How e-commerce companies optimize inventory costs and supply chain management

E-commerce companies often face a variety of challenges when managing inventory costs. This article will integrate different methods and technologies to help e-commerce companies better understand and optimize their inventory cost management.

Inventory cost calculation method

First in, first out (FIFO)

The first-in-first-out method is a commonly used inventory cost calculation method. Its core concept is that goods put into storage first are sold first. This method is suitable for products that are date-sensitive and prone to spoilage. Adopting the FIFO method can help reduce the risk of expired inventory, but it may also lead to inflated profits and increased tax burdens when prices rise.

Last in, first out (LIFO)

The last-in-first-out rule is the opposite of FIFO, which assumes that goods recently put into storage are sold first. This approach can lower reported profits and reduce income tax expenses when prices rise. However, the LIFO method may not be suitable for items that require rapid turnover.

Individual pricing method

The individual pricing method requires that each batch of goods be priced individually. This method is suitable for products with higher unit prices and fewer varieties, such as jewelry or art. While this method accurately reflects the cost of each item, it is a lot of work to implement.

Weighted average method

The weighted average rule averages the costs of all inventory items. This method is suitable for goods with small price fluctuations and a small variety, and can simplify the cost calculation process.

Control inventory strategy

Pull vs. push inventory management

In order to manage inventory more effectively, e-commerce companies can adopt a pull or push inventory management model. The former emphasizes production based on customer demand, while the latter is based on predictions. Pull systems such as just-in-time (JIT) can reduce unnecessary inventory backlogs and improve efficiency.

Reduce unavailable inventory

In response to the problem of unavailable inventory, e-commerce companies should consider shortening delivery times, optimizing the batch delivery process, and taking measures to prevent the generation of unsaleable goods. For example, measures such as reducing transit time through improved supply chain management and using the first-in-first-out principle to handle goods can help reduce ineffective inventory.

Increase inventory on demand

It is also important to arrange the timing of replenishment reasonably. Quantitative replenishment is suitable for goods with stable demand and low unit prices; dynamic replenishment is suitable for items with large demand fluctuations and high costs. In this way, companies can better match market demand and avoid the risks of excessive inventory.

Cost and quality balance

Finally, balancing cost and quality in purchasing decisions is also critical. E-commerce companies should ensure that purchased items are both economical and reliable by establishing independent quality management departments, implementing strict supplier certification procedures, regularly evaluating supplier performance, and setting clear quality standards. In addition, suppliers should also be helped to improve product quality and jointly seek the best cost performance.

In summary, by using appropriate inventory calculation methods, control strategies and cost quality management techniques, e-commerce companies can effectively reduce inventory holding costs while ensuring service levels.