Using the Kanban Inventory System Beyond Manufacturing: Online Retail Inventory Management

Online shopping has become a way of life for people around the world. And businesses are recognizing the importance of maintaining a digital presence if they want to thrive in a highly competitive market. But operating an online store is not a piece of cake.

When you have a brick-and-mortar shop, you can physically see the goods and do manual inventory audits. But when you manage an online store, you can get orders from multiple channels. Orders can come from social media, your website, mobile channels, and your customer hotline to name a few. Not having a robust online retail inventory management system can hinder your success.

Common Problems in Online Retail Inventory Management

Let’s look at some of the common challenges online retailers face when it comes to inventory management.

Overselling

If you don’t take control of your inventory, it’s only a matter of time before it can no longer catch up with your purchases. The beauty of online retailing is you can reach out to customers in multiple ways. The ugly side of it is inventory management can be complicated. Imagine how frustrated your customers will be to know that the item they purchased is no longer in stock. There’s no guarantee your customer will be willing to wait for a restock or try ordering again in the future. That’s a lost sale and customer altogether. An effective online retail inventory management system can help you stay in control of your inventory. It helps you know when is the right time to replenish your stocks.

Poor Inventory Forecasting

If you’re forecasting inventory based on gut feel, you’re going to take on higher inventory costs or higher losses due to missed sales. You need to be prepared for the peak seasons like Christmas, New Years, and Black Friday. But you also have to be prepared during the off-peak seasons. Finding the right balance and knowing how much inventory to stock up on per period is a must for any online retail inventory management system.

Lack of Actual Data to Drive Decisions

All online retail inventory management problems relate to the lack of data to drive decisions. Not using actual data to plan your inventory can prove to be costly and ineffective. Having access to data can help you determine your best-sellers. It can also help you identify patterns in your consumers’ purchasing behaviors. It can help you align your order fulfillment process depending on product demand. An effective online retail inventory management system empowers you to make informed decisions on how to effectively manage your inventory levels.

How the Kanban System for Inventory Management Works

Kanban has been used in manufacturing for decades. When Kanban was first introduced and conceptualized by Toyota, its main focus was to effectively manage inventories and material flow on the shop floor according to the Just-In-Time system. But its concept has been proven effective and useful even for industries outside manufacturing. And online retailers can certainly learn a thing or two from implementing Kanban for their inventory management system.

Here are Toyota’s six rules for an effective Kanban inventory management system:

1. Customers (downstream processes) withdraw items in the precise amounts specified by the Kanban.
2. Suppliers (upstream processes) produce items in the precise amounts specified by the Kanban.
3. No items are made or moved without a Kanban.
4. A Kanban should accompany each item, every time.
5. Defects and incorrect amounts are never sent to the next downstream process.
6. The number of Kanbans is reduced carefully to lower inventories and reveal problems.

In terms of online retail inventory management, Kanban can be used to align inventory with actual customer demand. Store owners can use Kanban to trigger replenishment depending on a threshold. You can get your inventory levels as close to what’s actually needed. As you fulfill orders and gather more data to model your purchase levels, you can then better plan your inventory for future cycles and seasons. The key concept of Kanban for inventory management is having the means to visualize your inventory flow in terms of your order fulfillment process.

Using Online Inventory Management Software for Retail Businesses

There are many online retail inventory management software and applications available. Some have an integrated Kanban system to manage your inventory and order fulfillment processes. There are others that you can integrate with your online store’s backend to trigger the creation of Kanban cards that would be used for your inventory planning activities. For example, you can trigger the creation of Kanban cards whenever an SKU falls below your stock threshold. This will serve as a signal for you to replenish the affected SKU.

You can use a Kanban system to execute inventory management activities such as forecasting and planning inventory, supplier coordination, and stock monitoring. Online retail inventory management systems also have built-in reports and analytics which will help you make informed decisions when it comes to managing your inventory.

Using an online retail inventory management software will allow you to have a centralized view of your store’s demand and be able to plan more effectively. It’s important though for any inventory management software to be integrated into all your sales channels. Only then will you have accurate data and can drive better decisions moving forward.

The Future of Online Retail with Kanban

Taking control of your inventory means managing its flow, using data to drive decisions, and looking where to improve your process. When you let customer demand dictate production and inventory levels, you control your costs while keeping customers satisfied. This is how a pull system works and exactly what Kanban is about.

Online retail will continue to evolve and businesses will continue to expand their presence across multiple channels. Having a fully integrated online retail inventory management system ensures that you have a single source of data for your business. Superimposing Kanban onto your business processes such as inventory management allows you to visualize just how things are flowing. This will help you stay on top of things and maintain optimized inventory levels at all times.