Ecommerce Inventory Management Best Practices
Inventory Basics and Terminology
Stock Keeping Unit (SKU): Unique identifier for each product variation. Red shirt size medium = different SKU than blue shirt size medium. Accurate SKU tracking essential for inventory management. Lead time: Days between placing order and receiving inventory. Supplier in China = 45-60 day lead time, domestic = 5-15 days. Affects reorder timing.
Reorder point: Inventory level triggering new purchase order. Calculate: (Average daily sales × lead time) + safety stock. Example: Sell 10 units daily, 30-day lead time, 50-unit safety stock = reorder at 350 units. Safety stock: Buffer inventory protecting against stockouts from demand spikes or delivery delays. Typically 10-30 days of sales depending on predictability.
Economic Order Quantity (EOQ): Optimal order size minimizing total inventory costs (ordering costs + holding costs). Formula: √(2 × annual demand × order cost / holding cost per unit). Helps determine whether ordering more frequently in smaller quantities or less frequently in bulk makes financial sense.
Demand Forecasting Methods
Historical sales analysis: Examine past sales patterns. Calculate: Average daily sales last 30/60/90 days, identify trends (growing/declining/stable), note seasonal fluctuations (holiday spikes, summer slumps). Use 90-day average for established products, 30-day for trending products with rapid demand changes.
Seasonal adjustments: Products with predictable seasonal demand require adjusted forecasting. Example: Winter coats sell 5× more October-February than March-September. Calculate seasonal index: (seasonal month sales / average month sales). October sales $10K, average month $3K = seasonal index 3.33×. Multiply base forecast by seasonal index for accurate seasonal planning.
New product forecasting: Without historical data, forecast conservatively. Start with market research: Similar competitor products sell how many units? Survey results showing purchase intent (convert at 10-20% of stated intent). Initial order small (100-500 units depending on MOQ), reorder based on actual performance. Better to stock out and rush reorder than overstock and liquidate.
Inventory Tracking Systems
Spreadsheet tracking (sub-$10K/month revenue): Create Google Sheet with columns: SKU, product name, current stock, reorder point, reorder quantity, supplier, lead time, last order date. Update manually after each order. Works for under 50 SKUs. Free but time-consuming and error-prone.
Basic inventory software ($10-50/month): Shopify inventory (included with platform), Square for Retail, Zoho Inventory, inFlow Inventory. Features: Automatic stock updates after sales, low stock alerts, purchase order creation, multi-location tracking. Suitable for 50-500 SKUs, $10K-$100K/month revenue. Cost $0-50/month.
Advanced inventory systems ($100-500/month): TradeGecko (now QuickBooks Commerce), Cin7, Skubana, Orderhive. Features: Demand forecasting, automated reordering, multi-channel inventory sync (Shopify + Amazon + eBay), warehouse management, supplier management, financial reporting integration. Needed at 500+ SKUs or $100K+/month revenue.