6 major inventory management challenges in eCommerce — and how to solve them
March 16, 2022
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.
4. Factory closures in manufacturing countries are creating production backlogs
Pandemic- and infrastructure-related disruptions continue to impact factory operations in manufacturing countries, which poses another major challenge to inventory management. Forced factory closures in China, Vietnam, and other places throughout the APAC region are creating massive backlogs and delays. Founders need to be especially alert to the conditions on the ground in countries where their manufacturing facilities are located.
Last year, for instance, factories in China were cut off from power and faced electricity rationing as a result of coal-fired power plants in China shutting down. The move was tied to high coal prices on commodities exchanges. Textile and plastic factories were particularly hard hit. One sales director at a cotton textile printing firm noted an increase in wait times from 15 days to 30–40 days.
Coronavirus restrictions in Vietnam shut down factories in the fall there, too. Analysts at BofA Securities expect the impact of these delays to last well into 2022. That’s going to create sourcing disruptions for eCommerce companies looking to fill inventory orders this year — you’ll likely still have a hard time finding stock and getting your orders filled on time.
It’s crucial to be conscious of the bigger picture and have insight into the local and national conditions at your manufacturing plants, as well as the true impact of any delays, so you can plan ahead as much as possible and pivot quickly when you can’t. In the case of China’s electricity rationing, for example, you may not know what the price of coal is in China’s market. This is just the start of a long chain of effects that can be easily missed, but the impact on your business can be significant.
5. Long lead times are making it harder to keep products in stock
Supply chain shortages and disruptions have created impossibly long lead times for eCommerce companies to order and receive their stock. That makes it difficult to plan ahead and stay on top of customer demand without selling out of products — or over-ordering stock as a contingency and having to sit on it.
Managing lead times is a challenge for companies that often need several different materials ready and in stock in order to actually ship a product. For instance, for Wayflyer customer Petz Park, pet food is their core product. They manufacture everything in Australia, where they’re based. But some of their ingredients and packaging supplies, like plastic scoops, come from overseas. Everything needs to be received on time in order to ship out to customers.
For certain industries, like health and beauty, it’s common practice to source products from all over the globe. Keeping everything in stock becomes an even bigger challenge — and your customers are often purchasing multiple products to use together, so it’s important that they’re all available. For example, if you’re selling high-end skincare products, you may have suppliers in Italy, Switzerland, Germany, and Vietnam.
Each of those suppliers needs to produce at the same level without delays or backlogs, or customers will be waiting on products. If one supplier gets behind or has a longer lead time than the others, it becomes much more challenging for you to manage on the inventory side. You risk your customers shopping elsewhere for the products they need or related stock spoiling while waiting for delayed deliveries.
6. Lack of visibility into supply chain practices is creating consumer distrust
Customers are more aware of ethical issues when it comes to their purchases. They expect greater transparency into how and where everything is sourced because of that. According to a survey conducted by IPSOS Mori, over 70% of respondents agree that clothing brands “should be responsible for what happens in their manufacturing process and should take measures to ensure that the clothes are manufactured in an environmentally friendly way.”
However, gaining true supply chain transparency is a challenge for eCommerce brands. Not every supplier will make their operating practices known to you. It creates extra legwork for you to find suppliers that are willing to give you those details, and it may cost more, too. But it’s more important than ever for you to gain that visibility into what’s happening in your own supply chain because your customers will expect that from you. They expect you to know who you’re buying from, the working conditions in the factories, the environmental impact, and more.
The eCommerce businesses that will ultimately prevail over the next 12–18 months will be the ones that do more than pay lip service to ethics and are open about their practices
The eCommerce businesses that will ultimately prevail over the next 12–18 months will be the ones that do more than pay lip service to ethics and are open about their practices. If your supply chain practices don’t live up to your brand promise downstream, you’ll have a hard time keeping your customers’ trust.
How to solve eCommerce inventory management challenges in 2022 and beyond
Develop strong relationships with manufacturers
Your manufacturer relationships are the core of your inventory management. Build strong relationships and negotiate on freight costs, purchase terms, sampling, and more to prime your company for sustainable growth, not short-term survival.
Better relationships with your manufacturers can help you:
- Gain visibility into long lead times and backlogs, even avoiding them where possible
- Improve your supplier terms and even share some of the freight costs, so stock is less expensive
- Gain transparency into supply chain practices, so you can keep customers’ trust
You’ll get a true picture of the impact of production delays and lead times, helping you plan ahead with inventory orders. You’ll also likely encounter friendlier purchase order or contract terms with suppliers. Transparency also stems from strong relationships. Establish frequent communication with your suppliers in order to learn details about supply chain practices and environmental impact.
Suppliers don’t want to lose your business completely just because freight costs have gone up. If you can’t completely absorb the rise in shipping costs yourself, talk to your manufacturer.
High costs, especially high freight costs, may still be a concern. So here’s a tip from the Wayflyer team: Suppliers don’t want to lose your business completely just because freight costs have gone up. If you can’t completely absorb the rise in shipping costs yourself, talk to your manufacturer. We’ve seen some manufacturers account for 50% of freight costs in order to keep eCommerce companies producing with them.
And if you need to relocate your manufacturing operations due to factory closures in certain countries or other backlogs and delays, we can help you connect with other suppliers. We’ll proactively identify the right fit for your particular product and industry.
Use revenue-based financing to solve working capital problems
The cost of inventory and shipping plus longer lead times means you need to pay more for stock and wait longer until you see a return. Traditional funding options, with high-interest fees and non-negotiable terms for repayment, are not a great fit to help you manage these challenges. You have to repay your lender every month whether or not you’ve actually received your product yet or made any profit.
A better solution is revenue-based financing, a type of funding with flexible remittance options to reduce the strain on your cash flow. Instead of a fixed amount every month, remittances are based on a percentage of your daily sales.
Revenue-based financing helps you solve:
- Long lead times and backlogs for inventory because you can order enough product in advance without putting too much strain on your cash flow
- Rising cost burdens for stock because you can more easily access working capital upfront
- Resources needed for product development because you’ll get working capital to manage inventory costs and free up other funding and capital, like equity, to bring new products to market
At Wayflyer, we understand the challenges eCommerce founders face, especially in the current turbulent landscape. We help you access funding quickly and pay it back on terms that make sense for you. Our remittance terms are flexible and geared toward fast growth for your company. That’s why we also cap the maximum we collect in a day — so when your business is doing well, you’re reaping the benefits.
Leverage inventory planning to stay ahead of demand
Gone are the days of buying stock in bulk for Black Friday or seasonal rushes. Because of supply chain shortages and the lack of insights you can gather from mobile and paid media sources, you need to keep more stock on hand throughout the year. Plan ahead for delays or other disruptions, so you have enough inventory to meet demand, even when things go wrong.
Inventory planning helps you solve challenges related to:
- Failure to predict consumer demand from paid media; instead, you can gather inventory insights through other avenues to accurately meet demand and keep products well-stocked
- Factory backlogs and delays because you’ll keep enough of a buffer throughout the year so that products are in stock
- Long lead times on multiple products because you’ll gain visibility into when you need to order inventory from each supplier and how much to order in advance
Use all of the analytics at your disposal to figure out when you need stock, how much you need to order at a time, and what your contingency plan is when things fall by the wayside.
Inventory planning requires forecasting through real-world data in order to accurately predict trends. Use all of the analytics at your disposal to figure out when you need stock, how much you need to order at a time, and what your contingency plan is when things fall by the wayside.
Once you’re connected to the Wayflyer platform, we give you detailed insights into data that can help you with certain components of inventory planning. Insights include customer lifetime value (LTV), SKU-level data, and info on best-selling products. Apply these analytics to stay on top of demand well in advance, order enough stock to ride out delays, and raise your total ROI on inventory planning.
Improve product quality and lower inventory costs with Wayflyer
While these inventory management challenges are the result of different influences — some new trends, some an inherent part of doing business as an eCommerce company — they can’t just be looked at as siloed or segmented. They’re overlapping and intersectional in nature — the result of the complexities of eCommerce inventory and supply chain management in a pandemic-disrupted world.
To successfully manage your inventory in 2022 and keep growing your business, you need a partner that can help you tackle each challenge cohesively — through revenue-based funding options, robust inventory planning, improved manufacturer relationships, and a commitment to product development. That’s where Wayflyer comes in. We help founders solve their biggest inventory headaches at the root while lowering costs and improving their access to capital.