Managing Inventory Assets for an Online Retailer

By Steve Pick 

http://www.startupnation.com/business-articles/1314/1/online-retail-inventory-management.asp

You’ve taken the plunge and started your small business, selling online.

Congratulations!

But you’ve also got to do something with your wares until you sell them. So now, whether you like it or not, you’re also a warehouse.

Or, at least you’ve got some inventory that you’ve got to manage. And while it may not be as glamorous as designing your e-commerce engine or doing product procurement, inventory management can be just as crucial to the success of your online e-commerce venture.

Here are some principles and practices to consider as you set up a system for inventory management:

• Grow into the space you’ll need.
• Don’t just store it; organize it!
• Consider outsourcing.
• Take the “perfect” option.

 

Grow into the space you’ll need

Whether you start with a tiny shelf in your attic, or a large warehouse, remember that as your business grows, you’ll need more space for your inventory.

“I have a wall full of shelves in the attic above my apartment,” says Ken Weinstein, co-owner of the Numero Group, a Chicago-based compact-disc label that collects and reissues obscure but high-quality music in a variety of genres. “I pay $25 extra rent per month, and our entire catalogue is stored up there. I’ve still got a lot of room left on the shelves for more, though.”

Sam Meyer’s business is different. “We started out as a retail outlet, so my dad decided to buy a building,” says the St. Louis-based co-owner of Fog Hollow, one of the largest mail-order suppliers of new and used motorcycle parts in the U.S. “By looking in areas that were somewhat depressed, he found our first warehouse for less than $50,000 in the early 1980s. So, we had a lot of space to grow into for a long time.”

Don’t just store it; organize it!

Nothing is more embarrassing – or potentially costly – than having to tell a customer that you can’t find the product he or she just purchased online. As an online retailer, you need to find a way to organize your inventory that can make picking orders as simple as possible.

Meyer knows the pain of disorganization well. “In our first warehouse, with only used parts, we have over 600 motorcycles in various stages of dismemberment,” he says. “They’re all very heavy, so really, only a couple of people know where everything is. But in our other warehouse, with everything entered in a computer, a trained chimp could pick orders.”

Consider outsourcing

Joel Bush believes entrepreneurs are better off letting somebody else handle the headaches of inventory storage and order fulfillment. This view isn’t surprising, because Joel is CEO of Amplifier.com, a company that handles inventory storage and shipping for 200 clients in a wide variety of businesses. But his point remains.

“Inventory management can become a time-consuming exercise that distracts time and attention away from opportunities to keep growing the business,” he says. “Common problems include keeping adequate stock of inventory, keeping track of it, arranging it for efficient pick-and-pack operations. All of these problems are magnified during order spikes and periods of rapid growth.”

Of course, if you turn over your inventory to a third party, you lose an aspect of control. “If you do it yourself,” says Bush, “you have direct access to your inventory, and you know the timing and quality of your fulfillment process. But, we do address these concerns. For example, we deliver a robust suite of reports via the web that allow clients to keep track of the entire process.”

The “perfect” option

If you can avoid having inventory at all, you have fewer worries. For instance, the Numero Group sells digital downloads of a large number of otherwise unavailable songs.

And Meyer wistfully dreams of entrepreneurs who thrive as middle men. “We have to have a staff of 18 or 20 people to pick our orders,” he says, “while other companies can be run by one person online with a couple computers in an apartment, just processing orders to a large warehouse somewhere.”

Our Bottom Line

The likelihood is that whether you’re selling retail or wholesale online, you’ll be dealing with inventory management issues. Take the time to plan out in advance what you’ll need for space and organization, and weigh the option of outsourcing your inventory. Your inventory will grow along with your online retail small business, so make sure you do it right.

Steve Pick is a freelance writer for StartupNation.

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