What is inventory?

Inventory, also known as ‘stock’, refers to the physical goods and materials that a business owns with a view of future resale.

Inventory can be divided into:

Inventory is one of the most important business assets because the turnover of inventory typically represents the primary source of revenue of any retail business.

How to form your inventory?

A smartly formed inventory can not only contribute to a higher turnover, but can also help you alleviate seasonality slumps and capitalize on market trends. This is especially relevant if you’re running a drop shipping online store, as you can add and remove products in minutes without any upfront investment.

The essential elements to take into account when assembling your inventory include:

What is inventory management?

Inventory management is the process of controlling the flow of a company’s stock. It encompasses ordering, transfer, and storage of goods in order to ensure the business maintains the right quantity of stock on hand to meet customer demand.

Effective inventory management is a dynamic process that focuses on balancing stock levels to ensure a company doesn’t suffer any financial losses due to overstocking or understocking. Whether you run out of stock or order too many items, your bottom line will take a hit. For eCommerce businesses that have to manage multiple factors around the clock, including handling different payment channels and maintaining a functional eCommerce platform backed by just the right amount of stock, implementing concrete inventory management practices from the start is crucial to make sure everything stays under control as the business scales. A real-time inventory management system can prove to be a helpful tool.

The most common methods of sourcing products and inventory

Depending on the product you sell, your market and niche, you can choose the method that is most suitable to your business. These are the four most common methods:

Just-in-time inventory

Just-in-time (JIT) inventory refers to an alternative method of stock control, which focuses on reducing spending and improving business competitiveness by ordering and receiving inventory exactly when it’s needed and neither sooner nor later.

JIT system is driven by the objective to reduce costs related to inventory maintenance, such as warehousing costs, staff required to look after it as well as waste costs. It allows companies to invest savings into other opportunities.

However, just-in-time inventory management has its challenges. It requires businesses to be exceptionally good at forecasting demand to make sure they don’t run out of a product because this would lead to lost sales and customer dissatisfaction.

While reducing non-essential costs is a smart strategy to improve your return on investment, it’s essential to keep accurate track of inventory levels to prevent stockouts and meet the constantly changing consumer demand.

If you’re running a drop shipping business, Oberlo’s Inventory Auto-Updates feature can take care of this for you by constantly updating your product price and stock levels, so that you never put yourself in trouble by selling out-of-stock products or selling them above your retail price.

Want to learn more?

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Justas Markus: CEO & Co-Founder of GetFound XL and a blogger at Entrepreneur.com, Observer.com, Influencive.com and others. Catch up with Justas on Twitter.