Shopify Inventory Management: Benefits, Challenges, and How to Optimize
Shopify recently announced that the company has surpassed one million merchants worldwide on its platform. Several ecommerce companies turn to the platform to run their online stores because of the flexibility and tools it provides to help businesses of all sizes scale.
The proof is in the numbers – Shopify merchants’ online sales growth was 59%, more than double the growth of the global ecommerce market.
One of the most important areas that Shopify supports merchants in is with inventory management. Inventory management is a critical aspect of any ecommerce company, and those that don’t establish a solid foundation for tracking inventory and accurately reflecting availability on online stores can run into several problems.
Why is inventory management important on Shopify?
Having a clear and organized idea of inventory helps prevent loss from theft, returns, and spoilage. It also reduces overall inventory costs, optimizes fulfillment, and paves the way for better customer service.
Inventory management gives insight into:
- Customer behaviors and preferences
- Financial performance and overall profitability
- Business opportunities and new product ideas
- Consumer interests and buying trends
Shopify's inventory management features provide structure for brands of all sizes, giving them the framework needed to run a successful retail business.
As brands expand to become multichannel merchants and adopt omnichannel marketing practices, the level of organization needed within their inventory management strategy increases.
Shopify’s online and point-of-sale (POS) capabilities, coupled with its expansive app store, enable brands to be everywhere their customers are shopping, but it is still on the brands to implement the operations structure to support this.
While many brands choose Shopify as their ecommerce platform, there are some benefits and challenges you might face if you use it as your inventory management software. We decided to take a closer look at the Shopify inventory management capabilities and the tools brands can use to optimize their inventory management practices.
The benefits of Shopify inventory management
There’s a reason why Shopify is so popular: it has a large number of benefits for its users.
When it comes to inventory control and tracking, any sized business owner, from a mom-and-pop shop to a multi-store company, can have a Shopify ecommerce store up and running in no time. Shopify provides several native tools to manage their inventory, instantly giving them a boost in their technological capabilities.
Shopify’s basic functions track inventory per each individual listing, making it beneficial for businesses that have a simple inventory flow. This is ideal for businesses that purchase finished products directly from a supplier and don’t require many complicated steps in their inventory management process.
As brands scale and begin to add multiple channels, they can implement some level of multichannel inventory management via Shopify. Companies can sync their Shopify ecommerce shop to Facebook, Amazon, Pinterest, and mobile applications to create an integrated solution for tracking inventory across a handful of channels.
Some of the key native inventory management features in Shopify include:
- Inventory tracking on individual listings: Shopify merchants can set up individual listings for each product and organize them by category, type, season, and more. Each listing includes an inventory field which can be adjusted manually.
- Product variations inventory: Shopify allows brands to manage variations of a single product all in one place. You can create any number of versions for a single product to reflect different sizes and colors, and customize the SKU, price, weight and inventory number for each variation.
- Bulk inventory updates: Merchants can use spreadsheets to import inventory adjustments in bulk.
- Inventory transfers: Shopify allows you to log, track, and receive transfers between your warehouse locations and suppliers.
- Inventory history: Merchants can view the last 90 days of inventory history for a product or variant. The history includes the date, who made the change, the adjustments made and the updated quantity from the event.
The challenges of Shopify inventory management
For brands with more complex workflows, some of Shopify’s native inventory tracking functions may present a few challenges. Companies that adopt a true direct-to-everywhere approach – which means strategically incorporating wholesale, retail, ecommerce, social media, marketplaces, and subscriptions into distribution – may need additional features beyond the native functionalities available on the platform.
There are unique needs that multichannel, multi-warehouse companies require to allow their business to successfully scale, including automation, deeper supply chain management, and workflow visibility.
Any business that is selling products across channels that do not integrate into Shopify will have to manually implement multichannel inventory management on both Shopify’s platform and each of the other channels as opposed to having it managed from one place.
This can be a tedious and time-consuming process and puts companies at risk of overselling due to inconsistencies in inventory levels across their channels, which directly impacts the consumer buying experience.
Some additional features that multichannel ecommerce brands require include:
- Shared inventory across listings for the same product: While Shopify allows inventory tracking of variations under one listing, it might be difficult to manage multiple listings that pull from a single inventory resource.
- Automated inventory replenishment: Once a brand begins managing a larger SKU library, its inventory replenishment process may become complex. Systems that automatically generate purchase orders when stock is low and recommend order quantities help streamline replenishment.
- Locked inventory: Merchants that hold preorder sales or special promotions may want to hold certain units from showing on listings. These companies need a system that will show total inventory, but also differentiate this locked away inventory from the rest.
- Cross-channel functionalities: Multichannel brands need to have a unified view of their inventory and business analytics. This includes being able to customize how inventory is shared across listings, full visibility into all warehouse inventory, as well as insight into the profitability of each SKU across each channel.
While some of these functionalities may not be native within Shopify, it doesn’t mean they are completely unavailable. There’s always an app to get you what you need.
The Shopify app store has several tools that can make managing your inventory easier. With numerous inventory apps and plugins to choose from, you can sell across multiple channels, set up reminders, automatically update inventory and so much more.
Bridging the gaps with inventory management software
Shopify has a number of different apps available that can be integrated into ecommerce stores to provide advanced inventory control features. These third-party apps offer an increased number of functionalities compared to the native Shopify inventory management system.
Inventory management apps are central to a brand’s Shopify operations because they optimize the fulfillment and inventory tracking process.
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These apps expand the list of sales channels you can integrate into Shopify, as well as directly connect to third-party logistics companies, POS systems, and warehouses.
Multichannel merchants can use these applications as a “single source of truth” for their operations and logistics data, channel profitability, return management, vendor communications, revenue information, and sales data.
Inventory management apps also improve a merchant’s operations by mitigating the risk of over-stock or overselling scenarios. Over-stocking can lead to inflated costs while overselling can cause a merchant to miss potential sales opportunities.
Layering a single, unified multichannel inventory management software with Shopify is a best practice used by several major Shopify and Shopify Plus brands.
While Shopify’s app marketplace offers several inventory management apps, it is recommended to select one application with a comprehensive feature set to avoid conflicting applications as well as streamline how many apps are connected to your store. Selecting an inventory management app encompasses many aspects of your business, but some of the features to prioritize include:
- Multi-warehouse and multichannel functionality: sync your inventory across all of your sales channels and warehouses to make sure that it is accurate. Updates to inventory should reflect on your sales channels in less than 15 minutes.
- Order routing and automation: automatically route orders to the best shipping provider and warehouse. This can be done based on warehouse locations, delivery dates, or inventory availability across your warehouses.
- Inventory control features: control and adjusts the number of units shown on your listings based on your stock levels. This prevents overselling by limiting how many units appear on faster selling channels so you don’t process an order you can’t fulfill.
- Comprehensive analytics and reporting: Gather up-to-date data across all of your channels and warehouses, such as stock levels, profitability, and sales margins.
- Automated purchase orders: Automatically create POs based on sales velocity and lead time which includes recommended reorder quantities optimized to continue sales or adjust according to forecasted demand.
Remember, the more apps you have connected to your store, the slower your site may potentially be. Make sure to weigh all of Shopify inventory management app options and select the software that meets your specific needs.
Skubana is an excellent example of an inventory tracking system that unifies and automates all inventory management operations.
Skubana’s tools and functionalities are tailored to multichannel businesses and expand on many of the powerful native inventory management features available in Shopify.
When it comes to updating multiple listings on Shopify with the same inventory source, Skubana can update all of them simultaneously and in real-time as inventory changes, minimizing any inventory management mistakes.
Nomad + Skubana: Free Cable for the Planet Case Study
NOMAD was looking for an innovative way to move aging inventory for their Rugged Cables while acquiring new customers. Tapping into their Modern Nomad philosophy, they launched "Free Cable for the Planet."
NOMAD offered 2 SKUs with high levels of aged inventory for $0 as long as customers provided a donation to fund reforestation in the Amazon.
NOMAD used Skubana's Listing SKU functionality to push inventory quantities for the Rugged Cable product to three listing variations ($5, $10, and $20 donation listings) at the same time. Each time a purchase was made on one variation, all three were updated to reflect the latest quantity, providing peace of mind that they wouldn't oversell throughout the campaign.
The only "loss" NOMAD recorded was on the COGS of the cable, but this value was made up for in brand reputation through an environmentally friendly initiative and email capture of all new customers.
Here are some quick results from the successful campaign:
- 1,732 units moved over 35 days (average of 346.4 units/week)
- 1,261 new customers
Skubana was built to help consumer brands synchronize fulfillment, inventory, and product intelligence. It automates redundancies in fulfillment and inventory workflows and allows brands to sell across multiple sales channels.
Skubana’s proprietary Orderbot technology lets users automate repetitious tasks relating to order fulfillment, inventory management, warehouse operations, and shipping.
This can be done across a robust network of sales channels ranging from marketplaces like Amazon, eBay, and Jet.com to e-commerce hosted platforms like Shopify.
Skubana also automatically calculates shipping rates from a variety of shipping providers and 3PLs to determine the most cost-effective method to use.
The system even features its own plug-and-play app store, automatic PO generation, enterprise-grade shipping, and in-depth SKU-based reporting and analytics so brands can send their products direct to everywhere.
Ecommerce business owners that use Shopify get access to several inventory management features on the platform.
But when companies begin to expand to multichannel operations, it becomes difficult to track inventory across multiple channels. Manually updating and reordering stock and inputting SKUs into each individual listing is meticulous.
Shopify has an app market with several third-party systems that can integrate into your e-commerce platform to automate your inventory management.
Finding the right application to handle these tasks can position a business to save on optimizing costs and operating efficiencies.