Best inventory management practices for DTC stores
Let's start simple; inventory management in eCommerce allows ensuring the availability of products to supply customers.
Why an effective inventory strategy is important in eCommerce?
Inventory management techniques are key for DTC stores since a failure in the process could potentially interfere with the quality of service that a company offers, or with the amount of money that the company earns, or worse, could result in the amount of money lost.
It is therefore key to create a consulting strategy to understand the business processes of the clients, many times non-existent in some departments or simply inherited without questioning whether it is the correct way to do them today.
The Inventory Management Process
Inventory management in DTC stores means that products must be ready for use as soon as the order is received. While it sounds simple enough, the inventory management process is more complicated. In this process, you must ensure that you have the necessary items in stock and have a contingency plan for when things do not go according to plan.
Defining an inventory management system will help these types of companies save money, optimize resources and increase their sales. Well, it is useless to have items in stock if they are not sold, it is also useless to have new orders in your Shopify account but not to have these products in inventory. Poor inventory process management is detrimental to the supply chain.
When defining an inventory management process, the steps to be followed for product supply are first ordered, defining the indicators to take into account and the associated business rules, and managing the rules in the warehouses.
Every company needs to have a centralized inventory management system, not having it can become a hurtful problem for growing DTC stores.
Using and relying solely on Excel to manage inventory is not the best option if you hope to be successful in your eCommerce strategy.
It is also a manual system so it is subject to human error. A centralized and automated inventory system, such as Fabrikatör, will allow a company to easily track, forecast, analyze, calculate and control its actions in real-time, from anywhere in the world.
Also check this article 👉 5 Benefits of inventory forecasting
It is also important to establish a safety stock. A minimum level of stock with the minimum amount of product you should have on hand at all times to avoid supply chain breaks. The strategy is that when inventory falls below this number, it is time to order more. This number will vary based on expected demand and how quickly a particular product sells.
The company needs an optimized demand prediction strategy since consumption can sometimes be erratic and not very controllable.
The volatility of demand today is highly accentuated by the effervescence of the markets, the emergence of new products, or the action of the competition, among other factors.
Added to this is the seasonality of the products, which also has a direct effect on stock levels.
In this context, the company can cover the risks by increasing safety stocks but without exceeding them, since the effects of this excess inventory have a direct impact on the costs of logistics storage and the financial situation of the company.
Undoubtedly a key part of inventory management is planning and forecasting the demand for products.
It is important to study the market and review past sales and trends to get a rough estimate of how much inventory to keep in stock.
It is important to see data from past months, especially in fast and changing environments, to establish a level of "base demand" for each season. Whatever strategy you decide to use to understand demand will help determine how much inventory is in stock for a given time.
However, a company can have thousands of products, so it is essential to prioritize and know in which products you can have a little more stock than others.
For this, the ABC analysis can be implemented, so a company knows that it will devote the greatest attention to its A Items when it comes to maintaining excess inventory. For the other categories, you don't need to be so proactive. It is possible that this way you can identify opportunities for improvement and avoid storing too much of these items since they are sold less frequently.
It is a systematic approach to planning the supply of materials and services to suppliers, ensuring their effective and efficient materialization.
Planning supply logistics is an essential tool for the supply chain to function correctly, this will be possible with the support of internal and external supply customers. It is a concrete plan of planned actions with a short to the medium-term horizon (usually 12, 18 to 24 months).
The first thing a sourcing planner should do is understand the needs of the business.
Then find the right providers. The supplier or suppliers who seek to reduce the proposed budget should be chosen, and who wish to join forces to reduce costs, obtain credits, and finance marketing strategies.
Finally, the supplier must be reliable, capable, responsible, and must be close to the time of any unforeseen event.
Then a distribution plan must be created that includes from the moment a department requests one until it reaches the plant or distribution center.
Automated purchase orders
It is key in the purchase process and especially if you are dealing with more than 200 orders a month, automate purchases. This is possible through systems that allow you to make a purchase order, this is a document that allows you to automate and streamline the order of products and merchandise from Suppliers.
Thus, it is possible to comfortably automate the stock and merchandise replenishment process. In addition, under stable and predictable demand, it is possible to create automatic purchase orders at certain time intervals to prevent the company from running out of stock of its most important products.
In summary, good inventory management will allow you to know the products, raw materials, tools, and others that your company has. In this way, you will know when is the ideal time to restock, without suffering losses due to the absence of any product or raw material in your stock. To achieve optimal replenishment, you need an excellent logistics strategy.