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Effective Inventory management in digital commerce

Amol Pathak Oct 07, 2020

Digital Transformation Digital Commerce COVID-19 Pandemic Inventory Management

In 2020, despite the global slowdown, digital commerce and online sales have increased significantly. But while digital commerce companies were enjoying monopoly in the world of social distancing, it also brought up the importance of inventory management. With high demand in sales of particular products and limited options to replenish stocks, creating a sustainable and effective inventory management has been and will be crucial for digital commerce organizations to succeed. According to the UNIDO report on the digital commerce industry, most digital commerce companies fail because of two primary reasons:

  1. Low use of information technology
  2. Low capacity utilization in-store as well as in the warehouse

Let us understand how digital commerce organizations can effectively leverage inventory management for improving logistical setup, managing fluctuations in product costs and ensure availability of products for higher customer satisfaction.

Generally, digital commerce companies focus more on building an digital commerce site but focus very less on inventory management. In an digital commerce company, stock for sale always lies in the digital commerce warehouse and brick and mortar store. Inventory management failure typically occurs because of 4 reasons:

  1. Wrong location - In this pandemic situation, allowing the customer to place an order where the company cannot deliver the product can be the reason for supply chain management failure in the digital commerce platform. This needs to be mitigated by ensuring digital commerce companies are up-to-date with changes in local regulations, especially in situations where the delivery is not feasible due to lockdowns or other government rules.
  2. Material requirement planning failure - poor sales forecasting, purchase forecasting, ad hoc campaign management without proper inventory management planning may cause failure in the digital commerce business model.
  3. Real-time stock integration - Real-time stock integration may cause an issue for product sales. For example, if a product is in stock in the warehouse, but if the digital commerce platform shows that product as out of stock, it ultimately loses business for the company.
  4. Overselling - In many cases, digital commerce providers sell too many stocks of particular products for which the company does not have stock in their warehouse. This results in customer dissatisfaction as the company fails to ship the required products to the customer.

These supply chain management problems can be reduced by using the below techniques:

  1. Improve material requirement process - Material requirement process can be improved by defining and enhancing below replenishment parameters for products

    a. Supplier Lead time - For retail products, inventory user should define supplier lead time, which requires ideal time for the product to reach the inventory warehouse from the purchase order confirmation to the actual delivery receipt.

    b. Replenishment time - This is the ideal time for any product to reach to brick and mortar store once dispatched from the central warehouse.

    c. Min Stock - This is the alert stock level for the product is reached; the company should stop selling the products or ensure the mechanism to have proper replenishment, avoiding a scenario where the company has run out of stock.

    d. Max Stock - If this alert is triggered, the company should stop purchasing the product/s from vendor/s as this may result in overstock in inventory. Someone needs to analyze the reason for reaching the Max Stock situation.

    e. Reorder Level - This is the product's alert level. Once reached, the brick and mortar, digital commerce warehouse, or central warehouse, should order products in their inventory. Reorder level always streamline the procurement process.

    f. Re-Order Level Quantity - This quantity typically indicates the quantity to be ordered once the reorder level is reached in inventory.

    g. Stock Location - Typically rack location of the product is most important in tracking stock as by tracking stock location, it is easy for the warehouse team to address and track the exact product, which soon has an expiry. Many e-com companies are implementing VMS for better control.

    h. Shelf Life - This is the average life of any product that should reside in an inventory.

    i. Vital, Essential, Desirable (VED) analysis - Categorizing products into Vital, Essential, Desirable categories based on the consumption pattern of the product.

    j. Frequent Stock Audit - Frequent stock audits help the inventory team to identify miscounted inventory.

    k. Effective Stock Valuation - Effective stock valuation technique always helps the business management team to decide the trading.
  2. Introduction to Omnichannel order management process

Omnichannel introduction for order management helps the customer to effectively buy the product online and get it delivered at doorsteps or to his nearest location in the best possible way by reducing the shipping cost of the product. In Omnichannel order management process goods to be shipped to the customer in the following way

  1. Pick up from nearest Brick and mortar store
  2. Decentralizing order management process

While digital commerce companies can use any method for their inventory management, it is essential they use supply chain technology and processes that enable proper tracking and easy restocking of goods. Having functioning warehouses in key regions of a particular country will help the brand deliver the required products to its customers faster while incurring minimal logistical costs.

Digital commerce today in the New Normal is a very lucrative opportunity to increase revenue and create higher customer engagement and loyalty. It can enable organizations to create empowering experiences for the customer with improved information, tools and insight. To know more about how e-Zest is enabling organizaions to reimagine digital commerce, download our digital commerce playbook to get an in-depth guide on the opportunities, challenges and landscape within e-commerce and how to build a comprehensive e-commerce roadmap.

e-Zest is a leading digital innovation partner for enterprises and technology companies that utilizes emerging technologies for creating engaging customers experiences. Being a customer-focused and technology-driven company, it always helps clients in crafting holistic business value for their software development efforts. It offers software development and consulting services for cloud computing, enterprise mobility, big data and analytics, user experience and digital commerce.