The backbone of a resilient ecommerce supply chain is inventory management. In today’s hyper-competitive ecommerce industry, distribution executives face the challenge of optimizing inventory levels to meet demand, while helping category-leading brands scale.
High-performance brands know that proper inventory management has a direct impact on profit margins, customer loyalty, and scalability. A modern inventory management system (IMS) is critical to meet these goals and anticipate inventory issues before they occur.
When inventory is planned and controlled correctly, capital stays fluid and frees up dollars to devote to other initiatives such as marketing and product development. Customers who continuously see backordered or out-of-stock notices are less likely to return. Scaling comes easier when inventory issues are proactively resolved.
The Business Impact of Poor Inventory Control
Suboptimal inventory fails a brand in one of two ways: chronic stockouts or persistent overstock. Both outcomes are expensive and undermine growth.
Stockouts lead to lost revenue, erode customer trust, and weaken brand credibility, particularly in competitive categories where a customer can easily find a similar product elsewhere. In omnichannel environments, inventory shortages can also trigger retailer penalties, missed promotional windows, or degraded marketplace rankings.
Overstock creates an equally damaging drag on the business. Excess inventory increases storage and carrying costs, ties up capital, and heightens the risk of obsolescence or markdowns. Over time, it reduces agility and supply chains struggle to respond to shifts in demand, launch new SKUs, or enter new channels.
Dynamic Inventory Tracking Tools
To keep pace with the competition, these modern systems must go beyond static reporting. A robust, real-time inventory management system is a brand’s window into how inventory is moving (or not moving). The right platform should monitor inventory velocity, aging stock, and variance trends. Accurate, reliable data translates into proactive (versus reactive) planning.
The right system will sync supply and demand in as near real-time as possible, allowing companies to be able to conserve and optimize cash while significantly reducing inventory obsolescence.
However, your software is only as good as the data from the warehouse floor. A reliance on quality warehouse tracking solutions is imperative. These include:
- Barcode Scanning: This is the industry standard for ensuring lot control and accuracy during kitting and fulfillment.
- RFID (Radio Frequency Identification): RFID is very well suited to handle high-velocity inventory because it does not require a direct line of sight and allows for simultaneous scanning of multiple tags.
- Automated Cycle Counting: Traditional physical inventory counts often require a 48-to-72-hour operational freeze (no orders in, no orders out). To solve this, warehouses employ AI-powered scanning robots or drones to conduct nightly cycle counts. By auditing and checking pallet locations during off-peak hours, these robots provide a comprehensive inventory count over the course of days and even hours, ensuring inventory data integrity while eliminating the need for an operational hold.
Factors That Affect Inventory Requirements: Balancing Supply, Demand, and Lead Time
Inventory requirements shift as businesses evolve. Factors such as seasonality, promotions, channel mix, and geographic expansion all influence how much inventory is needed and where it should go. Lead time variability adds further complexity. The factors all impact these three important metrics:
- Inventory velocity is a key metric to include in an inventory management strategy. When retail or Amazon sales grow quickly, the speed at which product leaves the door dictates safety stock requirements.
- Reorder points should evolve as conditions change. Static rules that worked at lower volume often fail at scale. Effective replenishment strategies integrate historical sales data, demand signals by channel, supplier lead times, and minimum stock thresholds. Precise SKU-level planning is critical, particularly as product portfolios expand and velocity becomes uneven.
- Lead time issues often originate at the production or manufacturing stage and undermine even the strongest warehouse strategy. Brands that closely collaborate with fulfillment partners unlock additional services like late-stage assembly, kitting, labeling, and product modification. A bundled approach can lower risk, shorten time to market, and enable faster channel launches without committing to excessive inventory upfront.
The Ecommerce Warehouse Toolkit: Proven Inventory Management Strategies
Choosing the right strategy depends on product type and sales channels. Here are some methods we see driving the most efficiency:
- ABC Analysis: Categorizes inventory into high-value, high-frequency (A), moderate (B), and low-value, high-volume (C ). It ensures high-value items get priority, and brands get more control over resource allocation based on profit margins.
- Just-in-Time (JIT): Minimizes excess inventory in storage by aligning stock levels with immediate demand. It’s high-risk but high-reward for brands with perishable goods or predictable, high-frequency demand.
- Economic Order Quantity (EOQ): A formula that determines the optimal quantity of inventory to order at one time to minimize the combined total of ordering costs and holding costs.
- First-In, First-Out (FIFO): Move the oldest stock first to prevent obsolescence. This is critical for perishable goods, especially those with an expiration or lot control.
- FEFO (First Expired, First Out): Prioritizes products based on their expiration dates. It ensures optimal product quality while minimizing waste and maximizing efficiency.
- Just-in-Case (JIC): Maintaining higher stock levels acts as a safety net against supply chain disruptions, demand surges, or unforeseen events.
- Perpetual Inventory: A real-time tracking method that updates every time a barcode is scanned. This is the gold standard for high-volume, multi-channel retailers in need of high visibility and real-time stock level accuracy.
A Vote for Using AI in Inventory Decision-Making
The potential for AI in inventory management is obvious where complexity is a hurdle for human bandwidth. I believe AI will be instrumental in inventory planning; it can parse thousands of data points—from demand and supply, to capacity and inventory decisions— without the limitations of traditional calendar-based planning cycles.
Instead of spending hundreds of hours manually creating forecasts, adjusting purchase orders, or recalculating safety stock, autonomous planning systems will learn from real-time data to model thousands of scenarios, and automatically recommend or execute the optimal actions across the network.
This shift will allow teams to focus on exception management and strategic oversight, and leave the day-to-day transactional tasks of balancing service levels and calculating costs to AI programming. This will result in a smarter, more resilient, and far more efficient supply chain that adapts instantly to market changes rather than reacting weeks or months later.
The Ultimate Test: Conducting a Quality Inventory Audit
Inventory audits are a critical control mechanism. Beyond reconciliation, audits identify process weaknesses and forecasting gaps that directly affect profitability.
Effective audits evaluate ongoing planning, accurate counting, system reconciliation, and actionable reporting. Integration across inventory, order management, and accounting systems is essential for resolving discrepancies efficiently.
Final Thoughts: Turning Inventory into a Competitive Advantage
Inventory management has evolved from an operational necessity into a strategic advantage. Brands that invest in disciplined planning, real-time visibility, and adaptive systems gain control over growth, rather than reacting to it. In an increasingly competitive ecommerce landscape, the brands that scale most efficiently are not those carrying the most inventory. They are the ones managing it with intention and precision.
Dave Tu is President at DCL Logistics