Inventory
Inventory management methods for online stores
Inventory management methods are the rules you use to decide what to stock, when to reorder and how much to buy. The four most useful for online stores are just-in-time (JIT), ABC analysis, economic order quantity (EOQ), and safety stock with reorder points. Most growing Shopify brands combine them.
Just-in-time (JIT)
JIT means holding as little stock as possible and ordering only when you need it, so inventory arrives just as it's about to sell.
- Pros: less cash tied up, little dead stock, less storage needed.
- Cons: very exposed to supplier delays and demand spikes. One late shipment means a stockout.
Fits: products from fast, reliable, local suppliers, print-on-demand and made-to-order items. For imported products with long lead times, a "lean" approach, with smaller, more frequent orders plus safety stock, is safer than pure JIT.
ABC analysis
ABC analysis ranks products by how much they contribute, usually revenue or gross profit, and manages each group differently:
| Group | Which products | How to manage them |
|---|---|---|
| A | The small group that brings in most of your revenue | Tight control: frequent reviews, accurate reorder points, higher safety stock |
| B | Steady mid-range products | Regular scheduled reviews |
| C | The long tail | Minimal attention, low buffers; candidates for discontinuing |
Shopify's ABC product analysis report grades your variants by revenue, or you can rank a sales export in a spreadsheet. Ranking by gross profit, rather than revenue, gives a better picture of which products really matter.
Economic order quantity (EOQ)
EOQ finds the order size that minimizes the combined cost of placing orders and holding stock:
EOQ = √(2 × Annual demand × Cost per order ÷ Annual holding cost per unit)
It answers how much to order. It assumes steady demand and no supplier minimums, so treat it as a starting point. See what MOQ means for when supplier minimums override it.
Economic Order Quantity (EOQ) CalculatorThe order size that minimizes your combined ordering and holding costs.Safety stock and reorder points
These answer when to order:
Reorder point = (Average daily sales × Lead time in days) + Safety stock Safety stock (basic) = (Max daily sales × Max lead time) − (Avg daily sales × Avg lead time)
When stock (plus anything on order) falls to the reorder point, you reorder. Safety stock covers the bad weeks: demand spikes and late deliveries.
Reorder Point CalculatorThe exact stock level that should trigger your next reorder. Safety Stock CalculatorHow much buffer stock you need to cover demand and lead-time swings. Want this handled automatically?Forecast demand and know exactly when to reorder, before you stock out or tie cash up in overstock.Try Verve AIComparing inventory management methods
| Method | Answers | Effort | Biggest risk |
|---|---|---|---|
| JIT | How little stock can I hold? | Needs reliable suppliers | Stockouts |
| ABC analysis | Which products deserve the most attention? | Low | Ranking by revenue instead of profit |
| EOQ | How much should I order? | Low | Ignoring MOQs and seasonality |
| Safety stock + ROP | When should I order? | Low to medium | Levels going stale |
Which methods fit a Shopify brand
For most growing online stores, a practical combination is:
- ABC analysis to decide where to spend your time.
- Reorder points with safety stock for every A and B product, reviewed monthly.
- EOQ to sanity-check order sizes, adjusted for supplier minimums.
- Lean ordering, smaller and more frequent, where suppliers allow it, rather than pure JIT.
- Demand forecasting once you have seasonality or a large catalog. See demand planning vs supply planning.
The guide to inventory replenishment covers how to run these as a routine.
FAQ
What are the main inventory management methods?
The most widely used are just-in-time (JIT), ABC analysis, economic order quantity (EOQ), and safety stock with reorder points. Most businesses combine several rather than picking one.
Is just-in-time inventory good for online stores?
Pure JIT is risky for most online stores, because supplier lead times are long and unpredictable, especially for imported goods. A lean version, holding modest stock and reordering frequently, works better.
What is ABC analysis?
A way of ranking products by how much revenue or profit they bring in, then giving the most attention to the top group. Shopify's ABC product analysis report grades variants this way.
Do I need software to manage inventory?
Not at first. A spreadsheet with reorder points per SKU works for small catalogs. Software helps once you have many SKUs, multiple locations or seasonal demand to forecast.