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The Importance of Managing Inventory Levels

Alla Udovenko

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April 8, 2021

The Importance of Managing Inventory Levels

Using Nada for sorting & hiding out‑of‑stock items helps the Shopify store owners to manage their inventory and improve the customer experience.

The Importance of Managing Inventory Levels

The Shopify Store owners have to deal with inventory on a daily basis. One of the most common issues is managing out-of-stock items. Sold-out products can demotivate the store visitors and even discourage them from purchase, especially when the out-of-stock items appear in the beginning or in the middle of the store catalog. There is a great App available on Shopify App Store that can solve this issue which is called Nada — Sort & Hide Out‑of‑Stock.

Inventory for businesses that sell physical goods or products is one of the essential elements and pieces to their business puzzle. When it comes to managing inventory levels and why it’s important, there are a variety of different reasons why businesses need to keep a close eye on them.

If you want to learn more about managing your inventory levels, keep reading this article, written by Howie, the financial analyst from The Analyst Hand Book.

The inventory a company has is the engine to their business, and one of the main drivers to their revenue. Whether it’s when the inventory is arriving, the level of inventory they have on hand, or the different products they’re adding or subtracting from their catalog, knowing what inventory you have on hand, what’s on its way in, and what you need to order is important to keep the flow of income and sales for a business.

Inventory Levels

Inventory levels are an important aspect of any business selling physical goods and products. One it shows you what people are buying, where there is demand, and what’s selling. Two, to make sure you can fulfill orders, and you need inventory to keep your flow of sales. Without having inventory on hand, companies that sell physical goods and products are unable to sell. They need the product, to make the sale. Companies without inventory, or with low levels of inventory put themselves in tough positions. It can mean going for a longer period without sales, push customers to other suppliers or stores, and stop the flow of income coming in.

One of the important elements to having inventory on hand, or available to purchase, is in continuing to replace your inventory. This means continuing to purchase more products from your distributors, increasing the number of goods you’re buying from a wholesaler, or having a stream of products coming in. Replacing inventory is like filling up your car with gas. Without gas, the car can’t run. When it comes to a business that sells physical goods, the inventory is your gas. Without an inventory, you can’t operate your business the way you would like to, the way you’d like to grow, or you run the risk of having the customers you worked very hard to obtain looking elsewhere or to other suppliers for the product they need.

Your Customers

Companies sometimes feel that they’ve done enough to keep their customers happy and to keep their customers coming back to purchase more. In times where you run out of inventory or aren’t able to provide them with what they need, they’ll have to figure out another solution or find another supplier. When it comes to business or B2B sales, those companies need to continue to have their shelves stocked, their stores with inventory, and their flow of sales strong. Without product or inventory, you run the risk of having them look elsewhere for it, whether it’s to other suppliers, other websites, or companies, and finding solutions that might not involve you or your store.

With any business, your customers are an incredibly important aspect of what you do, the income you produce, and your future earning capability. Finding ways to keep your customers happy, with the product or goods they need, and a consistent flow of sales is a key component of building strong relationships with customers, creating strong customer loyalty, and future business with those customers as well.

The Financial Component

One aspect of managing inventory levels and making sure you have the inventory you need is the financial component behind it. The financial component is often tough for new companies or new businesses starting because they either lack a real track record or simply don’t have enough of it. Part of any business’s inventory levels and products depends on how much capital they have, the capital tools they have available to them, and the amount they can purchase. The amount of capital a business can spend, whether it’s through the sales they produce, the capital tools they have available to them, or the capital they have on hand, play an important role in how much inventory they can order.

The financial component is ultimately what fuels the business, by allowing companies to purchase their inventory. Without having the capital needed to purchase more inventory, or to acquire more products, companies aren’t able to sell it to their customers and continue the flow of income and sales. The financial component to managing a company’s inventory levels is one of the important elements to any business selling physical goods and products. Making sure you have the funds needed to acquire more inventory, and to keep your stocks shelved is important to keep the business running, and the sales coming in.

Overselling

Certain companies and industries find themselves commonly overselling the number of goods or products they have, while others don’t, and are quick to pull product listings. Overselling is when a company sells too much of their product to customers, forcing some customers to not receive the goods or services they have. Primarily it’s situations where the demand for a product is larger than the available supply. For some companies, it’s part of their strategy.

Take the airlines, for example, they commonly oversell the seats they have on a plane, then offer customers the opportunity to wait or sacrifice their seat, in exchange for a large amount of compensation. An important part of the overselling equations is your customers. In the airline example, airlines are willing to take on too many customers, betting that one or a few of their customers will be willing to wait or give up their ticket. They feel comfortable with the equation, comfortable paying customers out in credit, or airline credit, in exchange for a sold-out plane. The way a company handles overselling depends on the customers they serve, the platforms or mediums they work through, and the type of strategy they decide to utilize.

Purchasing, Coordinating, and Maximizing

Part of managing inventory levels is purchasing new products, coordinating their arrival, and maximizing your revenue. For business in the physical goods and products space, the flow of new products arriving is very important to keep their revenues constant, and income coming in.

Purchasing goods or inventory in advance, to keep your company stocked and to compensate for the delivery time, or the time it takes to arrive can help reduce the time a product is out of stock. Analyzing how much is selling per day, looking at how much you have on hand, and trying to be reactive to new products coming in, can keep your company stocked, and ready to sell. Without taking notice of how much you already have, or how much is selling, you might find yourself in a situation with an abundance of one product, or a lot of stock in one SKU.

Coordinating their arrival, understanding how much you’ll need, the amount you have, and how much is selling, can keep your company’s flow of product going out, equal or closely connect to the amount of product coming in.

When it comes to running a physical goods or products business, there are ways companies can utilize their inventory levels to maximize their revenue. Companies who sell online, whether it’s through Shopify, or other platforms, have built followings, rankings, and traffic to their stores daily.

Online companies can utilize the traffic they generate, or the standing they’ve built, to sell other goods and products they have on hand. While certain goods or services that sell well, are positioned front and center, might be out of stock, an opportunity is created for other products to be promoted in their place. While some may see the temporary outage of a prime product as a disadvantage, or hurting their business, others can utilize the traffic their stores are receiving by selling other goods and merchandise they do have.

On Shopify, Nada can help companies do that, by pushing their out-of-stock listings to the bottom of their stores. With the app, merchants will not need to manually hide out-of-stock products. Nada puts all out-of-stock products to the end of the collection (a store page) once the items are sold out. The products are still visible on your store (which is good for SEO), but the customers will not see unavailable products unless they scroll down to the end of the page.

Nada – Easy and effective app to sort & hide out‑of‑stock products

Hence, companies can utilize their current inventory levels to maximize revenue by putting products in stock into prime positions, and minimize the number of views out-of-stock merchandise.

Conclusion

When it comes to a physical goods business, there are a variety of different reasons it’s important to manage inventory levels. A company’s inventory is the fuel it needs to keep going, and the way it produces sales. Without a supply of inventory, a company will have a hard time selling its products, keeping its customers, and growing in the ways it’d like to.

As hard as it was to acquire your customers, and your traffic, without having the inventory they need, or the product they’re looking for, you begin to open the door up for competition, and for them to look elsewhere for what they’re looking for. In a physical good or inventory-based business, the financial component or aspect is an important part of the equation. Without having the capital you need, or the capital tools available to you, it’s very difficult to be able to acquire or purchase the inventory you need to sell.

As a business owner, sometimes you need to put on your financial analyst hat, to analyze what’s selling, what you need to purchase more of when you might run out, and when you need to have new inventory arrive. When a high-demand product is sold out, or out of stock, companies can utilize the traffic they generate, and a product’s prime position, to push other inventory or products to the front of the line and use the out-of-stock product as a way to generate more revenue. To learn more about out-of-stock inventory management read our article 8 Tips on Managing Sold & Out-of-Stock Inventory on Shopify.

All in all, a physical goods or products business needs to keep a close eye on the amount of inventory they have, keep the flow of new products coming in, and continue providing their customers with the goods and products they’re looking for.

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