6 major inventory management challenges in eCommerce — and how to solve them
Dysfunction at U.S. ports, shipping container scarcity, and factory closures are among the factors contributing to retail delays and shortages around the world. According to Phil Levy, chief economist for freight forwarding company Flexport, it’s “unlikely” the overall supply chain bottleneck will clear up in 2022 — in fact, it could take years. Yet supply chain blockages are just the tip of the iceberg when it comes to the challenges that eCommerce startups have to wrestle with in 2022.
Most founders are navigating how to predict and meet demand, bring new products to market, and manage supply chain strains. While there are many challenges, they’re universal to every eCommerce founder — and there are solutions out there if you have a trusted partner by your side.
1. Rule changes mean paid media insights are failing to predict consumer demand
Last year, Apple released iOS 14.5, which changed the game for paid media advertising on Apple devices for all companies. Apps like Facebook are now required to ask for user permission to track their activity across other websites and apps, effectively limiting the amount of user data Facebook can collect. In short, there’s less data available for you to accurately predict demand from an inventory standpoint and to effectively target customers with ads to get them to make a purchase.
Flurry, a mobile app analytics platform, found that only 21% of worldwide iOS users and 15% of U.S. users opted in to app tracking as of September 2021. Prior to the update, approximately 70% of users were sharing data with advertisers. That’s a significant drop-off in tracking and information sharing, which limits the amount of personalized data you can use to target customers through paid media.
Essentially, you’ve gone from being able to target about 70% of your customers on Apple devices with personalized digital ads to only 15-20%.
Essentially, you’ve gone from being able to target about 70% of your customers on Apple devices with personalized digital ads to only 15-20%. It’s become harder than ever for eCommerce companies to get quality traffic to their sites and to drive a purchase since there’s less unique customer data to use in segmented ads.
There’s also the longer-term problem of how to best manage stock without that data, so you can anticipate how much to order of each product — eCommerce companies can no longer rely on pulling detailed insights from paid media like Facebook advertising for visibility into consumer demand and inventory trends. That adds more pressure for you to build up stock, so you’re not selling out of any items, and, in turn, increases your inventory costs.
And, when you finally do get a customer to buy from you, you want to maximize their purchase by increasing the average order value. That takes additional investment in your product development, so you have a nice array of complementary products to boost basket size at checkout.
2. Startups need to invest extra time and resources into bringing new products to market
Rolling out new products is always important to stay competitive down the line. And the more accessories and complementary goods you have on your site, the more customers are likely to add to their baskets. You’ll maximize purchases this way, putting more money in your pocket and helping you accelerate growth.
But the process to prototype and develop new products is often a challenge for eComm founders for two main reasons. It’s cost-prohibitive and lengthy:
- Costs: There’s often a high cost of entry for materials or even capital equipment in order to start producing. If your company sells textiles, for example, there will be a minimum order quantity to purchase. If your company manufactures another type of product, you may need to invest hundreds or thousands of dollars in tooling or moulds just to get started.
- Timelines: There are several phases of product development you need to go through before launch, and it takes time to get through them all and perfect your product. You start with the sampling and prototyping phase, where you typically need to go back and forth with your supplier several times until you have a suitable prototype. Then, you need to sign off and produce in bulk before you can actually launch and start selling to customers.
These logistics make bringing any new product to market difficult and costly. It takes several iterations on a product or component design, and it could be months or years before you have your product in stock and ready for customers to order. This process is complex under normal conditions, and, right now, we’re not experiencing normal conditions in the supply chain. The research and development process can quickly become a bottleneck. When that happens, your projects become unreliable, and you can’t generate income effectively.
To tackle the challenge of product development, you need a strong working relationship with your suppliers and access to capital to invest in future improvements.
3. Stock is more expensive, thanks to skyrocketing freight costs and strict supplier terms
Freight costs continue to rise, causing even more strain on eCommerce companies’ bottom lines. Inventory orders are expensive to place, and supplier terms can sometimes be unfriendly or inflexible if you don’t have a prior relationship established.
Demand for sea freight still outpaces shipping container availability, which is a big reason why prices are still shooting up. In December, the price to ship a sea container from Shanghai to Los Angeles was 75% higher than the same time in 2020, according to the Wall Street Journal. That, paired with the container shortage and delays at ports, is creating an untenable mix for eCommerce companies. They’re unable to get their orders in time, so they’re forced to consider paying for air freight. Shipping by air is often several times more expensive than sea freight, which squeezes their margins even more.
For founders who are just starting out, they’re also still navigating the waters of building relationships with suppliers. They may not be getting the best terms on their shipping contracts or the fairest deal on minimum order quantities and payment terms for purchase orders. Combined with the cost of the freight itself, that places a bigger financial strain on the company when it comes to ordering stock.
Costs are running so high for some companies that they’re operating solely in survival mode. They’re making day-to-day decisions to stay afloat, which means they can't test or develop new product lines. This means they're not able to cultivate future revenue growth, and it becomes a vicious circle.