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Overcoming Multichannel Inventory Management Challenges: Tools and Best Practices

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What to look for in multichannel inventory software

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Multichannel retail has become a requirement for brands who want to be successful in the world of ecommerce. But despite the undeniable importance of having multiple sales channels, multichannel inventory management can get tricky in a hurry. If you don't have the right tools to secure inventory and fulfill customer orders, your business can crumble under the pressure. 

On the flip side, if you’ve implemented the right systems and software to support your growth as a multichannel brand, your company can overcome these challenges in virtually no time at all. 

What is multichannel inventory management?

Multichannel inventory management is the process of tracking inventory from different sales channels and storage locations, including ecommerce, retail, marketplace, and wholesale. With the help of multichannel inventory management, your company can easily oversee its stock levels, reordering, and inventory forecasting so you can accurately plan and prepare for inventory turnover every quarter.

The great thing about multichannel management solutions is that they allow business owners to focus on growth rather than wasting time/money tackling the ins and outs of inventory logistics. 

Why is a multichannel inventory system important?

The truth is, a multichannel inventory management system will only enhance your business if it’s implemented correctly—which starts with choosing a high-quality system that’s a good match for your existing business model (and current business needs).

The right multichannel inventory software has the capacity to improve data integration, automate your supply chain, deliver critical inventory metrics, and optimize inventory control.

Improves data integration

One of the biggest issues with spreadsheets and manually updating your inventory is that it exposes your business to human errors. And if you happen to sell additional units while conducting these manual updates, it’s going to cause more inaccuracies with your reporting.

By contrast, brands who rely on inventory management software can avoid the time-consuming (and error-prone) nature of manual inventory updates. Businesses who use automated software to handle their inventory updates can quickly respond to customer orders and guarantee faster shipping times. In fact, the larger a company is, the more time and resources they can save by using electronic data interchange (EDI). 

This streamlined data integration—courtesy of EDI—likewise improves the synchronization between your sales channel listings and the available stock at your warehouses. It also provides a single location for evaluating and updating your inventory-related data (which is then reflected on all channels simultaneously). In other words, real-time syncing enables businesses to maintain control as their sales volume increases across multiple selling channels.

And if that wasn’t enough, real-time inventory data can also elevate your accounting and reconciliation activities. Regardless of whether you use QuickBooks or the native accounting functionality that comes with your ecommerce platform, being able to automatically sync inventory data to your books is essential in maintaining business intelligence.

Automates your supply chain

Even though order fulfillment is one of the final stages of the customer journey, it’s arguably the most important step in the process. Once you’ve committed to delivering your products to the customer, the last thing you want to do is tell them you don’t actually have the inventory in stock. The good news is, by leveraging inventory management solutions, you can maintain the integrity of the post-purchase experience and ensure customer satisfaction on every order.

One of the main goals of inventory management systems is to track critical product and order information—such as pricing, minimum order quantities, and production lead time for every supplier. By keeping tabs on all this info, replenishment workflows become much more efficient, and there’s an opportunity for increased optimization during your reordering process. Plus, the most advanced inventory management software can automatically generate purchase orders (and recommend reorder quantities) whenever your stock is running low. 

When an inventory management system is combined with order routing and fulfillment capabilities, you can also benefit from automatic shipping label creation—as well as automatic calculations for shipping rates based on warehouse/destination locations.

In addition, inventory management software can send automatic shipping updates to your customers to help reduce anxiety while their order is in transit. These automated updates will no doubt decrease the number of inquiries your customer service team receives—but they’ll also make customers feel confident about their purchase (and about your brand as a whole.)

Delivers critical inventory management metrics

Accessible data lays the groundwork for effective and efficient inventory management. The only problem is, the sheer volume of data that’s available can feel overwhelming at times. But that’s exactly why it’s necessary to familiarize yourself with the best operational metrics for your business (which largely depends on your multichannel inventory management KPIs). 

Still, most ecommerce businesses will benefit from knowing their: 

Together, these metrics help to paint a picture of product performance, profitability, overhead, and the degree to which your company is meeting its customers expectations. As you can imagine, all of these factors contribute to your success in both the short- and long-term.

Luckily, with the right inventory management system in place, you can access metrics like these at any given time (as often as needed). Analyzing this information is one of the best ways to identify potential areas of improvement, so you can make changes to your business that benefit your customers as much as they do your bottom line.

Optimizes inventory control

The more you develop an understanding of sales trends and customer buying behavior, the simpler it becomes to manage your inventory. And when you have control over your product supply, you can better anticipate consumer demand and make sure their expectations are met (or even exceeded) every time they purchase from your online store.

Essentially, having insight into these selling patterns makes it easy to improve your inventory management across multiple channels or warehouses. This means identifying (and prioritizing) your highest performing products so these SKUs are never out of stock. In addition, you’ll also want to take a look at your forecasting efforts to see where they can be strengthened. 

The reality is, keeping too much stock can get expensive fast. And yet, anticipating fluctuations in demand can be pretty difficult to nail down. That’s where inventory management systems come in, to monitor your historical and real-time sales data and ensure you maintain an adequate supply of safety stock. Having this kind of control over your inventory can alleviate issues caused by seasonal changes in demand or potential gaps in warehouse management.

Common multichannel inventory management challenges

Manager and supervisor taking inventory in warehouse)

Like it or not, operating on multiple sales channels exposes your business to a variety of risks. Some of the most common challenges for multichannel retailers include having too much stock, wasting space, overselling, and struggling with inventory visibility. 

Too much stock

If you’ve ever kept excess stock at your warehouse, then you know that it can drain your financial resources and limit your future investments since dead stock and unmoved inventory translate to greater storage fees and higher insurance rates. The worst part is, this increased overhead will ultimately result in a restriction of cash flow (which is obviously never the goal). That’s why it’s so important to effectively manage your stock levels, so you can avoid storing a bunch of unsold inventory and causing a strain on your profit margins.

Wasted space

When your company stores the wrong products in multiple warehouse locations, it’s going to impact your finances as well as your available storage space. And the less storage space you have at your disposal, the harder it becomes to restock the items that are selling well. In that way, limited warehousing space makes it next to impossible to meet the demands of your customers. And when this is the case, customer satisfaction levels are likely to drop—resulting in lost sales, and possibly even lowered retention rates in the long run.

To add insult to injury, you’ll still be incurring holding costs to store that unmoved inventory (further cutting into your profits). This whole scenario is a great example of the importance of accurate forecasting, so you can make sure you’re not bogged down by slow-moving SKUs.

Overselling

If your brand starts selling on multiple channels, there’s a chance you’ll accept payment for items that aren’t immediately available. That is to say, it’s possible you’ll oversell on a product that you’re not able to ship. When that’s the case, customers are bound to feel frustrated and might even cancel their order with you. On top of damaging your brand’s reputation, this also increases the likelihood that that customer won’t return to your store.

As you can probably guess, it’s in your company’s best interest to avoid overselling at all costs. The easiest way to do this is by utilizing software that manages your inventory on your behalf.

Inventory visibility

Expanding your sales channels will generally require you to expand your fulfillment footprint as well, since you’ll need to store inventory across multiple warehouses. Although splitting your stock among different locations offers greater fulfillment coverage, it also leads to new challenges for your business—namely difficulties with inventory visibility. 

If you don't have an accurate picture of product movement and/or where your inventory is at all times, you might run into problems with order fulfillment (like mispicks, slow transit times, and so on). Maintaining complete inventory visibility is integral to the success of your product-based brand, which is why teaming up with multichannel software also becomes a necessity.

Disjointed customer experience

You’re not going to get very far as an ecommerce retailer if customers have a disjointed experience. Every time a customer purchases from you—regardless if that’s through your website, Shopify, Amazon, or another retailer entirely—it affects the relationship they have with your company. Still, it can be hard to deliver the same level of service across different sales channels, and even more so when you’re selling with multiple online marketplaces. 

In order to streamline the end-to-end customer experience, you’ll have to develop a unique brand voice, create consistent product listings, guarantee on-time delivery, and quickly respond to customer inquiries (no matter which platform they come through). By doing so, you’re more likely to offer the same exceptional service on every channel, for every customer.

7 inventory metrics to track, calculate, and analyze to stay ahead of potential issues

woman typing on laptop

Staying ahead of potential inventory issues can help your company achieve success and scalability. By tracking and analyzing the following seven metrics, you can identify countless opportunities to improve your multichannel inventory management processes. 

1. Value of inventory as a percentage of sales

Knowing the value of your inventory as a percentage of sales is a valuable metric for multichannel sellers. You can find this percentage in just three steps: 

  1. Add the dollar value for all recorded sales during the period (i.e. gross sales)
  2. Subtract costs such as returns, damaged goods, promotions, and sales (i.e. net sales)
  3. Divide ending inventory by gross sales (i.e. inventory to sales ratio)

This calculation looks like: 

value of inventory as a percentage of sales = [ending inventory value ÷ gross sales] x 100 

For example, if your company has $250,000 in ending inventory for the quarter and sales of $1,200,000, the calculation would be:

[$250,000 ÷ $1,200,000] x 100 = 20.83%

You can use this percentage to calculate optimal inventory dollar values and to check how price differentiation may be affecting your sales. Plus, by creating (and maintaining) consistent value records for your business, you can more accurately track inventory data, generate demand forecasts, and detect the total value of inventory at any point in time.

2. Inventory turnover

Inventory turnover allows you to track the rate of goods sold compared to the amount of inventory on hand. This is an important inventory metric because it supports informed decision-making regarding production, inventory size, sales tactics, and replenishment.

To correctly calculate inventory turnover, you’ll need to know your cost of goods sold (COGS), your beginning inventory for the period, and your ending inventory for the period.

If you want to find inventory turnover for the whole year, divide your total cost of goods sold by your average inventory value. (You can determine average inventory value by adding together the beginning and ending inventory balances for a single month, and then dividing by two.)

This calculation looks like: 

inventory turnover = [cost of goods sold ÷ average inventory value]

For example, if your COGS for the year totaled $500,000 and your average inventory value came out to $100,000, the calculation would be:

[$500,000 ÷ $100,000] = 5

This answer tells you that your inventory was sold and replaced five times during that year. 

All business owners need to know their turnover ratio, as keeping track of inventory turnover tells you what’s selling versus what isn't. You can use this data to determine if your inventory sales are in line with your goals, if your current inventory for an item is too high (or too low), and to identify which products are your bestsellers and biggest earners. 

3. Average inventory age

Tracking inventory age helps you pinpoint slow-selling SKUs so you can liquidate those products before they have time to become a bigger problem. 

This calculation looks like: 

average inventory age = [average inventory cost ÷ cost of goods sold] x 365

The longer you hold an item in storage (that is, the older its age), the greater its carrying costs will be. In other words, this metric is necessary to track since maintaining stock for long periods can get super expensive for your brand. Aging inventory also reveals the speed of your inventory turnover—information which you can use to make better purchasing decisions.

 

4. Order fulfillment rate

Order fulfillment rate (or fill rate) is simply the percentage of orders that can be fulfilled at the time they’re placed. If your fill rate is at 100%, you can review your current stock levels to ensure you don't have too much available inventory. If your fill rate is low, then your customer satisfaction could be suffering—as could customer reviews of your products or brand.

Ideally, you should find a balance between keeping enough inventory on hand to maintain a high fill rate, while still reducing your stock levels enough to decrease costs. 

This calculation looks like: 

order fulfillment rate = [total orders shipped ÷ total orders placed] x 100

This metric can really come in handy because it demonstrates your ability to meet customer demand, and it highlights the overall effectiveness of your ecommerce business. Similarly, fill rate helps you gauge the demand for certain SKUs so you can plan procurement accordingly.

5. Inventory days on hand

Inventory days on hand—sometimes called days of inventory on hand—measures how quickly your business uses up its inventory levels on average. Calculating inventory days on hand is a great way to minimize stockouts and prevent your brand from overselling. Generally speaking, the fewer days of inventory on hand, the better your overall profitability. 

This calculation looks like: 

inventory days on hand = [average inventory for the year ÷ cost of goods sold] x 365

For example, say your company’s average inventory for the year is worth $50,000 and your cost of goods sold is $400,000 for that same year. Your inventory days on hand would be ~45, since:

[$50,000 ÷ $400,000] x 365 = 45.625

With this number in tow, you can figure out how often you need to restock, calculate your minimum order quantities, and make sure you never run out of stock on a single item.

6. Reorder point

The reorder point (ROP) is the minimum number of units a business needs to have on hand to prevent stockouts and guarantee on-time delivery. Once your inventory has reached its reorder point, it’ll trigger the replenishment process to reorder those items. In short, reorder points help you automatically reorder your inventory once it dips to a predetermined level.

This calculation looks like: 

reorder point = [lead time demand + safety stock]

You can learn more about calculating reorder points, lead time demand, and safety stock from Skubana’s blog. Tracking your ROP is integral to effective inventory management. Utilizing this metric can help your brand save on holding costs, avoid stockouts and overstocking, and keep you from losing sales by ensuring sufficient stock is always available.

7. Carrying cost per unit

Carrying costs are all the costs that make up your inventory overhead, including what you pay for your storage setup. To determine your own carrying costs, you’ll have to look beyond necessary expenses—like rent and utilities—and evaluate more in-depth metrics like perishability, shrinkage, insurance, and employment costs for your warehouse team. 

Note that carrying costs are always expressed as a percentage of the total value of your inventory. To put it another way, carrying costs are equal to the inventory holding sum divided by the total value of inventory, multiplied by 100. 

This calculation looks like: 

carrying costs = [inventory holding sum ÷ total value of inventory] x 100

The bright side is that this formula can be adapted to calculate costs for labor, electricity, management systems, and more. By repeating this calculation for all your various expenses, you can get a good idea of your total costs across the board. Taking the time to measure these different costs means it’ll be much easier to calculate your profits and losses, as well.

Best practices for managing multichannel inventory

businessman analyzing report

Curious about the best practices for managing inventory—particularly multichannel inventory? While there’s ample advice out there, the best practices can really be boiled down to prioritizing inventory analysis, setting achievable goals, and automating your supply chain activities.

Prioritizing inventory analysis

When you make inventory analysis a priority, you can identify the products that are costing you excess money or causing your profits to take a hit. From there, you can look for opportunities to streamline your pricing, improve earnings per product, or cut SKUs out of your catalog completely (if there aren’t any adjustments that’ll make them profitable).

Typically, inventory analysis involves: assessing the total number of products at your warehouse, reviewing your sales rates and turnover ratio, and checking on your high-velocity sellers to see if you can increase their price. Paying attention to these areas of interest can do wonders to free up inventory space and make room for new products with better margins.

Setting achievable goals 

Setting achievable goals is one of the most direct routes towards ecommerce inventory optimization. When you have a solid grasp on your inventory levels and product movement, you can make decisions and set goals to optimize your inventory for the future. This looks like establishing measurable goals based on your unique inventory data—for example, minimizing stockouts by 25% next quarter, or reducing the rate of abandoned shopping carts by half.

Goal setting is pivotal for holding your operational processes accountable and for making sure you’re meeting your sales targets month after month (and year after year). Plus, having definitive goals means you know if products are selling as well as you’d forecasted. If certain SKUs aren’t selling how you anticipated, you have a chance to make changes that’ll optimize your inventory.

Automating supply chain activities

As we touched on earlier, automating your supply chain activities ensures customer orders are delivered accurately and on time, every time. Not only do inventory management systems track critical order information and production lead time for every supplier, they also support automation during the reordering process. You can automate everything from purchase orders, to recommended reorder quantities, to order routing, order fulfillment, and beyond. 

Using automation allows your company to completely streamline its supply chain. And while synchronized operations will obviously have a positive impact on your brand, they'll also make customers happy. Inventory management software can send automatic shipping updates to your customers which will dramatically reduce anxiety as they wait for their orders to arrive.

Features to look for in multichannel inventory management software

Forecasting

With such a wide array of software on the market, it can be difficult to differentiate between all these options—not to mention, trying to discern which is the right fit for your business. 

When it comes to choosing a multichannel inventory management software, your best bet is to pay attention to these four features: inventory control and forecasting, barcoding and scanning, analytics, and customization and configurability.

Inventory control and forecasting

Inventory control and forecasting are the foundations for well-executed inventory management, which is why your multichannel software should support these end-to-end functions. Before you commit to a single inventory management system, be sure to take a closer look at its SKU flexibility as well as its forecasting capabilities. 

The best software allows you to track individual products, product variants, core components, and of course, independently track bundles and kits. This flexibility opens up immediate access to your product data and helps you monitor your inventory across all sales channels—so you can always replenish the right items at exactly the right time.

In addition to all that, your software should store years’ worth of your sales data. This way, you can refer back to those details at any point in time, and make use of this information in your inventory forecasting calculations. Ecommerce brands and marketplace sellers with accurate forecasting are in a great position to capture more sales and more new customers.

Barcoding and scanning

Barcoding and scanning are two of the most important features for larger businesses with multiple warehouses (and fluctuating inventory levels). That’s because barcoding/scanning makes it much easier to collect real-time data from your warehouse locations so you're always working with the most accurate and updated inventory information. 

If your company decides to adopt barcoding technology, it’s sure to become a crucial aspect of your multichannel management. However, not all multichannel inventory management software has the ability to integrate with barcoding systems. Double-check that all your tools will work together, and that your chosen operations software will support your barcoding accessories. 

Analytics

The inventory analytics that are accessible with your software will influence the effectiveness and efficiency of this system. That’s why it’s so imperative to research which reports the software provides, and to prioritize in-depth access to the data you most need. Be sure the business intelligence you collect is both actionable and measurable, so you can make the appropriate improvements or adjustments as your brand continues to sell (and scale).

Customization and configurability

Customization and configurability are fundamental features for ecommerce brands—no two businesses operate exactly the same way. And yet, as relevant as these features are, they’re not always available on every inventory management platform. Keep in mind, the more you're able to customize and configure your multichannel software, the easier it’ll be to implement. Look for software that comes with a robust app store or a directory of integrations.

Other tools and resources that help streamline multichannel inventory management

Worker scanning barcode on shipping box on smartphone

Along with these built-in software components, there are other tools you can utilize to help streamline your brand’s multichannel inventory management. These tools include a mix of online resources and tactile equipment, all of which are outlined in more detail below. 

Online resources

Articles: Skubana’s blog is a wonderful catalog for anything and everything related to inventory management—with insider information for businesses who rely on these systems, as well as insights into how to leverage management software to your company’s advantage.

Courses: If you’d like to develop a deeper knowledge of inventory management, there’s a variety of online courses available to you. But while there are some free classes to choose from, the majority will involve a fee. Prices can range from $100 to a few thousand, so it's worth exploring your options before you decide on the one that best meets your business needs.

Guides and whitepapers: Many times, inventory guides and whitepapers can be sourced for free, although you may need to sign up for a newsletter or code. These guides will usually come in downloadable, PDF format, but they may occasionally be found in a hard copy version, too.

Videos, webinars, and presentations: While the quantity of inventory management videos may be great, their quality can really differ. Luckily, Skubana has tons of free, high-quality ecommerce webinars for you to access, whether you’d like to learn more about inventory KPIs, automation hacks, building a supply chain, or using Walmart to expand your reach.

Tactile equipment

Barcode scanners: As mentioned earlier, barcode scanners are vital for businesses with multiple warehouses and fluctuating inventory levels. Scanners make it easy to gather data from all your warehouse locations, in addition to streamlining stock control and decreasing fulfillment time. What’s more, barcode scanners mitigate the risk of delays or missed sales by alleviating many of the time-consuming (and error-prone) aspects of inventory management.

Counters: Counters deliver accurate stock counts and keep your operations running smoothly no matter the order volume. By maintaining an up-to-date inventory count, you can build your product database as it truly exists at your warehouses. Every time a product sells (regardless of the sales channel), inventory counters will immediately deduct that item from the master SKU. 

Pallets: Effective inventory management is a must for any warehouse. Using warehousing pallets, you can quickly separate inventory into units that are easy to count and track. And because pallets are much stronger than other shipping containers, they can hold more (and heavier) products without the risk of breaking. Additionally, forklift operators can place pallets on much higher shelves—opening up tons of possibilities for vertical organization. 

Making use of these inventory management tools is a surefire way for your company to increase customer satisfaction and set yourself apart from other competitors in your industry.

Success stories to inspire you

Skubana has been helping businesses achieve superior functionality for years now. Thanks to Skubana’s multichannel inventory management solutions, direct-to-consumer brands and marketplace sellers can find the support they need to optimize every step of the supply chain. 

The following are just two of the companies Skubana has helped to scale up, maximize efficiency, and reach a level of success they’d previously only dreamt about.

Death Wish Coffee delivers on demand with Skubana

Death Wish Coffee

When Death Wish Coffee won Intuit’s Small Business Big Game competition back in 2016, they were rewarded with a 30-second commercial spot during the Super Bowl. With this level of exposure, it’s no wonder Death Wish saw a tremendous spike in sales after their commercial aired; sales that day were 20 to 25 times higher than an average Sunday prior to that game.

And while the increased cash flow was certainly welcome, Death Wish wasn’t prepared—nor did they have the systems in place—to handle this surge in sales orders. After running into a massive issue with overselling, it was clear they needed a management solution that could help navigate this influx in processing and fulfillment. Fortunately for them, Skubana delivered. 

Since implementing Skubana’s multichannel inventory management system, the Death Wish team has yet to oversell on a single item, they’ve branched out to new sales channels, and they’ve been able to focus more energy on new products and strategic promotions. Today, with one warehouse, two 3PLs, hundreds of kitted products, and thousands of orders fulfilled, Death Wish is truly the embodiment of what it means to run an ecommerce empire.

Tushy's 10x growth with the help of Skubana

Tushy

Tushy is on a mission to transform the bathroom into a healthier and more sustainable space for everyone to use. Although Tushy’s bidets have been on the market since 2016, it wasn’t until the spring of 2020—and the ensuing nationwide shortage of toilet paper—that the company became a household name and experienced an unprecedented increase in customer orders.

But as luck would have it, a full six months before the world had any knowledge of a pandemic, Tushy COO and co-founder Justin Allen, along with CEO Jason Ojalvo, went looking for a management solution to suit their needs as they scaled. By adopting Skubana’s multichannel inventory and order management software at that time, Allen and Ojalvo perhaps unknowingly prepared their company for what was to come. 

When they saw such an incredible volume of orders in early 2020, Tushy was able to pivot from an on-demand fulfillment company to a backorder company in just days. Skubana played a crucial role in supporting Tushy through this shift in fulfillment, by providing greater order control, better order handling, and cutting their order lead times in half. 

Not only did Tushy scale 10x in a matter of months, but with the help of Skubana, they were able to navigate a completely different inbound and outbound supply chain—resulting in amazing success and a clear path towards even greater milestones. 

If you’re in search of a cutting-edge ERP to enhance your multichannel inventory management, Skubana—an Extensiv company—is just the system you need. Skubana’s full suite of inventory and fulfillment services helps ecommerce brands scale quickly without having to sacrifice on flexibility, quality, or customer satisfaction.

Contact the Skubana team today to schedule your free demo.

 

Multichannel Inventory Management FAQs

  • Does my business need multichannel inventory management?

    If your business sells its products on multiple sales channels, then multichannel inventory management is a must. The right multichannel inventory software has the capacity to improve your brand’s data integration, automate your supply chain activities, deliver critical inventory metrics, and even optimize your inventory control.

  • What are some common inventory management techniques?

    Inventory management techniques can help business owners reduce human errors, maintain optimal inventory counts, and save valuable resources like time and money. These days, some of the most common inventory management techniques include minimum order quantities, reorder points, batch tracking, lean manufacturing, and ABC analysis.

  • Why is it important to have multiple locations to store inventory?

    One of the greatest advantages to storing inventory at multiple locations is that it’ll lead to faster shipping times. When inventory is distributed among multiple warehouses, orders can be shipped from whichever location is closest to the end customer—which ultimately leads to shorter delivery windows and happier customers all around.

  • What are the four types of inventory?

    Although there are many types of inventory used today, it’s typically classified into one of four categories: raw materials, work-in-progress, finished goods, and MRO supplies. More specifically, MRO supplies encompass all the consumable materials and equipment that are needed for the maintenance, repair, and operational side of your inventory.

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