Small business has gone digital. While this shift has brought success to many small business owners, it has also brought new challenges. Customers used to browse selections of goods in local stores, but now they browse online catalogs of photos and descriptions. Business owners used to be able to interact with customers face-to-face and in real-time but now respond to emails and comments online instead.
One of the biggest challenges facing small eCommerce stores is inventory management. Many eCommerce business owners must make room in their homes for raw materials and finished goods. Managing inventory flow for an eCommerce business isn’t complicated, but it does require some strategic thinking.
Strengthen your inventory control with the following key inventory management practices.
Get Organized
The first, easiest, and most neglected step of effective inventory management is to get organized. In physical stores, employees stock and store products in a way that makes it easy for customers to find them and employees to restock them. However, many eCommerce businesses operate out of cluttered closets and unmarked boxes. Time is money, and a disorganized inventory wastes both.
Separate and Label Your Raw Materials
Nothing slows down production more than a scavenger hunt for supplies. Raw materials can be anything from labels to oils to blank rolls of fabric. A disorganized inventory can lead to costly human errors. Some materials can spoil over time if not rotated properly. Others may rip, stain, or spill if not stored with care.
You might mislabel an item or use the wrong ingredients in your product while preparing a large order. At best, this leads to wasted materials and slower production times. At worst, it results in disappointed or angry customers who didn’t receive what they expected.
Fortunately, many inventory management mistakes are easy to avoid with a little bit of organization. Start by separating your materials in a way that makes them easy to find, access, and count. Label your shelves, boxes, totes, and crates clearly, and keep raw materials separate from finished goods. If you store inventory in your home, keep it in a place free from personal items.
Set Up a Dedicated Workspace
You can further minimize production accidents by setting up a dedicated production area. Many eCommerce businesses start in living rooms, dining rooms, and kitchens. However, as they scale, eCommerce operations require more space. Children, pets, and guests can become workplace hazards. Family celebrations can slow order fulfillment. Materials and finished products can become contaminated.
There are a few simple ways to set up a workspace at home:
- Install shelves in the garage, set up a table in the office, or convert a spare bedroom into a stockroom.
- Install a gate to block pets or young children from a part of your home during certain times of day.
- Dedicate a closet, a dresser, or even just a pantry shelf for raw materials or finished goods.
- Hang curtains or set up room dividers in a shared space to create a staging area for order fulfillment. If all else fails, you can use tape, chalk, or yarn to isolate a section of the floor.
- Store large items in a lockable outdoor shed––many small sheds are available at hardware stores for under $100.
You can find affordable or free storage solutions at local thrift stores or by browsing online marketplaces for free furniture. As a bonus, you can document the construction of your workspace for valuable content marketing. Customers love to get behind the scenes!
Develop an Inventory Management System
After organizing your inventory, the next step is to develop an inventory management system. Effective inventory management systems account for unpredictable lead times, peak demand, and human error.
Plan Ahead for Your Next Purchase Order
As soon as you receive a set of raw materials, you should start planning for your next purchase order. Receive your materials into your supplies inventory and then make a note of any materials that may have run lower than you expected.
Also, instead of waiting until you’ve run out of supplies, consider ordering on a schedule. Maintain a rolling order sheet between orders. Then, when order day comes, you can order with confidence and avoid expensive rush shipping later.
Set a Reorder Point for Raw Materials
Strong inventory management systems include reorder points for raw materials. Many small business owners wait until they’ve almost completely run out of product to order more supplies for their online store. This practice can cause significant delays due to unpredictable human errors.
Delays result in stock outages. which require store owners to mark items out of stock and explain delays to disappointed customers. Then, once the items come back in stock, the customers may no longer want them.
Avoid running out of raw materials by carefully calculating reorder points for all supplies. Consider the lead times for your materials and add a margin for human error.
For example, imagine that it typically takes one week to receive thread after you order it, and you use two spools per week. To stay ahead of demand and allow a margin for a one-week lead time and potential shipping delays, your reorder point should be four spools. Then, in the event of a one-week shipping delay, you’ll be able to continue filling customer orders without interruption.
Of course, even one week may not be enough margin if your supplier is unpredictable or global events impact your supply chain. For this reason, it’s wise to evaluate your reorder points periodically to avoid stock outages and maximize profit.
Set Minimum Stock Levels for Finished Goods
After setting reorder points for your raw materials, it’s important to set minimum stock levels for your finished goods. When calculating minimum stock levels, consider the lead times for your raw materials and add margin for human error. Then, add the amount of time it takes to create and list your products and prepare them for shipping.
It’s wise to add margin here again for human error –– especially if you haven’t been able to set up a dedicated workspace. Small business owners who run online stores may sometimes experience costly accidents that cause delays and upset customers:
- Your furry best friends might mistake your customers’ items for their own chew toys.
- Your young child may mistake your specialty labels for fun stickers.
- You may set a drink on a counter near your product and knock it over with a loose cable.
If something happens to the last of your goods inventory, you’ll have to list some items out of stock while you remake your products. Fortunately, you can avoid missed sales opportunities by setting minimum stock levels for all finished goods.
Prepare for Peak Demand Seasons
Digital retail ebbs and flows with the season. It’s important to adjust reorder points for raw materials and minimum stock levels for finished goods when approaching periods of peak demand.
Your “busy season” will depend on your product. Demand for swimwear will surge during summer, while demand for childrens’ toys will peak during gift-giving holidays. Regional celebrations can increase demand for things like bead necklaces, while global events can increase demand for specialty items like masks.
Also, eCommerce stores can create increased demand through clever marketing. However, it’s important to run promotions strategically. The only thing worse than running out of a product is running out of a product while you’re paying to advertise it!
Take Inventory Often To Correct Human Error
Even the most focused and detail-oriented person is likely to make an occasional mistake. Misplaced items, production mistakes, and typos can result in inaccurate inventory records. Reorder points and minimum stock levels are useless when applied to an inaccurate inventory.
For this reason, it’s wise to take inventory often. While a weekly full inventory isn’t necessary, a rolling inventory solution is a great way to save time and maintain accurate records. For example, you could take an inventory of a different product or material each week and update your records accordingly. Then, twice a year, you could take a full inventory –– right before tax season is a perfect time for this.
While many small businesses track inventory on paper, it can also be wise to invest in inventory management software. The best inventory management software allows for barcode scanning, multi-location inventory control, reorder notifications, and flexible reporting. Powerful inventory management software makes taking regular inventory easy and efficient.
Get Your Funding Straight Before It’s Too Late
One of the most critical components of an inventory management system is easy access to funding. You can get organized, set minimums, and take inventory often, but still be unable to fulfill a purchase order because the funds from your sales haven’t cleared. Fortunately, Payability offers robust funding solutions for your cash flow needs.
For new eCommerce businesses that have found early success and are ready to scale, Instant Access by Payability provides daily access to funds from your sales. Sellers can qualify with $10,000 of monthly sales and 3 months of sales history.
It’s easy to streamline your cash flow with Payability:
- Fast Approval: Apply today and start receiving payouts immediately. There’s no credit check, because eligibility is based on sales history.
- Daily Payments: Receive funds from your eCommerce sales the next day, every day, including weekends and holidays.
- Fast and Free Transfers: Get your money quickly with Same Day ACH or wire, or get it instantly with Instant Transfer.
- Earn Cash Back: Spend with the Payability Seller Card to earn cash back on business purchases.
For more information about how Payability can help you access the funds you need to grow your eCommerce business, contact us today!
