Managing Inventory: Software and Tools

Inventory Management Software: TradeGecko, Skubana, Ordoro, Zoho Inventory

Spreadsheets work for 10-50 SKUs but become unmanageable as you grow. Dedicated inventory software integrates with your sales channels, accounting, and fulfillment. TradeGecko (now QuickBooks Commerce) — excellent for wholesale and multi-channel sellers, $79-399/month. Key features: purchase orders, inventory forecasting, multi-warehouse support. Skubana — built for high-volume merchants, $500-3,000/month. Best feature: real-time inventory across all channels with automated reorder triggers. Ordoro — good for dropshippers and small e-commerce stores, $59-299/month. Strongest at order management, supplier management, and bulk shipping label generation. Zoho Inventory — affordable option for small businesses, free for up to 50 orders/month, paid from $29/month. Integrates with Zoho ecosystem and major platforms. All of these connect to Shopify, WooCommerce, Amazon, and eBay so inventory syncs automatically when a sale happens on any channel.

ABC Analysis: Prioritise Your Inventory

ABC analysis applies the Pareto principle (80/20 rule) to inventory. A items (top 20% of SKUs generating 80% of revenue) — manage tightly, track daily, never run out. Set automatic reorder points with safety stock. B items (middle 30% of SKUs generating 15% of revenue) — manage monthly, review trends quarterly. C items (bottom 50% of SKUs generating 5% of revenue) — minimise investment, consider discontinuing slow movers. To run ABC analysis: export your sales data by SKU for the last 12 months, sort by revenue generated (not units sold), calculate cumulative percentage, and classify. Focus 80% of your inventory management effort on A items. Review ABC classification every 3-6 months as sales patterns shift. Most inventory software has built-in ABC reports.

Safety Stock and Reorder Points

Safety stock protects against demand spikes and supplier delays. Formula: Safety Stock = (Maximum Daily Usage × Maximum Lead Time) - (Average Daily Usage × Average Lead Time). Simplified version: hold 2-4 weeks of safety stock for A items, 1-2 weeks for B items, and minimal for C items. Reorder Point (ROP): the inventory level at which you place a new order. Formula: ROP = (Average Daily Usage × Lead Time in Days) + Safety Stock. Example: you sell 10 units/day of a product, lead time is 20 days, safety stock is 100 units. ROP = (10 × 20) + 100 = 300 units. When inventory hits 300, place your next order. Set up automatic reorder points in your inventory software — they will send alerts or generate purchase orders when stock hits the threshold. Review lead times quarterly — if your supplier's lead time has changed, your ROP needs updating.

Demand Forecasting

Forecasting predicts future sales so you order the right amount. Methods for small e-commerce businesses: historical average — average sales over the last 3-6 months, adjust for seasonality (e.g., December is 2.5x average month). Trend projection — if sales grew from 100 to 150 units/month over 6 months, assume 160-170 next month. Moving average — average of last 3 months' sales, updated monthly. For more advanced forecasting, use software with built-in algorithms: Skubana uses machine learning, Ecomdash has trend-based forecasting. Key seasonality factors: holiday season (November-December), back-to-school (August-September), Valentine's Day (January-February), and your niche-specific seasons. Always check your forecast against real data monthly and adjust. The goal is 80-90% forecast accuracy — 100% accuracy is unrealistic for small businesses. See the e-commerce basics guide for inventory planning in your first year.

Avoiding Stockouts vs Overstock

Stockouts and overstock have different costs. Cost of a stockout: lost sale (full margin), potentially lost customer (43% buy elsewhere permanently), and advertising waste (ads led to a product that is unavailable). Estimated cost: 2-3x the profit margin of the item. Cost of overstock: capital tied up (2-10% monthly opportunity cost), storage fees ($5-20 per pallet/month), price markdowns (20-50% discount), and eventual disposal cost. The ideal: 90-95% in-stock rate for A items, 80-85% for B items. To reduce stockouts: increase safety stock for items with variable demand, use multiple suppliers for A items, and set up low-stock alerts via email or SMS. To reduce overstock: order smaller quantities more frequently (even if unit costs are slightly higher), use pre-orders for new product launches, and run promotions to clear slow-moving inventory before it becomes dead stock.

FAQs

When should I upgrade from spreadsheets to inventory software?

When you have 20+ SKUs, sell on multiple channels (e.g., Shopify + Amazon + eBay), or spend more than 2 hours per week on inventory management. Inventory software pays for itself by preventing stockouts and overstock.

How often should I count inventory?

Cycle counting: count A items weekly, B items monthly, C items quarterly. Full physical inventory count: once per year. Cycle counting catches discrepancies early and avoids the stress of a once-yearly count.

What is inventory turnover ratio and what is a good number?

Inventory turnover = Cost of Goods Sold ÷ Average Inventory Value. A ratio of 4-6 (turning inventory every 2-3 months) is healthy for most e-commerce stores. A low ratio (under 2) indicates overstock. A high ratio (over 12) risks stockouts and may mean you are understocking.