Inventory Explained: A Guide for Online Sellers

Running a successful online business in Australia takes more than just a great product and a catchy brand name. Behind the scenes, it's all about having a solid grasp on the nitty-gritty, and that includes understanding your inventory.

But what is inventory, exactly? And why is it so important for online sellers, especially here in Australia? Let's break it down and equip you with the knowledge you need to manage your inventory like a pro.

Simply put, inventory refers to all the goods you have readily available to sell to your customers. It's the lifeblood of your online business if you're dealing with physical products.

Imagine you're running a trendy online clothing boutique. Your inventory would include all those stylish shirts, on-trend pants, and fabulous dresses just waiting to be snatched up by eager shoppers. Or perhaps you're selling the latest gadgets and gizmos in the world of electronics. Your inventory would then consist of smartphones, laptops, headphones - all those tech treasures your customers crave. Even if you're selling unique, handcrafted art pieces, each framed print or delicate ceramic sculpture ready to be shipped is part of your inventory.

From the smallest accessory to the most popular item, everything you have ready to ship out is part of your inventory.

For any business selling physical products, inventory is an important asset. It represents the potential to generate revenue and keep those orders rolling in.

Finished goods inventory comprises products that are completed and ready to be sold to customers. This is the inventory that is stocked in your warehouses or displayed on store shelves. For instance, a tech retailer's finished goods inventory would encompass laptops, smartphones, and accessories—all set for purchase by consumers.

Effective inventory management is like walking a tightrope. You want to have enough stock on hand to meet customer demand without overstocking and tying up too much cash. Here's why getting it right is crucial for your online business:

Imagine disappointing a customer because the item they desperately wanted is out of stock. Not good! Proper inventory management ensures you have enough of the right products available to fulfil orders promptly and keep those customers happy.

Holding onto excess inventory can quickly drain your resources. Storage costs, insurance, and the risk of products becoming obsolete or expiring all eat into your profits. Effective inventory management helps you minimise these costs and maximise efficiency.

Tying up too much cash in unsold inventory can put a strain on your business's finances. Smart inventory management helps you find the sweet spot between having enough stock and maintaining healthy cash flow so you can reinvest in growth and keep your business thriving.

Effective inventory management isn't just about stuffing products on shelves and hoping for the best. It involves a strategic approach that encompasses several key aspects:

This is the foundation of it all. You need to know exactly what you have in stock, where it's located (whether in your home office, a storage unit, or at a fulfilment centre), and how much it cost you to acquire. Accurate inventory tracking helps you avoid stockouts, overselling, and those dreaded inventory discrepancies.

Think of this as having a crystal ball (powered by data, of course!). By analysing past sales trends, seasonality, and market demand, you can make informed predictions about future sales. This allows you to adjust your inventory levels proactively and ensure you're well-prepared to meet customer demand.

There are various methods for managing your inventory effectively, each with its own pros and cons:

• FIFO (First In, First Out): This widely used method prioritises selling the oldest inventory first to minimise spoilage or obsolescence. Think of perishable goods or items prone to going out of fashion.
• JIT (Just-in-Time): This lean approach focuses on receiving inventory only as needed to fulfil orders. It minimises storage costs but requires precise forecasting and reliable suppliers.

The best inventory control method for your business will depend on factors like your product types, sales volume, and storage capacity.

Selling on Amazon allows you to reach a large audience, but it also comes with its own set of inventory management considerations.

FBA is a popular choice for many online sellers using the Amazon store. Instead of handling storage and shipping themselves, sellers using FBA send their products to Amazon's fulfilment centres, where Amazon takes care of the rest. While this simplifies logistics for sellers, it also means factoring in Amazon's fees and guidelines when managing inventory.

If you are a new seller on Amazon you could be eligible to take advantage of some new seller incentives including credit towards shipments into the Amazon fulfilment network using the Amazon Partnered Carrier program, credit towards FBA fulfilment costs when you use Amazon SEND, or even credit to advertise on Amazon.

Holding onto inventory for too long in Amazon's fulfilment centres can lead to long-term storage fees. The key is to manage inventory efficiently, forecast demand accurately, and avoid overstocking to minimise the risk of incurring these fees.

Amazon provides helpful tools like the Inventory Performance Index (IPI) to help sellers make the most of their time in the store. A seller's IPI score reflects how well they manage their inventory, taking into account factors like sell-through rate and stranded inventory. A good IPI score indicates a healthy, thriving business.

Understanding your break-even point isn't about getting bogged down in complicated formulas – it's about empowering yourself to make informed decisions that drive profitability and help your online business thrive.

So, grab your calculator (or that handy online break-even point tool), crunch some numbers, and unlock the power of break-even analysis for your online business.

Ready to put your newfound knowledge into action and connect with an amazing audience of eager shoppers? Amazon offers a great store where you can showcase your products, track your sales, and watch your business grow.