As the e-commerce industry continues to thrive, more and more businesses are turning to dropshipping as a means of reducing inventory and shipping costs, while also expanding their product offerings.
However, as with any business model, there are risks involved, and dropshipping is no exception. The absence of physical inventory means greater loss of control over operations, which is why businesses need to have robust dropshipping inventory management practices in place.
As a drop shipper, inventory management enables you to strike a balance between your cash flow and available inventory, allowing you to keep your customers happy and your profits healthy.
In this article, we will explore the reasons why inventory management is so vital for drop shippers and share four proven methods to help you improve your inventory.
What is dropship inventory management?
Dropship inventory management involves the process of tracking inventory levels and keeping tabs on:
- Where your products are located
- How much inventory you have
- What your supplier has in stock
By having access to detailed information about product locations and availability, you gain a competitive advantage in making precise business decisions that directly contribute to the growth and success of your business.
As your business grows, inventory tracking becomes a labor-intensive and time-consuming task, which is an aspect greatly optimized by inventory management tools. By establishing a seamless connection between your store and your supplier's inventory data, you get real-time updates on your stock levels by location, pincode and warehouse. This integration allows for automated inventory tracking, freeing up your valuable time to concentrate on other critical aspects of your business operations.
In comparison to spreadsheets, inventory management tools like EasyEcom offer more efficiency, streamlining, and analytics that provide deeper insights into inventory health. The ability to exchange product information from the supplier's system to the website makes inventory management a breeze.
Businesses can benefit from a centralized dashboard that provides real-time inventory data and allows periodic inventory checkups. It also enables price adjustments based on season and SKU performance. This feature is especially helpful as it helps identify which products are selling well and which ones need attention.
Furthermore, it offers seamless integration with multiple sales channels, including your offline store, Amazon or your native website. This integration helps businesses to expand their reach and boost their sales.
Why is inventory management crucial to dropshipping?
Since dropshippers purchase products from a shared inventory pool, inventory levels can fluctuate regularly, causing imbalances. This necessitates a close watch on inventory, more so when demand surges for certain products in the catalog. If something sells like hot cakes, what typically follows next is a stockout as shelves are emptied faster than you can restock them. Conversely, if demand is slow or seeing a gradual drop, you have surplus inventory on your hands that suppliers will charge you for handling and storage.
Effective inventory management forewarns you of such incidents, bringing you and the supplier network on the same page, information-wise. Think about repeated stockouts; doesn't it send across the message that behavior-driven adequacy and sufficiency isn't planned out ahead?Failing to sync what's available on the internet or offline with what's in-stock can annoy your customers to the point that you lose credibility. You can’t really fault customers for wanting what they ordered in a reasonable amount of time, which is why your relationship building and contract negotiation skills with suppliers matter. They can keep you informed of historic seasonality, products-in-demand and what’s driving changes in buying behavior, enabling you to adjust your inventory accordingly.
By staying informed about the latest updates from suppliers and utilizing a robust inventory management system, you can monitor inventory changes, adjust stock levels accordingly, and prevent stockouts. Being in control of availability and consequent fulfillment plays into your goal to provide error-free and damage-free deliveries.
To address concerns about stockouts, dead-stock, and seasonal fluctuations in dropshipping, it's crucial to establish clear communication with suppliers, utilize inventory tracking tools, and conduct thorough market research. By staying informed about potential shortages, tracking stock levels, focusing on trending products, and adjusting inventory and marketing strategies based on seasonal patterns, businesses can effectively mitigate the impact on their operations and optimize sales.
An effective inventory management system in dropshipping provides valuable insights for informed decision-making and prompt actions. EasyEcom's report highlights the benefits of their inventory management solution, streamlining operations and improving customer satisfaction. With real-time visibility, you can track stock levels, minimize stockouts, and maximize profitability. Transparent information on product availability and delivery times builds trust and loyalty, ensuring a seamless customer experience. This is why dropshipping success links back to the robustness of inventory management.
4 best practices for dropship inventory management
The main aim of managing inventory is to ensure that you always have the products you need in the right amounts and at the right moment. This way, you can meet your customers' demands and run your business without any hiccups.
Work alongside your supplier
In theory, supplier relationships are transactional, but it’s a good idea to make your conversations symbiotic, given that you need your supplier to ship products directly to your customers.
A friendly relationship can help you negotiate better terms with your supplier, such as lower minimums or credit terms, which can benefit your business in the long run. So, don't overlook the value of being personable and building a strong relationship with your supplier.
Define minimum stock levels
The last thing you want is to run out of stock, leaving your customers disappointed and possibly turning to your competitors. To avoid this, consider setting inventory minimums, you can maintain a steady flow of products and ensure that your customers remain satisfied with your services. Remember, a happy customer is a loyal customer, and that's what every business should aim for.
By setting a specific inventory threshold with your supplier, you can ensure that your website always displays accurate and up-to-date product availability. This would help to prevent any potential misinformation or confusion that may arise from customers seeing items as available when they are actually out of stock. However, it's important to note that the best approach for inventory management may vary depending on the products you sell and the specific supplier you work with.
For instance, if you're selling on Amazon, it's essential to set a higher minimum as Amazon imposes strict penalties for out of stock items. So, take the time to analyze your situation and make a plan that works best for your business.
Have an emergency plan
The trouble with uncertainty, such as the COVID-19 pandemic, is that you never know how long it will last, or whether it will repeat. It has taught us the importance of resilience through adaptability and readiness. We've witnessed the consequences of panic-buying, where certain products quickly vanished from the shelves, leading to imbalances in availability. As a result, some people ended up with excess supplies while others had nothing. The aftermath of this phenomenon included restricted quantities and increased prices once the items were restocked.
This situation serves as a powerful reminder that sudden surges in demand can affect any product or service, potentially causing challenges for your business. Agility and preparedness are vital to navigate such scenarios successfully.
To avoid being caught off guard, it's important to proactively plan ahead. Consider what might be popular next week, next month, or even next year. Keep an eye on market trends, growth rates, national economic performance, and marketing costs to stay ahead of the game.
Automate dropship inventory management
As a drop shipper, managing your inventory manually can be a daunting task. with the power of automation, you can reduce the risk of human error and keep your inventory up-to-date. Here are some options for automating your dropship inventory management:
Hire a developer to create an API
An API is a set of protocols and tools that allows different software programs to communicate with each other. Creating an API to synchronize your business inventory with your supplier's can be done by a programmer. Although it may be costly, it can ultimately save time and effort. However, APIs may break and require regular upkeep to ensure compatibility with system updates, which can incur additional costs.
Import your supplier's product feed manually
Alternatively, you can manually import your supplier's product feed using Excel. While this method may be preferred by some, it can be time-consuming, especially as your business grows. You'll need to update the data from your supplier's format, convert it into your own, and then import the updated quantities into your website. If you're looking to scale your business, manual imports may not be a viable option.
So, what's the solution? Consider using automated tools Like EasyEcom that can handle your dropship inventory management without requiring you to spend an arm and a leg. This will help you save time and resources while ensuring that your inventory is always up-to-date.
If you’ve read up to here, you’re now more aware of how accountability blurs in dropshipping, which is why a well-defined strategy incorporating the four tips discussed above will prove to be a wise decision.The best part is that with automation, you can streamline the process, avoid errors, and have more time to focus on business growth.
So, get started and discover how to make inventory management less of a headache and more of an opportunity to succeed in dropshipping!
Q1.How is inventory controlled while drop shipping?
Data from distributors must be synced with your online store in order to manage dropship inventories. A product data feed from the supplier includes details like product identification (SKU), quantity, and price. Additionally, it needs to have information about the categories, photos, and product titles.
Q2.What are the advantages of inventory management in dropshipping?
Dropshipping lowers the management burden that retailers must bear by doing away with the requirement to maintain physical inventories. The suppliers take care of tracking inventory, managing the infrastructure that contains it, and organizing delivery, so they don't have to.
Q3.Do you need to maintain inventory if you dropship?
Retailers fulfill customer orders through dropshipping, but they are not compelled to have products on hand. Brands who don't want to invest in a huge inventory or operate a warehouse can consider dropshipping.