Why You Lose Thousands of Dollars Without Proper Inventory Restocking
In the unpredictable world of e-commerce, there are many constantly moving parts that contribute to your bottom line. Managing your staff, third party providers, picking and packing, customer service. This is exponential when you’re a multichannel, multi-marketplace seller.
A good majority of your day-to-day can fall under the radar simply for the fact that it’s so mundane and routine.
Such is the case with inventory restocking.
But what many e-commerce entrepreneurs don’t realize is that restocking can be an excruciating Achilles heel when it’s not fully nurtured. Even the slightest blip in the flow of your business can impact what’s happening right now while simultaneously affecting your long-term brand performance.
Take a look at some critical mistakes you might be making in terms of restocking and inventory management, and how automation can solve virtually all of your woes.
The Snowball Effect of Each Stockout
The obvious answer here is revenue loss. When you’re stocked out of an item, your customer can’t purchase it, and you lose out on the revenue you would’ve made. While this seems relatively harmless when it only happens occasionally, it adds up.
Let’s examine a hypothetical scenario (get ready for some math).
Say that your brand sells 1,000 SKUs, and that one of them is a vacuum cleaner. Say that you sell about 30 units per month at $50 profit per unit.
If you stock out of this item on average 1 day out of every month, that’s about a $50 loss per month. Over the course of a year, that totals $600. That’s not going to put you out of business, but we can all agree that it still stinks.
But zoom out and think about this in the frame of the “bigger picture” of your business.
Say that you average $10 in profit on each of your 1,000 SKUs, and that every SKU stocks out once a month. That’s $10,000 per month, or $120,000 per year!
Through a micro lens, it’s easy to overlook. But through a macro lens, it shows a potentially debilitating issue.
The Hidden Dangers of Improper Inventory Restocking
Apart from the very tangible blow to your bank account, errors and holes in your restocking efforts can have a more “behind-the-scenes” impact on your brand as a whole. Stockouts mean a blow to your consistency and reliability, which can hurt you in the eyes of your customers and even marketplaces like Amazon.
Aside from the good people at Amazon, no one knows the Amazon’s mystical Buy Box algorithm. But we can tell you with certainty that your brand performance and reliability plays an irrefutable role.
This works twofold: Amazon is carefully watching your supply and demand, and keeping track of when you’re not able to keep a consistent listing. This equals a red flag in the algorithm. On the customer side, if you’re having constant restocking issues, your customers will surely not be happy. This leads to bad reviews, which also equals a red flag in the algorithm, which means no Buy Box for you.
So how can you fix it? It’s all about your systems and processes. Have a solid, evidence-based restocking model and automate to make sure it’s being followed without human error.
Choose Your Inventory Restocking Model Carefully
If you’ve been restocking with a willy-nilly system, I’m begging you to refine your model. I know that it’s a huge obstacle to find a consistent model that works in a constantly-changing landscape, but that’s why it’s imperative that you’re always tracking.
If your process isn’t a constant adjustment toward the ideal system, you’re certainly losing revenue. Let’s take a look at some strategies for a better restocking model.
Time, Volume or Profit?
You’ll want to examine these 3 critical factors, which determine what metrics to track:
- Time-based restocking is based on days of inventory (DOI) and supplier lead times. If you’ve got 5 days of inventory left in your warehouse and it takes 5 days to receive and ship out to FBA, you’ll want to consider re-upping at 10 days.
- Volume-based restocking is based on customer demand. An example would be to restock once you hit your minimum buffer of 10 items. However, this gets tricky when certain products have a higher demand. You don’t want that top-seller to run out overnight without a backup plan.
- Profit-based models address a factor that the previous models don’t; whether or not the items are actually profitable from one restock to the next. (Of course, track SKU-level profitability for those in the meantime.) This model says to focus restocking resources on the items that actually make you money.
For more information on restocking strategies, check out this ebook by James Thomson and Teikametrics on Restocking Strategies From Multi-Million Dollar Amazon Sellers.
Why You Need to Automate
The right software can handle all of these headaches for you while eliminating all the potential pitfalls of human error.
Still on the fence? GetApp analyzed different Inventory Management Category Leaders and compiled the results for you to choose from.
Skubana has made the list of GetApp’s top 25 cloud-based inventory management apps. All offerings are ranked using five factors: mobile app availability, media presence, integrations, security, and user reviews.
We’ve worked tirelessly to be the only all-in-one solution out there to solve all of the issues that multi-channel sellers encounter, and restocking issues are a huge part of the formula.
Take a look at some of Skubana's features that can make restocking a breeze:
- Overselling and underselling prevention via transparent percentages of available inventory and warehouse and channel-sharing consolidation.
- Master SKU product data to share your inventory quantities across all the channels you’re selling on.
- Automatic inventory updates in 15-minute intervals, so you can nix the suspense when it comes to your totals.
- Breakdown inventory view to see values on a per SKU, per warehouse basis for all bundle/kits.
- Multi-warehouse inventory, including in-house fulfillment, third party logistics (3PL) companies, Fulfillment by Amazon (FBA), and Drop-Ship, all in one location.
- Comprehensive analytics from best/worst sellers to SKU/listing profitability to inventory value and so much more.
Book a demo today and see how we can make sure you never have to deal with a restocking crisis again!
Chad Rubin is the co-founder and chief executive officer of Skubana, a multichannel e-commerce software the enables brands to unlock growth by unifying their back-office operations.