Inventory Management Strategies for E-commerce
E-commerce has become popular in the retail industry due to the internet surge and increasing customer confidence. In E-commerce, business is conducted electronically and it satisfies the objective of an individual. Manufacturers get various opportunities to sell and distribute directly to the customer through E-commerce. Advancements in technology have built new streams in inventory management and supply chain.
Inventories across these networks must be controlled by the management in this era of complex supply chain networks. One of the core of supply chain management is effective inventory management. Along with traditional approaches that one adopted to control inventories, new tools and technologies are used to manage inventories in E-commerce.
With the advent of the same, several new supply chain concepts such as inventory aggregation, transshipping, virtual inventory, and virtual order fulfilment have emerged. Risk pooling allows to keep inventory management on hold allowing the supply party to do the same until it is needed at a downstream location. Virtual inventory management is a concept of satisfying customer demand from more than one inventory management location. It emerged from information sharing.
A primary distribution site is assigned to the customers. These sites have backup locations with minimal additional cost. The replacement of inventory management with information allows for the utilization of inventory from any available stocking location to fulfil an order. This can be accomplished by either shipping the products directly from one of these stocking points or by transferring inventory from one location to another, known as cross-shipping or transshipping, to meet the order requirements.
Agile Web Systems for E-commerce Inventory Management
Some companies do not have the necessary security and fail to provide reliable data and when these companies decide to incorporate a web-based system it gets affected. Additionally, they also require continuous maintenance with guaranteed improvement. It is imperative for the employee to re-record his/her data and information when a customer purchases a product.
It may result in data redundancy that leads to long-term maintenance requirements. In order to create prototyping for inventory management, Scrum methodology is used. This strategy has easy management and process control. Scrum methodology allows one to carry out large projects in a shorter duration and therefore it involves 5 stages for a better result.
The product portfolio of 6 user strategies is displayed in the first stage. This stage is crucial to understand the objectives of the system to be implemented. The second phase takes into account the stories and shows the sprint backlog. In this phase, the increment activities to be carried out are distributed. The third stage is dedicated to meetings to discuss software development. Stages 4 and 5 implement new stories and develop the software.
Role of AI in Inventory Management for E-commerce
Inventory management is a major challenge in the retail market but it is now easily tackled by AI algorithms. As overstocking needs to meet inventory management costs and rental, managing stock became a nightmare for every retailer.
AI can help to design models of predictive analytics in the fluctuating market. This includes identifying the key factors affecting the speed of orders. These analytics are used by E-commerce companies to improve productivity and utilization of resources. AI tools also help the provider simplify the distribution network and inventory management.
A hyper-efficient logistic system is created by AI and big data in the smart E-commerce ecosystem. Data is gathered through IoT and remote sensing. Products and vehicles have sensors which provide data on the receipt of goods, origin, and destination. It also leverages the cost of last-mile delivery. Using big data and AI continuously pushes logistics to evolve in a more sustainable way.
Marketplace Model
Also known as zero inventory, this organization creates a platform where the dealer can frame its products and maintain stock in a store. A certain commission is changed on the order by the facilitator from the merchant. Examples include snapdeal, Flipkart, and eBay.
Inventory model
A product is chosen by a buyer from an online shopping platform post and the company take care of the process. In this inventory model, the organization maintains the distribution centre for the stock inventory and the order is dispatched to the customer’s doorstep.
Hybrid Model
Amazon and Flipkart have recently shifted towards the hybrid model due to current FDI inflows in India. This model is a mixture of inventory and marketplace models. Fulfilment services like FBA, Snapdeal Plus and Flipkart Advantage are included in the marketplace model. Sellers can make the choice of self-fulfilment or marketplace fulfilment.
Talking about the application of machine learning in e-commerce, includes sentimental analysis, fraud detection, inventory management optimization, and much more. Retailers must see the demand precisely using predictive analytics. These models are designed with the help of AI which helps to identify the key factors that lead to changes in demand for different products.
With the help of this, retailers can predict their inventory management needs. To save the product demand from the bullwhip effect, machine learning methods like neural network and support vector machine (SVM) plays a major role in demand forecasting.
| Factor | Marketplace Model | Inventory Model | Hybrid Model |
|---|---|---|---|
| Definition | An e-commerce platform where multiple sellers list and sell their products. | An e-commerce model where the company maintains its inventory and fulfills orders. | An e-commerce model that combines elements of both the marketplace and inventory models. |
| Inventory Ownership | Third-party sellers | Company-owned | Combination of third-party sellers and company-owned inventory |
| Scalability | High scalability due to a wide range of products from different sellers. | Limited scalability based on the size of the company’s inventory. | Moderate scalability as it combines the offerings of multiple sellers with its inventory. |
| Inventory Control | Limited control over seller’s inventory. | Full control over inventory management and optimization. | Control over company-owned inventory and limited control over third-party seller inventory. |
| AI Integration | AI can be used to optimize search results, personalized recommendations, and fraud detection. | AI can be leveraged for demand forecasting, automated reordering, and inventory optimization. | AI can be applied for demand forecasting, personalized recommendations, fraud detection, and inventory optimization. |
| Cost Efficiency | Lower operational costs as there is no need to maintain inventory. | May have higher operational costs due to the need for inventory management. | Costs can vary based on the extent of third-party inventory and company-owned inventory. |
| Flexibility | Offers flexibility in product variety and range. | Limited flexibility as it relies on the company’s inventory. | Provides a balance of flexibility by combining third-party inventory and company-owned inventory. |
| Customer Experience | Can provide a wide range of products and competitive pricing. | Offers better control over inventory availability and faster order fulfillment. | Can offer a combination of diverse product selection and efficient order fulfillment. |
| Risk Management | Lower risk as the responsibility lies with the sellers. | Moderate risk as the company is responsible for maintaining inventory. | Moderate risk due to managing both third-party inventory and company-owned inventory. |
Problems Encountered in Inventory Management
Demand Fluctuation
Demand fluctuations are caused due to seasonality and product popularity. Due to this most of the online retailers have to account for the same. For e.g., most stationary retailers face a challenge to supply the necessary item when schools reopen in India after summer vacation. During this time the demand will fluctuate more due to seasonality. Similarly for online apparel stores demand fluctuation will be caused by a particular product. Retails should be able to handle such situations by having better foresight.
Reverse Logistics
When online retailers face one of the greatest challenges to enhance customer satisfaction it is known as reverse logistics. The challenge is high product returns and therefore reverse logistics management is crucial for survival. When products are returned, they need to be organized into categories to see if they can be reused in different products.
Stockouts
When online retailers carry lesser inventory to reduce costs its benefits are widely acknowledged. But on the other hand, it may increase the risk of stockouts. Stockouts can cause retailers to face declining sales and customer satisfaction.
Managing SKU
This is mostly faced by online apparel retailers where they face problems in inventory management of information for various SKUs. This occurs because each product can have various sizes and colours.
Conclusion
In E-commerce, business is conducted electronically and it satisfies the objective of an individual. Manufacturers get various opportunities to sell and distribute directly to the customer through E-commerce. Along with traditional approaches that one adopted to control inventories, new tools and technologies are used to manage inventories in E-commerce.
Risk pooling allows to keep inventory management on hold allowing the supply party to do the same until it is needed at a downstream location. The replacement of inventory management with information allows for the utilization of inventory from any available stocking location to fulfil an order. This can be accomplished by either shipping the products directly from one of these stocking points or by transferring inventory from one location to another.
It is imperative for the employee to re-record his/her data and information when a customer purchases a product. It may result in data redundancy that leads to long-term maintenance requirements. In order to create prototyping for inventory management, Scrum methodology is used. AI tools also help the provider simplify the distribution network and manage inventory. A hyper-efficient logistic system is created by AI and big data in the smart E-commerce ecosystem.
