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Inventory Management Demystified: A Business Imperative

Phuc Le
October 30, 2023

Managing inventory can often resemble a game of Tetris, where precision is essential for the system to function seamlessly. Striking the right balance between stocking enough products to meet customer demand is a challenging task, even for the most substantial businesses. Recent years have added further complexity to this endeavor, as evidenced by U.S. retailers grappling with an estimated $740 billion worth of unsold inventory in 2022.

Within this guide, we will delve into the fundamentals of inventory management, offering a systematic, step-by-step approach to help you confidently oversee your inventory.



Inventory management encompasses the comprehensive process of monitoring, ordering, storing, and selling goods. It spans from sourcing products to efficiently removing finished items from your shelves. The primary objective of inventory management is to maintain the right quantity of stock in the right locations, at the right times, all while controlling expenses to ensure profitability.


In the contemporary landscape, successful inventory management is of paramount importance, especially given the numerous challenges faced by small businesses and retailers. According to BDO's 2023 retail outlook survey, 82% of retail executives anticipated significant supply chain disruptions as a looming threat in 2023. Furthermore, 34% of retailers foresaw the challenge of extensive excess inventory.


A well-executed inventory management process can proactively prepare you for these potential challenges or help you avoid them altogether. Additionally, as a small business owner, you can reap several advantages, including:

1. Cost Reduction:

Precision in inventory monitoring and accurate forecasting enables you to order the exact quantity of stock needed, thus averting the expenses associated with excess inventory. This approach is also more cost-effective than blindly ordering stock at fixed intervals, such as every 30, 60, or 90 days. Accurate demand forecasting can reduce overstock, and the National Retail Federation reports that the cost of excess inventory in the retail sector alone is estimated at $800 billion annually.

2. Customer Satisfaction:

Frequent out-of-stock scenarios leave customers dissatisfied, often driving them to choose alternative retailers. The likelihood of customers encountering an "out of stock" message has surged by 235% from pre-pandemic levels. Optimal inventory management ensures your customers' preferred products are consistently available, meeting their expectations and fostering brand loyalty. 

3. Waste Reduction and Theft Prevention:

A keen awareness of your inventory levels in warehouses and storage areas minimizes the risk of products expiring, while also facilitating the swift detection of shrinkage due to theft. The National Association for Shoplifting Prevention estimates that over $13 billion worth of goods are stolen from retailers each year, making inventory control a key factor in loss prevention.

4. Enhanced Efficiency:

Effective inventory management allows you to identify bottlenecks in your product receipt, stocking, packing, picking, and shipping processes. Improved efficiency in order fulfillment and logistics can significantly impact a business's bottom line. The Council of Supply Chain Management Professionals (CSCMP) reported that businesses with efficient supply chains have a 20% reduction in overall costs.

5. Improved Cash Flow:

By allocating the appropriate funds to inventory, you free up capital for investments in marketing campaigns and staffing, contributing to an overall boost in your business's financial health. The Aberdeen Group found that companies with superior inventory management can achieve 92% accuracy in demand forecasting, which contributes to optimized cash flow.


Effective inventory management demands precision and becomes increasingly challenging as your business expands. While the use of spreadsheets may seem appealing, especially for small businesses with limited budgets, it often leads to difficulties and errors over time.


A more efficient approach involves the utilization of specialized inventory management software. In fact, as highlighted in the previously mentioned BDO survey, 46% of retail CFOs expressed their intent to increase investments in supply chain technology in 2023.

When you opt to construct your eCommerce website, you gain access to a diverse set of built-in inventory management features, including:

1. Omnichannel Inventory Sync:

Omnichannel sales capabilities automatically update your inventory whenever a sale is made on your online store, eBay, Amazon, or other sales channels. According to the Harvard Business Review, 73% of shoppers use multiple channels during their shopping journey. This highlights the importance of maintaining synchronized inventory across various sales channels to meet customer demands seamlessly.

2. Out-of-Stock Management:

You can conveniently track your stock levels from the "Store Products" menu in your website dashboard, assigning products as either "In Stock" or "Out of Stock”.  A report by the IHL Group states that out-of-stock incidents cost retailers $1.1 trillion in lost sales globally. Effective out-of-stock management is critical in preventing revenue loss and maintaining customer satisfaction.

3. Pre-Order Options:

Enabling pre-orders for new, anticipated, or out-of-stock products not only captures additional sales but also reduces customer wait times. It provides valuable insights into the demand for unavailable or soon-to-launch items. In a survey conducted by Brightpearl, 29% of shoppers said they are more likely to pre-order a product if it's available, and 37% said they would wait for a product if it's out of stock. Offering pre-order options can capture additional sales and meet customer expectations.

4. Mobile Business Management:

The app enables you to manage your inventory, process payments, fulfill orders, and more, all from the convenience of your mobile device.According to Statista, mobile commerce sales are projected to reach $3.56 trillion by 2023, indicating the growing significance of mobile commerce. Mobile business management, including inventory control, allows businesses to tap into this market and serve customers more efficiently.

Many retailers also opt to invest in other inventory-focused technologies, such as Order Management Systems (OMS), Warehouse Management Systems (WMS), and Enterprise Resource Planning (ERP) software. Larger businesses may choose these specialized programs to manage various aspects of their supply chain. When evaluating your options, consider the following questions:

  • What specific challenges and goals do you have in relation to your inventory?
  • On which sales channels do you operate?
  • What types of inventory do you need to monitor and manage?
  • Who will be the primary users of the software?
  • What other applications and systems does the software need to integrate with?
  • What is your budget for implementing inventory management software?
  • These considerations will help you select the most appropriate inventory management solution that aligns with your business's unique needs and objectives.



The efficacy of your inventory management exerts a direct influence on your business's financial fluidity. Thus, understanding each facet of the inventory management process is paramount, even for nascent businesses. Although nuances may vary across eCommerce enterprises, most commonly adhere to these seven pivotal steps:

Step 1: Receiving Products at Warehouse

This initial phase commences when items traverse from your suppliers and reach your warehouse. For those engaged in manufacturing, this step initiates upon the receipt of essential raw materials. Conversely, for those partnering with wholesalers, it commences upon the arrival of finished, market-ready products.

Step 2: Scrutinizing Products for Imperfections

Immediate inspection is imperative upon the arrival of your inventory. Verification of the quantity aligning with your order is crucial, and a thorough examination ensures the absence of defects. For those dealing in perishable goods, such as food or flowers, vigilance extends to the maintenance of the appropriate temperature during shipment.

Step 3: Methodical Sorting and Storage

Efficient storage, whether on-site or at a dedicated facility, is key to optimal inventory management. Arranging items by Stock Keeping Unit (SKU) or product type enhances accessibility. Furthermore, strategic placement of high-demand products expedites order fulfillment.

Step 4: Receive Order

With your inventory received and organized, it's time to initiate sales. Customers may place orders through various channels, including your website, third-party marketplaces, or physical stores. Every order triggers the deduction of corresponding products from your inventory, a process made seamless with in-store technologies like Wix's point-of-sale system.

Step 5: Pick & Pack

Fulfillment involves the physical act of retrieving items from storage, packaging them, and dispatching them to end customers. The efficiency of this step hinges on the effectiveness of your storage space organization.

Step 6: Replenishing Stock

Sustaining customer satisfaction necessitates a continuous cycle of replenishing your inventory through product reordering. Here, accurate demand forecasting is pivotal. By forecasting sales trends preemptively, you can mitigate the risks of overstocking or accumulating unsellable stock, optimizing inventory turnover.

Step 7: Ongoing Monitoring and Evaluation

The inventory management process doesn't conclude with the fulfillment of orders. Instead, it calls for consistent vigilance and assessment of your inventory levels. Regular scrutiny of inventory metrics via your chosen software platform, coupled with scheduled physical inventory counts, ensures alignment between your digital records and your actual warehouse stock.

This streamlined approach to inventory management empowers your business to maximize efficiency and adapt to evolving market dynamics.

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