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Guide to Magento Inventory Management – Best Practices, Tips, and Extensions

Updated on December 24, 2021

4 Min Read
magento inventory management

Inventory management is the process of handling inventory (the stock of goods held for sale). It is a part of the overall supply chain management process and is essential for the sustained flow of goods from manufacturer to the Magento store to the customer.

Inventory management entails keeping a detailed record of all the goods that enter and leave a warehouse or store. Based on the size and business model, there might be differences in the way of handling the inventory, yet the basics of inventory management remain the same.

Inventory Management Techniques

In order to deliver products and services on a timely basis, an ecommerce store should have effective inventory management processes. Inventory management is a long-term process and is essential for saving costs and enabling businesses to deliver services at lower costs.

Here are a few inventory management techniques used by ecommerce businesses, particularly Magento.

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Just-In-Time (JIT)

Just-In-Time is a widely used technique in which a product is delivered or stocked when the customer places an order or when they are likely to place an order. Hence, the volume of the inventory is nearly the same as the number of orders.

Using this technique, the business handles only those products that the customers have ordered or are likely to order in the very near future. An important feature of this method is that products are not stored in the business warehouse. As a result, there is a lot of available space in the warehouse and thus the overall costs of storage can be lowered. In addition, the business saves on a lot of additional costs such as the costs for special storage requirements and inventory processing.

In order to use JIT, you need to have detailed insights into the buying behavior of the customers so that you can line up product delivery to make sure that all orders are fulfilled on time.

First In, First Out (FIFO)

First In, First Out is a process of inventory management in which orders are fulfilled from the top of the pile. FIFO is mostly used in food industries where perishable products cannot be stored beyond their expiration date. This technique ensures that products do not stay for long in the warehouse.

Par levels

Most businesses adopt Par Levels to keep a minimum quantity of all or several products at all times. Businesses that use JIT also use Par Levels for most products so that a minimum volume of the stock is available at all times to cover up the delays and issues in the product delivery pipeline.

The Par Levels act as a safety net for ecommerce stores that serve a huge number of customers simultaneously. Usually, Par Levels for every product category are set based on the time taken to refill the stock levels product. For instance, a higher par level is set for the products that take longer to be delivered to the business warehouse.

ABC Analysis

In this technique, products are classified into three categories based on predetermined factors. This technique is also known as Selective Inventory Control and is mainly used for businesses that handle diverse product lines.

  • Category A: Products that have high value but are low in quantity
  • Category B: Products that have moderate value and are moderate in quantity
  • Category C: Products that have low value but are high in quantity

Due to change in circumstances, products can change their category. For example, umbrellas might come under Category B during the dry season, while during the summer or winter seasons, it might go up into the Category A.

There are similarities between JIT and ABC Analysis and the success of both methods depends upon the accuracy of the information about buy patterns.

Dropshipping

Dropshipping is a well known as an ecommerce model that doesn’t need a warehouse or a dedicated inventory. In this process, the products are shipped directly from the manufacturer to the customer. This means that the business doesn’t need to budget for inventory storage or similar ideas.

Clear communication is a crucial element for the success of the dropshipping model. Since a third party handles the delivery, communication should be appropriately channeled for timely delivery of products.

Demand Forecasting

Demand Forecasting is an essential business process that is important for accurate inventory management. This data-intensive process involves creating long-term forecasts which act as guidelines for upcoming changes in the inventory.

Inventory data for previous years is required for building forecast models. However, these forecasts can only be so accurate and are subject to factors such as market fluctuation, new products, and buyer preferences. Since the patterns of previous years could repeat, these forecasts (based on previous data) can help businesses avoid inventory-related problems.

Inventory Management Extensions for Magento Stores

If you run a Magento-powered store, you can use the following inventory management extensions. These extensions provide additional functions and enable you to have effective and complete control of your inventory.

  1. Advanced Inventory from Wyomind
  2. Multi-Warehouse Inventory from Amasty
  3. Inventory Management from Magestore
  4. MageMob Inventory from AppJetty
  5. Multi-Warehouse Inventory from Aitoc

Installing these extensions could be difficult if you are not a developer. Your store performance could go down if the process doesn’t go right. Hence, it is better to choose the right ecommerce web development company to do it for you.


Author Bio

Santhosh Sundararajan works at Codilar Technologies. He writes about Magento, Omnichannel retail, and current e-commerce trends.

   

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Fayyaz, a passionate Motorbike tourist, works as a Team Lead — Magento Community at Cloudways - A Managed Magento Hosting Platform. His objective is to learn & share about PHP & Magento Development in Community. You can contact him at [email protected]

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