Top Inventory Control Techniques for E-commerce Success

Inventory control techniques help you manage stock levels, ordering, storing, and tracking products throughout your brand, as well as oversee the entire flow of your products from procurement to final customer delivery.

The core principle of inventory control is about achieving the perfect balance between storing sufficient stock to meet customer demand and avoiding excess inventory that might eat up your capital. 

Today, most brands operate across multiple sales channels, manage diverse product portfolios, and serve customers with varying delivery expectations. 

To ensure proper running of a DTC brand, various inventory control techniques have emerged to address these specific challenges, ranging from simple manual tracking systems to advanced automated solutions.

The guide below talks about the commonly used inventory control methods that have proved their effectiveness over time.

Importance of Inventory Control for E-commerce Businesses

Here are some positive consequences companies have experienced from following inventory control techniques.

Financial Impact and Cost Management

Inventories typically represent 50%-70% of total capital investment for most brands. 

Most of this investment gets dissolved into four types of costs

• Purchase cost: The largest part of the inventory investment
• Carrying cost: Can reach 25-35% of actual inventory cost, including storage fees, insurance, handling expenses, and obsolescence
• Shortage cost: Lost sales, negative reviews, and customers switching to competitors
• Ordering cost: Administrative expenses for placing orders

The purchase cost and carrying cost are inversely related. If you reduce one, the other will grow. However, there's an optimal point where both costs are balanced.

Shortage costs cause both immediate revenue loss and long-term customer relationship damage. 

Brands that work on balancing these costs through appropriate inventory control methods prevent possible stockouts, which, if left unaddressed, can lead to negative reviews and customers leaving you.

Cash Flow Management

The right inventory control helps you optimise cash flow by ensuring your capital doesn’t get tied up in slow-moving or excess stock. This optimisation process, known as the Economic Order Quantity (EOQ), helps balance ordering frequency against inventory holding costs.

Risk Management and Business Continuity

Various techniques of inventory control help you manage risks associated with demand variability, supplier reliability, and market changes. 

For example, buffer stock is one way to keep extra stock as an insurance against uncertain variations in supply and consumption. This safety stock protects you against sudden demand spikes or supply disruptions that could otherwise halt operations.

Competitive Advantage

Brands with better inventory management systems can offer customers a better shopping experience, competitive pricing, and faster product availability than competitors. 

Choosing the Right Inventory Control Technique

Before selecting any inventory control techniques, be sure of the following factors, including business size, product characteristics, availability of good quality stock, in the right quantity, at the right place and time and the right cost, is the essence of inventory control.

Understanding Core Inventory Control Principles

The objective of inventory control is to have enough amounts of materials in the right place, at the right time, and at a low cost. 

Start by confirming your product shelf life, supplier reliability, seasonal demand patterns, and available storage capacity.

Then, according to your assessment, consider the following inventory control techniques…

FIFO (First In, First Out), LIFO (Last in, first out)

Works best if you sell perishable products with certain expiry dates. 

FIFO means the first products that enter your warehouse must be shipped out to end users first. 

This helps ensure older inventory is sold before newer stock, reducing waste and obsolescence.

Similarly, LiIFO means the last products are sold first, to keep the inventory fresh.

Just-in-Time (JIT)

Suits well if you work with reliable suppliers and predictable demand patterns. 

JIT is a technique in which brands receive inventory on an as-needed basis instead of ordering in bulk at once which often leads to dead stock.

However, for this method to work, you must generate close to accurate demand forecasting and build strong supplier relationships.

Economic Order Quantity (EOQ)

EOQ refers to the optimal quantity of materials that you must order to minimise total inventory costs. 

The formula calculates annual demand, ordering costs, and carrying costs to find out the most cost-effective purchase amount.

ABC Analysis for Inventory Prioritisation

ABC Analysis is an inventory control technique in which you categorise your inventory based on monetary value and consumption patterns. 

The strategy is based on the Pareto principle (80-20 rule), which says that 80% of the overall consumption value (expense) is based only on 20% of the total items. 

The classification of inventory works as follows

• Category A items: Money value is highest, 70%, and represents only 10% of items
• Category B items: Money value is medium, 20%, represents about 20% of items
• Category C items: Money value is the lowest 10%, representing about 70% of the items

VED Analysis for Critical Items

Among the various techniques of inventory control is VED (Vital, Essential, Desirable) classification, which is based on the criticality of the inventories, in contrast to ABC classification, which is based on consumption value.

In this, the items are segmented into three groups

Vital items: Those whose shortage cannot be delayed even for shorter periods. 

Essential items: Products whose shortage can be tolerated for shorter periods only. But if not available over a long period, it will cause some disturbance in your business. 

Desirable items: Products whose shortage will not adversely affect your operations, even if unavailable for a long time. For example, seasonal items or experimental product lines.

ABC-VED Matrix Implementation

This is the most effective inventory control technique that combines both methodologies through ABC-VED Matrix analysis. 

In inventory management, ABC analysis (based on net value) must be coupled with VED analysis (based on the criticality of a product) to narrow down the group of items requiring extra monitoring.

This analysis works in three priority categories

• Category I: High priority goods group requiring greatest attention (AV+BV+CV+AE+AD)
• Category II: Moderate management items requiring moderate attention (BE+CE+BD)
• Category III: Simple management products requiring minimal attention (CD)

Minimum Order Quantity (MOQ)

MOQ is the smallest inventory you can purchase to keep your costs low. Negotiate MOQ terms with your vendors that align with your cash flow and storage capabilities.

Implementing Inventory Control Techniques

The meaning of inventory in the dictionary is "a detailed list of all the stock goods."

But the actual implementation of any such method requires careful decision-making and process optimisation.

Setting Up Foundation Systems

First, create clear inventory classification and control policies by properly documenting processes such as receiving, storing, and tracking inventory movement.

Then calculate your lead time, which is the average duration of time in days between the decision to replenish a product and its actual addition to stock.

If you crack this, it’ll help you figure out accurate reorder point calculations and prevent stockouts.

The reorder level formula

ROL = [(Average daily consumption) x LT] + BS, where the consumption expected during lead time is added to buffer stock. It ensures you have adequate stock availability with minimum excess inventory.

Fixed Order Systems Implementation

Various techniques of inventory control involve two primary ordering systems, fixed order size and fixed order interval systems. 

Fixed Order Size System

Helps you maintain consistent order quantities at specific intervals based on consumption patterns. 

The size of the order (Q) is fixed for each replenishment. The time between orders (interval) might vary. It works best with brands selling high-value products that require tight control.

Fixed Order Interval System

Helps you maintain consistent ordering schedules by allowing quantities to vary based on your current stock levels. 

The interval between orders (T) is constant, while the size of the order varies depending on the need to reach the maximum stock level. It best fits brands with regular stock review cycles and predictable demand patterns.

Minimum-Maximum Stock Control

The minimum-maximum inventory control system helps prevent both stockouts and excess inventory situations. 

This model ensures that the quantity in your hand is always between the maximum and minimum stock levels.

Tools and Software for Inventory Control

Here are the technologies brands are using to maximise the impact of implementing inventory control.

Core Features To Look for In E-commerce Inventory Control Software

• Real-time inventory tracking: For accurate stock level visibility across all locations and channels
• Multi-channel integration: Synchronised inventory data across sales platforms
• Advanced reporting and analytics: To provide insights into sales trends, inventory turnover, and performance metrics

Popular Inventory Management Platforms

Below are some popular inventory control platforms you can consider to better maintain your inventory…

Pragma

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Pragma inventory control platform has helped 900+ brands to manage, track, and inventory by connecting your inventory with return management, WMS and OMS.

Key Features:

Multicarrier partner: For efficiency/performance scoring

Location-based smart inventory management: Allotting unit counts to specific inventories for efficient logistics handling and hyperlocalised delivery management

Product level traceability: Helps track all SKUs and items using identifiers.

Real-time inventory insights: Updates your inventory status, giving you a clear view of high demand and slow-moving products.

Seasonal inventory planning: Helps manage your inventory for seasonal demand.

Kitting and Bundling: Helps you bundle products by automatically updating products right when you assemble them.

Streamlined Sorting: Helps segment shipments for each order and bundle bulk shipments.

Expiry date tracking: Helps you sell products close to their expiry first.

Returned inventory restocking: Helps reorganise approved items for sale and rejected ones for further action.

Procurement threshold: Helps create reorder and receive reminders from your preferred vendors.

Real-time inventory: look-up post-sale period from previous year’s holiday sales, etc, helps plan for coming holidays

Cost-based inventory analytics: Understand the importance of specific warehouses/inventory locations based on sales in the pincode, etc. Helps eliminate unnecessary holdings and thereby reduces inventory costs. 

Unicommerce

Specialises in Indian e-commerce operations with GST compliance and local marketplace integration. Helps you track inventory across multiple warehouses and provides instant alerts for low-stock items.

Key Features:

Product level traceability: Helps track every single SKU and item in it through unique identifiers.

Real-time inventory insights: Gives you updated status on inventory, which you can use to identify high demand and slow-moving SKUs.

Seasonal inventory planning: Helps organise your inventory based on seasonal demand.

Kitting and Bundling: Helps you sell bundled products by automatically updating products as they get assembled.

Streamlined Sorting: Helps sort shipments for individual orders and bundled bulk shipments using pigeonhole sorting.

Expiry date tracking: Helps sell products near their expiry first, to avoid waste.

Returned inventory restocking: Helps check and restock approved items for sale and rejected ones for the next step.

Procurement threshold: Helps set reorder and receive reminders from your preferred vendors.

Zoho Inventory

Provides cost-effective solutions for small to medium e-commerce businesses, allowing control across multiple warehouses for optimised product availability.

Key Features:

Centralised inventory: Automatically updated inventory quantities whenever a sale is made.

Product listing: Helps organise inventory using details like prices, availability and SKUs.

Item kitting: Helps bundle a group of products together as a single unit for sale.

Automatic reordering: Helps set reorder points, reminders and preferred vendors to avoid stockouts.

Stock adjustment: Helps adjust the stock level in case of product unavailability.

Serial number tracking: Helps track items movement from purchase to final sale through a code.

Expiry date tracking: Helps track items expiry date before obsolete.

Shopify Plus

Offers complete inventory management with multi-location support for up to 1,000 warehouses, fulfilment centres, and stores.

Common Challenges and Solutions in Inventory Control

Demand Forecasting Accuracy

Inaccurate demand predictions often result in either stockout situations or excessive inventory carrying costs. 

If your inventory levels are too low, you risk delays in fulfilling consumer’s orders, and if levels are too high, you're using up money that could be better utilised elsewhere.

Solution: Use multiple forecasting methods and regularly update predictions based on your actual sales performance. Use historical sales data to identify trends, patterns, and seasonality in market demand.

Inventory Visibility and Tracking

Lack of real-time tracking across your channels and locations will lead to unpredictable blind spots. 

And if you manually track systems, it’ll only worsen visibility problems due to delays and errors.

Solution: Use perpetual inventory systems that provide continuous stock level updates. Integrate inventory management software within your sales channels and warehouse management systems.

Cost Control and Hidden Expenses

Hidden inventory costs such as storage, handling, insurance, and obsolescence also impact profitability.

Solution: Deploy a cost-tracking process that includes all inventory-related expenses. Regularly analyse carrying costs and optimise storage utilisation.

Seasonal Demand Management

Seasonal demand variations cause a planning and inventory investment mismatch. 

For example, peak season stockouts often compromise customer experience, and over-ordering for seasonal items risks obsolescence.

Solution: Create season-specific inventory plans based on past year data and market trends. Build flexible supplier agreements that allow for variable order quantities and timing.

To Wrap It Up

Smart inventory control helps protect your investment and keep the customer's experience on point. 

Choose inventory control techniques that best match your brand state, FIFO for perishables, EOQ for cost optimisation, ABC-VED matrix for comprehensive management. 

Start simple, use technology for real-time tracking, and routinely review performance to maintain the right balance between stock availability and capital efficiency.

FAQs (Frequently Asked Questions On Inventory Control Techniques)

What happens when my supplier's minimum order quantity exceeds my calculated reorder point?

Negotiate flexible terms, find alternative suppliers, or adjust safety stock levels to balance supplier requirements with costs.

How often should I review and update my inventory control systems?

Regular weekly reviews work best, with monthly deep analysis of trends, seasonal patterns, and supplier performance metrics.

Should I maintain separate inventory strategies for different sales channels like Amazon and my website?

Yes, each channel has unique requirements. Unified tracking with channel-specific allocation prevents overselling and optimises stock distribution.