Direct to consumer (DTC) means that a brand sells its products directly to customers without involving intermediaries like retailers or wholesalers. In this retail model, brands can connect directly with consumers and gather useful insights.

Direct-to-consumer sites were the third most popular online purchase channels in 2023, after marketplaces and supermarkets. According to eMarketer, DTC sales are expected to reach $161.22 billion by 2024. As the number and size of DTCs consistently increase worldwide, the need for efficiently managing inventory becomes vital.

What does Inventory Management mean for DTC stores? Let's discuss briefly.

Inventory Management Process for a DTC Store

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.

✔️ You have a contingency plan for when things do not go according to plan.

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Using the right inventory management system will help DTC 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 damaging to the supply chain, but Fabrikatör is a software that can prevent this and so many other problems on your way.

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 business, especially growing ones, definitely needs to have a centralized and automated inventory management system; not having one can become a significant 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.

Why an Effective Inventory Strategy is Important in eCommerce?

An effective inventory management is the 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 customers, many times non-existent in some departments or simply inherited without questioning whether it is the correct way to do them today.

Let's explore some of the strategies you can follow to keep your DTC company profitable.  Automated purchase order, sales forecasting, supply planning, backorders, ABC Analysis, and stock alerts order are the powerful strategies you can use.

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Automated Purchase Orders

As another strategy for your DTC store, you can benefit from automated purchase orders. The implementation of automated purchase orders emerges as a pivotal solution & effective strategy for your DTC business. This feature enables you to place orders for the right quantity of products at the right time, preventing out-of-stock situations. It works by using systems to automatically create and handle orders, making the ordering process smoother and ensuring timely restocking. Managing a large number of product orders monthly can be demanding, making automation a crucial need in the purchase process. 📦

By utilizing systems that generate purchase orders, businesses can efficiently coordinate the ordering of products from suppliers. This is possible with inventory management solutions that allow you to create a purchase order, which is a document enabling the automation and streamlining of product and merchandise orders 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.

Sales Forecasting

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. However, using Excel alone may cause challenges in efficiently analyzing and managing such dynamic data. Employing dedicated inventory management solutions or advanced analytics tools becomes crucial to effectively handle through this complexity and make informed decisions on stock levels for a given time.

🗝️ For more detailed information about other limitations you may encounter when managing your inventory with Excel, you can read Excel Limitations in Inventory Management.

Supply Planning

In the rapidly evolving sector of e-commerce and Direct-to-Consumer (DTC) models, the essence of supply planning cannot be overstated. This process fundamentally revolves around the strategic orchestration of resource and information flow across the network of involved parties, including suppliers, manufacturers, and delivery services.

Effective supply planning in D2C and e-commerce is critical, as it involves integrating efforts from various stakeholders to create a seamless supply chain, where any disruption can significantly impact the timely delivery of products to customers. This plan typically covers 12 to 24 months, starting with demand forecasting.

1️⃣ The first step for a sourcing planner is to understand the unique requirements of a DTC or e-commerce business.

2️⃣ Next, identify the right providers. Choose suppliers that align with the allocated budget, engage in cost reduction collaboration, offer credits, and support marketing strategies. Choosing the right supplier is crucial for your DTC store because, for instance, working with an unreliable supplier can lead to stock-outs. A supplier that can't handle unexpected situations may cause delays in obtaining your products, resulting in customer dissatisfaction and sales loss.

3️⃣ Additionally, ensure the supplier is reliable, capable, and resilient, particularly when faced with unexpected events common in the fast-paced DTC environment.

4️⃣ Lastly, create a distribution plan tailored to the specific needs of DTC and e-commerce operations. This plan should cover the entire process, starting from when a department requests an item to its ultimate arrival at the plant or distribution center.

Backorders

Backorders as a DTC business strategy is highly important especially for high-value items (A items in ABC Analysis) making up 80% of your revenue. 🛒 If one of these items runs out, using backorders ensures you can quickly fill customer orders, preventing any loss in earnings.When an A item is out of stock, automated inventory systems detect it instantly. They then allows customers to place orders for the item, even though it's temporarily unavailable. As soon as the item is back in stock, a system like Fabrikatör automatically fulfills these backorders, ensuring customers receive their products promptly. This seamless process not only prevents revenue loss but also keeps your customers satisfied and coming back for more.

ABC Analysis

One other strategy is using ABC Analysis. When company have thousands of products, 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. 📈

ABC Analysis categorizes inventory into A (High-Value), B (Medium-Value), and C (Low-Value) items based on their significance to the business. A items, being the most valuable, require careful management. As it generates 80% of the revenue, these items should not be out of stock. If out of stock, strategies like backorders need to be adopted quickly to prevent revenue loss. B items are important but not as critical, these are the items that generate 15% of the revenue, and C items have a lower impact with the 5% revenue-generating role.

ABC analysis enables you to better manage the products in your inventory and make more informed decisions about your company. Additionally, through this analysis, you can identify which items have a more critical impact on your stock, allowing you to take necessary precautions. Fabrikatör automates this process for you, providing a clear overview of your inventory status.

Stock Alerts

US and Canadian retailers miss out on roughly $350 billion in sales annually due to stockouts and overstocks alone. ⚠️  

It is important to establish a safety stock, a measure that an enterprise that constantly supplies to a market, does not stop applying products in case of unexpected situations that may occur in the market. You should continuously have a minimum level of stock with the minimum amount of product 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 product sells. 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 and related supply chain steps.

The company needs an optimized demand prediction strategy since consumption can sometimes be erratic and not very controllable. Fluctuations in demand are highly accentuated today due to the dynamic nature 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.

Therefore, being able to plan ahead regarding your inventory, avoiding stockouts, and effectively managing situations when they occur will be a crucial strategy for your DTC business.

Summary

👉 In summary, efficient inventory management enables you to identify your best-selling and least popular products, effectively manage stock levels, enhance the predictability of future sales, and alert you when necessary. 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 this, you can now try Fabrikatör!  

How Fabrikatör Helps & Support Your DTC Business When Applying These Strategies

As a DTC business, managing your inventory accurately, with direct customer interaction and no intermediaries, is key to keeping customer satisfaction high and maximizing profits. Being able to foresee and plan for the future without wasting time will advance you among other DTC companies, strengthening your position in the world of eCommerce brands. Fabrikatör is specifically designed to work towards these goals, ensuring you use the mentioned strategies effectively.

👁️ Accurate Forecasting & Backorder Management

With smart algorithms and thorough data analysis, Fabrikatör excels in accurate forecasting, including efficient backorder management. By examining past data and market trends, it predicts future demand precisely, allowing your business to make informed decisions and stay ahead in the market. Fabrikatör's integrated system ensures that even when certain items are temporarily out of stock, the backorder feature seamlessly kicks in, ensuring smooth order fulfillment and preventing any potential loss in revenue.

🔄 Supports Your DTC Through Supply Planning & Automatizes Your Purchase Orders

‍Fabrikatör automates purchase orders in seconds, shares seamlessly with suppliers, and tracks inventory with precision. You can anticipate future demand, optimize shipping methods, and increase product availability with it easily. You can revolutionize your DTC approach with efficient supply planning and automated purchase orders for enhanced efficiency and boosted sales.

🧑‍💻 Well-structured Workflow with Reports & ABC Analysis‍

Fabrikatör provides a user-friendly platform where you can effortlessly manage your inventory. Identify your star products—the ones that are flying off the shelves—and understand which items are gaining the most attention. With this insightful ABC Analysis, organizing your inventory becomes a breeze. Adjust stock levels accordingly, and effortlessly create purchase orders tailored to your best-performing products.

Summing it up, success is all about staying ahead, making informed plans, and with Fabrikatör, we've simplified it all just for you to boost your success! Give it a try now and watch your profits grow!⚡