Dropship Inventory Management: 4 Things You Need To Know

Inventory is such an important part of dropshipping, but it’s far from simple. As a dropshipper, you’ve got to make sure your stock is accurate, for starters. You also have to make sure that information is passing between you, your suppliers, and your website correctly—it’s a delicate dance of data where you’ll pay dearly for any problems. 

On one hand, you don’t want to hold onto too much inventory because it ties up your cash. But on the other hand, running out of inventory means you can’t reliably serve your customers, which can really hurt your business in the long run. 

When it comes to inventory, you’ve got to hit the sweet spot. Inventory management makes it possible to balance your need for cash with your available inventory. Know why inventory management is so important to you as a dropshipper and follow our 4 methods to better manage your inventory. 

What is dropship inventory management?

Inventory management refers to how a dropshipper track their inventory. It helps you know important things like: 

  • Where your inventory is located. 
  • How much inventory you have. 
  • What the supplier has in stock. 

As your business grows, you’ll probably get an inventory management tool to keep you sane. These systems sync with your supplier’s inventory data, feeding information into your store and updating everything accordingly. 

dropship inventory management at a warehouse

Inventory management is basically a spreadsheet that pushes product information through the supplier’s system and to your website. Your supplier might ask for a data format like XML, CSV, or TXT. Your supplier warehouses the products and accepts orders via email, API, or their dealer portal. 

Why does dropship inventory management matter?

So, why does your operation need inventory management? As you grow, dropshippers rely on inventory management because: 

  • It prevents you from going out of stock: Going out of stock might seem like a good problem at first, but this means shoppers can’t rely on you. You risk losing repeat customers if you go out of stock too often; inventory management helps you keep this to a minimum. 
  • Supplier inventory changes quickly: You’re buying from a shared pool of inventory as a dropshipper. You need to know the most up-to-date information from your suppliers because they’re serving other customers. 
  • Product changes: Some suppliers will make products disappear from their feed when they have zero in stock. Inventory management helps you understand what’s going on so you don’t panic about your hero SKU disappearing overnight. 

4 dropship inventory management best practices

At the end of the day, the real purpose of inventory management is to help you know what you have and what you need. This way, you order the right amount of product from your suppliers, fulfill customer orders, and keep enough cash in the bank to run your business. 

Not sure how to make that happen? Follow our 4 best practices to get your inventory into ship shape. 

1 - Work with your supplier

While you’re ultimately partnering with a supplier for a transactional relationship, try to forge a personal connection with them. As a dropshipper, it’s always a good idea to be on speaking terms with your supplier. A friendly relationship can help you negotiate better terms with your supplier, like lower minimums or credit terms, so don’t overlook the value of being personable. 

a woman planning her dropship inventory management

You should also try to sync up with your supplier. You have to work with your supplier’s format, so make sure their layout works for your business. When you ask them for their product data feed, you need to make sure they’re sending information like: 

  • SKU or UPC
  • Quantities
  • Your cost
  • Product title
  • Product description
  • Product images
  • Product categories

How often does your supplier update this data? Do they update it via email, or automatically via FTP? 

You should also match your update frequency with your suppliers. For example, if they update daily, you need to update daily. If they’re updating hourly, you still need to keep up with them!

2 - Set inventory minimums

The last thing you want to do is run out of inventory. You can practice better dropship inventory management by setting inventory minimums with your suppliers. 

This sets up an automatic rule where, when the supplier’s inventory falls below a certain threshold, you mark the item as out of stock on your own website. 

There’s no right answer here; depending on your supplier and the products you’re selling, you’ll need to handle this differently. For example, if you’re selling on a platform like Amazon, you’ll want to set a higher minimum because Amazon heavily penalizes out of stocks. 

3 - Have an emergency plan

If there’s one thing we learned from COVID-19, it’s that your business has to be agile—the unexpected will always happen. Remember when toilet paper was out of stock for a few months? A sudden increase in product demand like that means you won’t have the cash on hand to fund products. 

Nobody can predict the future, but spend some time every week to think ahead. What’s going to be popular next week, next month, and next year? Look at market trends, your growth rates, national economic performance, and marketing costs to stay on top of trends. 

If that sounds like too much to manage alone, Spark Shipping can help. We help dropshippers automatically source products from multiple suppliers—this way, you always buy from the supplier with the in-stock inventory you need at the best price. 

creating an API for dropship inventory management

4 - Automate your dropship inventory management

Inventory management is nearly impossible to do manually. Fortunately, a lot of inventory management can be automated, so you can avoid human error whenever possible. 

You have a few options for automating your dropship inventory management: 

  • Hire a developer to make an API: Your developer will write a script for an API, which will sync the supplier’s inventory to your store every day. The problem is that you have to pay for a developer (which can be pricey) and that APIs can break. Also, if your shopping cart or suppliers update their API, you’ll have to update your code, which means paying for ongoing API maintenance. 
  • Manually import your supplier’s product feed: Some dropshippers prefer to do a manual upload every day so they know their information is up-to-date. You can use Excel to update the data from the supplier’s format, convert it into your own, and then import the updated quantities into your website. The downside is that this takes forever. If your business is growing, you probably can’t do manual imports at scale. 
  • Automate with Spark Shipping: Honestly, this is the easiest win for dropshipping automation. Spark Shipping is an automation tool that puts your inventory management on autopilot. There’s no need to pay for custom coding; just automate your product information feed and get a lot of your time back. 

The bottom line

Inventory is an unwieldy part of dropshipping. That’s why you should always have a strategy behind your dropship inventory management. These 4 tips will help you get one step ahead of other dropshippers. The good news is that it’s a prime opportunity for automation. When you automate dropship inventory management, you avoid mistakes, run a tighter ship, and have the time to focus on growing your business. 

Ready to get ahead of the pack? Try Spark Shipping to automate your inventory management with nearly any vendor for a sleeker, better operation.