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Effective e-commerce inventory management is essential to any online business. How an online retailer handles inventory can greatly affect the bottom line. Properly planned inventory management can increase your company's profits. There are various methods of managing inventory. We will take a look at a few of these, along with some popular inventory management apps that make accounting in e-commerce even easier. This happens when you optimize the inventory management piece of the business for maximum efficiency.
Some Inventory Management Techniques
There are many ways to manage inventory. One management technique may be an exact fit for one type of e-commerce business, while that same technique would be inefficient and wasteful for another. For example, an e-commerce retailer selling perishable goods such as groceries would use certain inventory management methods. These rules would help to ensure their product reaches the customer as fresh as possible. An artist making and selling handmade crafts would use a different inventory management model. Below are a few examples and definitions of inventory management techniques.
First In, First Out (FIFO)
This method of inventory management is most beneficial to perishable item inventory. Items that can expire are sent out first, before newer inventory. A common case could be with fresh produce. Using the oldest inventory first will ensure maximum freshness for the customer. FIFO is also useful in maintaining up-to-date packaging or avoiding sending out dusty old boxes of products to customers. FIFO keeps the flow of inventory fresh.
Just-In-Time (JIT)
JIT is a good choice for businesses that do not have a lot of inventory space. It also helps a small business to control costs. Only enough inventory is kept on hand to fulfill current orders. This means that the e-commerce inventory system must help manage orders and suppliers. Most importantly, the business using JIT must know the time it takes to replenish inventory.
This inventory method also works in the case of drop shipping. In this scenario, a third-party fulfills a customer's order and ships it directly to the customer. An e-commerce business does not need inventory space for this model but needs to know how long the product will take to arrive to the customer. Similarly, hand-crafted Etsy goods fit well with this inventory control model. A product is only made once it has been ordered.
Periodic Automatic Replenishment (PAR)
Inventory rules for this method require an e-commerce business to set minimum stock criteria for the amount of product they require in inventory. In this manner, when inventory goes below the minimum stock criteria, inventory software will send a notification that a reorder is necessary. This approach is successful when proper management of the inventory compared to sales demand is monitored. In PAR systems, sales data may be used to modify the minimum stock levels desired for different products. These predictions can be more accurately forecasted by reviewing trends in sales, especially peak seasons. Accounting e-commerce reports also can provide these figures.
We highlighted just a few inventory management methods here. The good news is that today there are many robust and efficient apps or plugins to manage inventory. In this next section, we will highlight a few of these apps.
What Apps Can Help With Inventory and E-Commerce Accounting?
Inventory management apps can streamline the whole process from reordering to reducing out-of-stock and overstock problems. These apps also help with e-commerce accounting, creating immediate data hooks into accounting software such as QuickBooks.
DEAR Systems - DEAR integrates with major platforms like Shopify, eBay, Square, PayPal, and more. Their inventory management software puts everything in one place, including automatic reordering notification. Their platform is also able to help with manufacturing, offering additional insight into manufacturing cost factors that affect inventory costs.
Stocky - A platform created by e-commerce giant Shopify, Stocky helps to streamline inventory decisions, so e-commerce businesses can focus on other aspects of their business. They are able to automate purchases of inventory. There are many advantages to using automation as opposed to manual inventory reordering. Their dashboard can help an e-commerce retailer easily see what is coming into inventory and what is going out, and the timing of these interactions can be easily streamlined in inventory management software like Stocky.
Fishbowl - Fishbowl can streamline the work order process of a business, offering better efficiency in handling inventory needs. Like the apps mentioned before, Fishbowl also connects to QuickBooks to automate more of the e-commerce accounting necessary to scale a business to the next level.
Conclusion
Businesses running an e-commerce store can benefit from reviewing their inventory methodologies. Does your business have questions about inventory management or accounting for e-commerce strategies? The AccountedFor CPAs have answers.