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How Big Data is Improving Inventory Management

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With online retail sales showing no signs of slowing, the opportunity for business growth is monumental. 

The challenge, however, is that as the ecommerce industry evolves, so do your customer’s expectations around a multitude of things — not least of all product availability. 

Consumers’ demand for instant gratification has fewer shoppers willing to tolerate stockouts; instead, they’re favoring convenience over loyalty. 

31% of online shoppers will switch to a competitor the first time a product is unavailable on their preferred site. This rises to 50% on the second occurrence and to as much as 70% on the third. 

The bottom line is, shoppers want to be able to purchase the products they want, when they want them, on the channels they prefer. 

Failing to have the stock to fulfill this demand will, at best, put you at risk of missed sales opportunities. At worst, it can lead to a damaged reputation and loss of future customers. 

But how exactly do you go about meeting customer demand without holding excess stock? In short, by leveraging the huge amount of data in your inventory management system. 

The Current State of Inventory Management

Driven by increasing demand for competitive efficiency, today’s inventory management capabilities go beyond ensuring accurate inventory and automating key business processes — once considered to be a revolutionary development for achieving speed and accuracy in ecommerce. 

Today’s inventory control systems now also hold the key to powering business insights that can help you make data-driven decisions for increased productivity and profitability. 

These systems leverage historical data and apply data analytics to forecast future demand. More specifically, effective inventory management software can process vast quantities of your past sales data and anticipate future demand for your inventory by factoring in lead times and seasonality. 

While balancing product availability against anticipated market demand has historically been a difficult task, advanced inventory management systems make demand forecasting possible.

And there’s more: in this era of big data, an inventory system can also provide you with unparalleled insights into customer behavior, product performance, and channel performance, made possible even for large retailers with huge datasets. 

These datasets include information on:

Big data is defined as extremely large datasets that can be rapidly analyzed to reveal patterns and trends, including, for example:

  • How much inventory is required to meet demand while keeping stock levels to a minimum.

  • How to optimize the management of stock.

  • How to reduce the impact of product recalls.

  • How to enable cross-selling to improve the performance of slow-moving stock.

Ultimately, inventory management solutions are now equipped to apply a level of data science to power insights such as those listed above. With big data continuing to evolve across the SaaS space, it’s likely that these insights will become even more advanced.

5 Ways Big Data is Improving Inventory Management

Throughout this section, we will provide a deep dive into some of the ways that big data is not only improving inventory management capabilities, but how it’s also powering insights into patterns and trends that can be leveraged to improve business operations.

After all, big data is only as good as the retailers utilizing it. 

1. Improving operational efficiency.

To compete in the competitive ecommerce playing field, you must be able to offer your customers the best possible experience while keeping your costs to a minimum without compromising quality.

In other words, you need to improve your operational efficiency.

This is difficult enough even for small businesses with limited inventory levels and order volumes, but as your business scales, maintaining — let alone maximizing — efficiency can become an even bigger challenge.

An inventory management system can help.

Inventory sits at the heart of your retail operations. Gaining complete oversight of your stock with inventory tracking software can help to reduce friction in the supply chain. Inventory management is just one component of supply chain management, but here are some of the friction points it can help to resolve: 

  • Unavailable products resulting in stockouts and missed sales opportunities.

  • Incorrect stock levels resulting in overselling.

  • Slow order fulfillment resulting in disappointed customers and damaged reputation.

Using big data to prevent stockouts

Stockouts are a big concern for online retailers. If a product is out of stock, there’s a strong chance your shopper will seek that product from an alternative retailer. That means you not only stand to miss out on that sale to a competitor, but you may even lose out on future customers. 

While stockouts are, to some extent, inevitable, using big data can help to minimize their impact.

First, calculate your lead times. You need to know the number of days it takes for the product to reach your warehouse once you’ve placed your purchase order with the supplier. 

A good inventory management system can factor in these lead times along with existing sales data to calculate your safety stock and recommend reorder points for each item. Reorder points will inform when stock should be replenished, so that you have enough to fulfill demand.

Using big data to prevent overselling

Selling on multiple sales channels is one of the best ways to fast-track your business growth. But if you’re not synchronizing your stock levels across each channel, you risk selling products that are no longer available. 

By acting as a central repository for your stock, inventory management software significantly reduces the occurrence of overselling by reflecting available stock levels in real time.

Even better, inventory count data can help you determine how much inventory should be made available on each of your sales channels. 

Using big data to speed order fulfillment

Your ecommerce business data can improve your order fulfillment speed. Many systems will enable automated shipping rules. For example, once an order is received, it can be automatically assigned to the warehouse closest to its destination, speeding up delivery and reducing shipping costs.

That’s not all though. With stock being fulfilled from your warehouse, inventory management software with warehouse management capabilities can have a huge impact in maximizing operational efficiency. 

Warehouse management software dictates where stock should be stored once it is booked into the warehouse, but it can also advise staff of the items’ exact locations so they can optimize their picking routes. 

Ultimately, by applying intelligence to big data, these systems can recommend stock movements within the warehouse so the flow of goods is constantly optimized to minimize the time it takes for staff to pick and pack goods.

2. Maximizing sales and profit margins.

As a business owner, it’s in your best interest to maximize sales and boost your profit margins. One of the biggest advantages of having a wealth of ecommerce data is the opportunity to obtain insights that allow for smarter and more profitable decision-making. 

These insights can include, for example, customer purchasing trends, best and worst performing sales channels, and best and worst performing product lines. Let’s take the latter as an example.

Running reports on individual inventory item performance, you can stay on top of stock replenishment and make more informed merchandising and purchasing decisions. For example, is an item performing badly because it isn’t being promoted enough? Or is it because there isn’t any demand for it?

Continuing to stock goods that are difficult to sell can increase your inventory carrying costs and eat into your profit margins.

Alternatively, if certain items are flying off the shelves, it could be a sign that demand is on the rise. In these cases, more stock could equate to more sales opportunities. 

Data can also maximize sales by enabling successful sales across multiple channels and multiple markets. We’ve talked about product demand a lot, but the reality is that demand may differ across different channels. 

In fact, with visibility into your inventory and channel performance, you can determine promotional and pricing strategies based on demand, which can therefore maximize sales.

 3. Increasing customer satisfaction**.**

The insights obtained from inventory management software can also enable a better buying experience by helping you understand the key reasons driving product returns and make subsequent business decisions. 

Some examples of those decisions may include: 

Switching to a more reliable carrier service

The performance of your chosen carrier services can reflect on your business — good or bad. That’s why it’s so important to keep tabs on the reasons why customers are returning products. 

Having the ability to log return reasons at the item level within your system is crucial to understanding if certain products are being returned as a result of the carrier.

More specifically, this data can allow you to identify poor-performing shipping providers or even items more susceptible to damage, so that you can act to avoid customers repeatedly becoming dissatisfied.

Improving product descriptions

Product not as described? 

With this being a common reason driving returns, understanding the stock item in question can allow you to assess whether your product descriptions or images are accurately conveying the product. 

Making sure you’re shipping the correct items

One of the main culprits of product returns is the customer receiving the wrong item. One of the best ways to achieve this is by eliminating picking errors in the warehouse through the use of barcode scanning.

More specifically, if a warehouse employee was to accidentally pick the wrong item, a barcode scanner would immediately notify them, allowing them to correct the mistake before shipping it to the customer. 

Making smarter purchasing decisions

Let’s assume that you sell apparel and you’re experiencing a high volume of returns relating to poor quality of specific garments. You may want to consider alternative products — or even, potentially, new suppliers. 

Understanding the reasons behind product returns can help you improve your business processes to minimize future issues, thereby improving customer satisfaction. 

The speed of the return process, however, can improve the satisfaction of customers who have already experienced an issue. That’s why it’s important to use a system that can enables efficient processing of returns and exchanges.

4. Reducing costs.

While there are plenty of areas within an ecommerce business that can be optimized for cost savings, one often overlooked area is inventory. Many business owners don’t quite realize the financial impact of carrying excess stock.  

It’s crucial to strike a balance between stocking enough to meet demand, but not so much so that you waste valuable warehouse space and incur hefty fees. To do this, you have to understand the true cost of holding your inventory — often referred to as your inventory carrying costs.

Inventory carrying costs specifically include:

  • Warehousing and logistics costs, including but not limited to rent, labor, utilities, inventory management fees, and the cost of shipping goods to customers.

  • Materials handling costs from buying or leasing equipment like forklifts, pallet trucks, and vehicles — not to mention the labor for operating these machines.

  • Capital costs, or the total cost of purchasing inventory. This may include the actual cost of inventory, financing fees, loan maintenance fees, and interest.

  • Storage costs.

  • Risk-holding costs like inventory depreciation, obsolete stock, shrinkage, and the impact of stockouts.

  • Insurance costs.

These reasons highlight why it’s so important to stock the minimum amount of inventory possible. 

You can use lean initiatives to manage your inventory, identifying and eliminating waste in the form of the costs accrued from holding inventory. This does, however, rely on having real-time inventory data visibility so you can specifically forecast demand and determine safety stock levels and reorder points. 

Only then can you pinpoint which products are responsible for unnecessary costs and identify inventory reduction strategies for excess stock.

5. Reducing inventory shrinkage.

Shrinkage refers to the loss of inventory that occurs as a result of theft, damaged stock, or obsolescence and miscounting. Fortunately, inventory management processes and software can help to prevent these losses.

One of the main culprits of inventory shrinkage is warehouse theft. 

With the ability to track the movement of inventory as well as the person responsible for moving that item, warehouse staff are held more accountable, thereby reducing the risk of theft. 

In addition, conducting regular cycle counts — the practice of counting smaller subsections of inventory as opposed to infrequent stocktakes — will help to quickly identify and address inventory discrepancies.


This complete overview demonstrates how big data is transforming inventory management capabilities, reducing costs, improving operational efficiency, maximizing sales, increasing customer satisfaction, and reducing inventory shrinkage. 

If any of these are issues for your store, it may be time to investigate a more data-oriented inventory management system to help you take your business to the next level.

Aimee Manning avatar

Aimee Manning manages the content marketing team at Linnworks, a BigCommerce integration partner. Trusted by thousands of BigCommerce sellers, Linnworks’ inventory management software has been built to scale with the growth of any eCommerce business, enabling retailers of all sizes to increase efficiency, maximize productivity and reduce costs. While Linnworks already supports many warehouse processes, the organization’s warehouse management system will be released in Spring 2020.