What is the Best eCommerce Inventory Management Software?

Unfortunately, when it comes to ecommerce inventory management, there’s no silver bullet solution. A better question might be, “What is the best ecommerce inventory management software for my business?”

This is an important distinction because different eCommerce businesses use different sales channels and fulfillment methods. This means they have different needs when it comes to inventory management. The software that’s perfect for one business may be a waste of effort and money for another.

In this post, we’ll provide some basic information about inventory management, the benefits that can be achieved by using software, and important Key Performance Indicators (KPIs) to track. To save you time, we’ve done extensive research comparing 35+ different ecommerce inventory management software platforms. You can find a summarized version of this information below or sign up here to receive a full copy of this data in an Excel file.

What is Inventory Management?

For an eCommerce business, one of the most important parts of operations management is management of inventory—that is, tracking of inventory as it is both purchased and sold.

The first, and arguably the most important, step for an eCommerce business is obtaining products to sell. This requires extensive research, from leaning how to source the products to understanding the market value of those products in various online marketplaces.

Next, the business purchases these products, which become its inventory, and determines how it will store them and fulfill customers’ orders. As products are bought and sold, it is critical to maintain accurate records of inventory levels. This recording of purchases on a Stock Keeping Unit (SKU) level and subsequent recording of sales on a SKU level in real time is what’s known as perpetual inventory management

Why is an Inventory Management System Important?

An effective inventory management system allows a business to accurately calculate the cost of goods sold, the appropriate reorder points, and the inventory turnover rate. A perpetual inventory system allows a business to track inventory levels in real time, helping to ensure there is enough inventory on hand to meet expected demand in any given period.

Without this inventory tracking, a business may be left holding too many of some SKUs and too few of others, resulting in lost sales of popular products and costly warehouse or storage expenses for slow-moving ones.

Benefits of Using Inventory Management Software

Knowing When and How Much Inventory to Order:

Two key decisions that eCommerce companies must make are when and how much inventory to order. These are complex decisions involving variables such as cost per unit tiers and estimated and seasonal demand factors.

A properly configured and maintained inventory management system provides key data such as sales in prior period, sales in the same period the previous year, average inventory level, and past reorder amounts per SKU. This data enables the business to determine the optimal reorder points.

Optimize Order Fulfillment:

A well-established inventory system helps a business avoid stockouts and backorders and thus improve customer satisfaction, reduce customer service, and generally improve order fulfillment.

However, the benefits to order fulfillment can go even further, as a highly optimized system may be able to improve visibility into demand per region and allow a business to optimally store inventory in regions closer to the consumer, reducing shipping times and costs.

Maintaining Inventory across Warehouses:

As alluded to above, an eCommerce business can benefit from multi-warehouse fulfillment, and a strong inventory management system is critical to maintain this fulfillment method. It enables tracking of SKUs per warehouse and allows a business to fulfill from the appropriate location. It can also aid in B2B satisfaction by allowing customers to view stock in and order from the optimal warehouse.

Maintaining Inventory across Sales Channels:

We have already written on the benefits, challenges, and importance of managing multi-channel listings. The line between listing management and inventory management is often blurred. A listing management system is used to control listings across various sales channels and marketplaces, and includes inventory syncing between channels.

An inventory management system, on the other hand, focuses on the inventory itself, and again, often includes the ability to control and sync inventory across sales channels.

What Should You Look for When Choosing Inventory Management Software?

There are many inventory management solutions available to eCommerce businesses. They vary greatly in their features and abilities, making it hard to evaluate the best inventory management software for your business.

Reliable customer support

An inventory management system is an expensive and critical piece of an eCommerce business’s operations management tech stack. Make sure that your package comes with the level and extent of customer service, training, and onboarding you need.

Features

All inventory management software aids in the basic recording of inventory levels per SKU. Where they vary is in more advanced features such as multi-warehouse tracking, supplier management, and forecasting ability. Make sure you have the features you want and need for your situation.

Some specific features to consider:

• Tools for reporting: This allows you to view a history of your sales, track your product performance on a SKU level, and get reports on under-performing inventory. This is critical information that enables you to make informed decisions on purchasing, promotion and pricing.

• A barcode assistant: This enables more accurate tracking of inventory and strong order fulfillment control by reducing human error when receiving, packing, and shipping.

• Inventory levels forecasting: This gives you relevant information on prior period sales, seasonal sales, and inventory storage levels. By monitoring this information on a SKU level, inventory can be replenished in a timely manner.

• Automated re-order notifications: This feature tracks reorder thresholds and sends the inventory manager alerts so that they can reorder inventory in a timely manner.

• Multi-location management: This gives you the ability to manage multiple warehouses or points of inventory storage and fulfillment.

• Supplier management: This function allows you to track which supplier(s) you purchase your SKUs from to optimize or automate purchase orders. Some software will enable sellers to track multiple suppliers of the same SKU.

• Integration with accounting software: Being able to synchronize data between the inventory system and your accounting platform avoids discrepancies and provides stakeholders with accurate and timely information.

• Tracking Kits/Bundles: Many inventory software platforms can maintain kits and bundles of products intended to be sold together. When sold, the inventory software will track inventory of all SKUs included in the kit.

• Tracking of raw materials for manufacturing: The same functionality that allows the tracking of kits/bundles can be used to also track raw materials. Some software streamlines the manufacturing process by enabling a business to track raw material consumption and convert it into finished good SKUs.

• Scalability: Consider what sales platforms your business may expand to in the future and evaluate if the software is able to accommodate these channels. Further, your business may decide to use more points of fulfillment in terms of multiple warehouses, third party logistics and drop shipping.

Key KPIs in eCommerce Inventory Management

Inventory Turnover Rate

The number of times inventory is sold/restocked in a period. See more about Inventory Turnover here.

Inventory turnover rate formula = cost of goods sold / average inventory

Why is this important? You can use inventory turnover rate to see how quickly the inventory in stock is being sold. Measuring this metric on a SKU-to-SKU level will help to identify which products are increasing your holding costs and reducing profitability.

Average inventory

This is the level of inventory on hand in a period.

Average inventory formula = beginning inventory + ending inventory / 2

Why is this important? Tracking average inventory will enable a business to identify spikes or drops in inventory and help keep a relatively consistent inflow and outflow.

Holding costs (aka, inventory carrying cost)

The costs associated with storing/holding inventory such as rent, insurance, labor and unsellable goods.

Holding Costs formula = [(inventory labor costs + inventory risk costs + capital investment + storage cost) / total inventory value] x 100

Why is this important? Understanding holding costs, especially on a per SKU level, will allow you to improve profitability by identifying high-cost inventory that may be overstocked.

Stock-outs

How often demand cannot be met due to lack of inventory.

Stock-outs formula = (# of out-of-stock items / # items shipped) x 100

Why is this important? Monitoring the stock-out metric allows businesses to identify and correct issues in their supply chain.

Service level

Percentage of orders that did not incur a stock-out.

Service level formula (factor) = (# orders delivered / # orders received) x 100

Why is this important? This help to evaluate the effectiveness of your reorder point and inventory stock levels.

Reorder Point

Level of inventory of a specific SKU that will trigger a reorder of that SKU.

Reorder Point formula = lead time demand + safety stock

Lead Time Demand = lead time * average daily sales

Lead Time = Time between placing an order for inventory and receiving the inventory

Safety Stock = desired service level factor * average lead time * average demand

Why is this important? Setting an optimal reorder point is critical for effective inventory management. The right reorder point will reduce overstocking and holding costs, and prevent lost sales due to stockouts.

Inventory Accuracy and Shrinkage

Difference between the amount of inventory a business has recorded in its data and what it actually has due to data processing issues, loss, theft, damage, and improperly filled purchase orders.

Inventory Accuracy formula = recorded ending inventory – physically counted (actual) inventory

Why is this important? Inventory accuracy can be affected by shrinkage or issues in the business data processing of inventory and orders. Measuring inventory accuracy allows a business to identify that there is an issue and to investigate the root cause.

Dead Stock/Spoilage

Inventory that cannot be sold due to lack of demand/spoiled goods.

Dead/spoiled stock percent formula = (amount of unsellable stock in period / amount of available stock in period) x 100

Why is this important? Dead stock increases holding costs and reduces revenue by tying up valuable warehouse space. As a result, it can be a major damper on the profitability of an eCommerce business. It is important to monitor your dead stock percent and keep it as low as possible.