The Best Inventory Tools and Techniques for Ecommerce in 2024

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Managing ecommerce inventory can make or break your bottom line. Whether you hold too much inventory or not enough, a lack of inventory optimisation can increase costs and lower profits.

Getting inventory management right requires the right tools and techniques to better forecast demand and track sales trends.

While you can track inventory manually through spreadsheets, this quickly becomes overwhelming and you’ll find yourself missing some key features and functionalities.

Fortunately, there’s several inventory management tools on the market that are designed for ecommerce businesses of all sizes. And, there are plenty of inventory techniques that you can easily implement at a low cost.

In this article, we break down 10 inventory tools and techniques.

ABC analysis

ABC analysis is an inventory categorization method that prioritizes items based on how valuable they are.

How it works

This technique segments inventory into three categories labelled A, B, and C.

  • “A” items are high-priority, fewer in number, and contribute significantly to overall value.
  • “B” items fall in the middle
  • And “C” items are the most abundant but contribute the least to the total value.

When it’s useful

ABC analysis is a particularly useful inventory audit technique when a company has a wide range of products with varied sales volumes and values.

It helps identify high-priority items that require more attention due to their substantial impact on revenue.

Benefits

ABC analysis allows businesses to focus on items that are most valuable to the company.

It aids in better inventory control, enhances customer satisfaction by ensuring high-value items are always in stock, and improves cash flow by reducing unnecessary stockpiling of low-value items.

Drawbacks & other considerations

ABC analysis can be overly simplistic as it doesn’t consider factors like seasonality or product launches.

Additionally, it doesn’t accurately account for changing consumer behaviors or trends.

Just in time (JIT) inventory

The just in-time inventory management strategy originated in Japan and is the method Toyota uses to manage its manufacturing and inventory processes.

How it works

A JIT inventory strategy aims to cut down on inventory costs by ordering and receiving finished goods only as they are needed, thus reducing inventory levels and carrying costs.

When it’s useful

JIT is most useful for businesses that operate with fluctuating demand levels, where holding large amounts of inventory can be risky and costly.

It’s also beneficial for businesses that produce high-value goods where the cost of storing and managing inventory can be significant.

Benefits

JIT inventory reduces the costs associated with carrying and storing excessive inventory. It also minimizes the risk of obsolete inventory and waste, leading to overall increased operational efficiency.

Drawbacks & other considerations

JIT requires reliable suppliers and strong inventory visibility, which might not always be feasible, especially for small businesses.

It also leaves little room for errors or delays, as any disruption can halt production, potentially harming customer relationships.

Economic order quantity (EOQ)

Economic order quantity (EOQ) uses the help of a formula to determine an ideal unit quantity for upcoming purchase orders.

How it works

The EOQ model uses three variables:

  • Holding costs (H): the cost of storing inventory on hand
  • Annual demand (D): sales demand year-over-year
  • Order cost (S): the amount an order costs per purchase

The formula for determining your economic order quantity is as follows: 

EOQ = Square Root of: [2SD] / H

When it’s useful

Businesses with a consistent, predictable demand for their products often benefit from EOQ. This is because the formula relies heavily on a consistent demand rate, and any fluctuation could make the calculations less accurate.

Benefits

Utilising EOQ helps companies maintain low inventory levels, reducing inventory costs while ensuring enough stock is on hand to meet demand.

Drawbacks & other considerations

The main drawback of EOQ is that it assumes constant demand, which is only sometimes the case, especially in volatile markets.

Furthermore, it doesn’t account for discounts associated with bulk buying or fluctuations in ordering or holding costs.

Safety stock

Safety stock additional quantity of an item kept in stock to prevent stockouts and serves as a buffer.

How it works

To calculate an accurate amount of safety stock to have on hand, you’ll need to know the following for each SKU:

  • Maximum daily usage
  • Maximum lead time
  • Average daily usage
  • Average lead time

You can then plug these numbers into a safety stock calculator. Or, you can simply use the following formula:

(Maximum Daily Usage x Maximum Lead Time) – (Average Daily Usage x Average Lead Time)

When it’s useful

Demand can be unpredictable. During times when inventory forecasting isn’t perfect or there’s a sudden spike in demand, safety stock can be the difference between capturing a sale and losing a customer to a competitor. 

Benefits

Maintaining safety stock can reduce stockout costs while also helping businesses meet unexpected demand — keeping customer satisfaction high. It also doesn’t tie up as much capital as overstocking would.

Drawbacks & other considerations

Safety stock input variables need to be accurate, otherwise, you could end up ordering too much or too little. C

However, inventory management technology and cloud-based fulfilment solutions often include built-in tools to help calculate safety stock through historical order data and automated inventory reports.

Reorder point formula

The reorder point formula (ROP) is triggered when the inventory level of a particular product falls to a pre-determined point. 

How it works

ROP allows businesses to reorder stock just in time to replenish inventory before it runs out. It can be calculated with the following formula:

Reorder Point (ROP) = Demand During Lead time + Safety Stock

The first part of the equation takes into account the lead time in days and multiplies it by the average rate of daily sales (demand). 

Lead Time Demand = Lead Time x Average Daily Sales

The second part of the equation calculates how much safety stock you’ll need. This is done using the same safety stock calculation discussed above.

When it’s useful

The reorder point formula is beneficial in saving time and helping busy business owners stay on top of inventory replenishment.

Benefits

Using the reorder point formula can help prevent stockouts, reduce excess inventory, improve cash flow, and enhance forecasting.

It takes into account lead time and average daily sales which provides a more accurate picture of how many units are currently needed to avoid stockouts.

Drawbacks & other considerations

This method requires reliable lead times, otherwise, the reorder point might be miscalculated.

Batch tracking

Batch tracking, or lot tracking, is a method used to trace goods along the warehouse distribution chain.

How it works

Batch tracking involves keeping track of goods based on batches in which they were produced or received. Each batch is given a unique identifier, or serial number, which allows businesses to trace any issues or defects back to their source.

When it’s useful

Batch tracking is especially useful for businesses dealing with food items, cosmetics, pharmaceuticals, or any products where quality control and traceability are essential.

Benefits

Batch tracking can improve product traceability, facilitate more efficient recalls, improve customer safety, and help maintain high-quality control standards.

Drawbacks & other considerations

Implementing a batch tracking workflow can be time-consuming and requires an efficient system to manage and monitor batch information.

FIFO and LIFO methods

FIFO (First-In, First-Out) and LIFO (Last-In, First-Out) are popular methods for valuing inventory.

How it works

FIFO assumes that the oldest inventory items are sold first, while LIFO assumes that the most recent inventory items are the first to be sold.

When it’s useful

FIFO is particularly useful in industries where products are perishable or subject to obsolescence. On the other hand, LIFO can be advantageous for tax purposes, especially during periods of inflation. 

Both methods have their advantages and disadvantages. The key in either case is to have an inventory integration with your accounting software — whether that be Quickbooks, Xero, or something else.

This helps streamline the accounting process and makes tracking inventory costs, revenue, and profits far more efficient and accurate.

Benefits

FIFO can lead to a more accurate representation of inventory on the balance sheet, while LIFO can reduce income tax during times of rising prices.

“We have easy ways to manage subscription orders as well as expiration dates and lot numbers, so inventory goes in First In, First Out (FIFO).”

Leonie Lynch, Founder & CEO of Juspy

Drawbacks & other considerations

FIFO may inflate taxable income during inflation, while LIFO results in more complex accounting processes and isn’t as user-friendly.

Perpetual inventory management

A perpetual inventory system manages stock in real time. It involves software and automation tools, rather than inventory being tracked manually.

How it works

A perpetual inventory management system continually updates inventory records for each sale, purchase, and return as they occur. This system often relies on barcode scanning and software systems to track inventory movements.

When it’s useful

Perpetual inventory management is beneficial for ecommerce businesses of all sizes. However, especially so for those doing multi-channel fulfilment and/or have a high volume of sales.

Benefits

Using a perpetual inventory system can provide real-time inventory data, reduce the risk of human error, and can help easily forecast demand more accurately.

“We utilise ShipBob’s Inventory API, which allows us to programmatically retrieve real-time data on how many units of each product are currently stored at ShipBob’s warehouses. We currently use this API to generate custom reports to tie this inventory data into our accounting platforms.”

Waveform Lighting Team

Drawbacks & other considerations

The main downside is that it requires an initial investment in technology. You will have to take a look at your current tech stack and decide whether or not to invest in the right technology to automate inventory tracking.

Barcoding & automation

Barcoding and inventory tracking automation has changed the way business manage inventory by saving time and money.

How it works

Barcoding involves assigning unique barcodes to each product, which are then scanned using inventory scanners (AKA barcode scanners), to automatically update inventory records.

This process reduces the need for manual data entry, thereby improving the inventory control process.

When it’s useful

Whether it’s shipping barcodes or inventory barcodes, barcoding and automation are both useful for businesses of any size.

As sales volumes begin to increase, having a barcoding system in place becomes even more important as it reduces the risk of human error and inventory management hiccups. I

t’s also particularly useful for subscription box-based businesses in which the kitting process involves multiple SKUs.

Benefits

Barcoding and automation can drastically improve inventory accuracy, speed up the picking and packing process, minimise human errors, and provide real-time inventory updates.

Drawbacks & other considerations

Implementing a barcoding and automation system requires an initial investment in technology, training, and onboarding. It also relies heavily on the accuracy and quality of the barcodes used.

Inventory management software

Inventory management software is the most common solution that simplifies the process of tracking and managing inventory.

How it works

Inventory management software automates the process of tracking inventory across multiple sales channels.

When it’s useful

An inventory management platform is beneficial for businesses of all sizes and especially useful for those managing inventory across multiple locations or sales channels.

It can be integrated with a warehouse management system (WMS) to track inventory across the ecommerce supply chain and provide more visibility.

Benefits

Inventory management software includes features such as:

  • Real-time inventory tracking
  • Ecommerce platform integration
  • Inventory forecasting
  • Reorder notification alerts
  • Automated inventory reports
  • And more, depending on the software

Drawbacks & other considerations

Inventory management software requires an upfront investment and a small learning curve to use effectively.

Fortunately, many omnichannel fulfilment providers offer built-in inventory management tools. This allows you to fully outsource fulfilment to them and you can track inventory in real time through a cloud-based platform.

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.

The analytics are super helpful. We download Excel files from the ShipBob dashboard all the time and use them to analyse everything from cancellations, to examining order weights, to checking on whether ShipBob is shipping orders on time.

Even the way their warehouse receiving orders (WROs) work for sending inventory is very straightforward.”

Ines Guien, Vice President of Operations at Dossier

Real-world scenarios of inventory management tools and techniques in action

To highlight how much of an impact the right inventory tools and techniques can benefit a business, here are some real-world examples.

The CEO & Co-Founder of MDacne makes use of ShipBob’s analytics tools to help plan inventory reorders. They can see when certain SKUs are going to run out and even set up email notifications so that they’re alerted when a SKU has less than a certain quantity left.

“ShipBob’s analytics tool is also really cool. It helps us a lot with planning inventory reorders, seeing when SKUs are going to run out, and we can even set up email notifications so that we’re alerted when a SKU has less than a certain quantity left. There is a lot of value in their technology.”

Oded Harth, CEO & Co-Founder of MDacne

Harley Abrams, Operations Manager of SuperSpeed Golf, LLC uses ShipBob’s technology to get a quick visual overview of all their units, regardless of the location.

“On the supply chain side, I just throw in what we placed at the factory into a WRO in the ShipBob dashboard, and I can see how many units we have on-hand, what’s incoming, what’s at docks, and so on. I can see all of those numbers in a few seconds, and it makes life so much easier.”

Harley Abrams, Operations Manager of SuperSpeed Golf, LLC

Additionally, when it comes to safety stock, having inventory stored in multiple locations can be a game changer. ShipBob’s expansive presence across the US and internationally allows businesses to diversify their inventory distribution.

Just take the case of fast-growing brand Touchland: thanks to ShipBob’s various locations, the business is able to quickly fulfil orders and reduce shipping times for customers in the US.

This is also helpful especially when weather challenges happen; being able to have safety stock at different locations to ship from allows for a more seamless supply chain.

“We sell flammable goods that need to be shipped via ground, so ShipBob has been a great ally as they have fulfilment centers all over the US, facilitating a 2-3 day delivery time for any customer in the US.

This is helpful especially when weather challenges happen; being able to have different locations to ship from allows for a more seamless supply chain.”

Andrea Lisbona, Founder & CEO of Touchland

Unlock streamlined inventory management with ShipBob

Whether done manually or technology is implemented, inventory management can be challenging.

That’s why ShipBob offers a vloud-based warehouse management system (WMS) that incorporates the right tools and techniques to help you stay on top of your inventory.

With ShipBob, you can centralise inventory across multiple locations to get an accurate overview of your stock levels in real time.

“ShipBob’s Inventory Placement Program provides visibility into inventory movement that’s absolutely key for anyone running a business. The data is easily accessible, and it shows exactly how inventory is being split across ShipBob’s network of warehouses.

It’s also really great for our product reconciliation, because you can see what’s received at the hub locations and individual fulfilment centers. There’s a lot more clarity, and it’s so much simpler to check that our shipped inventory was received.”

Mithu Kuna, Co-Founder and CEO of Baby Doppler

On top of that, more locations mean a greater probability of storing inventory closer to your customers. Being able to ship from Zones 1-4, for example, allows you to deliver products faster and cheaper than shipping from a single location. 

Lastly, reducing the transit time from supplier to warehouse means you don’t have to overstock, reducing inventory charges. Additionally, ShipBob’s FreightBob solution offers 50% faster ocean freight shipping which greatly reduces the time it takes to replenish your inventory.

We not only cut down our shipping time from Hong Kong to LA significantly, but even saved money doing it. Thanks to ShipBob’s freight program, we had no stress and were super well-stocked for the rest of the year and into 2022, without any kind of inventory issues that have plagued us in the past.

We were in a tough spot, and I don’t think we would have been able to fulfil all of our retail orders across every single SKU throughout the entire BFCM holiday period without it. It came at a really clutch moment!”

Nathan Garrison, Co-Founder and CEO of Sharkbanz

Inventory tools FAQs

Below are answers to common questions about inventory tools.

How can inventory tools aid in demand forecasting?

Inventory tools can collect and analyse sales data over time to identify patterns and trends. This information can be used to predict future sales, helping businesses plan their inventory accordingly.

How do inventory tools play a role in managing returns?

Inventory tools can streamline the returns process by automatically updating inventory levels when a return is processed. They can also track the reasons for returns and assist in managing the reselling, recycling, or discarding of returned items.

Written By:

Kristina is the Sr. Director of Marketing Communications at ShipBob, where she writes various articles, case studies, and other resources to help ecommerce brands grow their business.

Read all posts written by Kristina Lopienski