Stock management, a critical part of your brand’s commercial operations, involves analyzing the flow of products between purchases and customer orders to achieve balance. In e-commerce, stock management helps you understand which products sell the most and anticipate which products you will need.
In e-commerce, where stock levels are of utmost importance, it is crucial to have your products ready in the warehouse to fulfill high-volume sales at any moment. You can manage stock directly within your company or outsource this operation by partnering with a third-party e-commerce solutions provider. Here is everything you need to know about stock management:
1. Take Control of the Supply Chain
In ideal stock management, the supply chain should be transparent and fully under your control. The number of products in your warehouse should precisely match the quantities displayed in your online stores. By accurately knowing the capacity of products in your warehouse, in transit, or returned, you can prevent your customers from encountering “Out of Stock” notices. To manage your inventory effectively, you can use stock management software. We recommend researching the programs most suitable for your brand based on your business size.
2. Leverage Sales Data
Carefully monitor the products running low in your inventory and restock them as quickly as possible. Managing the circulation of best-selling products is essential. Additionally, consider seasonal trends and plan purchases for the upcoming periods accordingly. For this, you might also benefit from data from previous years. Evaluate variables such as customer volume, product variety, and warehouse capacity when making decisions. To maintain flexibility in inventory management, you can collaborate with external resources and acquire fulfillment services. We suggest exploring the logistics solutions offered by fiCommerce.
3. Perform an ABC Analysis
According to the Pareto Principle, also known as the 80/20 rule, 80% of your revenue is generated by 20% of your product range. The ABC analysis in stock management is based on this principle, helping you categorize products by their contribution to revenue. This allows you to maintain high stock levels for important products that constitute the majority of your revenue.
If you have a wide product range, ABC analysis can be particularly useful for stock control. In this analysis, Group A products are the most important and require strict stock control. Group C products are of lower importance.
For example, if you own a clothing store, you might group sweaters as follows:
Group A Products: Bestsellers
Group B Products: Christmas-themed sweaters
Group C Products: Less popular sizes, colors, and patterns
4. Maintain Safety Stock
Keeping extra products in your warehouse protects you from fluctuations in orders. These additional items are referred to as safety stock. Thanks to this stock, you can continue selling to customers even while waiting for new supplies from your vendors, ensuring you don’t lose sales. Safety stock strengthens your brand during peak sales periods or unexpected market conditions. In such scenarios, customers of competitors who run out of stock may turn to your brand and become loyal if satisfied. Safety stock, also known as buffer stock, has various calculation formulas. We recommend researching the formula that best suits your needs. One common formula is as follows:
Safety Stock = (Maximum Daily Usage × Maximum Lead Time) – (Average Daily Usage × Average Lead Time)
5. Apply FIFO and/or LIFO Methods
The “First In, First Out” (FIFO) method is commonly used in stock management. In this method, the products that enter the inventory first are the first to be sold. This approach is ideal for products with expiration dates or those influenced by trends and current events.
Another stock management approach you can consider is the “Last In, First Out” (LIFO) method. According to this method, the most recently added products are sold first. This results in higher costs for goods sold, lower net income, and reduced tax liabilities. Businesses with high transaction volumes and products heavily impacted by inflation often prefer the LIFO method due to its tax advantages.