Storing and managing inventory without loss or damage is among the biggest concerns of an ecommerce store. Improper inventory management can lead to higher holding costs, dead stock, obsolete or discontinued items, and tied-up capital.
This may not strike as particularly worrisome if your business is still in its nascent stages, dealing with only a few SKUs. However, for medium to enterprise-grade businesses, this is a total nightmare.
Inventory storage systems came into existence to combat the problems discussed above. In this post, we’ll be looking at several ways in which stock is maintained and methodically categorized in storage facilities. Let’s get started!
What is Inventory Storage?
Inventory storage is the process of carefully stowing away items in a distribution center or storage facility for future purchases. The terms ‘inventory storage’ and ‘inventory management’ are used interchangeably because stocking involves the use of several management techniques and solutions to achieve results.
Inventory storage and management connects two very important parts of the ecommerce business - manufacturing or procuring, and sales. To ensure no hiccups in the supply chain, a proper inventory management system is essential for ecommerce companies.
Top 3 Efficient Ways to Handle Inventory Storage
There are three ways in which businesses tackle the problem of storing items for immediate dispatch when an order comes through.
In self-storage, businesses rent rooms, garages, or storage units to keep their products. Here, entrepreneurs take sole responsibility for storing and accounting for items. Although a good option for budding businesses, self-storage is not a solution businesses should stick to for longer periods.
This is because climate control or weather-resistant options are very limited in self-storage facilities. And this makes storing inventory for longer durations risky and prone to damage.
2) Traditional Warehousing
Traditional warehousing is similar to other types of warehousing except for one notable difference - it does not use any technology. In that way, it also shares similarities with self-storage, although traditional warehousing has better damage control protocols to ensure inventory is safe.
Still, traditional warehouses are not equipped to handle fast-changing consumer demands, omnichannel fulfillment, longer lead times, cyclical product releases, etc. Why? Because these warehouses are entirely manually operated.
Although traditional warehousing used to be the order of the day even a couple of years back, it falls short of delivering today’s sky-high expectations.
3) 3PLs (3rd Party Logistics)
Hiring a 3PL or WMS (Warehouse Management System) is what most ecommerce businesses do nowadays. It frees up time and resources for entrepreneurs to focus on other aspects of their business while ensuring proper inventory management.
3PLs provide real-time inventory visibility, which means products don’t sit in a corner and gather dust while you keep reordering them, thinking they were sold. This eliminates problems of over or under ordering and actually reduces overall stock management costs.
Moreover, 3PLs not only help with stocking items from suppliers but also with outbound logistics. Most WMS accommodate picking, packaging, labeling, etc., under their services. They can even intimate you with ‘Reorder’ notifications when stocks run low.
List of 6 Most Common Inventory Storage Methods
We’ve discussed how business owners handle inventory - doing it on their own or outsourcing it to logistics experts. Let’s take a quick peek into the inner workings of a warehouse and see how every item is stored.
1) Central Storage
In centralized storage, all products shipped to the customers come from a single warehouse location. It provides a lot of ease for entrepreneurs because they don’t have to keep a tab on the workings of other storage units. It can also be beneficial for cross-channel selling because managing inventory data of one warehouse is easier than it is for many.
However, order fulfillment through central storage takes more time simply because of its locational disadvantage. This makes scaling up a challenge, and that’s why most companies decentralize and add more distribution hubs to their list.
Another issue, since central storage is responsible for a store’s entire order fulfillment, it’s also left with lesser safety stock. This can be a problem during the sale season or unexpected consumer demand.
2) Racks, Bins, and Shelves
Every type of product in the storehouse is designated to either a rack, shelf, or bin. Racks and shelves are used for longer, broader, or oddly-shaped items that will not fit easily inside a square or rectangular storage space. Bins are good for keeping smaller items. They all come in many varieties - push-back, carousel, mobile, stationary, etc., for better accessibility.
Most warehouses divide storing space into zones, for example, zone 1 for commercial shipments, zone 2 for returns, and so on. Each zone would have its own set of racks, shelves, and bins for easy order picking and classification.
3) Block Stacking
Block stacking is a common inventory storage method used by enterprise-level WMS as well as individual owners. The term is quite self-explanatory. In block stacking, products are stacked on top of each other directly on the floor. Merchandise can be stored within boxes or pallets.
It’s a cost-effective way of managing inventory since it frees up a lot of space on the ground for other items. Even so, block stacking is not the most stable option. Products at the bottom bear the weight of the entire block and risk getting damaged. They are also harder to access.
Also, in absence of proper humidity and weather control, wooden boxes or pallets can become weak and break. If you’re using block stacking to store your inventory, be sure to keep the stacks shorter.
4) Point-of-Use Storage (POUS)
In POUS, all inventory items are stored at the place where that item will be used. While POUS makes more sense for manufacturing units, it can inform some ecommerce inventory storage decisions.
For most online retailers, storing inventory at the point of use is impractical and nearly impossible. However, if you are a hyperlocal business, you can store a part of your merchandise at the local shop you’ve partnered with for fulfillment. This reduces shipping and handling cost and saves time for all parties.
5) Dry Storage
Dry storage is used to stock products that can be adversely affected by improper moisture levels, air quality or lighting conditions. For example, rice, flour, lentils, packaged foods, canned items, etc. It’s essential for businesses in the food and beverage or FMCG industries.
Dry storage facilities can be a part of a larger warehouse but need special cleaning and monitoring. Temperatures within dry storage cells range between 50°F to 70 °F and maintain excellent ventilation.
6) Cold Storage
Cold storage technology stores fresh food like fruits and vegetables, chemicals and medicines, and other perishable goods at subzero temperatures. It increases the shelf-life of food items without decreasing nutritional value.
Types of equipment used in cold storage are - blast refrigerators, chillers, specialist freezers for chemicals, containers, and cold rooms. Cold storage facilities also provide temperature-controlled vehicles for delivery to the end user.
Top 6 Inventory Organisation Techniques for Ecommerce Companies
Waste in inventory management is a huge problem. Every year, nearly USD $163 billion worth of inventory is discarded globally. Let’s look at some techniques for efficient inventory management that reduce surplus and encourage streamlined operations.
1) FIFO and LIFO (First in, First Out and Last in, First Out)
FIFO and LIFO are two common accounting and asset management practices used by businesses all over the world. In FIFO, items that are first received in a warehouse are the first ones to be sold. Here, companies focus on clearing out older stock before it becomes unusable. Products sold under FIFO are - perishable goods, fast-evolving tech products, alcohol, medicines, etc.
LIFO aims to clear out the last items that came in before everything else. It is mainly influenced by market trends. Therefore, most LIFO products are - designer items like jewelry, automobiles, petrol and diesel, oil, etc. The risk of LIFO is that storing older items increases storage prices and the risk of damage or obsolescence.
2) ABC Analysis
ABC analysis categorizes all inventory on the basis of cost, risk, and importance. Businesses must divide their SKUs into 3 segments
A - High-cost, lower-sales items
B - Medium cost, medium-sales items
C - Low-cost, high-sales items
Based on this calculation, businesses can now allocate resources appropriate for each segment. They can maintain tighter control and visibility over high-value items and prepare for flash sales by accurate forecasting across every item type. Reducing surplus products also becomes simpler with ABC analysis.
3) Minimum Order Quantity
Minimum order quantity (MOQ) refers to the least amount of products a customer can order from a company. MOQ can be set on a number of pieces or even a minimum order value. For example, a phone company may set 100 pieces as its minimum order quantity. Another example of MOQ is the free shipping offered by brands above a specific order value.
Although MOQ sounds like it may turn away more customers than it welcomes, this strategy ensures profitability at all costs. MOQ businesses know how much of every product they need to manufacture or source and how much profit they will gain from each sale. Therefore, the occurrence of unsold inventory is much lower in MOQ.
4) Safety Stock Inventory
Safety stock or buffer stock is the extra inventory stored by businesses to avoid an out-of-stock situation. It’s fairly common in ecommerce because it provides several benefits. Safety stock can prove a real lifesaver during a demand surge or peak season.
It also helps to keep items available for sale when suppliers issue longer lead times for reordered inventory. It can even give your ecommerce shop a monetary boost if the price of your safety stock item suddenly increases. Lastly, safety stock protects brands from unforeseen circumstances like unavailability of raw materials, personnel shortages, supply chain disruptions and more.
In cross-docking, goods unloaded from a transport vehicle are directly loaded to another transport vehicle for outbound delivery. It uses practically no storage space and is best used by businesses that provide time-definite deliveries. Cross-docking is an effective inventory management method because it reduces last-mile inefficiencies, handling costs, real estate prices, etc.
However, it’s a tricky method to perfect. To ensure top-class customer satisfaction businesses and suppliers need transparent communication and order visibility. They must also provide real-time tracking ability to customers and manage all queries promptly.
Dropshipping is not so much an inventory management method but a type of business that frees retailers from holding any inventory by themselves. In this business model, the ecommerce retailer procures finished products from their suppliers and ships them directly to the customers. In this way, it does not spend any money on maintaining stock and is much more hassle-free than other retail businesses.
However, this model too, like cross-docking, cannot function well without real-time visibility of items and accurate forecasting. Since dropshippers do not hold any stock, they need to closely monitor demand forecasting and inventory data. Ascertaining how many products they need from suppliers is crucial for dropshippers.
Industry-approved Best Practices for Inventory Management
Inventory storage does not have to be cumbersome or tricky if you do it right. Here are some tips to help you stay on top of your warehouse situation.
1) Set Reorder Points for all SKUs
Try setting reorder points for all SKUs as soon as you implement an inventory storage system or introduce a new line of products. You may not find the time to go back and calculate at what point you need to reorder with everyday business responsibilities. Reorder points allow businesses to stay above stockout scenarios and automate the process.
2) Implement Warehouse Management and Tracking
As we have discussed earlier, manual inventory management comes with a lot of problems of inaccuracy, ineptitude, and human error. Ecommerce shops today need WMS to constantly track which items in the warehouse are being sold or changing places. Fast-moving items or bestsellers are notorious for getting lost or not matching up with official records.
3) Make Regular Inventory Audits
Every ecommerce store needs to schedule regular audits for inventory reconciliation. This is a chance for them to find out any discrepancies between what’s on paper and what’s in the storage facility. Rectifying these errors can help businesses recalibrate and showcase accurate product availability. It also helps identify dead stock that must be discarded to cut down on holding costs and create space for more items.
Whatever the size of your business, efficient inventory management should never be overlooked. A good WMS can help enhance customer satisfaction, demand generation, and business growth. We hope by incorporating the tips and methods discussed above, you will be able to create the best stock storage system for your online store.
1) Which is the best inventory storage method for small businesses?
A 3PL provides the best inventory storage for small businesses. If you’re worried about capital investment, then you can start small with self-storage and eventually move towards a better WMS inventory management plan.
2) Can inventory store for a long time increase in value?
Yes, market fluctuations can cause the price of an item to increase manifold from the time it was purchased. This is known as inventory profit. Ecommerce businesses using the LIFO strategy stand to gain from this occurrence. However, chances of inventory profit are arbitrary, and planning for such profit has an associated risk of inventory becoming outdated or unsaleable.