Ecommerce Stock Management Software

Inventory management software is the backbone of any eCommerce store. If you are looking for a reliable order management and inventory management system, then this article is for you. It covers all aspects of eCommerce stock management software including best inventory management software, best ecommerce order management software and How do you manage inventory in e commerce?

In this guide, we review the aspects of Ecommerce Stock Management Software, best inventory management software, best ecommerce order management software, and How do you manage inventory in e commerce?

Ecommerce Stock Management Software

Ecommerce stock management software is a great way for businesses to track inventory, purchases, sales and deliveries. It helps you get orders out the door faster, reduce waste by not overstocking and improve customer service by knowing availability.

Ecommerce stock management software allows a businesses to track inventory, purchases, sales and deliveries.

Ecommerce stock management software allows a businesses to track inventory, purchases, sales and deliveries. This is the type of software that you would find in any retail shop or ecommerce store that sells products to their customers. It can be used by many kinds of businesses including:

  • Retail stores selling physical goods
  • Web shops selling digital products (like ebooks)
  • Wholesalers who sell to other retailers or resellers

Ecommerce stock management software helps you with inventory control and stock management which involves being able to see what products you have on hand at any given moment along with tracking how much has been sold over time. By using this type of software it will allow you to manage your finances more efficiently as well as give insights into what items are more popular than others so that future decisions may be based off this information rather than guessing which items might sell best for whatever reason(s).

Here are some of the benefits of using ecommerce stock management software.

Ecommerce stock management software can help you reduce waste by not overstocking. Stock levels are often out of date, and so many businesses find themselves ordering more products than necessary, which results in excess stock that may go to waste or be returned to suppliers.

If you have accurate information about what is in your warehouse at any given time, then this will allow you to order exactly what is needed when it’s needed. This saves money on unnecessary costs, reduces wastage and improves customer service by knowing availability at all times.

In addition, the automation involved with ecommerce inventory management software allows orders to be placed faster than manual methods of performing inventory checks and updates manually. This means that customers do not have to wait as long for their products or services as they might otherwise have done if there had been no system in place for keeping track of items on hand versus those being ordered through an ERP solution such as Xero or Quickbooks Online (QBO).

Knowing what you have in stock.

When you’re dealing with a business that sells perishable items, knowing what you have in stock is especially important.

Keeping track of your inventory can help reduce waste and ultimately save money. As an example, if you know how many bottles of wine are left in the cellar, then it’s easy for you to decide when it’s time to reorder more.

Reducing waste by not overstocking.

When you overstock, you are essentially wasting money on products that aren’t selling as quickly as anticipated. This could translate into hundreds or thousands of dollars lost due to this mistake, and it can be very challenging to recover from.

The first step to reducing waste by not overstocking is understanding what products tend to be the slowest sellers. Knowing these items will help you avoid overstocking them in the future and allow you to focus your efforts on other products that will bring in more revenue for your business. For example, if a product has been sitting in inventory for more than 30 days without selling at all then it should be removed from inventory until there is demand again. If there is no way around removing an item from inventory altogether then consider putting it on sale so that someone else can benefit from its low price point while still making some profit (and increasing their consumer base).

Automating ordering.

Automating ordering means less time spent on ordering and more time on other essential tasks.

Automated ordering can save money. By automating your inventory management, you’ll be able to order only what you need with fewer mistakes and better customer service.

Automated ordering can reduce errors. When you don’t have the option to go back and fix an error in your order, it’s easy for mistakes to fall through the cracks—and end up costing you thousands of dollars in unsold products!

Improving customer service by knowing availability.

Knowing the status of your products ahead of time will allow you to better communicate with your customers.

  • When a product is out of stock, you can let the customer know when it’s expected back in stock, as well as any other details they might be interested in.
  • If there’s no way of knowing when a product will be available (say, because there’s been a delay at the warehouse), then let them know that you’re working on getting more in!
  • If a product is available for order now and shipping soon, make sure that info is visible on the website so people have all the information at their fingertips.

Getting orders out the door faster.

Stock management software can help you get orders out the door faster. It will enable you to know exactly how many items are in stock and which ones are not. The best software also automates ordering, so that when an item is running low, it automatically sends an order request to a supplier.

It’s important to note that having too much inventory will cost you money since you’ll need storage space for all of it and your employees will have to handle those products as well!

A good ecommerce stock management system allows companies like yours with complex manufacturing processes or high-volume sales volumes the ability to manage their inventories through easy-to-use tools that increase efficiency across the board by eliminating manual data entry into separate systems like accounting or shipping software platforms.”

Ecommerce stock management software is a great way for businesses to track inventory, purchases, sales and deliveries and improve customer service by knowing availability, among other things.

Ecommerce stock management software is a great way to track inventory, purchases, sales and deliveries. It helps you know what you have in stock and how much to order each time so that you don’t overstock or run out of stock on items customers want.

This type of software also automates ordering (which takes time out of your day), improves customer service by knowing availability, and gets orders out the door faster.

best inventory management software

Best ecommerce management software options at a glance

For this article, we tried to narrow down the options by focusing on a few key features that ecommerce retailers would likely need. Specifically, we looked for inventory management software that allows you to sell on multiple online channels, supports dropshipping and Fulfillment By Amazon (FBA), and provides flexible shipping options.

Comparing the best ecommerce inventory platforms

Data as of 12/14/22. Offers and availability may vary by location and are subject to change.*Sales price: 50% off for the first 3 months. Must be paired with QuickBooks Online Essentials.

Ordoro: Best ecommerce inventory software

Data as of 12/14/22. Offers and availability may vary by location and are subject to change.

Ordoro is our top inventory management pick for ecommerce businesses because it can be customized to fit virtually any selling strategy.

For starters, the platform allows for multichannel selling so you can manage product listings for your Instagram, Facebook, Amazon, and Shopify channels (to name a few) in one convenient dashboard. You can even pick and choose which channels you want to update, giving you the ability to completely customize and brand each of your online stores.

Where Ordoro really shines, though, is in its niche selling features. When you connect Ordoro to your ecommerce platform and online store, you get the ability to limit the number of in-stock items your customers can see. This creates an illusion of scarcity that can drive your sales even higher. Ordoro also lets you strategically oversell your products, allowing you to continue taking in revenue—even while you’re waiting for inventory to come in.

Zoho Inventory: Most affordable software option

Data as of 12/14/22. Offers and availability may vary by location and are subject to change.

Zoho Inventory is a great, easy-to-use inventory management software that organizes your inventory, keeps track of purchase orders, and invoices customers for you. It integrates into your business so you can focus on customer relationships and finding new products. With organized analytics and reports, you can see what’s flying off the shelves and make sure it’s in stock online.

The big downside with Zoho is that it limits the number of orders and shipping labels you can produce each month. It caps online and offline orders—as well as shipping labels— at 25,000 per month. This isn’t ideal for larger businesses that are dealing with a higher volume of orders per month. However, Zoho works best as an option for growing businesses to organize their products and jump into the ecommerce world.

With barcoding options and easy ways to organize products, Zoho Inventory keeps your stock accessible while helping you send it around the world. Ecommerce platform integrations with Amazon Marketplace, Shopify, and others enable you to sell everywhere.

QuickBooks Commerce: Best for online wholesale

Data as of 12/14/22. Offers and availability may vary by location and are subject to change.*Sales price: 50% off for the first 3 months. Must be paired with QuickBooks Online Essentials.

QuickBooks Commerce came from TradeGecko, a program we’ve liked in the past, after it joined Intuit, which owns QuickBooks. And it’s still a great, affordable inventory management platform for just about any business. But where it really shines is in its tools for wholesalers.

For starters, QuickBooks Commerce integrates with ecommerce platforms, stores, and multiple marketplaces to help you sell your goods. It helps you manage inventory and orders for all of your sales channels through multichannel tracking—the software will let you know which orders came from B2B, B2C, and ecommerce.

One downside, though, is QuickBooks Commerce does have limitations on monthly sales order volume as well as SKU lists. So if you have a lot of inventory, you may not be able to store it all through QuickBooks. However, the limit is 30,000 orders and 20,000 SKUs, and most businesses are not reaching those heights early on.

QuickBooks Commerce is great for both new businesses and established ecommerce brands because of its price points and its features. It offers a lot at relatively low costs and integrates with QuickBooks to make your accounting easier down the road. Overall, the program is super helpful and one of the best out there for online wholesale and product management.

Cin7: Best for growing your business

Data as of 12/14/22. Offers and availability may vary by location and are subject to change.

From purchase orders to actual products and sales, Cin7 helps you work with clients and vendors to maintain good relationships and build your business. Multichannel tracking allows you to track services and goods bought and sold across warehouses and locations while shipping integrations make sure products get delivered on time. You can easily connect to ecommerce marketplaces and online sellers, bringing your inventory to wider audiences.

With a $299 per month starting price, Cin7 is not the most affordable option. However, it immediately brings in automations, multiple users, 24/7 support, and core inventory modules that will help you grow your business. We score it very highly because of what it offers business owners.

Going with Cin7 ensures that your business can keep going up. With third-party logistics and warehouse management, along with multiple B2B stores and automation workflows, Cin7 does the work for you so you can focus on sourcing the right products and helping customers find their next purchase.

Shopify: Best for easy online shopping

Data as of 12/14/22. Offers and availability may vary by location and are subject to change.

Working with Shopify’s order management program brings the ecommerce website to your business. As a small-business owner selling online, you always want to be sure that web store and ecommerce inventory is organized and easily accessible. Since Shopify is a web store first and inventory management program second, you can be sure that this program is designed for your ecommerce business.

Although it doesn’t include all the features we would want in an inventory management solution—like organizing vendor management and client relationships—it’s the perfect software for an ecommerce business. The price is good and comes with an online store while allowing you to expand to brick-and-mortar retail locations, pop-ups, and warehouses as your business grows.

Working with Shopify, you can accept payment and ship products directly from this software with a third-party integration. Essentially it works as shopping cart software: building off of your Shopify store, this inventory management tool keeps you organized behind the scenes.

best ecommerce order management software

In 2020 ecommerce changed forever. According to Adobe, total online spending in May hit $82.5 billion. By April, the industry saw ten years worth of growth in only three short months. Strained supply chains and unprecedented demand forced brands to reevaluate their operations.

Shopping is taking place almost exclusively online, and competition has never been greater. To thrive in this hyper-accelerated environment, retailers need to be shock-proof and nimble.

To offset the challenges of an online-only ecosystem, brands need a bigger digital footprint. This includes selling on marketplaces, new sales channels, and even via retail partnerships. According to a recent report, seventy-three percent of customers use multiple channels when making a purchase. But adding sales channels also adds complexity. How can you keep up with customer expectations—and with the competition? Part of the answer is an ecommerce order management system.

What is Ecommerce Order Management?

Ecommerce order management is the back-end process for managing and fulfilling online orders. This includes everything from order routing and printing shipping labels to returns and subscription management.

Historically, order management relied on clunky ERPs and manually-updated spreadsheets. These legacy systems and outdated processes cannot support today’s brands and marketplace sellers. To stay competitive, brands need flexible, scalable and adaptable solutions. They need operational technology that can scale to meet demand and industry shifts. This is where an order management system comes in.

Order management systems (OMS) provide automation and integration – across every step of the order journey. This allows brands to deliver consistent customer experiences at scale across every channel. Ecommerce order management systems enable operators to manage orders coming in from multiple sales channels, and going out of multiple fulfillment points. It facilitates automation between service providers, and aggregates data within a single interface.

Real-time data is at the core of an effective order management strategy. Retail data now travels through multiple layers of sales channels, technology platforms like BigCommerce and operational infrastructure. With so much data, it’s impossible to rely on static spreadsheets.

As businesses embrace multichannel retail, order management systems have become essential.

How Does Ecommerce Order Management Work?

The goal of an order management system is to get a product into a customer’s hands as efficiently as possible. It manages the journey of each item in the customer’s order, from the time it goes into their cart to the moment it arrives on their doorstep – and any returns that may follow.

1. The order fulfillment process.

Every company has a unique approach to fulfillment. This can be based on customers, fulfillment locations, returns processes and vendors. While processes can vary, most order fulfillment processes include the following steps:

2. Order management systems facilitate order fulfillment

An order management system’s job is to make the fulfillment process as streamline, cost-effective, and automated as possible. It optimizes these steps to reduce shipping and overhead costs, increase data quality, and pick and pack in the most efficient way possible. Many order management systems also have functions streamline returns management and credit card processing. The best operational software will integrate with the leading ecommerce tools and platforms to adapt to the way you do business.

When a customer pays for an item, the order management system might update your quickbooks accounting system, generate an invoice, and print a shipping label. When an order ships, the ecommerce order management software can even track the order’s progress by integrating with your 3PL, FBA or shipping carrier like FedEx or DHL. Once an order leaves a warehouse your customer is able to track it’s progress until it reaches their door. In many cases, this is facilitated by the OMS.

Reasons Why Ecommerce Order Management Systems are Important

Most ecommerce brands are unable to grow without an order management system in place. Customers expect efficient, cost-effective, and personalized order fulfillment. There is no room for manual error. Employees should be focused on optimizing the brand experience, not triaging backorder SKUs, calling carriers, or printing documentation.

1. Faster delivery.

In an era where two-day shipping has become the norm, companies have to find ways to push out orders faster and faster. Fulfillment windows are narrowing. The automation an order management system can provide here is key.

When a customer places an order, an OMS can immediately choose the warehouse or fulfillment location that’s closest to the destination of the incoming order. It can use order details and even order history to dictate the method of fulfillment. It will then send an automated fulfillment request to that warehouse so its staff can prepare the order as soon as possible and get it sent out via a cost-effective carrier.

2. Fewer mistakes.

An order management system cuts down on human error. Human-derived errors are an enormous time-and-money waster for businesses, and it’s the top source of fulfillment mistakes for many warehouses. An order management system can perform multichannel inventory management and warehouse optimization by sending you alerts to know when stock levels get too low, or when you have too much and need to liquidate. This will prevent delays in shipping, marketplace fees, and lost customers.

An order management system might also improve fast and direct communication to multiple warehouses at the same time about which inventory to pick and pack. Staff are thus less likely to cause delays by forgetting or misplacing orders.

3. More scalability.

An order management system will be able to grow alongside your company. Unlike legacy systems or manual entry, an increase in omnichannel fulfillment needs will not overwhelm a well implemented order management system. Its specially designed software will be able to keep pace with company and scale as you grow.

4. Greater multi-channel opportunities.

Nowadays, ecommerce isn’t limited to buying from a company ecommerce site. Brands need to be direct-to-everywhere. We live in an age of multichannel and omnichannel sales that range across websites, marketplaces like Amazon, and social media sites including Facebook, Instagram, Pinterest, and YouTube. Order status can become very complicated to track and fulfill when they’re arriving from so many places and customer traffic is flowing through distributed platforms. This can impact fulfillment speed and customer satisfaction.

Order management systems are able to centralize and track data, inventory turnover ratio, and order routing across channels. This is one of the biggest advantages of an ecommerce order management system in today’s ecommerce environment.

Key Features of Effective Order Management

To capitalize on the acceleration of ecommerce, brands should look for an order management system that supports their existing infrastructure. Order management functionality can make or break your business. Here are some features to keep in mind.

1. It integrates across company systems.

An essential function of a distributed order management system is its ability to integrate across company infrastructure, service providers, and supply chain technology. Most order management systems will integrate with your accounting system, inventory manager, warehouses, customer service departments, and more. Some even have an App Store or at the very least, an open APIs to build third-party connections if they are unavailable. Integrations with your current systems will ensure order management is as seamless and automated as possible.

2. It eliminates manual processes with automation.

The fewer manual processes, the better. Manual processes can never compare to the speed of order management software, and they are far more prone to human error. An order management system provides automation wherever possible, from calculating shipping costs, to sending fulfillment requests.

3. It provides an international service.

We live in an increasingly globalized world. Brands are taking orders from beyond their borders on a daily basis. Most order management systems can facilitate cross-border ecommerce orders and payments from any country and currency type. This not only expands a brand’s retail footprint, but allows them to learn and grow from their experiences in new markets.

4. It reports and forecasts stock needs.

Many order management systems can predict how much safety stock you’ll need to avoid over-ordering, or worse, overselling. This can be especially important in Q4 and during times of unexpected demand fluctuations. An order management system that connects to your inventory channels can also support a merchant-fulfilled strategy. This can give you more autonomy and control over order management operations.

5. It works on every channel.

Order management systems can fulfill customer needs across all of the ecommerce platforms and sales channels you’d expect, including your website or ecommerce store, marketplaces, or whatever primary sales channel you sell on. Managing these orders through single channels will become increasingly unwieldy as your business grows. Each channel has its own logins and processes, and without a way to integrate the sales orders and data from each one, your staff will experience burnout and an increased potential for mistakes.

An order management system can integrate all of your channels into one user interface. This will drastically cut down the time your staff spends fulfilling orders and training new staff. It will also give you a big-picture view of orders and data, and cut down on mistakes by putting all the information you need into one accessible place based on real-time data.

The Ecommerce Order Management Process Step by Step

The lifecycle of order management is guided by providing a great customer experience. From order placement to delivery, and even returns and refunds, an order management system strives to fulfill customer needs from beginning to end.

1. Discovery.

The order management process starts even before the customer places a sales order. The order management system may note when a customer places an item in their online cart and automatically adjust inventory. The system can also send you a notification that the item is in the cart, or if it’s been abandoned.

2. Order placement.

When a customer does decide to purchase, the order management system communicates with your back-office systems to verify credit card payments and process order details. Once the order has been approved it can be routed to fulfillment.

3. Order fulfillment.

Based on the order details, an OMS will optimize warehouse selection by its proximity to the order destination. It will then automatically calculate shipping costs and the fastest carriers based on preset criteria. It might also print the packing slips, shipping labels, and communicate the change in inventory levels with your warehouse management system.

4. Warehouse management.

If a SKU is out-of-stock, the OMS can communicate with your vendors and suppliers to have the inventory sent to that warehouse in advance. Stock-outs can also be prevented if your order management system is able to automatically issue a purchase order when inventory levels are low or hit a reorder point. The system can increase employee efficiency by indicating where in the warehouse employees can find the item, warehouse KPIs to monitor, what items to ship together, and whether the item requires specialized handling.

5. Shipping.

When the warehouse picks, packs, and ships the products, the order management system can send a notification to the customer that their order has shipped. It can also tell them when to expect it based on their shipping address and order information. Both you and the customer can track the package as it travels to its destination, whether that’s the customer’s home or a store location.

6. Returns and refunds.

Even if a dissatisfied customer returns an item, an efficient return and refund system can go a long way toward rebuilding goodwill. An order management system can instantaneously process a refund request and communicate with your back-office systems to process the refund. It can also connect to your returns provider to ensure data is accurate and updated as the process moves along.

How do you manage inventory in e commerce?

What is ecommerce inventory management?

Ecommerce inventory management is an organized approach to sourcing, storing, tracking, and shipping an ecommerce business’s inventory. Strong inventory management processes and strategies can be a source of leverage for ecommerce companies looking to increase efficiency and reduce operational costs.

Preparing ecommerce inventory

Before you establish an inventory management process, you’ll first want to prepare your inventory for the unexpected. Below you’ll find information on how to better forecast future orders and customer demand, plus the different options for inventory financing.

Inventory can be a company’s most expensive asset, requiring investment before you have any sales. Inventory financing ensures continuous business growth through an asset-backed line of credit or short-term loan for purchasing more product.

If your ecommerce business is in the midst of growth (new product offerings, more sales, etc.), then you’ll highly benefit from having a plan in place for possible cash flow gaps, especially if a majority of cash is going towards production. If not, it may lead to problems with inventory accounting. A few inventory financing options include equity finance, WIP finance, AR financing, crowdsourcing, and merchant cash advances. 

Inventory forecasting calculates the inventory needed to fulfill future orders. Using historical sales data and other macro-level trends, you can make smarter, more accurate predictions on what products will sell over a specific period of time. There are several benefits of inventory forecasting, including less inventory needed on hand, more sales from fewer out-of-stock items, less manual labor, and a more efficient production cycle.

Managing ecommerce inventory

Effectively managing inventory is one of the most critical aspects of running a successful ecommerce business. If you don’t, you risk losing money or failing to meet customer demand. The following information provides insight on how to establish an accurate, efficient, and cost-effective inventory management process.

An inventory audit is an analytical procedure that checks a company’s inventory and confirms the financial records and actual count of goods match. It helps ensure accurate stock levels and reporting, and prevents stockouts. An inventory audit can be conducted by doing a spot check (i.e., counting physical stock to see if it matches how much you believe you should have), or having a third-party auditor perform the procedure. 

The inventory management process is an important aspect of ecommerce success. It refers to the management and monitoring process of a company’s stocked goods. The process includes everything from ordering and restocking your inventory to inventory forecasting. A proper inventory management process helps you prepare for the unexpected, such as running out of a product, miscalculating storage needs or space, manufacturing delays, and cash flow issues.

Inventory management software automates and streamlines the process by tracking inventory levels, orders, sales, and shipments across channels and locations. In today’s digital world, an inventory solutions system is a necessity for growing your ecommerce business.

The right inventory software will help automate several of the inventory management techniques and methods listed below, saving time and lowering the number of human errors. It is data-driven and provides real-time updates, rather than manual, one-point-in-time methods. 

To ensure your ecommerce business has the right stock levels needed to fulfill orders on time, inventory control is a vital process that optimizes inventory storage. The primary goal of inventory control is to keep only the necessary units on hand without spending too much money upfront. The outcome of accurate inventory control leads to reduced costs, warehousing improvements, and satisfied customers.

When one fulfillment center isn’t enough, you may want to consider distributed inventory. Splitting your inventory across multiple fulfillment center locations is a great way to better serve your customers, especially if they’re scattered across the country or if you’re looking to provide 2-day ground shipping.

Another reasons to consider inventory distribution is if you ship a high volume of orders and/or your products or orders are heavy in weight. Many 3PLs provide multiple warehouses so you can deliver the fastest, most affordable shipping.

Order picking is the secret to a successful fulfillment process. A pick list is the customer order information that’s sent to the warehouse that indicates the items the picker will need to retrieve from storage. There are different types of picks lists, but they should all provide a recap of the items ordered and should be easy and clear to understand. A single pick list may contain a single item or several of a certain SKU. As soon as a pick list is generated, the order fulfillment process can begin. 

To make the process of tracking inventory easier, a wireless barcode inventory scanner is a tool that’s worth the investment. The use of a barcode scanner is a great ecommerce inventory solution that can help automate and streamline the inventory management process and significantly reduce human error. Inventory scanners work by scanning the barcode found on the product. Similar to a shipping barcode, the information encoded in the barcode is read by inventory management software and tracked by a central computer system. Inventory scanners are wireless, which makes it easy to scan a product wherever it’s stowed.

Inventory tracking consists of knowing which SKUs you have in your possession, the locations in which you store them, and the quantities available at each location. An inventory tracking system will help you keep track of real-time inventory levels of each SKU for better inventory control across your stores.

Accurate inventory tracking should take place throughout the entire supply chain, including tracking inventory from your supplier, returns from customers, and damaged goods. Using an inventory tracking system is the most efficient inventory tracking method as it ensures greater transparency and accuracy than other methods.

Periodic inventory is a system of inventory valuation where the business’s inventory and cost of goods sold (COGS) are not updated in the accounting records after each sale and/or inventory purchase. Instead, the account is updated after a designated accounting period has passed. In a periodic system, businesses don’t keep a continuous record of each sale or purchase; inventory balance updates are only recorded over a specified period of time (e.g., each month, quarter, or year). At the end of the accounting period, the final inventory balance and COGS is determined through a physical inventory count.

A perpetual inventory system is an inventory management method that records when stock is sold or received in real-time through the use of an inventory management system that automates the process. A perpetual inventory system will record changes in inventory at the time of the transaction. This system works by updating inventory counts continuously as goods are bought and sold. This inventory accounting method provides a more accurate and efficient way to account for inventory than a periodic inventory system.

Ecommerce inventory reporting

Get smart about your inventory by having a good reporting process in place. All ecommerce businesses, small and large, must be able to report on key inventory data points to continually improve and make better business decisions. Below you’ll find resources for inventory accounting and reporting.

(COGS + Ending Inventory) – Purchases = Beginning Inventory Formula 

Beginning inventory is the total value of a company’s inventory that is for sale at the beginning of an accounting period, which means it’s the same amount as the ending inventory from the prior accounting period. Beginning inventory is an important aspect of inventory accounting that you’ll need to use in the following areas: Balance sheets, internal accounting documents, and tax documents.

Beginning Inventory + Net Purchases – COGS = Ending Inventory

Ending inventory refers to the sellable inventory you have left over at the end of an accounting period. When the accounting period ends, you take your beginning inventory, add net purchases, and subtract the cost of goods sold (COGS) to find your ending inventory’s value. Knowing your ending inventory value will impact your balance sheets and your taxes, so it’s important to calculate the value of your inventory correctly.

Finished goods inventory is the total stock available for customers to purchase that can be fulfilled. Using the finished goods inventory formula, sellers can calculate the value of their goods for sale. ‘Finished goods’ is a relative term, as a seller’s finished goods may become a buyer’s raw materials. For example, a textile factory may produce materials that can be used in clothing such as cotton or silk. While these may be the textile factory’s finished goods, they can sell them as raw materials to apparel retailers who will create them into new finished goods: clothing.

Inventory accounting is a process that tracks and accounts for changes in the values of inventory over time as it relates to manufacturing and costs of goods sold. When new products are purchased at a different cost than before, the inventory value will change. Inventory value will vary based on how much product a business or retailer has on hand, how much it’s selling, and any changes in supplier pricing. Inventory value will also change when products are damaged, expired, or outdated.

An inventory report shows the amount of inventory on hand at a given time. It displays numbers that represent the product(s) you’re able to sell now, the inventory you are ordering, or the inventory you need for internal business use. A well-organized inventory report will help you avoid over-ordering inventory or running out of inventory when customers buy your products online.

It can be created in physical or electronic form, but a best practice is to connect the systems that utilize your supply chain and customer order data. However, if you’re looking to create your own reports to track your inventory, get started with our free inventory report templates. 

Cost of goods available for sale / Total number of units in inventory

Inventory weighted average (also known as ‘weighted average cost’) is one of the four most common inventory valuation methods used in ecommerce accounting. This method uses a weighted average to determine the amount of money that goes into COGS and inventory. To calculate the weighted average cost, divide the total cost of goods purchased by the number of units available for sale. To find the cost of goods available for sale, you’ll need the total amount of beginning inventory and recent purchases. The final calculation will provide a weighted average value for every item available for sale.

Inventory metrics, formulas, and terms

Understanding all types of inventory data will help you make better business decisions as you scale. To continue your knowledge on how to best prepare, manage, and report ecommerce inventory, below you’ll find inventory metrics and important terms you’ll want to be aware of.

(COGM – COGS) + Value of Previous Year’s Finished Goods = Value of Finished Goods

Finished goods inventory is the total stock available for customers to purchase that can be fulfilled. Using the finished goods inventory formula, sellers can calculate the value of their goods for sale and how much inventory is needed to prevent stockouts. Out-of-stock products and backorders cause customers to wait a long time for their purchase until an item is back in stock or cancel the order altogether.

Carrying cost is the sum of all costs related to holding inventory including warehousing, labor, insurance, and rent, combined with the value of damaged, expired, and out-of-date products. The carrying cost of inventory will depend on your products and storage needs, your total number of SKUs, your location, your inventory turnover rate, and whether you keep retail fulfillment in-house or outsource it.

Inventory Holding Cost = (Storage Costs + Employee Salaries + Opportunity Costs + Depreciation Costs) / Total Value of Annual Inventory

Inventory holding cost is the sum of all costs involved in storing unsold inventory, including warehousing, insurance, labor, transportation, depreciation, shrinkage, obsolescence, and opportunity costs.

Calculating inventory holding cost is relatively easy, as long as you’ve determined your storage, employee, opportunity, and depreciation costs. Once you know those subtotals, add them together, and then divide that sum by the total value of your annual inventory (the combined average value of all inventory that you move in a year). That number, when expressed as a percentage, is your inventory holding cost.

It’s impossible to predict the unexpected, especially changes in buying patterns and last-minute issues with suppliers. However, there are ways to help avoid an out-of-stock situation by understanding the inventory safety stock formula. Safety stock is extra product you keep on hand in case of an emergency or supply chain failure. It provides a safety net in your inventory to ensure you don’t run out of items.

Inventory turnover rate = cost of goods sold (COGS) / average inventory

Measuring inventory turnover can help you better manage your supply chain and sales channels effectively, as well as improve inventory forecasting. It’s the ratio that indicates how many times inventory is sold and then replaced in a specific time period.

A high inventory turnover rate may indicate that you’re selling a product in a timely manner while low inventory turnover rate may indicate that certain products are not selling. Whether your inventory turnover is too high or too low, by learning how to best measure, you’ll be able to better regulate the issues as they arise. 

Days on hand = (average inventory for the year / cost of goods sold) x 365

Inventory days on hand (or days of inventory on hand) measures how quickly a business uses up its inventory levels on average, and allows you to minimize stockouts. With accurate stock levels, you can ensure customers are going to be able to purchase what they need without needing to subscribe to “Back in Stock” notifications.

You can use this measurement combined with inventory forecasting to determine how quickly your products are being sold on average and accurately predict future inventory levels. In general, the fewer days of inventory on hand, the better. 

Reorder point formula = demand during lead time + safety stock

Reorder point is the minimum unit quantity that a business should have in available inventory before they need to reorder more products. Understanding the inventory reorder point formula helps to ensure you order at the right time and don’t risk ordering too late and run out of stock. It’s done at the SKU level so you acknowledge that each product has a different sales cycle, so it’s data-driven and accurate. Solutions like ShipBob can help automatically setup reorder points to remind you it’s time to order more inventory.

Inventory shrinkage rate = (recorded inventory – actual inventory) / recorded inventory

Inventory shrinkage is when actual inventory levels are less than accounting has them recorded as. The four most common causes of inventory shrinkage include consumer theft, employee theft, inventory damage, or management errors. There are several ways to prevent inventory shrinkage.

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