Stock control: how to increase sales and decrease stock management costs

It is the end of the year again and, as always, it is a nightmare: the time has come to manage the inventory and count everything left in the warehouse.

It’s a bit odd since this task, in addition to being boring, is often the only one that many e-commerce shops carry out in order to control their stock. And we say ‘odd’ because it is not the most relevant one.

Having your inventory under control is very important to monitor your online shop since it will allow you to always have products for sale and to avoid storage costs spiraling out of control.

Perhaps you don’t know where to start?

Then keep reading because in today’s post we are going to be explaining how to manage your stock so you can optimize your results.

Why is it so important to manage the stock of an online shop?

Managing the stock or inventory means more than just knowing how many of each kind of product you have or carrying out an awful count at the end of the year.

Even though most people do only that, stock management doesn’t only help you sell more, but it also allows you to improve your overall conversion rate.

But, let’s start from the beginning. According to this post, the definition of stock management is:

The administrative role of assessing the inventory of a business and making sure it is sufficient to meet consumer demand. The demands that a stock management process seeks to satisfy are affected by external and internal factors, and can be expressed using purchase order requests to help maintain appropriate inventory levels.

Let’s see an example so that you can see just how important it is.

You have a physical shop and an online shop in which you sell phone covers. You have just received some new covers that, unexpectedly, are sold really well.

The very first morning that you started selling them they were sold out. Just before you closed, one client bought the last 10 you had. You are obviously very happy, but when you check your online orders, you realize that you’ve also sold three online.

You call the supplier, but they can’t send you more until next week.

Result?

You have to call those three clients, apologize, return them their money, and try to avoid them becoming too angry.

You haven’t lost 3 product sales—you may have lost 3 new clients—which is 100% a completely different story.

As you have seen, poor inventory management of your online shop could mean selling a product that is sold out along with many other consequences:

  • Losing sales because you don’t have stock or because the products are lost or not found
  • Poor investment of your budget because you don’t know the right quantity that you need of each product
  • Higher storage and maintenance monitoring costs
  • Damaged stock that has been stored for too long
  • Wasted time on administrative tasks or unnecessary inventories

Sure you can already see your online shop’s stock management in a very different way, right?

Well, let’s go a step further and see how you can organize your stock without going crazy.

How to manage your online shop stock step by step

The truth is that every warehouse is a complete different world. Logically, it is not the same to have to store rings, t-shirts, or bicycles.

This is why, with respect to that, we are going to mention a few general tips that will be useful no matter what you sell.

Let’s do it.

1. How to organize the warehouse

When organizing and placing packages, you need to think about management. You will move around the stock every day, so you need to have a quick and agile system to find any product and it must be well maintained, of course.

Think about the following:

  • Higher or lower stock rotation: If you know that some products are sold faster or that it depends on the season (like for clothes), you need to take this into account when organizing the warehouse.
  • Size and weight of the packages: If you work with big products, you should analyze where to place them so the path they have to follow is as short as possible. Maybe you could also place the packaging area close to where they are kept.
  • Check the storage conditions: Is it humid? Can you stack the boxes up without damaging the products? Do the products require some type of special care?
  • Labels: If you work with suppliers, they will give you the reference. However, if you create your own products, you need a labeling system. You will need to create a code system to perfectly identify each product. For example, for a t-shirt, you will need to identify the type (short sleeve, long sleeve, tank top, etc.), brand, model, color, and size.

Don’t rush things when organizing it. Try to predict all of the possible situations that you may have to face and how you would manage them.

For example:

  • Where are you going to store the products until they are moved to the correct location?
  • Where are you going to place the ready-to-be-sent packages until you wait for the transport company?
  • How are you going to manage returns?

Draw up the plan of your warehouse on a piece of paper and try out the different organizational combinations and the movements that you would have to do in each case. It will help you to organize it better in the end.

2. The minimum viable quantity

One of the big challenges that you have to face when controlling your stock is to avoid ordering too much.

If you order too much, you will start building up stock. This means that it will start getting damaged or losing its value (with technology, for example).

What can you do?

The idea situation is that you start with the minimum possible quantity so that you can analyze how fast you sell it and how it takes you to replace it.

In this way, you can measure what the ideal order size is to minimize having excess products.

3. First-in, First-out

This is a basic principle for any inventory monitoring system.

It means that the products arrived first (the ones that have been there the longest) must be the ones that leave first. If they have an expiration date or is perishable, this principle applies even more so.

This is based on the same idea that we mentioned before—you need your products to rotate as fast as possible.

Besides storage costs and the risk of devaluation, you need to think that each product that is there means money that you can’t reinvest in new merchandise.

You always need to foresee having money available in order to maintain stock in your shop.

4. Anti-crisis action plan

When you start out and launch an online business, there is a cruel truth: you will be forced to learn many things on the go.

Unforeseen problems will arise, problems that you could not possibly have thought of, and you will have to face them all the same.

This is precisely why we now want to detail the most common mistakes that people normally make when managing and online shop’s stock.

  • Sales peaks: this means having money available to be able to handle purchasing more stock as well as enough space to store it. Analyze if these peaks are regular so you can foresee them.
  • You run out of one product: either because you had an unexpected extra sale or because your predictions were too low. Would your supplier be able to send you more products immediately? Do you have an alternative supplier?
  • Chaos in the warehouse: this is very common if there are several people working. “James” put this here because he wanted to reserve it for some reason, “Mary” places another one over there that somebody returned… and sooner or later there is no way anybody can find anything. Establish some basic rules and make sure that everybody knows how the stock management should work.
  • Bad relationship with the supplier: we often don’t realize how important suppliers are until there is a problem. Make an effort to get to know with whom you are working and to get along with them. As we said before, it is also advisable to have an alternative supplier in the case of an emergency.

It is also important to be ready to inform clients about mistakes. Don’t put off making the call to inform them about a problem with their order—nothing gives off a worse image than not providing any answers.

Customer support service is one of the most important factors for creating recurring sales and loyal clients. Check out this post and find out what not to neglect regarding this topic.

3. Product categories

A system used by many stores to control their stock better is using a product classification system with respect to importance.

There are normally three sections:

  1. High economic value and low-rotation products
  2. Medium value and rotation products
  3. Low value and high sales products

What is this useful for?

As we mentioned before, it is useful to differentiate them and have the right amount of stock for every product at any given time.

The products in the first section need to be monitored more regularly because they imply a greater investment (and we will need more money for them).

On the other hand, those in the second block, while having less impact, are more unpredictable. It is very important not the have too much stock.

For the third group, since they have higher rotation, we just need to make sure that we have enough stock.

Are you starting to understand the importance of stock management?

As you have read, managing an online shop’s inventory is much more important than just placing a few packages in an organized way.

Having your stock under control will ensure that you don’t run out of products or that you aren’t wasting money by having to offer discounts to sell the excess products.

Now you know it: organization also sells. ;)