{"id":1383,"date":"2019-08-31T03:05:00","date_gmt":"2019-08-31T03:05:00","guid":{"rendered":"https:\/\/www.shipbob.com\/uk\/ecommerce-inventory\/guide\/"},"modified":"2025-08-07T00:54:28","modified_gmt":"2025-08-07T00:54:28","slug":"guide","status":"publish","type":"page","link":"https:\/\/www.shipbob.com\/uk\/ecommerce-inventory\/guide\/","title":{"rendered":"Ecommerce Inventory Guide"},"content":{"rendered":"\n
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The Ecommerce Inventory Management Guide<\/h1>\n\n\n\n

Everything you need to know to manage, prepare, and report on ecommerce inventory<\/p>\n\n\n\nRequest a Quote<\/a>\n<\/div>\n\n\n\n

Creating an efficient ecommerce inventory management system is one of the most important aspects of running a successful business. There\u2019s a lot that goes into the process, but with full visibility of every phase and understanding best practices will help you prepare for the unexpected. <\/span><\/p>\n\n\n\n

To help set you up for success, we\u2019ve pulled together everything you\u2019ll need to know about preparing, managing, and reporting on ecommerce inventory. Click on the links below to jump to a specific topic with detailed guides and information. <\/span><\/p>\n\n\n\n

What do you want to learn?<\/h2>\n\n\n\n
Preparing ecommerce inventory<\/strong><\/a><\/div>\n\n\n\n
Managing ecommerce inventory<\/strong><\/a><\/div>\n\n\n\n
Ecommerce inventory reporting<\/strong><\/a><\/div>\n\n\n\n
Inventory metrics and terms<\/strong><\/a><\/div>\n\n\n\n


<\/a><\/p>\n\n\n\n

What is ecommerce inventory management?<\/h2>\n\n\n\n

Ecommerce inventory management is an organised approach to sourcing, storing, tracking, and shipping an ecommerce business\u2019s inventory. Strong inventory management processes and strategies can be a source of leverage for ecommerce companies looking to increase efficiency and reduce operational costs.<\/p>\n\n\n\n

Preparing ecommerce inventory<\/h2>\n\n\n\n

Before you establish an inventory management process, you\u2019ll first want to prepare your inventory for the unexpected. Below you\u2019ll find information on how to better forecast future orders and customer demand, plus the different options for inventory financing.<\/p>\n\n\n\n

Inventory financing <\/a><\/h3>\n\n\n\n

Inventory can be a company\u2019s 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. <\/span><\/p>\n\n\n\n

If your ecommerce business is in the midst of growth (new product offerings, more sales, etc.), then you\u2019ll highly benefit from having a plan in place for possible cash flow gaps, especially if a majority of cash is going towards production. If not, it may lead to problems with <\/span>inventory accounting<\/span><\/a>. A few inventory financing options include equity finance, WIP finance, AR financing, crowdsourcing, and merchant cash advances. <\/span><\/p>\n\n\n\n

Inventory forecasting<\/a><\/h3>\n\n\n\n

Inventory forecasting calculates the inventory needed to fulfil 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 labour, and a more efficient production cycle.<\/span>
<\/a><\/p>\n\n\n\n

Managing ecommerce inventory<\/h2>\n\n\n\n

Effectively managing inventory is one of the most critical aspects of running a successful ecommerce business. If you don\u2019t, 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.<\/p>\n\n\n\n

Inventory audit<\/a><\/h3>\n\n\n\n

An inventory audit is an analytical procedure that checks a company\u2019s 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. <\/span><\/p>\n\n\n\n

Inventory management<\/a><\/h3>\n\n\n\n

The inventory management process is an important aspect of ecommerce success. It refers to the management and monitoring process of a company\u2019s 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.<\/p>\n\n\n\n

Ecommerce inventory management software<\/a><\/h3>\n\n\n\n

Inventory management software automates and streamlines the process by tracking inventory levels, orders, sales, and shipments across channels and locations. In today\u2019s digital world, an inventory solutions<\/a> system is a necessity for growing your ecommerce business.<\/p>\n\n\n\n

The right inventory software will help automate several of the inventory management techniques and methods listed below, saving time and lowering the number of human errors. It is data-driven and provides real-time updates, rather than manual, one-point-in-time methods. <\/span><\/p>\n\n\n\n

Inventory control<\/a><\/h3>\n\n\n\n

To ensure your ecommerce business has the right stock levels needed to fulfil orders on time, inventory control is a vital process that optimises 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.<\/span><\/p>\n\n\n\n

Inventory distribution<\/a><\/h3>\n\n\n\n

When one <\/span>fulfilment centre<\/span><\/a> isn\u2019t enough, you may want to consider distributed inventory. Splitting your inventory across multiple fulfilment centre locations is a great way to better serve your customers, especially if they\u2019re scattered across the country or if you\u2019re looking to provide 2-day ground shipping. <\/span><\/p>\n\n\n\n

Another reasons to consider inventory distribution is if you ship a high volume of orders and\/or your products or orders are heavy in weight. Many <\/span>3PLs<\/span><\/a> provide multiple warehouses so you can deliver the fastest, most affordable shipping.<\/span><\/p>\n\n\n\n

Inventory pick list<\/a><\/h3>\n\n\n\n

Order picking is the secret to a successful <\/span>fulfilment process<\/span><\/a>. A pick list is the customer order information that\u2019s 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<\/a>. As soon as a pick list is generated, the <\/span>order fulfilment<\/span><\/a> process can begin.\u00a0<\/span><\/p>\n\n\n\n

Inventory scanner system<\/a><\/h3>\n\n\n\n

To make the process of tracking inventory easier, a wireless barcode inventory scanner is a tool that\u2019s worth the investment. The use of a barcode scanner is a great ecommerce inventory solution<\/a> 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<\/a>, 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\u2019s stowed.<\/p>\n\n\n\n

Inventory tracking<\/a><\/h3>\n\n\n\n

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. <\/span><\/p>\n\n\n\n

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.<\/span><\/p>\n\n\n\n

Periodic inventory system<\/a><\/h3>\n\n\n\n

Periodic inventory is a system of inventory valuation where the business\u2019s 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\u2019t 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.<\/p>\n\n\n\n

Perpetual inventory system<\/a><\/h3>\n\n\n\n

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.<\/p>\n\n\n\n


<\/a><\/p>\n\n\n\n

Ecommerce inventory reporting<\/h2>\n\n\n\n

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\u2019ll find resources for inventory accounting and reporting.<\/p>\n\n\n\n

Beginning inventory<\/a><\/h3>\n\n\n\n

(COGS + Ending Inventory) \u2013 Purchases = Beginning Inventory Formula <\/strong><\/p>\n\n\n\n

Beginning inventory is the total value of a company\u2019s inventory that is for sale at the beginning of an accounting period, which means it\u2019s the same amount as the ending inventory<\/a> from the prior accounting period. Beginning inventory is an important aspect of inventory accounting<\/a> that you\u2019ll need to use in the following areas: Balance sheets, internal accounting documents, and tax documents.<\/p>\n\n\n\n

Ending inventory<\/a><\/h3>\n\n\n\n

Beginning Inventory + Net Purchases \u2013 COGS = Ending Inventory<\/strong><\/p>\n\n\n\n

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\u2019s value. Knowing your ending inventory value will impact your balance sheets and your taxes, so it\u2019s important to calculate the value of your inventory correctly.<\/p>\n\n\n\n

Finished goods inventory<\/a><\/h3>\n\n\n\n

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. \u2018Finished goods\u2019 is a relative term, as a seller\u2019s finished goods may become a buyer\u2019s 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\u2019s finished goods, they can sell them as raw materials to apparel retailers who will create them into new finished goods: clothing.<\/p>\n\n\n\n

Inventory accounting<\/a><\/h3>\n\n\n\n

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<\/a> 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. <\/span><\/p>\n\n\n\n

Inventory report<\/a><\/h3>\n\n\n\n

An inventory report shows the amount of inventory on hand at a given time. It displays numbers that represent the product(s) you\u2019re able to sell now, the inventory you are ordering, or the inventory you need for internal business use. A well-organised inventory report will help you avoid over-ordering inventory or running out of inventory when customers buy your products online. <\/span><\/p>\n\n\n\n

It can be created in physical or electronic form, but a best practice is to connect the systems that utilise your supply chain and customer order data. However, if you\u2019re looking to create your own reports to track your inventory, get started with our <\/span>free inventory report templates<\/span><\/a>. <\/span><\/p>\n\n\n\n

Inventory weighted average<\/a><\/h3>\n\n\n\n

Cost of goods available for sale \/ Total number of units in inventory<\/b><\/p>\n\n\n\n

Inventory weighted average (also known as \u2018weighted average cost\u2019) 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\u2019ll 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.<\/p>\n\n\n\n


<\/a><\/p>\n\n\n\n

Inventory metrics, formulas, and terms<\/h2>\n\n\n\n

Understanding all types of inventory data will help you make better business decisions as you scale. To continue your knowledge on how to best prepare, manage, and report ecommerce inventory, below you\u2019ll find inventory metrics and important terms you\u2019ll want to be aware of.<\/p>\n\n\n\n

Finished goods inventory<\/a><\/h3>\n\n\n\n

(COGM \u2013 COGS) + Value of Previous Year\u2019s Finished Goods = Value of Finished Goods<\/strong><\/p>\n\n\n\n

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 and how much inventory is needed to preve<\/a>nt stockouts<\/a>. Out-of-stock products and backorders<\/a> cause customers to wait a long time for their purchase until an item is back in stock or cancel the order altogether.<\/p>\n\n\n\n

Inventory carrying cost<\/a><\/h3>\n\n\n\n

Carrying cost is the sum of all costs related to holding inventory including warehousing, labour, insurance, and rent, combined with the value of damaged, expired, and out-of-date products. <\/span>The carrying cost of inventory will depend on your products and storage needs, your total number of SKUs, your location, your inventory turnover rate, and whether you keep retail fulfilment<\/a> in-house or outsource it.<\/span><\/p>\n\n\n\n

Inventory holding cost<\/a><\/h3>\n\n\n\n

Inventory Holding Cost = (Storage Costs + Employee Salaries + Opportunity Costs + Depreciation Costs) \/ Total Value of Annual Inventory<\/b><\/p>\n\n\n\n

Inventory holding cost is the sum of all costs involved in storing unsold inventory, including warehousing, insurance, labour, transportation, depreciation, shrinkage<\/a>, obsolescence, and opportunity costs.<\/p>\n\n\n\n

Calculating inventory holding cost is relatively easy, as long as you\u2019ve determined your storage, employee, opportunity, and depreciation costs. Once you know those subtotals, add them together, and then divide that sum by the total value of your annual inventory (the combined average value of all inventory that you move in a year). That number, when expressed as a percentage, is your inventory holding cost.<\/p>\n\n\n\n

Inventory safety stock formula<\/a><\/h3>\n\n\n\n

It\u2019s impossible to predict the unexpected, especially changes in buying patterns and last-minute issues with suppliers. However, there are ways to help avoid an out-of-stock situation by understanding the inventory safety stock formula. Safety stock is extra product you keep on hand in case of an emergency or supply chain failure. It provides a safety net in your inventory to ensure you don\u2019t run out of items.<\/span><\/p>\n\n\n\n

Inventory turnover rate<\/a><\/h3>\n\n\n\n

Inventory turnover rate = cost of goods sold (COGS) \/ average inventory<\/strong><\/p>\n\n\n\n

Measuring inventory turnover can help you better <\/span>manage your supply chain<\/span><\/a> and sales channels effectively, as well as improve inventory forecasting. It\u2019s the ratio that indicates how many times inventory is sold and then replaced in a specific time period. <\/span><\/p>\n\n\n\n

A high inventory turnover rate may indicate that you\u2019re selling a product in a timely manner while <\/span>low inventory turnover rate may indicate that certain products are not selling. Whether your inventory turnover is too high or too low, by learning how to best measure, you\u2019ll be able to better regulate the issues as they arise. <\/span><\/p>\n\n\n\n

Inventory days on hand<\/a><\/h3>\n\n\n\n

Days on hand = (average inventory for the year \/ cost of goods sold) x 365<\/strong><\/p>\n\n\n\n

Inventory days on hand (or days of inventory on hand) measures how quickly a business uses up its inventory levels on average, and allows you to minimise stockouts. With accurate stock levels, you can ensure customers are going to be able to purchase what they need without needing to subscribe to \u201cBack in Stock\u201d notifications. <\/span><\/p>\n\n\n\n

You can use this measurement combined with inventory forecasting to determine how quickly your products are being sold on average and accurately predict future inventory levels. In general, the fewer days of inventory on hand, the better. <\/span><\/p>\n\n\n\n

Inventory reorder point formula<\/a><\/h3>\n\n\n\n

Reorder point formula = demand during lead time + safety stock<\/strong><\/p>\n\n\n\n

Reorder point is the minimum unit quantity that a business should have in available inventory before they need to reorder more products. <\/span>Understanding the inventory reorder point formula helps to ensure you order at the right time and don\u2019t risk ordering too late and run out of stock. It\u2019s done at the SKU level so you acknowledge that each product has a different sales cycle, so it\u2019s data-driven and accurate. <\/span>Solutions like ShipBob can help automatically setup reorder points to remind you it\u2019s time to order more inventory.<\/span><\/p>\n\n\n\n

Inventory shrinkage<\/a><\/h3>\n\n\n\n

Inventory shrinkage rate = (recorded inventory \u2013 actual inventory) \/ recorded inventory<\/strong><\/p>\n\n\n\n

Inventory shrinkage is when actual <\/span>inventory levels<\/span><\/a> are less than accounting has them recorded as. The four most common causes of inventory shrinkage include consumer theft, employee theft, inventory damage, or management errors. There are several ways to prevent inventory shrinkage.<\/span><\/p>\n\n\n\n

Inventory write-off<\/a><\/h3>\n\n\n\n

Writing off inventory is the process of removing the cost of a portion of inventory from accounting records. This is done when inventory loses value and cannot be sold due to damage, theft, loss, or decline in market value.<\/p>\n\n\n\n

Just in Time (JIT) inventory<\/a><\/h3>\n\n\n\n

Just in Time (JIT), commonly known as the Toyota Production System, is a supply chain management method designed to cut costs, increase efficiency, and decrease waste by receiving goods when they are needed. The method entails having enough inventory available to meet customer demand and the remainder is quickly stockpiled thereafter. <\/span><\/p>\n\n\n\n

The JIT inventory method is most commonly used in manufacturing, but it can apply to ecommerce stores. Some advantages include reduced storage costs, improved communication, less waste, and smaller inventory investments. Some disadvantages include difficult implementation, greater risk of supply chain failure, more planning, and higher probability of stockouts.  <\/span><\/p>\n\n\n\n

Reorder quantity formula<\/a><\/h3>\n\n\n\n

Optimal Reorder Quantity for a SKU = Avg. Daily Units Sold  x Avg. Lead Time<\/strong><\/p>\n\n\n\n

Reorder quantity is the total number of product units you request from a manufacturer or supplier on an inventory replenishment purchase order. The exact amount should not be so high that you have too much capital tied up in inventory and subsequent warehousing costs, but not so low that there\u2019s not enough safety stock and you risk selling out before you can get the next batch of inventory.<\/p>\n\n\n\n

Work-in-process inventory<\/a><\/h3>\n\n\n\n

Beginning WIP Inventory + Manufacturing Costs \u2013 COGM = Ending WIP Inventory <\/strong><\/p>\n\n\n\n

Work in process (WIP) inventory is a term used in production and supply chain management<\/a>. It refers to the total cost of unfinished goods currently in production. It\u2019s different from what\u2019s considered \u2018finished goods,\u2019 which refers to items ready to be sold as is. Businesses that sell highly custom products (e.g., hand-made products on Etsy) are more likely to oversee the WIP inventory process than a business that purchases finished goods<\/a> directly from a supplier or manufacturer.<\/p>\n\n\n\n

Ecommerce inventory made easy<\/h2>\n\n\n\n

You don\u2019t have to do it all alone. When you choose ShipBob as your 3PL partner, you\u2019re given the support, resources, facilities, and tools you need to make inventory management and ecommerce fulfilment easier.<\/p>\n\n\n\n

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