Supply Chain and Inventory Management done right
Mastering inventory management is essential for the success of any e-commerce store. Learn how to streamline operations and boost customer satisfaction by understanding how supply chains work and impact your inventory.

Inventory management done right
Effectively managing inventory, supply chains, and logistics is pivotal for any e-commerce store. A nuanced understanding of these three topics and how they interact and impact each other is required to optimise online stores’ inventories, enhance operational excellence, ensure customer satisfaction, perform proper demand forecasting, and maintain a successful online business.

To get a deeper understanding of the basic concept, read our in-depth guide on inventory management. Here, we will explore inventory with a more detailed focus on supply chain management.
Why is it important to optimise inventory levels?
Optimising inventory levels starts with finding the balance in the levels of stock you have on hand. This requires accurate demand forecasting, which refers to estimating how many people would want to buy a specific product, and then ensuring that enough items are available in stock in your store’s inventory.
Demand forecasting can be done by analysing past sales data, market trends, sales fluctuations, and seasonal trends. Through all these factors, future demand can be anticipated with greater precision. Many e-commerce websites offer data analytics tools and algorithms to enhance forecasts, allowing sellers to make proactive inventory adjustments rather than being surprised at a sudden change in demand or supply.
Demand forecasting can be done by analysing past sales data, market trends, sales fluctuations, and seasonal trends. Through all these factors, future demand can be anticipated with greater precision. Many e-commerce websites offer data analytics tools and algorithms to enhance forecasts, allowing sellers to make proactive inventory adjustments rather than being surprised at a sudden change in demand or supply.

Adjusting stock levels based on lead times and differences in demand can help you deal with unforeseen market changes, ensuring product availability at all times for your customers. In this process, the primary role of proper inventory management is to minimise overstock and stockout.
Overstock is a condition in which a business has too many items in stock compared to the actual demand, whereas stockout is the opposite, where there is demand but the business is out of stock on that particular product or products.
Both of these situations can be detrimental to the operational efficiency of online stores. This is where inventory optimisation comes into the picture. Maintaining the balance of inventory can be done using multiple techniques, which will be discussed in more detail below.
Overstock is a condition in which a business has too many items in stock compared to the actual demand, whereas stockout is the opposite, where there is demand but the business is out of stock on that particular product or products.
Both of these situations can be detrimental to the operational efficiency of online stores. This is where inventory optimisation comes into the picture. Maintaining the balance of inventory can be done using multiple techniques, which will be discussed in more detail below.
Different kinds of products that can be stored in an inventory
Inventory refers to any products or items that a company has in stock. However, there are many different kinds of products, at different stages of the manufacturing process, that can be held in inventory, depending on the type of business and kind of products being sold.
Each type of inventory plays a crucial role in the production and supply chain process. Inventory can be categorised into the following distinct types:
Each type of inventory plays a crucial role in the production and supply chain process. Inventory can be categorised into the following distinct types:
- Raw materials: These are the basic components used to produce goods. Raw materials are essential for manufacturing other goods, and act as the building blocks of finished products. Making sure they’re in stock is critical to maintain production without delay, as this allows you to respond quickly to any fluctuations in demand.
- Work-in-progress (WIP): These are items in the production process, but have not yet been completed. Managing an inventory of WIPs effectively can help sellers identify issues and bottlenecks, maximising efficiency. Close monitoring of WIP levels can help you optimise production and keep the manufacturing process running smoothly and efficiently.
- Maintenance, Repair, and Operations (MRO): These are basically supplies used to maintain the production process. They are not a part of the final product, however, maintaining an MRO inventory properly helps maintain operational efficiency by facilitating production, maintaining equipment, and more. This includes safety gear, cleaning materials, tools, and more. Maintaining an adequate inventory of MRO can help prevent downtime and reduce costs.
- Finished goods: These products have already finished the manufacturing process, and are now ready to be sold. Proper management of an inventory of finished goods ensures customer demands are met and reduces the risk of stockouts. Having an adequate inventory of finished goods can help you respond to demand fluctuations and take advantage of sales opportunities.
Not every company requires to have all of these kinds of stock in their inventory. However, having a deeper understanding of these can help you gauge what items you need to have in stock, and how to maintain the same.
Understanding and maintaining inventory flow
Inventory flow refers to the movement of inventory through various stages – from raw material to production, to finished goods, and finally selling and delivering those goods to customers. Understanding and managing this flow is essential to optimise operations.

The key stages of inventory flow can look like this:
- Receive: The initial stage involving receiving raw materials or finished goods into the inventory. Proper record keeping, following procedures, and inspection of the received goods are the essential steps at this stage, as they set the foundations for inventory management.
- Stock: This is essentially items stored in inventory until they are needed for production or to fulfil customer orders. Effective storage solutions and strategies need to be implemented at this stage. This includes organisation strategies and enhancing inventory efficiency. This can include using inventory categorisation methods, making use of vertical space, using barcoding systems to track the location of items, and more.
- Production: At this stage, raw materials are made into finished goods. It’s vital to optimise flow to ensure minimised delays. Close monitoring of manufacturing schedules is essential at this time.
- Accept customer orders: The next step in the flow process is accepting customer orders. It includes several activities like route optimisation, order processing, and keeping track of demand and inventory, which are all important to meet customers’ expectations.
Maintaining clear communications with customers at this stage can help reduce errors. - Fulfil, package, and ship: This is the stage after the customer has placed their order, but before they have received the product. Timely and accurate order fulfilment is critical to ensure customer satisfaction and grow their loyalty to your brand. This stage includes different logistics management solutions and best practices.
- Reorder stock: Ensuring timely restocking, as well as ordering the right amount of stock is essential to minimise the risks of overstocking and deadstock. Some inventory management programmes and systems automate this process for sellers, preventing human error and common mistakes.
- Manage returns: Efficiently handling returns is a critical aspect of inventory flow. Managing the return process can help you accurately keep track of inventory, and maintain customer trust. A clear and well-defined returns policy can make this process smoother.
As a seller, you have to have a comprehensive understanding of the different types of inventories and their flow. Following these categorisations can help you tailor management strategies to maximise efficiency at every stage. Keeping track through inventory monitoring systems, or inventory management software can make it easier to stay on top of your inventory planning.
Recognising the stages of your inventory flow may also enable you to more easily streamline operations, enhance customer satisfaction and loyalty, and adopt a comprehensive approach to minimise costs and create sustained growth for your business.
Recognising the stages of your inventory flow may also enable you to more easily streamline operations, enhance customer satisfaction and loyalty, and adopt a comprehensive approach to minimise costs and create sustained growth for your business.
Different types of inventory management for e-commerce
Just like there are different types of inventory, so too are there multiple ways to manage each business’ inventory. Employing the right techniques in inventory management is vital for optimising operations.
Some of the most common inventory management techniques are:
- Just-In-Time (JIT) Inventory Management: JIT lowers holding costs, making sure goods are received as they are needed. A potential downside of this process is that any delay with the suppliers can disrupt your sales and may raise obstacles in your path. With JIT, accurate demand forecasting is crucial, and any miscalculation can lead to delays.
- Economic Order Quantity (EOQ): This model determines the ideal order quantity to minimise storage and inventory costs. However, it relies on the assumption that demand is constant, and any fluctuations can lead to stockouts or surplus inventory. It also requires accurate estimation of costs, which is not always easy to predict for every kind of product.
- Minimum Order Quantity (MOQ): This model keeps in stock the smallest quantity of products that a supplier or wholesaler will provide to the seller. Using this method requires sellers to order in bulk, which can help cut costs and decrease ordering frequency. The potential downside comes when a business has a high MOQ, which can lead to excess inventory and strain cash flow.
- ABC Analysis: ABC Analysis places inventory in three groups based on value and demand by customers. Utilising this method can free up sellers to focus resources and efforts on critical items, meeting demand and optimising stock levels. Issues may arise sometimes when categorising inventory in this method into three groups, because this can be subjective to different buyers. Additionally, lower priority items can build up as deadstock, potentially affecting inventory efficiency negatively. An inventory monitoring system, or inventory management software can help make it easier to juggle these categories.
Each of the above techniques offers unique advantages, as well as possible challenges. The choice depends on the seller, market demand, and needs of the e-commerce store. That said, properly implemented inventory management programmes or techniques can all lead to better efficiency, cost saving, and enhanced customer happiness. Understanding the benefits and limitations of each allows businesses to utilise their inventory management strategies effectively, leading to a streamlined and sustainable supply chain.
Different methods of inventory valuation
Once you have understood the different ways of managing inventory, it is also important to accurately value the products you have in stock. Here too, there are multiple methods available to e-commerce sellers. Each offers its own advantages, and the choice of which one to use in your store depends on the kinds of products you sell, as well as the specifics of your online store.
Some of the most common methods for valuing inventory include First In, First Out (FIFO), which ensures that older stock is sold first. This approach is particularly useful for products that may expire or become outdated over time.
In contrast, Last In, First Out (LIFO) refers to a method where the most recently acquired stock is sold first. This is typically preferred by sellers dealing with merchandise that does not expire or lose value and may even appreciate over time.
Lastly, the Weighted Average Costing method is beneficial for sellers who find it challenging to identify which specific units were sold, especially when dealing with products whose costs from suppliers can fluctuate significantly. In this method, the seller calculates the average cost per unit across similar items in their inventory, regardless of purchase date. This average cost provides a more consistent way to assess inventory value and manage stock effectively.
Inventory management software and inventory monitoring systems can make it easier to manage the different methods. Each of these methods evaluates products by the order in which they are sold, which can affect the cost of goods as well as how products are valued for both accounting and taxation purposes.
Some of the most common methods for valuing inventory include First In, First Out (FIFO), which ensures that older stock is sold first. This approach is particularly useful for products that may expire or become outdated over time.
In contrast, Last In, First Out (LIFO) refers to a method where the most recently acquired stock is sold first. This is typically preferred by sellers dealing with merchandise that does not expire or lose value and may even appreciate over time.
Lastly, the Weighted Average Costing method is beneficial for sellers who find it challenging to identify which specific units were sold, especially when dealing with products whose costs from suppliers can fluctuate significantly. In this method, the seller calculates the average cost per unit across similar items in their inventory, regardless of purchase date. This average cost provides a more consistent way to assess inventory value and manage stock effectively.
Inventory management software and inventory monitoring systems can make it easier to manage the different methods. Each of these methods evaluates products by the order in which they are sold, which can affect the cost of goods as well as how products are valued for both accounting and taxation purposes.
Supply chain and logistics management
Supply chain management (SCM) encompasses the comprehensive process of managing the flow of goods, including all of the processes involved in using raw materials to make a final product. An effectively managed supply chain reduces excess costs, enhances product delivery efficiency and lowers the chances of product returns and customer dissatisfaction.

The main phases of SCM include planning, sourcing, production, distribution and returns. Once again, each business need not be concerned with all of the stages– for example, some businesses will only deal directly with suppliers and distributors, in which case they only need to ensure their supplier/wholesaler delivers the goods on time to them, and need not unnecessarily keep track of planning or sourcing.
That being said, good supply chain management ensures that products are sourced and delivered efficiently, while maintaining optimal inventory levels. Logistics management is a crucial component of SCM as it focuses on the movement of goods. This includes transportation, warehousing, and order fulfilment. Logistics management is essential in ensuring all elements work in tandem, effectively managing inventory.
That being said, good supply chain management ensures that products are sourced and delivered efficiently, while maintaining optimal inventory levels. Logistics management is a crucial component of SCM as it focuses on the movement of goods. This includes transportation, warehousing, and order fulfilment. Logistics management is essential in ensuring all elements work in tandem, effectively managing inventory.
Maintaining a well-balanced inventory
Maintaining a healthy inventory system involves coordination and planning. Sellers have to learn to align inventory strategies with supply chain management processes, thus helping prevent different sorts of issues and challenges.
Accurate demand forecasting should be aligned with supply chain activities to ensure products are always available to customer demand. Additionally, coordinating with suppliers to respond to market changes contributes to a more adaptable system which responds to demand.
Accurate demand forecasting should be aligned with supply chain activities to ensure products are always available to customer demand. Additionally, coordinating with suppliers to respond to market changes contributes to a more adaptable system which responds to demand.

Several aspects within SCM can play a role in inventory planning and management, such as:
- Demand forecasting: Accurate demand forecasting can help sellers adjust their inventory levels to customer needs, thus reducing the risk of surplus stock or stockouts, leading to a balanced inventory.
- Supplier management: Proper supplier management can ensure the seller receives high quality products, and inventory is delivered in time. Strong suppliers can improve the seller-customer relationship, contributing to overall success.
- Inventory control systems: Inventory control systems help sellers track stock levels with accuracy, allowing for timely restocks while minimising excess stock. It can also help sellers keep the right products replenished at the right time.
- Warehouse management: Efficiency in warehouse management leads to optimised storage space and a streamlined packing process. This results in fast order fulfilments.
- Order fulfilment: Timely order fulfilment is essential to keep customers satisfied. Well-coordinated logistics reinforce trust and ensure products are delivered swiftly.
Proper supply chain and logistics management can foster business growth by streamlining inventory, inventory flow, and planning. A well-structured supply chain will reduce holding and carrying costs and minimise waste. Sellers can use data analytics to keep an eye on turnover rates and make data-based decisions about stocking, removing products, and diversifying their online store. Moreover, proper logistics management can lead to reduced lead time and better order fulfilment rates.
SCM and logistics management are fundamental to effective inventory management for all sellers. By prioritising coordination, sellers can facilitate better operations, preserve inventory levels, and grow their e-commerce business. Understanding the various aspects of SCM can help sellers create a more efficient system that can help them stay in the lead in today’s competitive market.
SCM and logistics management are fundamental to effective inventory management for all sellers. By prioritising coordination, sellers can facilitate better operations, preserve inventory levels, and grow their e-commerce business. Understanding the various aspects of SCM can help sellers create a more efficient system that can help them stay in the lead in today’s competitive market.
Inventory management on Amazon
Amazon offers various inventory management solutions to benefit sellers, including Seller Central services, Multi-Channel Fulfilment (MCF), and Seller-Fulfilled Prime (SFP).
- Seller Central services
Seller Central is the primary hub for Amazon sellers, introducing them to comprehensive Amazon tools and inventory management programmes. Sellers can utilise it to track stock levels, update their product listings, and manage their orders. Using these tools, sellers can gain insight into their inventory and make decisions about restocking products.
Key services on Seller Central include low inventory alerts, customisable reporting tools, bulk shipment options, and more. - Multi-Channel Fulfilment
This feature allows sellers to fulfil orders from several sales channels, not just Amazon. This will prove beneficial for sellers who choose to sell on multiple websites, or use their own website. Sellers can use Amazon’s fulfilment capabilities to manage inventory across channels. This can help sellers provide consistent shipping and fulfilment services to customers, enhancing efficiency. MCF aids in fast processing of orders, and ensures reliable delivery. These are critical for maintaining customer happiness and loyalty. - Seller Fulfilled Prime (SFP)
This option allows sellers to manage their own fulfilment while offering prime shipping, this way a seller can control their shipping process but also still reach prime customers. This feature benefits sellers who want to manage their inventory closely, while reaching a wider audience by using a prime membership. Not all sellers qualify for SFP, as it depends on several factors including customer feedback.

Fulfilment by Amazon (FBA) is another tool that offers sophisticated inventory management solutions. Amazon offers all these systems to meet the diverse needs of the sellers using the website. These comprehensive and different tools provide effective inventory management solutions, which sellers can use to optimise operations, improve customer satisfaction, and grow their e-commerce store.
What is the Amazon Warehouse Management System?
The Amazon Warehouse Management System is built to facilitate seamless inventory management. It automates inventory flow processes like receiving, storing, shipping, and more. The system minimises human error, and ensures smooth and accelerated operations.

Sellers can benefit from real-time inventory tracking, which ensures sellers can monitor stock alerts, maintaining high-demand products in stock, reducing the risk of deadstock and stockout, and improving order fulfilment. Also, from Innovative warehouse design and space usage with Amazon warehouses optimise space usage using advanced warehouse design methods. Inventory is organised based on turnover rate. This enhances processing speed and efficiency. Items are stored in a way to improve picking efficiency and reduce fulfilment time.
Advanced data analytics are integrated into the Amazon storage system, utilising storage space efficiently and minimising costs. The WMS employs algorithms to forecast demand and stock levels, predicting future demand and allowing sellers to make informed decisions on their inventory, effectively reducing excess stock.
Amazon’s WMS offers invaluable perks to sellers looking to enhance their inventory management skills and practices by streamlining flow, minimising excess stock, and improving operational performance. The WMS handles the details, leaving time for sellers to focus on their e-commerce business’ success, growth, customer satisfaction and retention.
Advanced data analytics are integrated into the Amazon storage system, utilising storage space efficiently and minimising costs. The WMS employs algorithms to forecast demand and stock levels, predicting future demand and allowing sellers to make informed decisions on their inventory, effectively reducing excess stock.
Amazon’s WMS offers invaluable perks to sellers looking to enhance their inventory management skills and practices by streamlining flow, minimising excess stock, and improving operational performance. The WMS handles the details, leaving time for sellers to focus on their e-commerce business’ success, growth, customer satisfaction and retention.
Monitoring inventory levels and performance metrics
There are several Key Performance Indicators (KPIs) – specific data and metrics that provide valuable insight into the status of your inventory – which can in turn help you make more proactive business decisions.

- Inventory turnover rate: This measures how quickly you're selling products, causing you to buy more stock to replace inventory. A higher rate generally indicates efficient sales, while a lower rate might suggest overstocking or slow-moving products.
- Stockout Frequency: This tracks how often items go out of stock. Frequent stockouts can lead to lost sales and lower customer satisfaction, potentially impacting your Amazon search rankings.
- Carrying costs: These are the expenses associated with holding inventory, including storage fees, insurance, and potential depreciation. Understanding these costs helps in balancing stock levels with profitability.
Some of the most important KPIs are:
Regularly reviewing these metrics allows you to make strategic changes to your inventory management method. It is recommended to assess these KPIs at least monthly, if not weekly – this way, you can ensure you have enough prior notice to make timely adjustments to your stock levels, pricing, or marketing strategies. You can do this manually, or using an inventory management system. This approach will help you maintain optimal inventory levels, reduce costs, and maximise sales opportunities.
Incorporating data and feedback into inventory management

As a seller, you have to incorporate feedback into the inventory management process to ensure progress and improvement. Gather information from customer feedback, sales trends, and supplier feedback.
This will help you adapt and make adjustments based on data, allowing you to refine your strategy, enhance your inventory management, and maintain strong relationships with customers.
This will help you adapt and make adjustments based on data, allowing you to refine your strategy, enhance your inventory management, and maintain strong relationships with customers.
Additional tips
Certain key strategies and essential practices can help you maintain customer satisfaction, optimise your inventory, and enhance overall efficiency. Some things to keep in mind include:
- Use automation tools
Automation tools and inventory management programmes and inventory management systems that simplify order placement, tracking, and fulfilment can help you greatly streamline the inventory management process. Focusing on demand forecasting, optimised inventory levels, supplier relationships, and useful tools can help sellers maintain operational efficiency, improving customer satisfaction, maintaining long-growth and success of an e-commerce store. - Maintain successful supplier-seller relationships
Effective inventory management relies strongly on supplier-seller relationships. Coordinating with suppliers and establishing clear communication channels can streamline the inventory replenishment process. Sharing information with suppliers, especially in real-time helps to create synchronised inventory levels across the supply chain, reducing delays or stockouts. - Stay aware of customer feedback
Customer feedback provides key insights into customer demand, possible issues, and how to enhance customer satisfaction and retention. Regularly checking feedback can help you tailor your services to the buyers’ preferences and experience, and keep popular products in stock. You can use information from customers to improve your product offerings and manage your inventory more effectively. - Use reliable suppliers
Building strong relationships with reliable suppliers can help you maintain proper inventory levels. A good supplier should be flexible and quick to respond to changes in demand, making sure your inventory needs are fulfilled. Creating a collaborative environment with your suppliers can give you better times, prices, and more. - Diversify your suppliers
Diversifying your suppliers can lower risks related to disruptions in the supply chain. This way you can respond in a better way to market and demand fluctuations, while keeping your product available. - Focus on continuous improvement
A commitment to improvement helps businesses to adapt to changes in the market and in consumer demands. Use feedback from customers, team members, keep an eye on industry developments, and adapt your strategies to align with changes.
These strategies can help enhance any seller’s inventory and inventory management practices, improving operations and boosting customer satisfaction. Staying proactive and adaptable is key, and can help you create a resilient business.
Conclusion
Effective inventory management is critical to your success as an e-commerce seller. Various inventory management software, inventory monitoring systems, strategies and tools can enhance your inventory management. This could potentially improve your profits and success. Consider the different types of inventories, as well as inventory management methods and choose the one with the distinct advantages that suit your needs.
Proper, sustainable supply chain and logistics management is integral to effective planning. Recognising the interconnectedness of the different elements will help you significantly improve your inventory management practices, positioning you for greater success in a competitive market.
Moreover, staying informed about trends within your niche or industry, and the latest technological tools can give you a great competitive edge. Using advanced analytics, automation, and more can help streamline your operations.
Adapting your inventory strategies with the evolving landscape will help you meet consumer demands. Make sure to continuously learn and improve your inventory practices. This can help you build a resilience business that can thrive in a dynamic world.
Proper, sustainable supply chain and logistics management is integral to effective planning. Recognising the interconnectedness of the different elements will help you significantly improve your inventory management practices, positioning you for greater success in a competitive market.
Moreover, staying informed about trends within your niche or industry, and the latest technological tools can give you a great competitive edge. Using advanced analytics, automation, and more can help streamline your operations.
Adapting your inventory strategies with the evolving landscape will help you meet consumer demands. Make sure to continuously learn and improve your inventory practices. This can help you build a resilience business that can thrive in a dynamic world.
FAQs
What is inventory management?
Inventory management is the process of managing the items a seller offers. This includes everything from receiving an item, storing it, to getting it to the customer. It involves tracking stock levels and keeping products available for customers.
How does supply chain management affect inventory?
Supply chain management (SCM) controls the flow of goods from suppliers to customers. SCM done efficiently ensures the product is delivered on time, reduces lead times, and minimises stock issues like surplus stock or stockouts. This ultimately enhances inventory efficiency.
How can I optimise my inventory levels?
You can utilise different methods to optimise inventory levels. This includes using data analytics to analyse demand and sales trends, setting reorder points to ensure restocks happen on time, using automation to streamline inventory management, and reviewing stock on the regular to adjust supply.
What inventory management methods should I use for my store?
This can depend on several different aspects; however, popular methods include Just-In-time (JIT), Minimum Order Quantity (MOQ), and ABC Analysis.
How to handle seasonal product trends?
You can handle seasonal product trends by analysing older data and using it to predict possible future demand spikes. You can then use that data to adjust inventory levels, preventing stockouts of items in demand.
What are the benefits of good inventory management?
Good inventory management can help you get more profit, reduce excess stock and operational costs, and enhance customer satisfaction by providing the right products at the right time. It can also help you make informed decisions based on data and forecasts.
How do I choose the right inventory management system?
The right inventory management system depends on your needs. Consider that your system should be scalable so it grows with your business, it should be easily integrated across websites, and it should be easy for you to use.
How can I improve my relationship with suppliers?
Keep communication lines open and clear, share your inventory needs and forecasts. You can also use tech platforms to share real-time inventory updates and tracking.
How often should I check my inventory?
This can depend on the size of your inventory, seasonal trends, current sales volume, and more. Such checks should be done regularly. Usually, businesses will conduct monthly reviews, but more frequent reviews could be needed during peak season.
How can poor inventory management affect my store?
Poor inventory management can lead to excess inventory or stockouts, it can increase storage costs and lead to higher operational costs, result in reduced customer happiness and loyalty, and lead to lost sales or lost profits.
What are some common challenges in small business inventory management?
Common challenges with small business inventory management include inaccurate demand forecasting, issues with inventory tracking, and a lack of efficient processes. Doing your research and addressing these challenges with proper planning and procedure can help you monitor and control inventory.
On this site, we use cookies and similar tools (collectively, "cookies") to provide and improve services to you and to show ads. To learn more about how Amazon uses cookies, please read the Amazon Cookies Notice.