How to Source Products and Manage Inventory for an E-commerce Business?

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Subham Kumar

Mar 18, 2024 — 5 min read

How to Source Products and Manage Inventory for an E-commerce Business?

This article has been contributed by Dr. Somdutta Singh, Founder & CEO Assiduus Global Inc, LP Angel Investor, Author and Ex-Member Niti Aayog.

E-commerce sales are expected to surpass $8.1 trillion by 2026.
95% of all shopping will be done online by 2040.
205 million people worldwide turn to online shopping daily.
95% of global purchases are expected to be through E-commerce businesses by 2040.

Why do you think I started writing an article with staggering numbers? Perspective. To give you a viewpoint of how monumental the E-commerce landscape is.

As cliche as it sounds, the online shopping landscape is booming, offering businesses and individuals the exciting opportunity to connect with a global audience from the comfort of their living rooms.

But, with great opportunities come challenges. And that's what I am here to talk about.

The Current State of E-commerce
How To Find The Right Supplier?
Inventory Management
How to Balance Supply and Demand?

The Current State of E-commerce

The global E-commerce market boasts a current valuation of USD 6.9 trillion, representing nearly 20% of all sales worldwide. Projected 10% growth by the end of 2024 also underscores its vast potential.

Adaptability to shifting trends and consumer behavior will be key for businesses looking to succeed in the evolving E-commerce landscape.

The need for E-commerce in today’s landscape is more apparent than ever.

How To Find The Right Supplier?

Finding suppliers may not seem very hard when everything is online. However, every supplier might not be the right choice for you.

Understanding Different Sourcing Methods

When it comes to sourcing products for your store, there are a few different methods to consider. Understanding the options, you have will make it easier for you to find suppliers in the long run. Here are the common methods for sourcing products:

Wholesalers: Wholesalers allow you to purchase products in bulk at discounted prices to resell with a markup. Finding wholesalers might not be too difficult. You can use online directories (eg. Flipkart Wholesale or IndiaMart) or attend industry trade shows. However, in such a case, the wholesaler will ship to you and you are responsible for distributing the products to your customers. This is great for general goods, such as groceries, or as an intermediate step for finding raw materials for handmade or DIY products in your store. Making use of wholesalers would also require you to have a warehouse.
Dropshipping: Dropshipping has become extremely popular in recent years and is an alternative to wholesale distributors. In this method, the business owner partners with suppliers who handle inventory and ship directly to your customers. Compared to the wholesale models, you don’t have to worry too much about inventory management and have much lower upfront costs.
Manufacturers: It is also possible to bypass distributors completely and work directly with manufacturers to create or source your products. This allows for customization and potentially lower costs. However, this method may require larger order quantities.

Evaluating Potential Suppliers

Once you’ve understood the different sourcing methods you have, you are still left with evaluating the right suppliers. Consider the following when evaluating suppliers:

Perform quality checks: Request product samples, read online reviews, and research their reputation to ensure product quality aligns with your standards.
Reliability and communication: Seek suppliers with quick response times, consistent pricing, clear communication, and efficient order processing.
Pricing and payment terms: Understand all costs involved, including shipping and possible import fees. Negotiate favorable payment terms.
Location: Consider the supplier's location, as it impacts shipping costs, lead times, and ease of communication.

Inventory Management

Effective inventory management is a crucial pillar for not only maintaining a sustainable business but also ensures scalability down the line. There are different strategies when it comes to inventory management as well.

ABC analysis: In this technique, products are categorized into three groups (or class) based on their annual value demand. In this division, high-value or high-demand products are categorized as A, medium-value products are categorized as B, and low-value products are categorized as C. This type of division helps allocate resources more effectively, allowing tighter control of the inventory depending on product demand.
Just in time (JIT) inventory management: JIT inventory management is a method that is ideal for businesses that don’t require a huge inventory, and where demand is predictable and consistent. In this type of inventory management, the owner stocks the inventory as and when needed, depending on the number of orders. This type of inventory management can minimize storage costs and works well with reliable suppliers and predictable sales patterns.
First in, first out (FIFO) method: If you’re selling goods that have an expiration date, or are perishable or seasonal items, then consider this method. In this, the older stock is sold first to prevent products from expiring or becoming obsolete.
Safety stock: A very popular inventory management method is to maintain a buffer inventory level, aka a safety stock, to handle unexpected demand surges or delays in shipments. It is commonly used to plan for unexpected risks and maintain a steady output.

How to Balance Supply and Demand?

Finding suppliers and effective inventory management is only one part of running a business. Without balancing supply and demand, businesses risk either running out of stock, leading to missed sales opportunities and dissatisfied customers, or being stuck with excess inventory, tying up valuable capital and increasing storage costs.

Balancing supply and demand is essential for maintaining a healthy cash flow, optimizing inventory turnover, and ensuring customer satisfaction.

Accurate demand forecasting: Make full use of data to accurately forecast product demands. Analyze past sales data to identify trends, seasonality, and patterns in customer behavior. This helps predict future demand fluctuations and anticipate peaks and troughs in sales. It also helps if you can adapt to changes in market dynamics and anticipate shifts in customer demand. To do that, you need to stay informed about industry trends, emerging products, and competitor activity.
Maintaining optimal inventory levels: Maintaining optimal inventory levels involves several key strategies. Firstly, setting reorder points is crucial. Establish a minimum stock level at which you need to reorder to avoid stockouts. It's also important to factor in lead times to ensure timely replenishment. Secondly, monitoring stock levels regularly, either manually or using inventory management software, helps you stay aware of inventory levels and make informed decisions. Lastly, and I cannot stress this enough, make full use of data. Using data-driven approaches for order quantities, based on historical sales data, forecasting models, and current demand trends, you can avoid overstocking and maximize profitability by ordering just the right amount.

Concluding Thoughts

Effectively overseeing an E-commerce business demands a strategic mindset and a commitment to continual learning and adjustment. It's crucial to consistently evaluate and improve your strategies to keep your E-commerce venture competitive and responsive to customer needs in the dynamic online market.