Four small inventory management tweaks that can have a big impact

Accurate inventory management requires a significant investment of time and money.

That is a special challenge for e-commerce businesses, which often operate with small staffs and shoestring budgets. But ignoring inventory management isn’t an option. Without accurate inventory data, you could end up with excess stock or backordered SKUs. And you could be taking a hit to your bottom line because of inventory shrinkage without realizing it. 

There’s no shortcut to excellent inventory management. You need the right software plus periodic cycle counts and physical counts. However, some tweaks that seem insignificant can greatly improve your inventory planning and forecasting. Here are six small inventory management improvements that could have a big impact over the long term.

Use ASNs to ensure accurate receiving
An advance shipping notice, or ASN, is a document you provide to your warehouse for receiving inventory. The ASN details what’s in the shipment and when it’s expected to arrive.

ASNs improve your stock handling in multiple ways. First, with advance notice of an incoming shipment, the warehouse can clear space on the receiving dock, so putaway is faster. Second, without an ASN your fulfillment center may lose time trying to track down the shipment's owner while your pallets sit on the receiving dock. Some 3PLs will return shipments that arrive without an ASN.

But perhaps the most significant benefit of an ASN is to check the accuracy of the shipment. If you ordered 100 of a SKU from your manufacturer, you might assume you have 100 in stock once the shipment is ready to pick. Suppose there was a mistake at the factory and the shipment only contains 80 of that SKU—your inventory is instantly off. So, you need a stock count at receiving to start with an accurate stock count.

Discontinue underperforming SKUs
The 80/20 rule says you’ll probably make 80% of your revenue from 20% of your product line. Getting rid of underperforming SKUs will simplify your inventory management and reduce your overhead. Items with low turn rates hurt profitability by tying up capital in products that aren’t producing much revenue and, potentially, incurring long-term storage costs.

You don’t have to discontinue every low-selling SKU; some high-value items may move slowly but deliver big profits. And you might want to keep some products in your lineup because they complement your top-sellers. But discontinuing products that aren’t pulling their weight can free your team to develop new and better items.

Clear out deadstock
If you use first in, first out (FIFO) order fulfillment, you rotate your stock, so the oldest inventory is moved to the front and used to fill orders. Still, even if you strictly follow first in, first out for order fulfillment, you may end up with dead stock. Deadstock is merchandise that isn’t selling or can’t be sold. It might be an outdated style, last year’s release, or simply a box that sat so long on the shelf its condition deteriorated. 

Returns sometimes contribute to dead stock. If you don’t have a clear policy on handling returned items and what to do with returns that can’t be sold as new, those goods can accumulate in a corner of the warehouse.

There are several ways to dispose of deadstock:

• Sell it to a reseller.
• Offer it to your customers at a discount.
• Create a separate website to sell seconds, returns, and imperfect merchandise.
• Donate it to charity.
• Throw it away.

You cut your losses if you can resell your deadstock, even at a steep discount. And, even if you must dispose of it, you save. Paying for warehouse space for products you can’t sell is not good inventory management. Plus, some fulfillment companies charge higher rates for long-term storage for items that remain on the shelf for six months or a year.

Identify root causes of inventory shrinkage
Inventory shrinkage is the industry term for products that are lost or damaged in the fulfillment warehouse. Shrinkage can happen due to theft, misplaced stock, or poor product handling. Most 3PL contracts include a shrinkage allowance, which means that you must pay for a certain amount of the warehouse loss. 

Shrinkage can throw off your inventory counts. If you think you have an item on the shelf that has been lost or damaged, you may have unexpected backorders and customer service headaches. Measures such as warehouse associate training and better security can reduce shrinkage. If you’re experiencing more than 1% shrinkage, it may be time to switch 3PLs.

Inventory management is complex, and you probably won’t solve every issue overnight. But small actions to improve your process can deliver big rewards over time.