How Much Stock Should You Hold? A Practical Guide to Ecommerce Inventory Planning

Inventory is one of the hardest things for a growing ecommerce business to get right. Hold too little and you risk selling out of popular products, missing promotions and disappointing customers. Hold too much and cash ends up sitting on warehouse shelves, sometimes for months.
The challenge is that there is no single “correct” amount of inventory. The right stock level depends on demand, supplier lead times, seasonality, product type, order frequency, promotional activity and how predictable the business is. Good inventory planning is therefore less about keeping a warehouse full and more about maintaining the right stock, in the right quantity, at the right time.

More stock is not always safer
It can feel reassuring to have plenty of inventory available. After all, if a product is sitting in the warehouse, you cannot sell out of it. But excess stock creates its own risks. Inventory ties up working capital. Money invested in stock cannot simultaneously be spent on marketing, new products, staff or business development. The longer stock sits, the greater the risk that it will:
– become obsolete;
– go out of season;
– require discounting;
– be damaged;
– occupy valuable storage and pick space;
– become difficult to reconcile accurately.
For some products, excess inventory can eventually cost more to hold than the margin it produces. The objective is therefore not maximum stock availability. It is appropriate availability.

Start with demand, not instinct
Inventory decisions are often influenced by instinct. “This product always sells well.” “We usually need more around Christmas.” “We sold out last time, so let’s double the order.”
Experience is valuable, but as businesses grow, decisions should increasingly be supported by data. Useful questions include:
– How many units of this SKU sell in an average week?
– Is demand increasing or decreasing?
– Does demand change by season?
– Was the last sales spike caused by a promotion?
– How much variation is there from week to week?
– Are there specific days or months when sales consistently increase?
– Looking at averages alone can be misleading.

A product selling 100 units per week on average may actually sell:
– 50 units in a quiet week;
– 100 in a normal week;
– 250 during a campaign.
Those are very different inventory requirements.

Understand your supplier lead time
One of the most important inventory numbers is not sales volume. It is how long it takes to replenish stock. If a supplier can deliver within two days, the business may be comfortable operating with relatively lean inventory. If products take twelve weeks to manufacture and arrive from overseas, the business needs far more forward planning.
Lead time should include the full journey:
– Purchase order placed.
– Supplier processing or manufacturing.
– Freight.
– Customs where applicable.
– Delivery to the warehouse.
– Receipting and checking.
– Put-away into available inventory.
A shipment is not really “available” simply because the truck has reached the loading dock. Stock only becomes useful once it has been received, checked and made available for fulfilment.

What is safety stock?
Safety stock is additional inventory held to protect the business from uncertainty.
It provides a buffer when:
– sales are higher than expected;
– suppliers run late;
– freight is delayed;
– demand suddenly increases;
– replenishment takes longer than planned.

The appropriate level depends on how predictable demand and supply are. A business with stable demand and reliable domestic suppliers may need relatively little safety stock. A seasonal brand importing products with long and variable lead times may need considerably more. The important point is that safety stock should be intentional. Holding “a lot extra just in case” is not the same as having a stock strategy.

Reorder points matter
A reorder point tells the business when it is time to replenish a SKU. In simple terms, it needs to account for: Expected demand during the replenishment period + appropriate safety stock.
For example, imagine a product sells 20 units each day and takes ten days to replenish. The business expects to sell approximately 200 units while waiting for new stock. If it also wants a 50-unit safety buffer, the reorder point may sit around 250 units.
The precise calculation will vary by business, but the principle is useful:
Do not wait until stock is almost gone before thinking about replenishment.

Promotions change everything
Inventory planning should never happen in isolation from marketing.
If a retailer plans to feature a particular product in:
– an email campaign;
– paid social advertising;
– Black Friday activity;
– a new-product launch;
– an influencer campaign;
– a seasonal promotion;
– the warehouse and inventory plan should know about it.
Marketing can increase demand faster than replenishment can respond. There is little value in spending heavily to create demand for a product that sells out within hours. Ideally, promotional forecasting should be shared across ecommerce, marketing, purchasing and fulfilment teams before the campaign starts.
Slow-moving stock deserves attention Businesses naturally focus on what is selling. Slow-moving inventory can quietly accumulate in the background.
Over time, it can:
– take up warehouse space;
– make picking less efficient;
– tie up working capital;
– distort purchasing decisions;
– become harder to sell at full price.
Regular inventory reviews should identify SKUs with low movement. That does not automatically mean the product should be cleared. There may be legitimate reasons to keep it. But the business should know why it is there. If nobody can remember the last time a product sold, it should not remain invisible simply because there is still space on the shelf.

Inventory accuracy comes before forecasting
Forecasting is only useful if the starting numbers are trustworthy. If the system says there are 200 units but the warehouse physically contains 170, planning is already wrong. Inventory accuracy depends on disciplined warehouse processes including:
– correct receiving;
– location control;
– accurate picking;
– damaged-stock recording;
– returns reconciliation;
– stock adjustments;
– cycle counts.
A modern warehouse management process should create visibility over what is physically present and what is genuinely available for sale.

The danger of SKU growth
Growing ecommerce businesses often expand their product range. That can be excellent commercially but creates additional inventory complexity. A business going from 50 SKUs to 500 is not simply storing ten times as many products.
It now has:
– more replenishment decisions;
– more warehouse locations;
– more potential stock discrepancies;
– more slow-moving lines;
– more purchasing decisions;
– more opportunities for picking errors.
The complexity of inventory often grows faster than revenue.
That is one reason systems and warehouse discipline become increasingly important as an ecommerce business scales.

The goal: productive inventory
Good inventory management is not about having the fullest warehouse.
It is about making stock productive.
The right inventory position allows the business to:
– fulfil orders reliably;
– avoid unnecessary stockouts;
– respond to campaigns and seasonal demand;
– limit excess stock;
– protect working capital;
– maintain accurate availability online.
A good fulfilment partner should support that objective by providing accurate stock visibility and controlled inventory processes, rather than simply offering somewhere to store pallets.
The question is not:
How much can we fit in the warehouse?
It is:
How much do we actually need?

Need better visibility and control over your ecommerce inventory? DMC provides warehousing, inventory management and fulfilment support for growing businesses.
Talk to DMC about 3PL fulfilment