The Ecommerce Inventory Management Guide

Everything you need to know to manage, prepare, and report on ecommerce inventory

Your Guide to Smooth Operations

Inventory Preparing ecommerce inventory
Before you establish an inventory management process, you’ll first want to prepare your inventory for the unexpected. Below you’ll find information on how to better forecast future orders and customer demand, plus the different options for inventory financing.

Inventory financing
Inventory forecasting calculates the inventory needed to fulfill future orders. Using historical sales data and other macro-level trends, you can make smarter, more accurate predictions on what products will sell over a specific period of time. There are several benefits of inventory forecasting, including less inventory needed on hand, more sales from fewer out-of-stock items, less manual labor, and a more efficient production cycle.

Inventory forecasting
Effectively managing inventory is one of the most critical aspects of running a successful ecommerce business. If you don’t, you risk losing money or failing to meet customer demand. The following information provides insight on how to establish an accurate, efficient, and cost-effective inventory management process.

Managing ecommerce inventory
Inventory can be a company’s most expensive asset, requiring investment before you have any sales. Inventory financing ensures continuous business growth through an asset-backed line of credit or short-term loan for purchasing more product.

Inventory audit
An inventory audit is an analytical procedure that checks a company’s inventory and confirms the financial records and actual count of goods match. It helps ensure accurate stock levels and reporting, and prevents stockouts. An inventory audit can be conducted by doing a spot check (i.e., counting physical stock to see if it matches how much you believe you should have), or having a third-party auditor perform the procedure.

Inventory management
The inventory management process is an important aspect of ecommerce success. It refers to the management and monitoring process of a company’s stocked goods. The process includes everything from ordering and restocking your inventory to inventory forecasting. A proper inventory management process helps you prepare for the unexpected, such as running out of a product, miscalculating storage needs or space, manufacturing delays, and cash flow issues.

Ecommerce inventory management software
Inventory management software automates and streamlines the process by tracking inventory levels, orders, sales, and shipments across channels and locations. In today’s digital world, an inventory solutions system is a necessity for growing your ecommerce business.

Inventory control
To ensure your ecommerce business has the right stock levels needed to fulfill orders on time, inventory control is a vital process that optimizes inventory storage. The primary goal of inventory control is to keep only the necessary units on hand without spending too much money upfront. The outcome of accurate inventory control leads to reduced costs, warehousing improvements, and satisfied customers.

Inventory distribution
When one fulfillment center isn’t enough, you may want to consider distributed inventory. Splitting your inventory across multiple fulfillment center locations is a great way to better serve your customers, especially if they’re scattered across the country or if you’re looking to provide 2-day ground shipping.

Inventory pick list
Order picking is the secret to a successful fulfillment process. A pick list is the customer order information that’s sent to the warehouse that indicates the items the picker will need to retrieve from storage. There are different types of picks lists, but they should all provide a recap of the items ordered and should be easy and clear to understand. A single pick list may contain a single item or several of a certain SKU. As soon as a pick list is generated, the order fulfillment process can begin.

Inventory scanner system
To make the process of tracking inventory easier, a wireless barcode inventory scanner is a tool that’s worth the investment. The use of a barcode scanner is a great ecommerce inventory solution that can help automate and streamline the inventory management process and significantly reduce human error. Inventory scanners work by scanning the barcode found on the product. Similar to a shipping barcode, the information encoded in the barcode is read by inventory management software and tracked by a central computer system. Inventory scanners are wireless, which makes it easy to scan a product wherever it’s stowed.

Inventory tracking
Inventory tracking consists of knowing which SKUs you have in your possession, the locations in which you store them, and the quantities available at each location. An inventory tracking system will help you keep track of real-time inventory levels of each SKU for better inventory control across your stores.

Accurate inventory tracking should take place throughout the entire supply chain, including tracking inventory from your supplier, returns from customers, and damaged goods. Using an inventory tracking system is the most efficient inventory tracking method as it ensures greater transparency and accuracy than other methods.

Periodic inventory system
Periodic inventory is a system of inventory valuation where the business’s inventory and cost of goods sold (COGS) are not updated in the accounting records after each sale and/or inventory purchase. Instead, the account is updated after a designated accounting period has passed. In a periodic system, businesses don’t keep a continuous record of each sale or purchase; inventory balance updates are only recorded over a specified period of time (e.g., each month, quarter, or year). At the end of the accounting period, the final inventory balance and COGS is determined through a physical inventory count.

Perpetual inventory system
A perpetual inventory system is an inventory management method that records when stock is sold or received in real-time through the use of an inventory management system that automates the process. A perpetual inventory system will record changes in inventory at the time of the transaction. This system works by updating inventory counts continuously as goods are bought and sold. This inventory accounting method provides a more accurate and efficient way to account for inventory than a periodic inventory system.

Ecommerce inventory reporting
Get smart about your inventory by having a good reporting process in place. All ecommerce businesses, small and large, must be able to report on key inventory data points to continually improve and make better business decisions. Below you’ll find resources for inventory accounting and reporting.

Beginning inventory
(COGS + Ending Inventory) – Purchases = Beginning Inventory Formula
Beginning inventory is the total value of a company’s inventory that is for sale at the beginning of an accounting period, which means it’s the same amount as the ending inventory from the prior accounting period. Beginning inventory is an important aspect of inventory accounting that you’ll need to use in the following areas: Balance sheets, internal accounting documents, and tax documents.

Ending inventory
Beginning Inventory + Net Purchases – COGS = Ending Inventory

Ending inventory refers to the sellable inventory you have left over at the end of an accounting period. When the accounting period ends, you take your beginning inventory, add net purchases, and subtract the cost of goods sold (COGS) to find your ending inventory’s value. Knowing your ending inventory value will impact your balance sheets and your taxes, so it’s important to calculate the value of your inventory correctly.

Finished goods inventory
Finished goods inventory is the total stock available for customers to purchase that can be fulfilled. Using the finished goods inventory formula, sellers can calculate the value of their goods for sale. ‘Finished goods’ is a relative term, as a seller’s finished goods may become a buyer’s raw materials. For example, a textile factory may produce materials that can be used in clothing such as cotton or silk. While these may be the textile factory’s finished goods, they can sell them as raw materials to apparel retailers who will create them into new finished goods: clothing.

Inventory accounting
Inventory accounting is a process that tracks and accounts for changes in the values of inventory over time as it relates to manufacturing and costs of goods sold. When new products are purchased at a different cost than before, the inventory value will change. Inventory value will vary based on how much product a business or retailer has on hand, how much it’s selling, and any changes in supplier pricing. Inventory value will also change when products are damaged, expired, or outdated.

Inventory report
An inventory report shows the amount of inventory on hand at a given time. It displays numbers that represent the product(s) you’re able to sell now, the inventory you are ordering, or the inventory you need for internal business use. A well-organized inventory report will help you avoid over-ordering inventory or running out of inventory when customers buy your products online.

Inventory weighted average
Cost of goods available for sale / Total number of units in inventory
Inventory weighted average (also known as ‘weighted average cost’) is one of the four most common inventory valuation methods used in ecommerce accounting. This method uses a weighted average to determine the amount of money that goes into COGS and inventory. To calculate the weighted average cost, divide the total cost of goods purchased by the number of units available for sale. To find the cost of goods available for sale, you’ll need the total amount of beginning inventory and recent purchases. The final calculation will provide a weighted average value for every item available for sale.

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