Ecommerce & Digital
The Inventory Problem: Why Stock Management Breaks Growing Ecommerce Businesses
1 April 2025
Inventory is where ecommerce businesses bleed money without always knowing it. Stockouts that cost revenue. Overstock that ties up working capital. Write-offs that appear at year-end as an unpleasant surprise. Slow-moving lines that occupy warehouse space and sit on the balance sheet at a value that no longer reflects reality.
These are not exceptional problems. They are the normal operating condition of an ecommerce business that has not built the right inventory disciplines.
Why ecommerce inventory is harder than it looks
Physical retail has a natural constraint: shelf space limits what you can hold. Ecommerce does not. The temptation to broaden the range, add variants, and hold more buffer stock is easier to act on because the visible cost of doing so, a full shelf, is not there.
The invisible cost is in the warehouse and on the balance sheet. Working capital tied up in slow-moving stock is working capital unavailable for growth. The carrying cost of excess inventory, including storage, insurance, and the cost of capital, is real even when it is not being actively tracked.
Add in the demand variability of ecommerce, where a single viral moment or algorithm change can move volume dramatically in either direction, and inventory planning becomes genuinely complex.
The three inventory failure modes
Stockouts at the wrong moment. Running out of a bestselling product during peak season is the most visible inventory failure. Lost revenue is the obvious cost. Less visible is the Amazon ranking impact: a period of low availability affects search ranking in ways that take weeks or months to recover from.
Overbuying to avoid stockouts. The overcorrection to stockout risk is overstock. Businesses that have been caught short once tend to over-order, and the working capital implications compound across a broad product range. Factor in returns and stock disposition and the effective overstock position is even worse. The correct response to stockout risk is better forecasting, not blanket buffer increases.
Range proliferation without range review. Ecommerce makes it easy to add products. It makes it less easy to remove them. Ranges accumulate lines that are no longer performing, tying up stock, management attention, and warehouse space. A regular structured range review, with clear criteria for continuation and discontinuation, is an operational discipline that most growing ecommerce businesses do not have.
What good inventory management looks like
The foundation is accurate, real-time stock visibility. Not a spreadsheet updated weekly, but a system that reflects current stock levels, committed stock, and in-transit stock at any point. This requires proper ERP or inventory management software integrated with the ecommerce platform. The manual alternative does not scale.
On top of that foundation, you need forecasting that is demand-led rather than history-led. Historical sales patterns are a starting point, not the answer. Seasonal factors, marketing plans, inventory for product launches, and channel mix all affect demand in ways that a simple extrapolation will not capture.
And you need a clear reorder process with defined par levels, lead times, and reorder quantities for each SKU. Not intuition. Defined numbers, reviewed regularly, and adjusted when the underlying assumptions change.
The finance angle
Inventory sits on the balance sheet as an asset, but that valuation is only as good as the process behind it. A year-end stock count that reveals significant variances between the system and the physical count is telling you that the process has been failing throughout the year.
Slow-moving and obsolete stock needs to be identified and written down on a regular basis, not discovered at audit. The discipline of regular stock reviews with provision calculations is a finance function responsibility that directly affects the reliability of the P&L. Understanding inventory in the ecommerce P&L is essential to getting this right.
Maebh Collins is a Chartered Accountant (FCA, ICAEW) with twenty years of operational experience as a founder and senior finance leader, including inventory management across manufacturing, retail, and ecommerce operations.
Maebh Collins is a Chartered Accountant (FCA, ICAEW), Big 4 trained, with twenty years of experience building and running international businesses. She specialises in finance transformation, ecommerce operations, and digital strategy.