Inventory management has changed substantially in the last few years. Most fulfillment professionals spent years learning about lean inventory strategies, only to find those methods ineffective when the supply chain turned volatile during the COVID-19 pandemic. Now, as pandemic difficulties ease, many eCommerce and omnichannel professionals find themselves asking the question: How much inventory should I have?
The answer to that question can vary depending on the specifics of the inventory itself. For example, when supply chains were running smoothly, it was generally considered safe for eCommerce sellers to operate with 1 or 2 months of inventory on hand since they could confidently replace that inventory within 30 to 45 days from anywhere in the world. However, in the current environment, retailers may need to bring in 3 to 6 months of inventory to mitigate disruption risk.
Inventory management gets tricky. Keeping the exact right amount of inventory on hand requires extremely accurate forecasting. In practice, however, forecast accuracy for eCommerce fulfillment is spotty. Making the wrong choice has bad consequences either way.
Carry too much inventory and you risk paying to store thousands of items you can’t sell. That inventory may also expire and require disposal, simultaneously driving both losses and costs.
Conversely, carrying too little inventory can result in stockouts. Then you have to decide whether or not to ship partial orders and pay duplicate freight costs when the back-ordered items finally arrive, or upset your customer by holding the entire order until all items become available.
To address the “how much inventory should I have” dilemma, consider these factors:
The volatile nature of today’s supply chain can make it difficult for online sellers to keep up with current best practices in inventory management, but a third party logistics provider can help. For example, at Staci Americas, we help customers determine optimal reorder points for each product we fulfill on their behalf. In addition, we can send automated reminders to customers when inventory drops below a pre-determined threshold, helping to ensure the product gets ordered in plenty of time.
Staci Americas' team has experts from diverse backgrounds, enabling us to provide insights for retailers in virtually any industry. So, if you’re unsure what the answer is to the question “how much inventory should I have,” please reach out to start a discussion.