At present, the global cost of inventory distortion (including overstock, shrinkage, stockouts, etc.) stands at a staggering $1.1 trillion. That’s too big a price to pay for a problem that can easily be solved with the right inventory management system.
This article discusses best practices in Shopify inventory management to help you stay one step ahead and make insightful decisions. It also explores how stock management can be improved through integration with Coupler.io.
What is inventory management?
Inventory management is the systematic approach to ordering, stockpiling, and selling inventory. The term “inventory” refers to materials and goods (raw/finished products) and/or work in progress. The synonym “stock” is sometimes used in place of inventory. In ecommerce, proper inventory management boosts the efficiency of operations and prevents inconveniences like decreased employee productivity and poor time management.
Understanding the importance of Shopify stock management
A successful online business has the capacity to satisfy its customers’ demands. Inventory management makes customer satisfaction possible by ensuring that stocks never run out. There should be a constant smooth flow of goods and services. A business that does not pay enough attention to its inventory can end up losing sales opportunities, revenue, and even reputation.
Looking closely, the hallmark of success for any online merchant lies in their ability to track inventory. The task should be done accurately for every single product to get the right results.
The mismanagement of inventory can cause several problems. These include:
Overstocking
This scenario occurs when the business orders products in excess, resulting in increased costs. Excess products will attract losses through increased demand for storage space, deterioration during storage, expiration, etc. To prevent overstocking, you may introduce discounts, which also result in loss or lower profit than expected.
Understocking
Another danger of poor inventory management is running out of stock. Often, this may embarrass customers when they order out-of-stock items. It’s easy to lose them, considering the stiff competition out there. People prefer retail stores that fulfill orders on time, every time.
Failure to forecast and track trends
Without inventory management, it’s impossible to forecast demand. A company can only make good profits when it understands what customers need at a particular time. Working without a management system is like taking a shot in the dark and hoping to hit something. Usually, it results in a loss.
How to improve inventory management
If you’re looking to optimize inventory management, there are several steps you have to consider. These steps aim at addressing some common inventory management challenges.
- Business assessment: Review all business processes in the current environment. To start, study the current order-to-delivery (OTD) process. To hasten change acceptance from the teams involved, devise a future state. This should be done as you identify gaps and improvement opportunities.
- Inventory plan development: Start with the identified data gaps to get complete and accurate data that is fundamental to developing an inventory plan. Next, be aware of data quality and availability and their operational definitions. For process standardization and improvements, clear operational definitions are vital, especially if the business has multiple data sources.
- Execute the set plan: Once the plan is set, it is crucial to execute it as a set. Any exception or circumstance calling for deviation from the plan should be approved by management. This is meant to ensure tight adherence and discipline.
- Measure performance against the new plan: Measuring is the only way to determine improvement. Continuous control and monitoring are elemental in sustaining those improvements. This helps identify the root cause for deviation from the plan and to take corrective action.
- Ensure continuous improvement: Organizations should take a dynamic approach to their inventory management system to meet complex and volatile market demands. While focusing on profitable growth, they should continuously improve for faster movement of information and materials.
What is the first step of inventory management?
For effective inventory management, the first step is inventory prioritization. You do this by classifying your stock based on its ordering frequency.
Figure out the demand for each of your products. To help you to identify which supply needs high prioritization, look at the records and see which goods/materials are constantly out of sync with demand. Inventory that moves slower should have a lower priority compared to inventory that moves faster. That means analyzing the sales history for each stock to figure out their rate of turnover.
Next steps of stock management
The next step involves making purchase orders for your products to be delivered on time. It’s essential only to purchase inventory that’s needed. Overbuying may result in most of your capital being tied up in inventory. You could need this money to further improve your business operations.
Here’s a summarized inventory management checklist you can leverage:
- Organizing your order:
- Review your budget
- Make a preliminary order list
- Check the current stock inventory
- Update order list
- Placing the order:
- Receive approval for the order
- Place the order
- Record order tracking details
- Order arrivals and itinerary updates:
- Make a note of the order on arrival
- Check everything arrived accordingly
- Follow up with your supplier
- Test new items
- Return faulty or damaged items
- Ensure new stock goes to the correct department
- Ensure new equipment is installed correctly
- Update inventory management system
Shopify product stock management
Most businesses use Shopify for their online stores. To the uninitiated, Shopify is a subscription-based e-commerce platform that provides mobile point-of-sale (mPOS). The mPOS allows e-retailers to manage their businesses both in-store and at the markets. A variety of inventory management applications and third-party software can be integrated with Shopify to make the workflow smoother.
Why is inventory management important on Shopify?
Inventory management on Shopify optimizes operations. This prevents losses as a result of spoilages, misplaced items, etc. Additionally, inventory management on Shopify improves customer service and enhances customer fulfillment.
Effective inventory management on Shopify also:
- Gives insight into customer preferences and behaviors
- Boosts profitability
- Opens new opportunities for business
- Enables implementation of new product ideas
- May impact employee productivity and engagement
How to use Shopify inventory management
Shopify’s Inventory section has built-in features that allow you to set up tracking, view, and adjust your stock counts. Here are some quick steps to get you started on Shopify:
- Provide stock keeping unit (SKU) numbers to all your inventory.
- Add products to the products section including all the relevant information for each product – e.g., images, description, barcode number, SKU number, etc. Also, reveal its status in the shop.
- Come up with product collections to make the shop easier to navigate.
- Activate inventory tracking for each product. To begin, enter the quantity of the product and click save.
- Use the automated collection’s functionality to hide out-of-stock products.
- Manage your purchase orders in the “Transfers” section.
- Employ an inventory management technique, e.g., first In, first out (FIFO), ABC and XYZ analysis.
- Use Shopify apps for solutions to a variety of problems.
What are the benefits of Shopify inventory management?
- Prevents running out of stock, overstocking, or overselling
When a business has trouble tracking inventory, sooner or later, they’re bound to stock too much, which can cause cash flow problems. They can also sell products they don’t have and damage their reputation in the process. All this can chase customers away and towards competitors. But a sound inventory management system helps you avoid this, so you can provide a stellar customer experience that keeps shoppers sticking around.
- Ensures a smooth cash flow
Inventory management keeps you up close and personal with your cash flow and assets, so you always know what your stock budget should look like and which area of your business needs more resources. Not only that, but you save money by reducing storage costs and maximizing warehouse space.
- Helps you manage multiple sales channels
If your customer base is relatively small, tracking and fulfilling orders manually can be a breeze. But this can quickly change as your operations scale up, and you have more orders and sales coming through different channels. It becomes harder to make sure customer demands are met all the time. An inventory management system enables you to easily track and manage sales across your multiple channels to ensure your stock levels are sufficient.
- Enables you to make accurate predictions
An inventory management system also allows you to forecast sales, so you’ll always have a good idea of the amount of inventory needed for different seasons of your business. That means you’ll be familiar with the regular ups and downs of your stock level in reaction to varying product demand.
What are the challenges of Shopify inventory management?
- Poor product integration
Many products don’t integrate into Shopify. These restricted items will have to set up inventory management across many channels manually. Not only will you have to deal with each channel separately, but it can be a time-consuming process that increases the risk of overstocking or overselling.
- Automated restocking of inventory
When the SKU library for your business grows, it becomes harder to replenish inventory automatically. That’s because as your library expands, the risk of inventory errors, such as miscounting and overstocking, also increases.
- Different functionalities across channels
Once your Shopify store is part of a multichannel brand, it’s crucial to see the bigger picture regarding inventory and other analytics. Relying only on Shopify’s native inventory management features is a challenge if you want to compare how well your products are doing, not just on Shopify but on other channels like Amazon and Etsy.
Therefore, the solution is to find a Shopify stock management app that is tailored to your needs.
What are inventory management systems?
Inventory management systems (IMS’s) blend technologies and processes that centralize and streamline the control of inventory flow in an organization. Thus, they ensure that the right quantities of inventory are always available. It is important to note that inventory management systems are not limited to retail operations, they are widely applicable to several industries.
Below are the essential features that any management system or software should provide:
- Ability to scan barcodes
- Capacity to update stock levels in real-time
- Intelligent data reporting for sales, order requirements, etc.
- Multichannel sales support
- Easy control of multiple warehouses
- Forecasting demand
- Integration of numerous organizations
- Correct accounting
- Ability to integrate with a developed POS software or third-party point-of-sale for businesses with both physical stores and eCommerce channels
- Tracking of raw materials and their assembly
That said, choose a solution aligned with your business needs and principles. There are two classes of inventory management systems: periodic and perpetual.
Periodic inventory management systems
This category can also be referred to as “stock taking.” It is the traditional method of inventory management where businesses count their merchandise periodically. They can do so quarterly or once every 6 months. Whenever they do a stock take, they will also compute the financial value of the inventory.
Periodic inventory management works best for small businesses. When applied to large retailers, it is susceptible to errors and can result in understocking and overstocking.
Perpetual inventory management systems
These systems use tracking solutions. Unlike with a periodic IMS, a company will follow all stock in the supply chain in real-time. The level of inventory is reported with every delivery, sale, breakage, etc. Most retailers prefer the perpetual method as it is more accurate and allows for better stock demand forecasting.
Does Shopify provide an inventory management system?
Yes, Shopify provides inventory management systems for online stores. It is famous for offering most of the required inventory management solutions. Over a million merchants from over 175 countries subscribe to this platform for this reason.
How to automate inventory management in Shopify
Shopify provides perpetual inventory management systems. Retailers can choose from a variety of inventory management apps, such as Skubana. Skubana is designed to give a framework for running a business of any size. It also allows multichannel merchants to assume omnichannel business practices.
Inventory management software in Shopify
Shopify can be automated by the use of various apps and integrations. These are designed for you to manage and build your business effortlessly. Below are some of the best apps available:
Skubana
This solution comes with inventory and order management tools that enable retailers to leverage lists across multiple channels. It also has functionalities for automated purchase order creation, which keeps stock supplies optimized. This keeps customers satisfied all the time. Business managers can also benefit from using the software’s cross-channel analytics to find which products make more profits.
Inventory Planner
The software helps with forecasting your online business, providing recommendations for automatic inventory replenishment. It makes reordering much faster and easier. It does work that would take forever to do manually. For example, the software can calculate sales forecasts of thousands of products in just minutes.
SkuVault
Using this software, online stores can sell and ship products much faster to improve customer satisfaction. SkuVault links your channels, warehouses, and manages inventory using effective integrations and simplified workflows. Inventory management using SkuVault allows businesses to connect stock quantities and sales, and thus improve workflow and avoid running out of stock.
Shopify inventory management integration with Coupler.io
Since your site is likely to slow down in performance as you add more apps to your store, you can choose a third-party inventory management software or solution that meets your needs without interfering with your site performance. Many users opt for a spreadsheet app such as Google Sheets or Excel, for this purpose. Moreover, there are a number of Google Sheets inventory templates for efficient inventory management.
The only challenge is synchronizing data between Shopify and the spreadsheet. Coupler.io can help you with this. It allows you to export data from Shopify to Google Sheets on a schedule which instantly opens new inventory management opportunities for you. Besides Shopify, Coupler.io lets you automate data export from other apps and sources into Google Sheets or BigQuery. The workflow consists of three steps:
- Source setup – select and configure the app to export data from.
- Destination setup – select and configure the Google Sheets spreadsheet to export data to.
- Schedule setup – enable the automatic data refresh and customize the frequency for data exports.
You don’t need any specialized skills to do this. Just sit back and watch while Coupler.io syncs your in-app information with Google Sheets and comes up with up-to-date results that reflect on your working document as per your schedule.
Why do I need inventory management if Shopify works?
While it’s true that Shopify comes with inventory management features that can be helpful to eCommerce businesses on the platform, it can be tricky if your business is big. You would need to track inventory across multiple channels. There’s a lot of tedious work involved, such as updating your figures, reordering stock, and inputting other essential information.
Today, many Shopify brands use a unified multichannel inventory software with Shopify to improve their workflow. This multichannel inventory management software offers comprehensive features without conflicting with other Shopify apps. Below is a list of some of the features that are prioritized with third-party software integrated with Shopify:
- Multichannel and multi-warehouse functionality
This allows your business to sync all channels as well as warehouses. Updates on the sales channels are made without significant delays.
- Order automation and routing
Orders are automatically routed to your preferred shipping providers and warehouses.
- Comprehensive data analytics and reporting
The software allows you to collect information from all your warehouses and channels. The information may include stock levels, sales margins, profitability, etc.
- Cross-channel functionalities
Multichannel brands that use Shopify require a cohesive view of their stock and analytics data. With third-party software, it’s like customizing how inventory is distributed and providing better inventory visibility in warehouses. Also, you may have a better understanding of the profitability of every SKU on each channel.
Traditional vs. automated Shopify inventory management system
| Automated Shopify inventory management | Traditional inventory management | |
| Essence | It offers a perpetual inventory management system. This enables real-time updates of stock levels and sales. | Businesses indulge in periodic stock management practices. |
| Reliability | More reliable as it uses a variety of technologies (software and hardware). Reports are usually accurate. | Susceptible to human errors since the inventory management is done manually. |
| Scalability of business | It’s easier to grow a business using automated inventory management tools. It gets even better if Shopify is integrated with coupler.io | This management method works for small businesses. It cannot be sustained with more extensive business operations and will result in a lot of losses. |
| Costs vs. benefits | The benefits of using Shopify integrated with other software outweigh the costs of maintaining them. | The costs of relying on physical accounting methods outweigh the benefits. |
How to use Shopify inventory management on a budget
The best way to use Shopify stock management on a budget is to have an open-to-buy (OTB) plan. This is a purchasing budget for any inventory orders within a fixed period.
Many retailers use an OTB budget to ensure they have the proper stock levels at the right time. It shows the difference between the stock levels that are required and those that are currently available. When applied correctly, an OTB budget helps decide the correct quantities of inventory to purchase or manufacture without affecting the cash flow of your business.
Shopify inventory cost management example
Here is the OTB calculation formula that you can use:
OTB = (Planned Sales + Markdowns + End of Month Inventory) - Inventory planned at beginning of month Take a look at one month (April 1 – April 30) OTB calculation example:
OTB = ($20,000 + $400 + $30,000) - $35,000 = $15,400
- $ 20,000 – planned sales
- $400 – markdowns
- $30,000 – inventory at the end of month (April 30)
- $35,000 – planned inventory at the beginning of month (April 1)
Shopify inventory management takeaways
Retailers and eCommerce businesses with Shopify stores can use the native inventory management features on the platform. Although these features are handy, they are not up to the job once companies scale up operations across many channels.
The good news is that Coupler.io can integrate with Shopify and automate inventory management in Google Sheets. This will help you track inventory, so you can keep your focus and energies on more important areas of your business. The result? Streamlined operations, well-oiled efficiency, and more dollars for your profits. Check out the available Shopify integrations with Google Sheets.
Check out also other Shopify resources on our blog. If you, for example, dropship items as well, you’ll find our guide to dropshipping on Shopify helpful.