4 Consequences of Poor Inventory Management

ChannelGrabber revisits one of our most loved articles to outline the consequences of poor inventory management [in 2022].

The challenge of inventory management and stock control

With 90% of eCommerce businesses failing within their first 120 days it is imperative that business owners and operational managers do everything within their power to ensure their success. Yet, even surpassing this first milestone does not mean things will be easier. As an eCommerce business matures the challenges of inventory management only increase as the number of SKUs (Stock Keeping Units), channels and suppliers also rises. This is reflected in the views of many eCommerce business owners who state the biggest challenge in running their business is inventory and stock management. Despite many companies having a staggering amount of capital tied up in inventory, a small business survey found over 43% of small companies do not track inventory or that they use a manual process to do so. This raises a concern as to the level of risk they are willing to operate with and poses the question if they are aware of the solutions available to mitigate the risk.

Outside of their own operations are a plethora of external challenges. On the surface, these appear beyond eCommerce business personnel’s control. One of these is shifting consumer behaviour. Highlighted in KPMG International’s report on the Future of Retail, which identified six key drivers of consumption that are shaping consumer purchasing decisions: value, convenience, experience, choice, privacy, and purpose. For eCommerce businesses managing their inventory and stock control are critical processes in delivering convenience, choice and customer experience. This challenge is amplified by the need to offer convenience and experience through a multichannel experience.

Equally, operational efficiencies are key to being able to offer value by keeping profit margins at their optimum which can be achieved by operating in a lean model.

In the face of these challenges, we outline why it is so critical to manage inventory effectively and the four consequences of doing it poorly.

1. Missed sales opportunities
2. Inability to cross-list stock and track inventory
3. Overstocking and understocking inventory
4. Poor eCommerce UX (User Experience)

Missed sales opportunities

With 73% of 46,000 consumers stating they use numerous channels throughout their shopping journey a modern retailer must be present on more than just one sales channel to maintain or outpace the competition. eCommerce retailers often list their products in multiple sales channels for greater reach and customer awareness.

With nearly 1 in 4 eCommerce purchases starting on Amazon and many other searches starting on eBay and Etsy, the risk of missing sales opportunities by not having a multichannel presence can be costly. These marketplaces also present the opportunity to greatly reduce marketing costs to attract customers to view products. Whilst Direct to Consumer channels, such as a Shopify or WooCommerce website, can be used to sell directly to customers, these channels usually incur a higher customer acquisition cost (CAC). Listing on multiple marketplaces and having several routes to consumers ensures a more robust business model.

Integrating with marketplaces and eCommerce platforms, for most, is a straightforward click-and-connect process. For those more niche marketplaces, inventory management and order management software like ChannelGrabber offers API connections. This functionality enables web developers and third-party applications to create solutions to connect these platforms and access every opportunity.
Inability to cross-list stock and manage stock allocation. 

It should be noted that connecting with sales channels is not one of the most challenging aspects of inventory management and stock control. Often it is the allocation of stock to different channels and the impact this has on tracking inventory and processing of orders in the warehouse that proves troublesome. The cross-listing of products can make inventory management tedious and error-prone due to the manual consolidation of orders for these marketplaces and sales channels. Without a centralised place to manage inventory orders quite often can duplicate sales. The misallocation of funds is a common consequence of this.

One benefit of inventory management and stock control software is that stock levels are synchronised instantaneously. In the warehouse and the office, one source of inventory truth is available in just a few clicks. Meanwhile, each channel continues to display your stock level preferences. ChannelGrabber includes three stock management modes: List All, List up to and Fixed.

• List All: List stock across channels that reflects the total amount available in inventory.
• List Up To: Select a numeric amount of stock to display per channel or product.
• Fixed: Decide on a fixed amount of stock to display regardless of the amount available in the warehouse.

Assigning different stock management modes to help you better manage stock availability per channel. Features such as these also enable you to add stock that is on order as available stock to listings, take into account supplier stock and 3PLS (Third Party Logistic Partners) using data exchange. Stock modes can also help you to overcome the stock limits of selling on eBay, for example.

Overstocking and understocking inventory

Research from Adobe highlight the challenges that supply chain issues can have on managing inventory levels. According to one report, in October 2021, the prevalence of out-of-stock messages rose a staggering 250 per cent when compared to a pre-pandemic period level (January 2020). The majority of eCommerce businesses are effectively presented with two possible options: overstocking or understocking. Overstocking is when a company has more stock than it needs. By contrast, understocking occurs when a company has fewer stocks than it needs. Finding the sweet spot in how much stock to have on hand should be the goal of any successful and viable inventory management plan.

While companies don’t want to oversell any item across their web stores they also don’t want to have unsold items sitting in a warehouse for extended periods beyond necessary. This can be a particularly hard challenge in Fashion and Fast Moving Consumer Goods (FMCGs) eCommerce businesses as external factors can be so influential.

Ordering too many products results in higher costs, including storage and warehousing management overheads, and losses due to obsolescence, shrinkage, and deterioration of products. Tactics such as product discounts, sales, and bundling can help move ordered products in greater quantities than necessary, but this often results in selling at a loss or at least reducing revenue from the anticipated amount. ChannelGrabber offers a host of product listing management tools that can help you overcome this. Just one feature worthy of mention is the product bundle feature which enables you to list group products to be listed on one or several sales channels in just a matter of a few clicks.

Inventory management software can also help you to forecast and track inventory trends. Without a system in place to assist in forecasting demand, eCommerce managers are often taking a shot in the dark with how many units they’ll move for a certain product. To accurately forecast demand, you’ll need prior sales to compare against and check past sales history. Inventory management systems, like ChannelGrabber, can assist in going back monthly, quarterly, and yearly to look at your entire sales history and determine which products consistently sell and look at trends and patterns throughout the year.

Poor eCommerce UX (User Experience)

Placing an order on a website to later find out the item is out of stock can affect customer relationships. In today’s omnichannel environment, consumers have options at every turn. People are much more likely to find a company that can fulfil orders on time than return to your store after seeing an out-of-stock message. One survey found that 70% of shoppers will go to a competitor rather than wait for an item that is out-of-stock; so in order to retain customers, a retailer must have stock on hand. Repetitive stock issues can damage the credibility of a business for customers and have a long-term impact on your business’ reputation. Ultimately, this could lead to potential customers leaving for other more organised eCommerce providers.

In an increasingly competitive environment, it is vital that retailers control costs, streamline operations, and have accurate, real-time data both for business operations, like forecasting, and to provide a satisfying omnichannel customer experience. There are an increasing number of eCommerce retailers investing in these areas to evolve their inventory management practices and keep up with the changing landscape. A comprehensive, multichannel inventory management solution, like ChannelGrabber, can help eCommerce retailers with all aspects of inventory management, stock control and order management.

Find the right multichannel inventory management software

Online retailers can easily avoid many of these consequences of poor inventory mismanagement through preparation, organisation, and inventory management software designed for multichannel eCommerce.
ChannelGrabber is the best inventory management software for scaling eCommerce businesses seeking multichannel order management, warehousing, automated shipping and customer reply manager functionality.