9 Ecommerce Inventory management tips to stop cash burn

Is your ecommerce business witnessing a lot of cash burn without any considerable boost in the sales? Are you worried about the burn rate of your firm? If so, then it’s time to turn the focus from the cash burn to inventory management.

Yes, stocking items require cash and regular sale keeps the cash flow positive. However, improper inventory management can take a toll on the cash flow. So, you need to keep a check on the inventory.

In this article, we’ll give you 9 amazing tips that will facilitate you to manage the inventory and impede cash burn.

1.     Setting par levels for each item

One of the smartest ways to ensure inventory management is to set minimum quantities or ‘par level’ for each product that must be available at all times. Whenever you find that the stocks are dipping below the par level, order them immediately.

While placing an order, make sure that you only order the minimum quantities of each product such that it supersedes the par level. This ensures that you are investing minimum cash in buying the stocks, which is recovered quickly through sales.

The par levels of each product vary according to its demand, availability and the time it takes to get back in stocks. So, you should research about each product and allocate the par level after analyzing various factors related to each product.

You should also adjust the par level of each product according to the market trends and fluctuations in the demands for each product. You can take the help of inventory management software for the same.

2.     Following the First In First Out (FIFO) model

FIFO is one of the core principles of inventory management which implies that the oldest goods (that were first in) should be the first to get sold (first out). Thus, you should ensure that old goods are sold first. In this way, perishable products are also prevented from their spoilage.

Apart from perishable items, FIFO is also good for non-perishable products. Selling older items faster prevents the wear and tear that they may face in the warehouse. Furthermore, the packaging, design and feature of the product change from time to time so you can sell obsolete items.

To follow the FIFO model, you have to organize the warehouse and make sure that the old products are kept in the front so that they are sold first.

3.     Fostering a relationship with suppliers

Relationships with suppliers are the building blocks of garnering success in your ecommerce business. Having a good rapport with the suppliers ensures that you can restock fast-selling item, troubleshoot manufacturing issues, and add new products on time.

Fostering a relationship with a supplier is vital. The suppliers will be happy to solve all your problems and go extra miles to support you if you have a rapport with them. You can even ask for a quantity lower than the minimum order value

You should constantly be in communication with the suppliers so that you can easily communicate to them when you are expecting an elevation in the sales. You can also inform them if a product is running behind schedules so that the supplier can help accordingly.

4.     Provision for Contingencies

The problems related to inventory can crop up at any point in time. So, you should be well equipped to face all the contingencies. These may include events like overselling of stocks, cash flow shortage, shortage of space in the warehouse, unavailability of a product, etc.

To overcome the unforeseen events, you should have a contingency plan in place. You can prepare the plan by analyzing the risks and their sources. Then, you can list down the steps that you’d follow to tackle the risks. There are many inventory management practices to streamline your ecommerce store.

5.     Auditing

Regular auditing should be an integral part of every ecommerce business as it enhances inventory management. Auditing verifies the facts and reports given by the warehouse staff related to the availability of stocks. There are three types of auditing that you can carry out:

Physical inventory

In this practice, all the stocks are counted. This kind of auditing can be carried out half-yearly or yearly to ensure that everything is on track.

Spot checking

Physical inventory is a tedious process and can be carried out only once or twice a year. So, instead of complete checking, you can carry out spot checking whereby you choose certain products, count them and verify their count with that given in the report.

Cycle counting

Cycle counting refers to periodically checking different products and verifying their numbers with that mentioned in the reports. The products can be checked on a rotating schedule.

6.     Prioritize inventory management with ABC analysis

There are different products in an inventory. Each product has different demands and some require more attention than others. So, you can use ABC analysis to find out the products that need attention and those that don’t.

You can make three categories of the products like a high-value product that have a low frequency of sales, moderate-value products and low-value products with a high frequency of sales.

The items that have a significant impact on finances require attention while those products that have small impacts on finances require less attention.

7.     Accurate prediction of demands

Forecasting the demands for the products accurately is the key to inventory management. It prevents you from investing too much in those products that won’t be in much demand and it helps in giving more attention to those products that are high in demand.

There are different variables that can be used to accurately predict the demands. These include trends in the market, last year sales, growth rate, seasonality and promotions.

8.     Dropshipping

Drop shipping is in vogue nowadays. It refers to the process where the business owners neither keep the stocks nor they manufacture the products. They simply sell the products of third-parties and act as middlemen.

It is a suitable model for inventory management as the manufacturers and the wholesalers take care of the entire process and the ecommerce businessmen just sit and relax. So, you should also adopt this model and ask your suppliers if they offer this option.

9.     Build Customer Trust

The customers are at the crust of every ecommerce business. So, you should win the trust of your customers in order to sell your inventory faster. For this, you should supply the top-notch quality of products at all times. You should also offer discounts and other deals for the customers to build loyalty.


So, these were 9 stellar tips that can help all the ecommerce businesses in inventory management. By following these tips, you can stop cash burn and manage the inventory effectively.

Author Bio:

Sanjay Darji is a Head of Digital Marketing at SoftwareSuggest. He has a strong knowledge of product marketing & used various digital marketing strategies to build the brand globally. His areas of expertise include Performance management, payroll, inventory software and ERP software.  In his free time, he enjoys reading, spending time with friends and family.