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Inventory allocation: A key to streamlined ecommerce fulfilment

Versha Kamwal
October 14, 2021
9
mins read

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Adopting a multichannel ecommerce strategy can help you expand your reach. You can sell whenever your customers shop, increase conversion rates, and boost revenue. However, if you can’t manage your inventory properly while selling on various platforms, you may run into massive trouble!

Poor inventory management can severely impact your sales and credibility on every sales channel. And instead of heading for success, you can hit rock bottom. Thus, as you scale up and start selling on more sales channels, it's imperative to streamline your inventory management with strategic allocation.

In this blog, you will learn what is inventory allocation, why do ecommerce businesses need an inventory allocation strategy, what are the inventory allocation methods, what factors to consider when making inventory-related decisions, and how Eshopbox can improve inventory allocation for ecommerce businesses.

What is inventory allocation?

Inventory allocation is a process of strategically tracking and optimising inventory levels across an ecommerce brand’s distribution network, i.e. sales channels and FC (fulfilment centre) locations.

Let’s take an example to put it simply. If you sell on multiple channels like Amazon, Flipkart, and Shopify, you need to allot your inventory for specific channels to fulfil your orders. Moreover, to increase the speed of shipping, you are most likely to fulfil your orders from multiple warehouses. In such scenarios, inventory allocation takes account of different warehouse locations for specific sales channels.

With proper inventory allocation, you can ensure that you have an optimal amount of inventory at each FC location to meet customer demand— even during flash sales or when you start selling on more sales channels.

Now that you know what inventory allocations entails, let's see why you need it.

Why do ecommerce businesses need inventory allocation?

Here are a few reasons why inventory allocation is a must for ecommerce brands:

1. The risk of overstocking

When you have too much inventory on hand, it can eat up storage space and tie up capital. Most importantly, it also contributes to incurring costs, such as:

  • Cost of goods
  • Loans or credit lines to finance purchased inventory
  • Carrying costs such as warehouse rent, labour, and insurance
  • Opportunity cost, i.e. loss associated with not being able to clear out stock

Additionally, if inventory sits on your shelves too long, it can lead to damaged, expired or out-of-date products. To avoid overstocking, you need to exercise proper inventory allocation. Moreover, you need to take a strategic approach in how to optimise inventory levels by looking at historical order data, inventory turnover, slow-moving inventory, other inventory trends.

2. The risk of under-stocking and overselling

Having too little inventory can be just as damaging to your ecommerce business as having too much inventory. It can lead to stockouts, i.e. products being not available in stock at the time of purchase. This can cause major frustration for your buyers and result in a loss of sales for you. It's even worse when you take orders from your customers and fail to fulfil them. In the meantime, while your products are out of stock, your customers can also turn to your competitors. Such overselling can tamper your brand image.

Moreover, It’s important to take account of any promotional event or flash sale that can spike up the orders exponentially. It’s better to ensure you’re prepared with the optimum inventory levels for the event.

In such situations, you need access to inventory management tools that can help you allocate inventory effectively and efficiently.

Maintaining accurate inventory levels
Maintaining accurate inventory levels

3. Streamlined multichannel management

Inventory allocation becomes more complex as you start selling on more sales channels which is known as multichannel ecommerce. You need to stay ahead of stock levels and inventory replenishment to ensure uninterrupted order fulfilment across different sales channels. With a strategic inventory allocation and an inventory management software (IMS), you can track inventory in real-time across multiple sales channels and prevent interruptions in fulfilment and delays.

4. Fast shipping speeds and less shipping cost

When you are selling online, your customer base is scattered across the country. Usually, ecommerce brands pay high shipping fees to avail fast shipping. By implementing inventory allocation based on sales channels and customer locations, ecommerce brands can reduce the shipping cost and distance for every order.

For instance, if your customer's location is New Delhi and you have stored your inventory in a warehouse in Mumbai, you have to incur high shipping costs to avail fast shipping speed. Whereas, if you allocate your inventory in a warehouse in Haryana, you can offer fast shipping to your customer while minimising the shipping costs.

What are the inventory allocation methods?

Here are two inventory allocations methods that you can use to streamline inventory management:

1. Manual inventory allocation

When an ecommerce business manually tracks and manages its inventory by using physical inventory ledgers or spreadsheets and manual data to make decisions on the physical distribution of inventory is known as manual inventory allocation.

However, the manual method can be inefficient, prone to error, and time-consuming. Moreover, as the business grows, it also becomes extremely hard to scale while using this method.

2. Tech-enabled inventory allocation

When ecommerce businesses invest in technology to easily track and manage inventory across an inventory network is known as tech-enabled inventory allocation. Such allocation is done in real-time with reliable data to make accurate and informed decisions on the physical distribution of inventory.

Such tech-enabled inventory allocation is time-efficient, based on insights, and is easy to implement. However, access to such robust technology is costly.

What factors affect inventory allocation?

Not every ecommerce brand sells its products on multiple sales channels, uses more than one fulfilment centre for order processing, or has the same amount of inventory. This means every ecommerce business has a unique set of needs when it comes to managing inventory. Here are some things you need to keep in mind:

1. Inventory demand

You can predict demand by analysing your historical data and other factors like overall economic conditions, market trends regarding your product popularity, your sales data and annual growth, guaranteed sales from ongoing subscriptions, and upcoming promotions like end of season sale.

Although you will never be able to predict demand 100% accurately, you can still be close by using robust technology and tools. With such a data-driven approach, you can predict how much inventory you need to store at each location or allocated towards each sales channel.

2. Inventory availability

You can streamline order fulfilment by ensuring that your products are available at the FCs closest to your customers’ locations. Without a proper way to track inventory availability, you can incur higher shipping costs and shipping delays. This can dramatically impact the customer’s expectations of fast and affordable delivery, and if an ecommerce brand can’t meet it, then it can result in a higher shopping cart abandonment rate.

To avoid such issues, you can allocate your inventory based on where your customers live across different geographic locations. You can also implement an inventory tracking system that connects to your online store (even on marketplaces) and allows you to view all the inventory, fulfilment centres, sales channels, and your customers in one place. Such insights will enable you to achieve fast shipping, cut down shipping costs, and plan inventory replenishment and avoid running low on products or going out of stock.

3. Warehouse space availability

Another key factor to consider while allocating your inventory is how much warehouse space is available and how much it will cost you. Many ecommerce brands store inventory and fulfill orders in-house until they run out of space. Then they have the option to outsource their order fulfilment to a 3PL provider and store their inventory across multiple fulfilment centres. Here storage prices can vary according to the pricing offered by the 3PL providers. This means, your inventory allocation is dependant on where you chose to store your inventory and how much it costs you.

How Eshopbox can improve inventory allocation for ecommerce businesses?

1. Automate your inventory allocation

Eshopbox’s powerful technology and actionable dashboard provides you with greater inventory visibility and accuracy. You have access to item level traceability with inventory view by location, unit and status for every sales channel. Eshopbox’s inventory automation can provide valuable data that can influence your inventory allocation strategy. Whether you store inventory in one Eshopbox location or multiple, you can view inventory levels in real-time all from the Eshopbox dashboard.

Eshopbox provides item level traceability
Eshopbox provides item level traceability across channels and locations

Eshopbox's dashboard gives access to ideal inventory distribution
Eshopbox's dashboard gives access to ideal inventory distribution

Eshopbox allocates orders to nearest fulfilment centre based on customer location
Eshopbox allocates orders to nearest fulfilment centre based on customer location

2. Track and forecast inventory trends

With Eshopbox, you have access to advanced data and analytics tools that help you make better decisions related to stock, including inventory forecasting functionality. With access to reporting features and inventory metrics, you can get in-depth insights to your sell-through rate for each channel, best-selling products, slow-moving products, and more, which can equip you with the tools needed to make strategic decisions. Moreover, you can also calculate your inventory turnover ratio which can help you identify opportunities for reducing the amount of inventory you are holding in your warehouse and lower your inventory holding costs. This means, you can optimise your inventory levels, avoid stockouts, and reduce manual work.

3. Simplify inventory management

Eshopbox makes the process of managing inventory very easy. It not only saves you time but also money. As the stock levels constantly fluctuate with every transaction on each sales channel, Eshopbox’s actionable dashboard help to avoid the risk of human error by automating your key business processes.

With multiple sales channels and multiple inventory locations, managing inventory becomes trickier. To your rescue, Eshopbox’s dashboard traverses more than one fulfilment centre and gives insights into inventory location and volume. Moreover, when you transfer your inventory from one location to another, the dashboard enables you to record these movements in real-time.

4. Leverage a distributed fulfilment network

Eshopbox enables you to sell on multiple sales channels and deliver your orders across India. You can fulfil your orders from multiple locations by leveraging the distributed network of fulfilment centres to increase the order delivery speed and minimise the shipping costs associated with national shipping. You can allocate and split your inventory across multiple fulfilment centres across India and achieve lightning-fast shipping speed for every sales channel.

Eshopbox's distributed network of fulfilment centres
Eshopbox's distributed network of fulfilment centres

Wrapping up

Today’s ecommerce environment is complex—you sell your products on multiple sales channels and store your inventory in multiple fulfilment centres. This calls for an inventory allocation strategy. It can reduce the risk of overstocking, overselling, stockouts and increase the speed and efficiency of the order fulfilment process. This can have a profound impact on the overall sell-through rate and drastically streamline ecommerce order fulfilment.

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