More than $500 billion.
That’s how much money U.S. shoppers spent through online merchants last year. On the supply side, companies like Shopify have profited off converging trends in entrepreneurship, internet access, and online shopping by offering easy platforms for opening an online store.
It’s never been easier to start a business. A great idea coupled with a high-speed internet connection and excellent photography can lead to a booming digital boutique. For traditional brick-and-mortar retailers, an easily navigated site and a recognizable brand name can lead to a prosperous sales channel.
What a time to be in business!
On top of traditional inventory management concerns, like warehousing and demand forecasting, there are other inventory management challenges faced by online retailers. Digital marketing strategies attract a wide audience, increasing both the number of customers and the amount of inventory needed.
Omni-channel retailing means orders can come in from a variety of sources including a brand’s website, apps, and social media channels. Moreover, customers expect to be able to return items and may even order a large quantity of goods only to return most of them.
To further complicate matters, the two most popular eCommerce categories (consumer electronics and apparel) come with their own unique challenges.
Evidently, inventory management for electronic retailers is much more complicated than it sounds.
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Top Inventory Management Trends: Online Retail
Increase in Omni-Channel Retailing Requires Sophisticated Inventory Management Technology
Successful omni-channel selling depends on the ability to offer a seamless shopping experience across the front and back ends. This means that everything from the marketing to the stock quantity of items is integrated across all channels, including the brand’s online store and app.
How do omni-channel sales differ from multi-channel sales? Omni-channel sales is a category of multi-channel sales;“multi-channel” is an umbrella term for offering sales through different platforms.
In other words, while all omni-channel brands are multi-channel brands, not all multi-channel brands are omni-channel brands.
What does this mean in practice? It means that a company may offer an online store and an app, but treat these channels as two separate entities. So, a purse that’s available on one platform may not be available on another, even though both platforms operate under the same brand.
In an omni-channel environment, these front-end systems all connect to the same back-end system meaning stock info and user credentials are the same across the board.
Increasingly, this is the experience that consumers expect so, in order to be competitive, electronic retailers must deliver. However, that’s a difficult undertaking from a number of angles, but especially from an inventory management perspective.
One key reason for this difficulty is the lack of real-time updates. If you have inventory leaving your store through multiple channels, you need to be able to account for all of this movement. If several people buy a product through one channel, but your inventory isn’t updated across the board, you’ll face a stockout.
Additionally, a lack of real-time updates makes it difficult to create a single source of truth. If you have multiple sales channels, and even multiple warehouses, you may have multiple counts, making it hard to determine which information to trust.
How Can Retailers Manage Inventory When Offering Omni-Channel Sales?
Omni-channel electronic retailers should integrate all of their systems--it’s essential for maintaining a single source of truth. This means that the order management system for online channels, the point-of-sale (POS) system for brick-and-mortar locations, the inventory management system, and the shipping and transportation systems should all be integrated.
With an integrated system, the inventory record is always up-to-date. This is crucial for any e-retailer, and it’s even more crucial for companies that also have brick-and-mortar sales since varying fulfillment times can create confusion for inventory managers.
For example, when a customer visits your store, they pay for their product and also take their product with them. Your inventory physically reduces, so you can easily check if an item is out of stock.
On the other hand, when someone makes a purchase online, there’s a delay between purchase and fulfillment, and there’s only a virtual change to your inventory. To further complicate things, your customers are relying on the online catalog to reflect reality. This presents a couple of possible issues:
- If you’re fulfilling from the same warehouse or backroom, but your systems aren’t integrated, a customer could place an order for an item you’ve already sold out through another channel.
- In the time between receiving an order and shipping an order, customers from other sales channels (particularly in-person sales channels) may take the last item when it was meant to go to an online shopper.
Purchasing omni-channel software is the best solution when it comes to inventory management for online retailers.
Consumer Electronics E-Retailers Must Keep Up With Manufacturing Trends
The most popular category of online sales, based on volume, is consumer electronics. In fact, Amazon, the largest online retailer in the world, mainly focuses on consumer electronics, despite the wide variety of products offered on its website.
That said, consumer electronics is a tricky business. It’s subject to the whims of the manufacturing industry, innovations in component parts such as integrated circuit chips, and ever-evolving consumer trends.
A single consumer electronic product consists of a vast number of parts. The final combination of these various parts relies on a manufacturer’s extended supply chain. In turn, how full a retailer’s shelves are depends on how much the manufacturers managed to produce.
As more companies adopt “just-in-time” manufacturing across the supply chain, it becomes difficult for partners in the ecosystem to forecast demand.
In the past, a computer chip company might be able to predict what different products its customers would make and then plan its production accordingly.
Today, manufacturers all along the supply chain use lean manufacturing and “just-in-time” strategies as both a cost-saving measure and a safeguard in case they encounter tough times. Should the market take a turn, they can quickly pull back, contract, and focus operations on vital business. The downside is that non-core vendors experience a quick dry-up of business and non-core customers suddenly struggle to source the parts they need.
This unpredictability makes companies even more cautious, causing players up and down the supply chain to pull back as well.
During the last recession, the Wall Street Journal reported on this consumer electronics domino effect: A chip manufacturer saw its business tying up. Upstream, on the supply chain, the California company that produced the aluminum for “chip-making machines” experienced a slowdown as well.
However, at the very end of it all was Best Buy reporting that it could have sold a significantly higher number of products that month if it weren’t for the sudden contraction from suppliers.
According to Best Buy’s merchandising chief, suppliers “all decided to build a lot less.”
In other words, if a retailer as large as Best Buy struggles to fill its physical and virtual shelves with products when manufacturing trends go wild, it’s only expected that online retailers will experience similar challenges.
How does this affect inventory management for electronics retailers? It’s simple: If they don’t understand the larger supply chain, they may fail to source enough products in time for their customers.
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How Can Electronics Retailers Effectively Manage Inventory?
While it can often be difficult to plan for manufacturer volatility, especially given the unpredictability produced by lean manufacturing, an electronics retailer can address this by developing more open relationships with its suppliers.
In some cases, however, relationship development may not make much of a difference if the retailer is not big enough to impact a supplier’s manufacturing strategy. Nevertheless, a good supplier relationship may give retailers access to valuable information that can help them tweak their inventory management strategy ahead of big changes.
In addition, diversifying your product offerings to include products that rely on different supply chains is a smart contingency plan.
Fast-Moving Consumer Fashion Trends Complicate Inventory Planning for Online Retailers
Imagine having so much extra inventory that a Swedish town starts burning your products for fuel?
Well, H&M doesn’t have to imagine it because it was a stark reality for the fast fashion retailer. In 2018, the Swedish multinational reported that it had accumulated over $4.3 billion in excess inventory. It was a nightmarish scenario in fast fashion where quickly producing and moving trendy items is the name of the game.
Some of the defective items it couldn’t sell were shipped off to a power plant in Vasteras that provides fuel to over 150,000 homes.
One of the reasons H&M reportedly built up its inventory was to meet new demand, particularly for its expanding e-commerce operations. This rationale lead critics to point out H&M’s poor inventory management practices.
This isn’t surprising when one remembers that apparel is the second most popular category for online retailers. And, as H&M’s multi-million-dollar fire demonstrates, inventory management for online apparel retailers can be quite difficult.
Why does this happen?Well, the apparel industry runs on trends. One minute everyone wants a velour tracksuit and the next they’re giving them away to second-hand stores. Oversized sunglasses are popular before making way for narrow shades. While fashion is cyclical and trends repeat, they don’t come back fast enough for retailers to clear their inventory. This results in a large amount of obsolete inventory.
How Can Online Apparel Retailers Effectively Manage Inventory?
Maintain Accurate Inventory to Inform Your Decision Making
Without access to detailed inventory reports, it’s easy to make uninformed decisions regarding inventory and your replenishment strategy.
For example, replenishing your inventory based purely on a gut feeling can lead to stockouts on popular items and obsolete inventory on items that are going out of style.
Detailed inventory reports can help you re-stock based on what you actually need, as opposed to what you think you need. For example, if you’ve noticed that you have a significant amount of A-line dresses in stock, it’s a sign that you’re not selling them quickly enough and that demand for them is likely going down.
When your typical re-order period returns, rather than ordering more A-line dresses by default, you can skip that style and invest that money elsewhere.
Using the same inventory data, if demand for high-waisted shorts shoots ups, you can order more than you normally would during the re-order period. In addition, a system that generates inventory reports should also have a built-in safety stock formula that advises you on how much inventory you need to avoid stockouts without carrying too many items.
Conduct a Deep Dive on Your Data and Micro-Segment Your Products
It’s not enough to just understand which items are selling out—it’s also important to understand what iterations of your products are selling out. Sure, those high-waisted shorts may be extremely popular, but perhaps most of those sales are coming from the black pairs and the red pairs while the yellow and green ones are piling up in your warehouse.
Choosing a warehouse management system with micro-segmentation capabilities allows you to further refine and optimize your inventory strategy. Now, instead of wasting money on bright colored pants that people don’t seem to want, you can re-allocate those funds toward the more popular colors.
Understand the Impact of Cross-Purchasing Habits on Your Inventory
When you’re analyzing your inventory data, take a look at what customers tend to buy in tandem. Let’s return to our high-waisted shorts example. If 60 percent of customers browse or buy a tank top after also buying a pair of high-waisted shorts, consider re-stocking these two items at the same time.
You could also use artificial intelligence (AI) tools (also called marketing automation) to recommend these products together on your website. There may be huge inventory management and sales opportunities hidden in your data!
Inventory Management for The Online Retailer: Data and Integrated Systems Are Non-Negotiable
At the center of all of these inventory management trends for online retailing is one big message: Data and integrated systems are a must. Data empowers e-retailers to make the right inventory choices, order the appropriate quantity of goods, and to appropriately respond to changes in the market.
In the same breath, integrated systems allow e-retailers to trust the data they have on hand by presenting a holistic picture of the business rather than an isolated sliver. The e-retailers that succeed will be the ones that gather product information, organize it into actionable insights, and use it to manage a healthy inventory to fuel their e-commerce operation.
Schedule a Logiwa WMS demo today to see what an inventory management system that thrives on data can do for your business.
Written by Ruthie Bowles
Ruthie is a content marketing consultant for Logiwa. Her specialties include small business development and inventory management.