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Inventory Management System (IMS): A must-have for ecommerce sellers
Order fulfilment

Inventory Management System (IMS): A must-have for ecommerce sellers

Versha Kamwal
May 22, 2021
mins read

As an ecommerce brand, when you are selling online, one of the biggest challenges that you face while growing your business is managing your inventory. As you discover new avenues of ecommerce and start selling on multiple sales channels, your order volume increases. If you try to manage your operations manually, it will be too hard to handle. Think about it:

  • You have to manually update your inventory levels on each sales channel every time you make a sale.
  • You have to perform repetitive steps in order to list your products and process your orders
  • You have to deal with a major threat to your online business, i.e. human error

As a solution, you can embrace ecommerce automation by investing in a robust Inventory Management System (IMS).

In this blog, you’ll uncover what is an Inventory Management System (IMS), why do you need an Inventory Management System (IMS), how it can save you from multiple threats, different types of Inventory Management System, and what are the must-have features of an Inventory Management System (IMS)that can simplify your ecommerce operations.

What is an Inventory Management System (IMS)?

Inventory management system (IMS)  is a combination of technology (hardware and software) for monitoring and tracking inventory, whether it is sitting on your warehouse shelves, with your distributor as raw materials and supplies, or as finished products ready to be sent to your customers. Thus, an inventory management system (IMS) is a tool that allows you to track goods across your ecommerce business’s supply chain.

Now let’s see why an inventory management system (IMS) is a must for your ecommerce business.

Why your ecommerce business needs an Inventory Management System (IMS)?

Keeping track of your inventory is fundamental to your success in ecommerce. Here are the reasons that explain why you need an inventory management system to run seamless ecommerce operations:

  1. Simplifies inventory management

The biggest benefit of using an inventory management system is that it 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, an inventory management system helps to avoid the risk of human error by automating your key business processes.

  1. Reduces the risk of overselling

Overselling is a major challenge for online sellers in which you sell what you don’t actually have. It results in tarnished brand image, disappointed customers, and in some instances, being suspended from marketplaces such as Amazon.

With an inventory management system, you can prevent this. As it synchronises your orders and inventory across all of your online marketplaces and ecommerce shopping carts, ensuring that stock levels are adjusted each time you make a sale in real-time.

  1. Avoids stock-outs and excess stock

When it comes to managing your inventory, maintaining the right balance, i.e. a standard level, is a challenging task. After all, too little stock can lead to a quick stock-out, unhappy customers, and loss of potential sales. Whereas, having excess stock can take up valuable warehouse space and incur unnecessary costs.

With an inventory management system, you can track low stock levels and identify the re-order points for each product and avoid stock-outs. Moreover, it will enable you to calculate the optimum inventory levels for establishing standard inventory levels to help you avoid excess stocks and unnecessary costs.

Avoiding stock-outs and excess stock

  1. Provides greater cost-savings

By streamlining your inventory management processes, you not only eliminate costs associated with human error but can also benefit from further cost savings. With accurate inventory reporting, you’ll know what you have in stock and the pick-pack process runs more efficiently. This enables you to process more orders in the same amount of time with the same manpower.

  1. Enables to make more profitable business decisions

An effective inventory management system can provide valuable sales data for more data-driven business decisions. For example, with access to reporting features and inventory metrics, you can get in-depth insights to your sell-through rate, 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 ecommerce warehouse and lower your inventory holding costs.

What are the types of Inventory Management System (IMS)?

Usually, automated inventory systems fall into the following categories:

1. Periodic inventory management systems

In a periodic inventory management system, you take physical counts of your inventory only periodically, i.e. at the end of each month, quarter, or year. After that, your inventory account is updated instead of updating inventory after every sale and purchase.

This method is suitable for small online businesses that maintain small inventory levels and stock a limited number of sellable products. It takes only a couple of hours to tally the number of items on their shelves and calculate how many items they have sold.

2. Perpetual inventory management systems

In a perpetual inventory management system, you can track your inventory in real-time, on a transaction-by-transaction basis. Thus, in this method inventory is updated perpetually for every transaction, such as order received or shipped out.

Most ecommerce retailers use perpetual inventory management systems as they have multiple advantages over the periodic alternative, such as it allows real-time inventory tracking and gives a higher level of accuracy for better-informed future planning.

What are the must-have features of an Inventory Management System (IMS)?

By now, you would knoe how critical an inventory tracking solution is for your online business. However, while finding the right inventory management solution for you will depend on your industry, products, and many other factors. But there are some essential features that you must have in your inventory management system (IMS).

1. Barcode Scanning

Barcode scanners are electronic devices used for scanning barcodes of products and recording the data in the software. The top inventory management software solutions integrate seamlessly with barcode scanners. This will not only enable you to instantly identify and monitor your products in the warehouse but also help you to streamline various operations.

For example, you receive a bulk order for ten product kits, each with six different products. If you sought manually, it will take a considerable amount of manual work and time to process the order— locating them and picking them. As you have multiple SKUs, individual serial or batch numbers, and levels, the risk of committing a human error increases. On the contrary, this job can be easier with a barcode scanner by scanning barcodes you can identify products and their location in the fulfilment centre.

Barcode Scanning

2. Real-time inventory updating

The most essential feature of an inventory management system is real-time inventory updating across all sales channels to prevent the risk of overselling. For instance, your system should track the changes right away when:

  • you receive inventory in your fulfilment centre
  • an order gets placed by a customer
  • an order ships out from the fulfilment centre
  • a returned product is restocked in your available inventory

3. Multichannel inventory updating

Most ecommerce businesses sell on multiple sales channels apart from selling on their own website. The inventory management system must be integrated with every channel to ensure inventory accuracy. Most importantly, when you sell a product on one channel, the inventory level should get updated on every channel. Even when products get sold in product kits, you need synchronised inventory levels across every channel in real-time.

4. Advanced reporting

To steer your business in the right direction, you have to access yourself and make a plan of action to improve your performance. For this, you need advanced reporting as the basis for decision-making and developing a strategy for your business. However, if you are extracting numbers and making reports manually, it will take you a lot of time and it will be prone to errors. Such delays and errors can be fatal for your business in today's fast-changing markets. With intelligent reporting of sales data, sales velocity, reorder levels, and more, you can have access to valuable insights.

5. Multi-warehouse inventory control

To reach your customers quickly and reduce shipping costs, it’s important to split your inventory across a network of fulfilment centres. But it also implies that inventory management can be trickier in multiple locations. To your rescue, a robust inventory management system will traverse more than one fulfilment centre and give insights into inventory location and volume. Moreover, when you transfer your inventory from one location to another, this feature enables you to record these movements in real-time.

6. Inventory demand planning and forecasting

A superior inventory management system has built-in demand planning and forecasting features. This will enable you to understand and predict demand so that you can optimise your inventory and ensure that you always carry the correct amount of stock. With access to data on seasonality, consumer trends, and more can allow you to make accurate forecasts of future customer demand. As a result, you can increase your inventory turnover ratio and reduce your carrying costs.

7. Accurate accounting

Your inventory typically involves goods in three stages of production: raw goods, in-progress goods, and finished goods that are ready for selling. It’s important to value your inventory and also record the changes in the value of your inventory. For this, an inventory management system must include integrated accounting. It will enable you to have an accurate representation of your business's financial health and real-time tracking of your financials.

8. Raw material and assembly process tracking

Inventory management is not only for tracking inventory in an ecommerce warehouse but also for tracking raw materials and handling the assembly process of inventory. Thus, an inventory management system should also have a feature for these additional elements.

9. Cross-organisational integration

Inventory management is crucial but it is merely a part of your ecommerce business’ operations. And, to attain long-term success, you have to ensure to coordinate inventory management with your other business functions. For this, you need an inventory management system (IMS) that integrates seamlessly with all other processes such as reconciliation. This way, your whole business will forever be driven in the same direction.

10. Point of sale (POS) integration

If you have opted for an omnichannel strategy, i.e. selling online and in store, then an integrated POS software is another must. It will help you sync all purchase and stock details from online and in-store transactions with your automated inventory system. This way, your inventory will get instantly updated across both online and offline channels.

Bottom line

Taking a systematic approach is the only way to ensure accuracy and efficiency in inventory management. If you want to stay in charge of your inventory, you must employ a robust inventory management system. With this, you can avoid multiple business threats such as overstocking, understocking, and overselling. For better results, you’ll require a modern software solution that not only gives complete inventory visibility but also has the features to automate and improve inventory management entirely that could prove vital to your success.

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