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Shopify Inventory Management
As demand grows, managing Shopify orders and stock levels across sales channels becomes more important. Inventory management, alternatively referred to as inventory control, is the process of acquiring, storing, and distributing stock across multiple platforms. It entails keeping track of remaining inventory and forecasting future inventory requirements based on sales. In this guide we seek to provide a better understanding of Shopify inventory management.
How is inventory management defined?
Consider the case of a coffee bean stall owner who wishes to track sales and revenue and forecast future sales in order to create an accurate restock schedule.
You’ll need to know how much stock you still have, when the stock may spoil, how many you’ll sell, and how much stock you’ll need in case of an emergency.
Collecting all of that information without a system is difficult, even more so when you have ten stalls spread across the country.
You’ll either purchase too many potatoes and waste money on them going bad, or you’ll purchase too few and waste money on missed sales opportunities.
Or, worse, you may inadvertently inform your customers that you have additional supplies in storage, only to discover that you are completely out of coffee beans.
All of this can be avoided with an effective Shopify inventory management process.
This enables you to track the number of items or stock-keeping units (SKUs) you have across multiple locations and channels and forecast how many more of each item you require, allowing you to determine when and how much to restock.
Inventory management across your fulfillment network
A product inventory management process will inform you of the exact quantity of each item in each of your fulfillment channels, regardless of whether you manage your supply chain internally or through third-party logistics (3PL).
When you open an online store, you have the option of storing your products in multiple warehouses in order to ship them from a location closer to your buyer.
For example, the Shopify Fulfillment Network (SFN) is a network of warehouses located in various locations that stock, store, and distribute your product, all powered by Shopify.
By knowing how much inventory you have in each location, you can avoid overselling and disappointing your customers.
Inventory counts across channels must be synchronized
To capture your audience’s attention in today’s online world, you must be omnipresent—which means selling across multiple channels is a must.
However, if you sell on Amazon, eBay, and your own website, it becomes difficult to keep track of how many items to allocate to each channel, how many items remain, and how many items to restock on each channel.
An inventory management system synchronizes data across multiple channels and recommends restocking based on historical data.
Using the coffee stall as an example, suppose you also sell coffee beans on Amazon, eBay, and your website.
Rather than allocating precise quantities to each platform—11 kg to Amazon, 12 kg to eBay, and 18 kg to your website, for example—an inventory management system enables you to sell the entire stock (40 kg in this example) across all platforms.
It then updates the total number of stock remaining across all of your channels whenever you make a sale.
If you make one sale on eBay, you will reduce the number of stock in all of your channels by one. Simple.
Why is inventory management critical to your business?
Inventory management is a critical component of operating a successful ecommerce business.
A well-designed inventory control system will give you visibility into your inventory and will help you determine how frequently you should replenish each of your products.
Additionally, by utilizing various inventory management techniques, you can keep an eye on your inventory turnover. This will assist you in determining the optimal stock level to maintain in your warehouse, thereby avoiding dead stock.
This is critical for businesses that sell seasonal merchandise—such as winter coats and summer dresses—or perishable goods.
By implementing a system, you can save time and money while also satisfying your customers.
Prevent both under- and over-stocking
Inventory tracking issues on Shopify frequently result in businesses purchasing too much stock (causing cash flow issues) or selling more products than they can supply.
Both of these issues are detrimental to a brand’s reputation and profitability.
Indeed, 37% of your potential customers will switch to a competitor if an item is out of stock. According to Repsly, 70% of consumers will switch stores or abandon their purchase after seeing an out-of-stock sign three times.
By preventing overstocking and understocking, an inventory management system enables you to provide a superior customer experience.
You’ll be able to inform shoppers about the quantity of products in stock and relieve your customer support team of the constant back and forth with customers.
Additionally, you can calculate your economic order quantity (EOQ) within this plan in order to properly map out your supply chain operations.
Avoid excessive selling
Consider purchasing a plane ticket, arriving at the check-in counter, and learning that your flight has been overbooked. You cannot board the plane, and the airport is a pain.
It’s vexing and has a detrimental effect on customer satisfaction and loyalty.
If a seat is promised in exchange for money, you will take it. When an airline fails to keep that promise, it tarnishes their reputation and erodes your trust in them.
Similarly, overselling a product that is no longer in stock can result in angry customers and a tarnished business reputation.
By tracking SKUs accurately through inventory management and communicating the status of your items to your distribution channel, you can avoid backlash from unfulfilled promises.
A system will assist you in tracking and forecasting sales, allowing you to forecast how much inventory you will require throughout the year.
From there, it becomes significantly easier to understand how your inventory fluctuates over time and how seasonal demand changes.
Distribute via multiple channels
When you’re first starting out, manually tracking and fulfilling orders is relatively simple.
However, consider simultaneously selling frozen foods—french fries, nachos, chips, dips, and popcorn—from multiple warehouses across the country on Amazon, eBay, your local physical store, and your Shopify website.
Once your business begins to grow, scaling fulfillment and meeting the demands of your customer base becomes increasingly difficult.
Inventory management also becomes a nightmare: businesses without a solid system in place are unable to track all orders and sales that come through various channels.
Additionally, they are unable to see the impact of these orders and sales on their inventory.
An inventory management system enables you to easily manage all of your sales channels and ensure that each channel has an adequate supply of inventory.
How do Shopify merchants manage their inventory?
Shopify is home to a diverse range of merchants.
- Smaller merchants manage their inventory needs through Shopify inventory management apps and their sales channels.
- Enterprise merchants frequently have their own IT team and enterprise resource planning (ERP) solution to manage the high volume of restocks and sales.
- Mid-sized and growing brands typically leverage a variety of integrations to manage their sales channels and fulfillment solutions.
What is the purpose of a Shopify inventory management application?
A Shopify inventory app is a digital tool that automates the process of tracking Shopify inventory.
Inventory management systems are classified into two broad categories: manual and automated.
Inventory management system: manual vs. automated
Using Google Sheets or Microsoft Excel and manually entering sales data, creating SKUs, and updating your sheets after each sale is the manual method of tracking.
On the other hand, a Shopify product inventory app automates the entire process with little to no input from you.
Even if you are proficient at manually tracking inventory, doing so exposes you to a greater risk of human error and wastes time on manual data entry and verification.
By selecting the appropriate inventory control application, you and your team will be able to devote more time to more critical aspects of your business.
Why is it necessary to use a Shopify inventory management app?
A good inventory control application will aid in streamlining and automating inventory management, reducing costs and reallocating resources, and forecasting trends.
Additionally, you’ll increase team productivity and accuracy as a result of employees spending less time manually tracking inventory.
You need an inventory app if you:
- Spend a significant amount of time managing inventory
- Frequently run out of stock or have oversold products
- Are having difficulty tracking and updating inventory levels across all of your sales channels
What characteristics to look for in a Shopify inventory management application
There are numerous shopify inventory management applications, each with its own set of features, benefits, and drawbacks.
The best shopify inventory management software for e-commerce keeps detailed records of your online store’s inventory, automatically generates product orders, integrates with other apps, and provides a comprehensive data dashboard.
The application you select should include the following features:
Inventory tracking that is extensive and detailed
You should be able to track all orders and fulfillment information, as well as receive notifications when additional stock is required.
Consider an application that accurately tracks the quantity of items you have on hand at any given time, updating within a few minutes of a sale to prevent overselling.
Integration with other applications that you may use
The inventory app you select should integrate seamlessly with the other applications you use.
You require an application that integrates with Shopify’s warehouse. Keep an eye out for integrations with your accounting software, website ecommerce tools, point-of-sale systems, and other components of your technology stack.
Capabilities for forecasting sales
While forecasting sales involves a plethora of variables, your ecommerce inventory management app should provide a rough estimate of market trends and growth rates.
Certain applications even automate the generation of purchase orders (POs) when one of your items becomes low on stock, forecasting the reorder quantity based on sales forecasts.
Integration with a point-of-sale system
A POS integration is critical if you also sell from a brick-and-mortar location.
This enables automatic synchronization of online and in-store orders and stock levels, ensuring that there are no discrepancies between stock levels in your online and offline sales channels.
Reports that are actionable and inventory analysis
Your app should include reports and inventory analysis tools that are compatible with the way you manage your inventory.
The app should generate a variety of real-time reports that you can customize to your liking.
Keeping track of your business’s inventory, costs, and sales are important aspects to managing your ecommerce platform. Our ecommerce accountants support with tax, accounting & bookkeeping expertise to give founders more time for growth.
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Stuart Reynolds is the founder of Fullstack Advisory, an award-winning accounting firm for businesses leading the future. He is a 3rd generation accountant who specialises in tech companies, crypto and entrepreneurs.