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How is inventory management for e-commerce challenging?

The inventory challenges of adding e-commerce to your supply chain are considerable. Here's a look at what they entail and how you might overcome them.

Manufacturing companies are increasingly finding it necessary to sell products directly to customers over the internet, in addition to established sales and distribution channels.

For companies used to shipping product in bulk to retailers or distributors, shipping individual units or small packages directly to customers can be difficult to accommodate because there is little or no infrastructure set up to do so. These companies must:

  • Set up for picking, packing and shipping individual orders. 
  • Establish or beef up relationships with package handling services, like UPS and FedEx. 
  • Adapt ordering, billing and collections functions for the additional volume and alternate payment methods that will be employed.

Inventory management for e-commerce challenging

In addition to all of that, there is the inventory management for e-commerce issue. Inventory policies and processes geared for volume sales and bulk shipment may be stressed by the influx of small orders. The entire manufacturing resource planning (MRP) and ERP planning process starts with demand and inventory, including raw materials and parts, as well as finished goods, and is managed and staged for these volumes. Adding in low-volume, inherently volatile demand for finished goods is problematic. In truth, many manufacturers already face a similar situation with their spare parts. Planning systems are set up for supplying parts to production, but those plans can be disrupted when spare part demand hijacks some of those parts unexpectedly. And when a customer's equipment is broken, that customer needs it as soon as possible, not at the next resupply run. Resulting parts shortages can disrupt production schedules, causing chaos in the shop and missed customer shipment dates or short shipments for those big customer orders.

How do manufacturers cope with the mix of volume and spares demand? The short answer is "not very well." Most manufacturers struggle with this and end up with an excess inventory level -- safety stock to protect them from this small, but important, extra demand. Some set these extra quantities aside in a separate storeroom, unavailable to production. But you know how that goes: If a production run is short and you don't want to disappoint a good customer, you'll use the spares inventory if that's expedient.

Excelling at inventory management for e-commerce

The smart approach to inventory management for e-commerce is to upgrade your planning processes to accommodate the mixed nature of demand and do a better job of forecasting -- small, intermittent demand is notoriously difficult to forecast with any kind of accuracy. Most MRP and ERP systems can handle mixed demand, but the people and processes necessary to follow through and effectively manage inventory don't come with the software. It takes discipline and understanding, along with good planning and forecasting, to deliver good customer service for both bulk orders and direct sales without a high excess inventory level. And there are advanced inventory management systems that offer more sophisticated capabilities, as well as better forecasting systems, that are particularly good at handling low-volume, intermittent demand.

This was last published in January 2018

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