Understanding Inventory Flow in Ecommerce

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Moving inventory through the supply chain is a must for a lot ecommerce businesses — but how you move it is just as important. 

The flow of inventory through your supply chain can hugely impact your business’ costs, speed, and overall efficiency. For optimal performance, inventory should flow seamlessly from one stage of your supply chain to the next. 

This is easier said than done, though. To optimise your inventory flow, you’ll need to take a close look at your inventory management process, as well as your methods of tracking, forecasting, and restocking inventory. 

In this article, we’ll define what inventory flow is, break down why it’s important, and discuss different strategies for honing your inventory flow through techniques, software, and the help of 3PL partners like ShipBob.   

What is inventory flow?

Inventory flow refers to how a business controls and manages the movement of products through its supply chain. It involves creating a system or set of procedures that are followed to make sure that inventory is physically moved to the next supply chain stage. 

When inventory flow is smooth, inventory moves from stage to stage easily and efficiently, without delays or mistakes.    

Where does inventory flow fit in inventory management?

Inventory management is a multifaceted process that encompasses all sorts of tasks, including sourcing and procurement, inventory storage, stock level monitoring, replenishment, inventory auditing, and more. 

Inventory flow not only ensures that these functions happen, but that they happen smoothly. Good flow of inventory prevents bottlenecks that grind the supply chain to a halt, and helps a business execute tasks quickly and efficiently for better results.  

For example, one of the key functions of inventory management is to make sure there’s sufficient finished goods inventory in stock to meet customer demand.

With a good inventory flow strategy in place, you can watch inventory levels and time restocking correctly, avoiding stockouts that delay operations further down the supply chain (and disappoint customers). 

Generally, businesses focus on optimising inventory flow in and between the following phases:

Purchasing and procurement

The flow of inventory begins when you purchase raw materials for production or procure goods for reselling. Since every subsequent supply chain function builds on this one, it’s crucial to work with reliable suppliers who can deliver high-quality goods efficiently and at the best price.

Storage

Once inventory is received in the warehouse, businesses will need to store it strategically to ensure picking efficiency. When inventory is stored using an organised system, it significantly cuts down the time to find and retrieve products for fulfilment or raw materials for production.

Fulfilment

As soon as orders are placed, warehouse staff will have to find and retrieve the products from their assigned storage space. They will then have to transport them across the warehouse to the packing station, where they will be prepared for shipping. Optimising these steps and leveraging automation can improve efficiency and picking accuracy.

“The amount of volume ShipBob is doing for us is really impressive – almost 5,000 orders in a day, and we know they have capacity to do much more and scale with us as we continue to grow.

At this point in time, we have no intention of setting up and managing our own warehouses, so using ShipBob for fulfilment with customisation, control, and visibility, while managing our volumes is key.”

Stephanie Lee, COO at PetLab

Why is inventory flow important?

A good inventory flow ensures that your ecommerce operations function seamlessly with minimal delays and disruptions. It also benefits your business in several key ways that improve overall performance and help boost your bottom line. 

Warehouse efficiency

The inventory flow inside a warehouse is directed by a warehouse control system, which helps to coordinate activities between different subsystems. That way, conveyors, carousels, and sorters can function seamlessly and in a coordinated manner. 

The better inventory flow is, the more efficient warehouse management can be, since product routes are optimised and warehousing workflows are all functioning smoothly.

Reduced labour costs

When inventory flow is good and a warehouse runs like a well-oiled machine, it takes less time to perform tasks — especially if you automate more menial or repetitive functions. In this way, proper inventory flow helps reduce labour costs, as warehouse staff is free to focus on tasks that require a human touch. 

Consistent inventory forecasting

When inventory flow is smooth and traceable, you can always have an accurate idea of your stock levels in real time. There’s predictability in the movement of inventory, which also makes it easy to consistently forecast your future inventory needs.

How to ensure smooth inventory flow

Businesses need a system for tracking and analising stock movement so they can ensure smooth inventory flow. The following techniques can help you to monitor, manage, and maintain a seamless inventory flow across your supply chain. 

Stock review

It’s important to review your stock regularly to check stock levels and stock availability. This evaluation process can also help you calculate which SKUs have the highest turnover, and forecast demand for the next period

Using this information, you can set reorder points correctly and replenish your stock on time to ensure inventory flow stays seamless.

ABC analysis

Categorizing your inventory using the ABC analysis method is a great way to regulate inventory usage and maintain sufficient buffer stock to tide you over in case of sudden demand spikes. 

In ABC analysis, a business separates its inventory into three groups: A’s, B’s, and C’s. 

  • Category A: The best-sellers; the items that, through their sale, reap the most value for a business. Inventory levels within the A category should be closely monitored to prevent stockouts. 
  • Category B: The regulars; the items that are not quite as popular, but still provide moderate value to a business. These inventory levels require some attention, but not as much as A products. 
  • Category C: The slow-movers; the items that are not popular, and offer little value to a business. These inventory levels don’t require much managing, and can usually go a long time between replenishments. 

For some businesses, breaking inventory up into these categories makes it easier to manage a large catalogue of products, keep healthy safety stock levels, and achieve better inventory flow for all SKUs.

Cycle counting

While physical inventory counts are necessary, they tend to be inconvenient, as they usually involve putting a hold on your entire operations. 

Instead, regular inventory cycle counts are a great way to ensure that your stock levels are accurate without pressing pause on your operations. This involves following a cyclical schedule to account for specific portions of your inventory.

FIFO & LIFO valuation

Your chosen method of inventory valuation may also affect your inventory flow. 

If your business follows the FIFO (First-In, First-Out) method of valuation and fulfilment, you will be selling the oldest inventory first. This is usually conducive to steady inventory flow, as inventory is only held for a little while before being sold. 

Inventory flow is tricker with the LIFO (Last-In, First-Out) method. Because the most recently added inventory is the first to be sold in this approach, older inventory might sit in storage for a long time (inflating carrying costs), or never get sold. This can lead to issues with inventory flow, such as deadstock taking up valuable space. 

Whichever you choose, using one of these techniques to account for your inventory turnover can help you track inventory movement and direct inventory flow to drive profits. 

Inventory flow challenges

While smooth inventory flow offers a number of benefits, businesses may experience a few challenges when setting it up. Here are some of the most common obstacles to improving inventory flow. 

Limited visibility

While inventory is moving through the supply chain, you may not always be able to see where it is physically. 

Additionally, there may be challenges in seeing how much stock is available on hand or how many units you’ve sold across different channels. As a result, you may experience bottlenecks in order fulfilment or issues with delayed or incomplete shipments.

This makes it crucial to work with integrated inventory management systems that can provide you with real-time order status and updated, accurate inventory counts. 

That way, you can always get an accurate idea of your stock levels and keep track of your in-transit inventory, which will allow for precise and timely replenishments.

“ShipBob has given us increased visibility thanks to the dashboard that allows us to easily manage stock and orders. That wasn’t possible for us before.

Our relationship with ShipBob has been a game-changer for Quadrant, and it’s made my life so much easier. ShipBob is incredibly easy to use – that’s my favourite part about it.”

Will Kerr, Apparel Lead at Quadrant

Tracking issues

The more complex your supply chain, the more easily inventory can get lost or moved to the wrong place. Without proper inventory tracking, you won’t be able to tell how efficient your inventory flow is, or pinpoint opportunities for improvement. 

“We have a Shopify store but do not use Shopify to track inventory. In terms of tracking inventory, we use ShipBob for everything — to be able to track each bottle of perfume, what we have left, and what we’ve shipped, while getting a lot more information on each order.”

Ines Guien, Vice President of Operations at Dossier

Expanding product portfolio

When there’s more inventory to move, it gets harder and harder to move it all smoothly and quickly. As you grow your business and expand your product range, managing your portfolio and inventory flow, managing your inventory flow becomes more complicated. 

Additionally, you may also experience higher inventory turnover rates, which will require you to coordinate frequent replenishments.

How to optimise inventory flow with software

The right software can make a world of difference for your inventory flow by giving you real-time inventory visibility and letting you automate certain functions. Here are some of the software features that you can use to optimise your inventory flow.

Inventory tracking

Being able to see exactly which SKUs are in stock, how many you have left, and where they’re located will give you a better idea of how to manage your inventory flow.

You can use real-time inventory tracking to check stock levels, understand which inventory items need replenishing, and when they need to be replenished.

The right software will also have ways for you to distinguish finished products from work-in-process (WIP) inventory and in-transit inventory. This detail will give you even more granular insight into what stage of the supply chain inventory is in, and where it needs to move next.  

Order management

Automating your order processing and management can speed up and streamline your inventory flow.

An order management software that integrates with all your sales channels will allow you to automatically process orders and get them to the next step of fulfilment. The software will also pull customer data directly from your store, which can help to minimise human error.

Fulfilment automation

Software that includes automations in the fulfilment process can also facilitate inventory flow. By automatically generating picking lists, software ensures that orders are picked in a highly efficient manner.

It can also help you create shipping labels, record your outgoing inventory, and get orders ready for shipping — all of which help inventory move to delivery more seamlessly.  

“ShipBob has done a great job of giving each store owner a feeling of complete control over everything. You can outsource your fulfilment while still maintaining full control.

If I create a SKU in my ecommerce platform, I can link that in ShipBob myself to whatever inventory it is. If I run out of one product, I can assign it to another SKU. With ShipBob, you see exactly what is picked.”

Gerard Ecker, Founder & CEO of Ocean & Co.

Inventory forecasting

One key advantage of utilising software is its ability to assist in forecasting inventory demand. 

These predictions are made based on various factors, including current stock levels, historical demand, sales performance, and inventory turnover. As it tracks and stores this data, merchants can use it later on to inform their demand and replenishment strategy. 

Level up your inventory flow with ShipBob’s inventory management

With so much to juggle, inventory flow can be hard to achieve — which is why merchants often choose to rely on an expert partner like ShipBob. 

ShipBob’s robust inventory management system makes it easy to optimise your inventory flow through key features that improve inventory control, visibility, and tracking. 

Using ShipBob’s dashboard, you gain real-time inventory visibility into inventory levels across all SKUs, key data, and fulfilment activities. This way, you can know exactly how much stock is available, which SKUs are running low, and where each item is located in your warehouse at any time. 

With this visibility, ShipBob equips you to control where and how your inventory moves. Optimise inventory allocation between multiple fulfilment centers with ShipBob’s ideal distribution tool, and assign lot numbers to specific products for easier lot tracking. 

You can even control replenishment timing using ShipBob’s automatic reorder notifications, and set reorder points using demand and turnover data tracked on your dashboard.       

By leveraging ShipBob’s technology and experience, your business can achieve better inventory flow, and help prepare you to scale your ecommerce business. To learn more about how ShipBob can help your business with its inventory management and fulfilment, click the button below. 

Inventory flow FAQs

Below are answers to the most common questions about inventory flow.

What is the inventory process?

The inventory process involves all aspects of inventory management, including sourcing and procurement, receiving, storage, stock level monitoring, replenishment, inventory auditing, and fulfilment. 

What are best practices for optimal inventory flow?

Maintaining optimal inventory flow requires real-time inventory visibility and regularly performing stock reviews and analyses.

Where can I learn about inventory management software?

You can learn more about inventory management software from our inventory management software guide.

What is inventory turnover?

Inventory turnover is the rate at which inventory is sold and then replenished during a given time period.

Written By:

Rachel is a Content Marketing Specialist at ShipBob, where she writes blog articles, eGuides, and other resources to help small business owners master their logistics.

Read all posts written by Rachel Hand