Why is Inventory Management Necessary?

Inventory Management

Overview of inventory management

The goal of every ecommerce business is to fulfill as many orders as possible and earn profits. In order to fulfill these orders the business has to maintain an inventory. Inventory is any good or material that the business wants to sell in order to make profits. Hence it is important to manage inventory levels to have maximum efficiency.

What is inventory management?

Inventory management is the process of tracking the amount of products, materials or resources that are available in the businesses’ warehouse or store. Inventory management means tracking inventory from its purchase to its sale and it helps in identifying and responding to changing trends and ensuring that there’s always enough stock to fulfill customer orders and manage shortages.

What are the processes involved in inventory management?

Inventory management is a complex process that involves managing, controlling and tracking stock as it moves from your suppliers to the warehouse and lastly to the customers. There are 5 main stages in the process of inventory management:

1. Purchasing : This process deals with buying the required raw materials, resources or products with the intention to sell.

2. Production : In this stage, some sellers manufacture their own products from the raw materials or resources in order to sell them. Not all businesses follow this process.

3. Holding stock : Storing the materials, products or goods in the warehouse in order to sell them when the demand increases.

4. Sales : Selling the stored inventory to customers.

5. Reporting : Making and keeping track of the amount of inventory sold.

Why is inventory management necessary?

Inventory is a company’s most important asset and it is important to manage inventory to ensure that there is an optimum amount of inventory to sell without the risk of stock shortages or stock overflow. Effective inventory management enables businesses to balance the amount of inventory and have better control over the flow of inventory so that they can have more efficient business operations. Inventory management has several other benefits such as:

  1. Helping fulfill incoming orders and fewer missed sales.
  2. Raising profits and higher efficiency.
  3. Saving money by understanding stock and market trends.
  4. Improving cash flows and better-invested cash.
  5. Satisfying customers.
  6. Theft and loss reduction.
  7. Trusted information systems and accurate sales reports.

How can businesses improve inventory management?

Inventory management is an essential function of any ecommerce business and it is necessary to improve its efficiency. Some ways in which ecommerce businesses can improve inventory management are:

  1. Focussing on business needs.
  2. Engaging with suppliers.
  3. Using real-time data and reports to study and understand market trends.
  4. Developing a proper inventory management system.
  5. Improving and using modern technology.

What are the challenges involved in inventory management?

Some of the challenges involved in inventory management are:

Inventory shortage: Inventory shortage refers to the situation in which there is less inventory than required due to unforeseen circumstances such as theft, damage or loss.

Deadstock: Deadstock refers to the unsold inventory which has no chance of being sold in the future due to changes in trends or market conditions.

Out-of-stock inventory: Out-of-stock inventory refers to the unavailability of a particular product that is in great demand which leads to a missed sales opportunity.


Inventory is the biggest asset of any ecommerce business and is necessary to fulfill orders. Hence it is essential to practice inventory management in order to reduce costs, anticipate order demands, satisfy customer needs and make more profits.



Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store