by Chinh Nguyen November 9, 2018

5 Tips to Effectively Manage Inventory for Online Stores

While we will likely never see traditional brick and mortar stores phased out of being, there’s no denying that online establishments are certainly on an atmospheric rise. These stores are run just as any other company, but most all their business is conducted online.

In today’s digital age, online stores are popular, convenient, and easy to navigate both for customers and business owners, but one aspect of this business never changes: proper inventory management.

Whether your store exists online or in the mall, you’re always working with a physical inventory in some regard, either through a warehouse, stockroom, or another area. Depending on the size of your business, managing the inventory in these spaces can be anywhere from simple to tricky due to keeping track of your products, knowing which products are in high demand and need constant replenishing and which can wait in the rotation.

The secret to keeping your online store alive and thriving truly rests in how effectively you manage your inventory which is why we’re offering the following 5 tips to help you along the road to a booming business with happy customers and rising sales.

5 Tips to Effectively Manage Inventory for Online Stores

It is important to note that while how you handle your online business inventory really won’t differ that much from a brick and mortar one, the inventory management techniques you use for an online store will have to be fine-tuned to be effective. With this in mind, check out the following 5 inventory management tips to help your online store grow and prosper:

1. Organization is a Must

Effective inventory management rests on great organizational skills and techniques. There are various products to keep track, so part of your organizational management relies on keeping these products organized as strategically as possible.

One way to do this is to keep like products together. Create lists and group similar parts and pieces in specific categories to better keep track of them. When similar items are grouped this way, you no longer have to worry about searching far and wide for certain parts because they’ll already be grouped together.

Many successful companies organize their warehouse by product category to make things easier to find when orders come in. For example, a sporting goods online retailer may keep their camping gear in Aisle A and their team sports gear in Aisle B of their warehouse. Since these items go together, we can assume they will likely be bought together, making the decision to store them together useful down the line. In addition to this organizational approach, other companies use a hybrid approach and categorize their warehouse by their category. They also tend to keep the top 20% best selling items in the aisles closest to the packing station to improve efficiency by minimizing the distance between the top-selling products and packing stations.

In short, proper organization techniques can make a world of difference when keeping your warehouse in order.

2. Upgrade to An Inventory Management Software

Believe it or not, some businesses with a relatively large online sale volume actually manage their inventory with spreadsheet software or manually with pencil and paper. For smaller businesses, these methods may be easier and more cost-effective since software like Excel is easy to use and readily available on most computers.

However, as their inventory management needs and sales records begin to grow and become more complex, business owners quickly learn that using software like Excel is in no way a viable long-term inventory management option.

For one, as your inventory count grows, you likely will have more than one person responsible for keeping an accurate inventory count. If you are still using simple methods like pencil and paper or Excel to keep track of things, your numbers can get fudged and confused quickly due to multiple users having access to the same Excel file or notepad. What’s more, when using a spreadsheet there is a lack of real-time inventory data, meaning that numbers can get lost, misplaced, or confused pretty easily.

Most companies perform a physical count of their physical inventory at fixed time intervals—once a week, once a month, or another set period. Often, the Excel sheets figures are in not in sync with the actual counts in the warehouse as new inventory comes in, is being shipped out, or being moved from location to location. Unsurprisingly, using pencil and paper is even worse:

Why Using Pencil and Paper is Bad

  • Handwriting can be illegible and therefore hard to understand by another worker.
  • Handwriting can get erased, smudged, crumpled, or otherwise damaged.
  • Paper can be destroyed, ripped, torn, or otherwise ruined as well as misplaced or thrown away if the paper is not stored correctly or safely.

Let’s face it: keeping track of inventory this way just isn’t smart or responsible. What’s more, tracking inventory via a spreadsheet or pen and paper can be rather monotonous for many users. With monotonous tasks, human error will occur and the results can be pretty detrimental.

Inventory management software is specifically designed to make it easy to manage your inventory.  Most inventory software is cloud-based so there is no software to install and allows for multiple users to access the software and make changes from anywhere at any time. These systems will help streamline the inventory tracking process by promoting and maintaining accuracy, simplifying documentation and record keeping, cutting down on paper, and saving time overall.

3. Automate Your Warehouse Operations with Barcode Scanning

When you operate your store online, you may process hundreds or thousands of orders per day. While this usually means things go quickly and a lot can get done in a short amount of time, it also means that human error will happen at some point and throw a wrench in the works. Keeping track of your inventory through the use of a barcode system, however, can significantly improve the picking accuracy and decrease downstream costs when an order has been incorrectly packed and shipped.

When a customer receives an incorrect shipment for an online purchase, it usually results in frustration for them and money loss for you. To help assuage the situation, a customer service team representative should resolve the issue with the disgruntled customer by paying for the return postage for the product. From here, the warehouse needs to receive the shipment, process the return, and return the product back to inventory while ensuring the customer receives their refund, store credit, or an alternative compensation option.

When you have a large warehouse with tons of products to keep track of, finding products in a timely manner can become a daunting task. Things can easily get lost or misplaced, which can result in slow shipments or totally wrong shipments when the wrong item is picked up. Modern barcode scanning system can help avoid these unsavory scenarios by helping pickers find the bins and shelves where certain items are stored.

With mobile barcode scanners, most small businesses tend to start with discrete picking also known as picking orders one by one. This fulfillment process usually involves printing out paper pick lists for each order, using the barcode scanner to pick items for one order at a time, packing and shipping that order, then moving on to the next pick list on the printed stack.

The advantage of discrete fulfillment is straightforward and easy to adopt, but simplicity comes at a major cost in fulfillment efficiency. The larger your business, the less helpful this approach will be, but the principal can be expanded. As order volumes grow, companies typically migrate to a batch picking process, where similar orders are grouped together in batches. With this process, many companies leverage barcode scanners to guide the users where to go and how many items they need to scan to fulfill multiple orders in a single batch.

4. Analyze Your Data to Drive Reordering Decisions

Your inventory data is the best indicator of how to manage future inventory effectively. This means that when looking at past purchase orders and sales data, you can work out which products to reorder when to reorder them, and how frequently to keep them in your warehouse rotation.

Purchasing is one of the most critical and challenging tasks of any retail organization. You want to make customers happy by stocking the products that match their demand while meeting your company’s financial targets.  Due to this, there are two big questions a purchasing department faces at any given moment:

  • When should you reorder more inventory?
  • How many units should you order?

If you over-purchase, then you’ll have inventory taking up real estate in your warehouse and tying up precious dollars that could be reinvested elsewhere. If you purchase too little, on the other hand, then you’ll miss sales opportunities by stocking out and frustrating customers in the process. So how to remedy this?

When you have a few hundred products, many small business owners have a good feel of what to order and when to order because they are typically involved in the fulfillment operation and can make a quick tour of the aisles to see what needs to be ordered. This process becomes more challenging as you add more products, sale volumes increase, and your workforce grows to support your operations.

Many companies leverage with a min/max reordering method to know when to reorder. For smaller businesses, you can leverage a spreadsheet, but most businesses (no matter their size) use their cloud-based inventory software because it has this capability built in.

One of the easiest and most effective methods for analyzing data for inventory control and reordering is as follows:

  • For each product, the “Min” value represents a stock level that triggers a reorder and the “Max” value represents a new targeted stock level following the reorder.
  • Then, periodically conduct a stock take to periodic intervals to see what you have on hand
  • For example, if you sell garden hoses, you might have a min of “5” and a max of “10” in your spreadsheet or inventory software. When your stock take indicates that you have only 3 on hand, you would then order 7 more from your supplier. Many inventory software packages have the capability to automatically take care of the calculations for you.

5. Be Vigilant and Practice Regular Auditing

Regular audits of your stock and inventory are some of the most effective ways to make sure that your inventory and your recorded data is matching up. Auditing is a way of “double-checking” your inventory to ensure that what you have recorded accurately reflects what is happening in your warehouse and with your business.

Without regular audits, certain data can get lost or misplaced, leading to issues like having less inventory than you first thought, misplacing certain products, popular products not being reordered in a timely manner, and more.

When operating an online store, audits are especially important because things can get mixed up when handled digitally. This is not because of shortcomings in software, but because you are less likely to double or triple check when trusting a computer to do everything. Even the most accurate and trustworthy systems should be checked every now and again.

If your inventory is not what you think it is, it could lead to miscalculations, lost items, or misplaced money, which will lead to problems with customers, other retailers and more. Bottom line: practice regular auditing. To make things easier, there are a few ways to get your audit done:

Physical Inventory

Physical inventory refers to counting all your inventory at the same time. Most businesses that use this method do so at the end of the fiscal year, usually making it an annual, year-end event that ties in well with filing income tax and accounting.

One drawback of this option is that a physical inventory audit can be both tedious and time-consuming as well as prone to mistakes. Since it happens once a year, though, be sure to be as on point as possible when conducting this audit for best results.

Cycle Counting

Instead of doing a full physical inventory audit, you can do one using cycle counting. Cycle counting saves businesses from having to do a full-count at the end of the year because counts are done in cycles throughout the year. Cycle counting can be done by checking a different product each day, week, or month on a rotating schedule so that everything gets checked eventually and nothing is missed.

Spot Checking

Spot checking goes complements physical inventory auditing at the end of the year. When undertaking a physical audit at the end of the year, you may run into problems due to the sheer size of your inventory and how much work needs to be done.

To avoid a big mess, begin spot checking throughout the year. Spot checking is super easy and involves choosing a certain product, counting it, and then comparing it to the number of what the product amount is supposed to be in your records. Spot checking doesn’t have to be done on a schedule but is most useful as a supplement to physical inventory.

Your Inventory Under Control…Now What?

It’s time to start growing your sales. Below are a couple basic sales tactics to take advantage of your warehouse in tip top shape.

Start Selling on More Marketplaces

Most inventory management solutions have the ability to sell stock update to multiple marketplaces to prevent overselling. When a product is sold on one channel, the inventory software will auto-update all the selling channels to properly account for the new sale. With a firm grasp of your inventory, one option to increase is to start selling on additional marketplaces and web stores to maximize the visibility of your products.

For example, our chance of catching a fish is higher if you are fishing with two rods than one. With this in mind, sites like Amazon, eBay, and WalMart have significant traffic so the more marketplaces your products are one, the larger the reach and the more likely you are to make a sale.

Increase Your Listings with Kitting

With a firm handle on inventory, another tactic to get you ahead is to offer kits or bundles of your current products.  Kitting is an assembly process in which separate but related items are grouped, packaged and supplied together as one unit.

For example, you could offer a special “Weekend Warrior” car wash bundle consisting of the car wash, sponges, and a bucket. Or you could offer a “Buy 2 Sponges, and Get One Free’ bundle special. The advantage of kitting is it allows companies to dramatically increase their listings on the selling channels without increasing its sku count in the warehouse.

Also, there are fewer bundles available in most marketplaces, so creating a bundle is a good way to stand out. As in our above example, single items (e.g car wash) may have multiple sellers listing the same products with sellers competing on price to drive sales.

With inventory software in place, when a “Weekend Warrior” bundle is sold, the software will automatically adjust the stock levels of the car wash, sponges, and the bucket.


With these 5 tips in place, you can learn how to effectively manage inventory for your online stores and more. I hope that these tips are helpful and allow your business to grow and prosper whether it stays totally online or looks to expand to both an online store and brick and mortar sites.

  • Ecommerce

Chinh Nguyen

Chinh Nguyen has more than 15 years of digital marketing experience and is responsible the marketing and business operations at Finale Inventory. Prior to joining Finale Inventory, Chinh held marketing, business analytics, and product management leadership roles at a number of high-technology companies.

Leave a comment

Featured Posts

Background Parallax
Background Parallax

Let's Do This!

Let's get in touch to see if we're a good fit to help you reach your business goals.
Contact the Disruptive Team

©2024 Disruptive Advertising