- Use a mobile device to pick orders digitally. This saves heaps of time and can significantly cut down on human error.
- During downtime, get your warehouse team to assemble a batch of empty boxes, ready for the next lot of orders to arrive.
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So there you have it. Seven big inventory management mistakes you’re making - and a few ideas on how to fix them. One big thing you can do to improve your warehouse operations is invest in a WMS, which you can learn more about here.
For more general ecommerce mistakes you should avoid, take a look at this post by FitSmallBusiness.com.
Want to find out more? Our complete guide to Inventory Management goes into a vast amount of detail on everything you need to know when it comes to managing a profitable warehouse operation.
