Bulk Inventory Management: Weighing the Pros & Cons
Updated January 30, 2023.
It's important for any e-commerce business to have an efficient inventory management system in place, but especially when you manage bulk inventory.
Bulk inventory management (BIM) has 3 steps: ordering your stock in big quantities, storing the stock while it sells, and re-ordering new stock as you sell out.
Below, I examine the advantages of BIM while also weighing its potential risks. By understanding both sides, you can make an informed decision about whether BIM will help you manage your Shopify inventory better.
4 Advantages of BIM
With BIM, you can manage and track inventory levels, order fulfillment, and product availability. This makes keeping an eye on your products, orders, and customers easy.
Let's discuss the advantages of BIM in more detail.
1. Access to Bulk Discounts & Wholesale Pricing
By ordering large quantities of stock, you can negotiate with your supplier for a better price. In turn, you can use this extra margin to adjust your own selling prices or run specific promotions that will help your store stay competitive in the ever-changing online market.
2. Reduces Risk of Product Shortages
Perhaps the most obvious advantage of bulk inventory is that your risk of running out of these products decreases. It also means that you're less likely to lose customers and sales to competitors because your products are available.
3. Accelerates Order Fulfillment
Building on the previous point: if stock is readily available then it's easy and quick to fulfill customer orders. Think of the great impression your store and brand make if you can deliver a full order on a tight deadline. Customers don't have to wait for backorders or search for another store that can supply them sooner.
4. Enables Swift Replenishment
Depending on how quickly your bulk products sell, it's easy to monitor the stock levels and place another bulk order for these products as your stock levels dwindle. You also don't have to re-order that often compared to single products that you keep in minimal quantities.
» Here's how an automated inventory system can help you
5 Disadvantages of BIM
Despite its above-mentioned benefits, BIM also has drawbacks—particularly when it comes to cash flow and warehousing. Follow along as I delve into this more.
1. No Margin for Error in Sales Forecasts
Without a margin for error, you can't plan ahead if sales don't meet expectations. This can lead to overstocking or understocking, causing your business significant financial losses in the long run.
» Opening inventory: Determine how much inventory you should start your Shopify store with
2. Warehousing & Storage Solutions Become Costly
Warehousing and storage solutions can become costly. Firstly, you'll simply pay more for the space necessary to store your bulk inventory as opposed to the space for a few items because you only order stock as you receive customer orders. Secondly, if your sales forecasts are incorrect, you must still pay to store your products regardless of if they're selling or not.
3. Higher Risk of Inventory Becoming Obsolete
Another potential risk is that inventory may become obsolete if you don't sell it in a timely manner. This may happen if you don't effectively monitor and adjust your inventory levels or you don't properly plan your inventory forecasting, particularly when it comes to products that are seasonal or a temporary trend.
» Learn how to clear deadstock inventory
4. Minimizes Available Cash Flow
BIM can affect your available cash flow greatly. Again, if your sales forecasts are incorrect, you may end up with an overstock of certain products. This means that your cash is tied up in excess inventory that's costing you money because you still need to pay your supplier, storage, insurance, etc.
5. Typically Results in Higher Insurance Premiums
Your inventory is always valuable, but even more so when you work in bulk. Consequently, your insurance premiums can be higher because as your inventory levels increase, so does your risk. You need to properly insure your inventory against damage, theft, etc.
» Find the best inventory management system for your Shopify store
I recommend bulk inventory management as a strategy for well-established companies. Whenever you work with large quantities, you must be able to capitalize on economies-of-scale, otherwise the venture isn't worth it. If you're a start-up or a young company, your risks are far greater at the moment than the advantages you would gain from this strategy. The costs of warehousing and insurance alone might make it unfeasible.
But whether or not you opt for bulk inventory management for your store, having a better grasp on your out-of-stock items can't hurt. For my own store, using the Out-of-Stock Police app by Egnition greatly improved my inventory management strategy.