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According to the PRNewswire, on average, U.S. retail businesses get their inventory accuracy of only 63%, which is just slightly more than half. In a business setting, especially pertaining to inventory management, it is simply unacceptable. 

Inaccurate inventory levels make it impossible to manage restocking schedules, leading to stockouts and, eventually, a bad customer experience. As customers would have to either wait longer to receive their orders or face canceled orders once the error is realized.

For any e-commerce business owner, it is easy to track inventory at the initial phase with very few orders. When a business grows bigger, there will be difficult times managing inventory. Stick to the article, I am going to save you from making the following mistakes before it gets worse.

A not so well designed product catalog

Let me tell you the most common mistake you could make, not having an Excel file or tool that centralizes 100% of the company's products and includes all the key information for inventory management. The catalog must contain information like withdrawn products with stock, active products, and new upcoming products. 

This catalog should include: 

  • Name of the product
  • Product Details like (categories, family, product type)
  • Product Number (Reference Number)
  • Whether the product is new or not 
  • Minimum Order Quantity (MOQ)
  • Cost price
  • Supplier lead time
  • Actual sale price
  • Expiry Date
  • Catalog sale price
  • Profit Margin
  • Past sales (52 weeks, 4 weeks, or 1 week) in quantity and value
  • Current stock in quantity

You do not want to be very elaborate; you can just have the following basic information:

  • End of life date of the product
  • Forecasts of future sales
  • Average past stock
  • Reference product (similar old product).
  • The photo of each product

Absence of inventory management software

Relying heavily on Excel sheets is a thing of the past. All inventory management needs are too elaborate for Excel sheets. Though Excel sheets are important, inventory management software is what every modern business needs. 

These tools offer elaborate and more sophisticated inventory management solutions than your regular spreadsheet. 

Forty-three percent of small businesses in the United States don't track inventory or do so using a manual system.

The salient features of inventory management software are: 

  • Effective inventory management: helps you track inventory on dashboards with visual and color-coded elements. 

  • Reduce the risk of taking extra orders: Automation mitigates human error during calculation. For example, track the number of orders against their stock.

  • More productivity: since it can help you automate menial tasks and save you the time to do the other complex tasks.

  • Happier customers: they will receive products on time, quicker returns as well.

Other software that can come in handy for inventory management is accounting software to optimize your financial data, and an invoice generator to send quick invoices to suppliers. 

Sustainable e-commerce supply chain e-book

Not having a regular stocking cycle 

In e-commerce businesses, owners must be malleable enough to meet the changes in demand of the customers quickly. Reacting to customer demand in real-time is not a wise move -- you will not get the chance to procure goods at the best prices, stock inventory, itemize digitally, and sell the items. In case you meet the surge in demand effectively, it would be so without any optimization and innovation.

Therefore, it is of imperative importance for e-commerce businesses to be able to forecast demands accurately. Note that we are only talking about the surge in demand for the products you already sell and not any new ones.

Knowing where your products are in their product lifecycle is critical to identifying the demand type for each item and adjusting your replenishment and stocking accordingly.

An easy way to do so is by using the method of moving averages. You can also simply note the times when your products upsell and stock inventory accordingly. 

However, if you want to level up your forecasting game and want to have a regular and seamless restocking cycle I highly recommend you go through this Harvard Business Review blog; some basic knowledge statistics would pay you huge dividends on your e-commerce business.


Not understanding the Total Cost of Ownership (TOC)

Focusing on just the final price while purchasing equipment or supplies from suppliers is a big mistake. 

This is because you are likely going to spend way more on that particular supply or equipment than the final purchase price across your lifetime, according to some sources, almost ten times more. 

For instance, maintenance, repair, and longevity of the equipment are some factors that decide the actual cost of equipment -- this overall price is known as the total cost of ownership (TOC). 

In TOC, along with the purchase price rate, these other factors play a role: 

  • Supplier lead time
  • Minimum order quantity (MOQ)
  • Supplier reliability
  • Maintenance and Repair
  • Supplier service
  • Ease of communication with the supplier
  • Payment lead time
  • Dependence of the supplier on your activity
  • Flexibility and elasticity of the supplier
  • Uncertainty of your sales forecast
  • The life span of your products

If this sounds overwhelming, do not worry; I have simplified it for you.

A quick way to calculate the total cost of ownership (TCO) is: 

P + M – R = TCO

Where P is the initial purchase price (price tag), M is the maintenance cost, and R is the remaining value (what would be the value after a certain time frame.)

Hiring the wrong people.

This point is commonsensical; however, reminding yourself this time and again is important, more so, in the times of hyper-automation. 

Automation is great -- and it will help you take care of a lot of menial and high-frequency tasks, but you are still going to rely on human employees, more so, for their skills like leadership, creativity, and problem-solving ability. 

Hiring the wrong people will lead to complications in the day-to-day processes and also an eventual dip in sales. Therefore, ensure that you interview your candidates intensively and look for qualities like reliability, consistency, and diligence along with hard skills.


Having unnecessarily large warehouses

This point has a psychological element to it. Having large warehouses will not allow you to make wiser decisions, here's how: 

Imagine you are living in a 20 sq. mt. apartment, would you then invest in having a table tennis setup? No, because there isn’t space for it! With a crunched space to live in, you will only live with the essentials, which would make you save a lot of money and give you a more stoic and realistic view of life. However, having a small residential space is a choice. Yet, choosing a small warehouse should not be one.

When it comes to inventory management, you need to avoid overstocking for two reasons:

  1. You don't want to scale your catalog horizontally, that is, to include needless and superfluous products just because you have the space in the warehouse.
  2. You want to be effective, and you must be under constant pressure. Having a lot of stock in place will not help you optimize your inventory and keep proper track of the influx of goods (unless you have management software.) 

Toyota factories worldwide are a good example of this. They leave no room for extra stock. The size of the automobile plants is quite smaller than its competitors because Toyota does not want any storage points in its plants. They want to be hyper-efficient and deliver things in real-time, which requires maximum inventory optimization. Some car parts only have a few hours of inventory at a time, making it possible to adapt to the demand in real-time. 

To err is human, but to prevent them -- divine 

No matter the kind of inventory philosophy you follow or the type of products you sell, in the end, a business is successful only when there is considerable ROI and ROE. And the guaranteed way to make this happen is by not making frequently made mistakes and being aware of the sneaky ones. We hope you find this article of actionable value. 

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About the author

Narayani is an enthusiastic digital marketing professional, having work experience in sales and customer experience in the past. She enjoys having a cup of tea and walking on the grass when not working.