If the historic supply chain disruptions from the past few years have taught businesses anything, it’s that not having a solid inventory planning system in place can create chaos. This is especially true of ecommerce businesses, that live and die on whether they have the inventory that matches consumer demand at the right time.
Developing an inventory planning strategy isn’t easy, so we’ve created a basic guide to help you understand exactly what inventory planning is, why it’s important, what the biggest challenges are, and an inventory planning strategy that is incredibly efficient for ecommerce businesses.
What Is Inventory Planning?
Inventory planning (or stock inventory management) is making sure that you order the right amount of inventory at the right time in order to successfully meet demand for a product. There are several factors that businesses have to consider when they’re creating an inventory planning strategy, some of which include:
- Lead times from factories
- Shipping time between factories and fulfillment centers
- Predicting customer demand
- A logistics strategy where you are replenishing inventory based on customer demand, but not overstocking or understocking
An appropriate inventory planning management strategy will be a continuous machine, where factories are making inventory and shipping to fulfillment centers to replenish the stock that is being fulfilled to customers without selling out and without over-investing too much capital in inventory that isn’t moving.
What Are the Challenges Associated with Managing Inventory for Ecommerce Brands?
It’s clear what managing inventory efficiently is appropriate, but that doesn’t make it easy. There are significant challenges to making an inventory planning strategy work.
Long Lead Times Make Planning Difficult
The longer it takes you to get your inventory, the more difficult planning inventory will be. Most ecommerce inventory planning strategies benefit from more agile supply chains, like a classic push-pull inventory strategy. However, push-pull requires very accurate demand forecasting, and since long lead times reduce forecast accuracy, it can spell trouble for ecommerce shops.
Forecasting Correctly Can Be a Challenge
Even if you have reasonable lead times, forecasting consumer demand correctly is incredibly challenging. In order to be able to forecast accurately, businesses need to have historical data of demand, which may or may not be available (this is particularly true of new products or even product iterations).
Editor’s Note: Our clients evaluate their ecommerce order volume on a per month, per week, and/or per day basis. When you hit 50+ orders per day, it’s time to consider using a China fulfillment center (like EcommOps!) to help you plan and build an agile supply chain.
Big Batches and Big Quantities Compound Supply Chain Issues
If your business follows a traditional ordering model of large volume, bulk orders that are then shipped to a fulfillment center via sea freight, it can compound supply chain issues. If an order is delayed due to port congestion, for example, and you ordered six months of inventory, that delay can be devastating.
If an issue like COVID were to occur again (which caused a lot of China manufacturing to come to a halt), and factories shut down shortly before you made a huge inventory order, then you could find yourself sold out for an undetermined amount of time. If you made a large order but demand dries up, you could end up sitting on inventory you can’t move (and paying for storage).
Poor Factory Performance or Relationships Can Hamper Supply
It takes a lot of time and a lot of resources to find a supplier in China that’s a great match for your needs, which makes many businesses reluctant to change suppliers when issues arise. However, poor factory performance, be that chronic quality issues, inconsistent production volume, or other issues, will make it tough to keep consistent inventory, regardless of demand.
Even a bad relationship with a quality factory can hamper production. The factory may not prioritize your orders and general needs if they have other clients that they perceive to be more solid, worthwhile business relationships. If you aren’t investing in building your relationship with a supplier, it could spell trouble down the road.
Bad Logistics Partners Can Make Fulfillment Problematic
Even if you avoid supply chain disruptions and have a great relationship with a high-quality factory, if your logistics partners do a poor job of receiving, packing, and fulfilling orders, it will look like you have terrible inventory planning. A bad logistics partner can delay fulfillment times, and potentially miss customer orders altogether.
That’s why it’s important to take the time to find a fulfillment partner that’s a good fit for your business, your needs, and your scaling goals.
Direct to Consumer China Fulfillment and Inventory Planning
If you run an ecommerce business that partners with a China supplier, then direct-to-consumer (DTC) China fulfillment could be an incredible tool. Many businesses use DTC China fulfillment to create an agile supply chain that allows for push-pull inventory strategies, including strategies like just-in-time inventory management planning (sometimes called just-in-time stock management).
Just-In-Time Inventory Management Planning and DTC China Fulfillment
In a just-in-time (JIT) inventory management strategy, your factory partners only create products, and you only receive inventory, as you need it. Usually, JIT inventory management requires extremely accurate predictions of demand, since a big spike (or a big dip) in demand could cause problems.
However, DTC China fulfillment makes JIT inventory management planning possible without hyper-accurate demand forecasts. This is possible because of some of the unique advantages DTC China fulfillment provides to businesses, which in turns makes the advantages of proper inventory management far easier to obtain:
Short Lead Times
Lead times from a China factory to a China fulfillment center are very short. For example, most lead times between suppliers and EcommOps’ fulfillment center in China can be as short as 1-2 days (and in certain cases, even less than that). Since lead times are so short, you don’t have to order months’ worth of inventory. Instead, you can order just a few weeks’ worth.
Flexible to Varying Demand
Businesses can truly order inventory as needed with DTC China fulfillment, which means it’s very flexible to varying consumer demand. If demand suddenly drops, you aren’t left sitting on a large amount of inventory that has tied up a lot of financial resources (and often costs money to store). If demand spikes, your supplier can get you new inventory in around a day to meet demand.
Improved Factory Relations
Just like you would prefer steady business that random spikes in demand, so too will your factories appreciate consistent, reliable orders instead of gigantic orders a few times a year. The consistent business can improve factory relationships, which will be important if you want the ability to increase or decrease production with short notice.
It may also open the door for other business ventures with the factory, like creating product iterations (if they are capable of doing so) or even creating brand new products.
Superior Fulfillment Experience
While shipping times to customers will be longer than local fulfillment, the shipping times are fine (usually 5-8 days), and those shipping times are consistent. Those shipping times hold true even for international customers, which means you may be able to break into markets you thought were out of reach due to long shipping times or high shipping costs.
EcommOps: Inventory Planning Experts and Leaders in DTC China Fulfillment
Inventory planning is crucial, but easier said than done. There are a lot of challenges to successfully implementing an inventory management plan, including:
- Struggling with long lead times
- Difficulty in forecasting demand
- Issues with big batch orders and supply chain disruptions
- Factories that are low-quality or that have a poor relationship with you
- Fulfillment challenges brought on by poor fulfillment partners
Fortunately, for businesses that have China suppliers, there may be an easy solution to take advantage of just-in-time inventory management without needing accurate demand predictions. DTC China fulfillment can make that a reality by offering:
- Short lead times
- The ability to be flexible to varying demand without overstocking or selling out
- Better factory relationships
- A superior fulfillment experience
If you want to explore how China fulfillment can make inventory planning easy, then we’d love to connect. You can fill out our online form, and we’ll be in touch to develop an inventory management plan that takes full advantage of what DTC China fulfillment has to offer.
Inventory Planning FAQs
1. What are the best practices for inventory management?
While your specific inventory management strategy should be catered to your specific product and needs, there are a few general tips you can follow:
- Maintain positive factory relationships: Having a good relationship with your factories can help prevent inventory supply issues. It also makes it easier to identify, and rectify, quality control concerns.
- Choose a high-quality fulfillment partner: If you aren’t running your own fulfillment warehouse, choosing the right fulfillment partner is key to consistent, effective inventory management.
- Know when to reorder inventory: Make sure you understand when it’s time to reorder inventory. If you are using multiple fulfillment centers, you need to have a procedure in place for when inventory is ordered, when it’s delivered to a specific fulfillment center, and at what threshold does one warehouse stop fulfilling orders and another one starts.
2. What trends in ecommerce inventory management should businesses be aware of?
The biggest trends in ecommerce inventory management that you should be aware of is the focus of creating an agile supply chain that can execute just-in-time stock (J.I.T.) planning strategies. Successfully executing these kinds of strategies is a great way to increase profit margins, and successful J.I.T. strategies scale very well with high-volume sales.
One of the best ways for ecommerce businesses to use J.I.T. inventory management strategies is to employ Direct-to-Consumer (DTC) China fulfillment. If you already (or plan) to work with a China supplier, then you should consider DTC China fulfillment as part of your inventory management strategy, and we would love to connect with you to develop a strategy catered to your business needs.
3. What are the benefits of having strong inventory management?
There are excellent benefits to having strong inventory management, including:
- Better profit margins: Strong inventory management helps you from buying too much inventory, which comes with the cost of storing that inventory. It also prevents you from selling out unexpectedly, allowing you to take advantage of any demand that comes your way.
- Better customer experience: When inventory is readily available, customers can come to trust that you will almost always have inventory in stock, and when they order it, it will be delivered to them in a reasonable amount of time.
Strong factory relationships: Strong inventory management requires a strong, working relationship with factories. When your inventory management is consistent and clear, it makes it easy for your suppliers to partner with you, improving the business relationship.
