When running an eCommerce or retail business, inventory management is one of your most important processes. Too much inventory ties up cash. Too little inventory puts you at risk for stock-outs. Both scenarios have negative financial implications.
Magento is one of the world’s most popular platforms for running an eCommerce business. That means there are a lot of Magento merchants who need to learn the best practices for inventory management.
If you’re using Magento and you carry inventory, this post is where you should start your learning.
Use an Inventory Management Extension
First and foremost, you need to recognize as a Magento seller that your platform’s native inventory features are not always enough, especially as your eCommerce business grows. Fortunately, the Magento community offers many extensions that give you more functionality.
Sometimes Magento Connect, the extension marketplace, can be a little overwhelming. There are thousands of extensions available and comparing them is time consuming and difficult.
As described in How to Choose a Magento Inventory Management Extension, consider the following criteria:
- How do low inventory notifications work?
- Can it integrate with drop shippers?
- Does it help you change product availability based on stock? What configurations are available?
- Is inventory updated in real time? Or, just kind of real time? Or, something like once per day?
- What kind of reviews did the extension receive?
- What kind of support does the extension creator offer?
Be sure to use at least these criteria to evaluate and compare inventory management extensions. Add whatever specific requirements you have, as well.
An extension could give you the functionality you need to better manage your inventory.
Real-Time Inventory Updates
If there’s one thing you must have for better inventory management, it’s a way to ensure that your inventory levels are always correct. And in 2015, near real-time inventory updates are just not enough.
You may think you can get by with “near” real-time or once an hour, or once a day. But in reality, there simply cannot be any latency in your inventory data.
What happens if you don’t have real-time inventory data?
Let’s say you have 100 widgets in stock. You usually sell them at a modest pace, 50-60 per month. That means you have enough inventory to sell your typical monthly volume, plus a little safety stock. You can order more widgets about once per month to replenish. Everything is great, right?
Then, unbeknownst to you, a famous pop start posts a picture on Instagram of her using a widget–the very one you sell. Interest shoots through the roof, and your sales volume explodes!
This is a good problem to have, if managed correctly. But, if your inventory is not updated in real time, you could get into trouble.
You ran out of stock in the middle of the day, but Magento wasn’t updated and the product wasn’t listed as “out of stock”. So, you kept selling them. Now you have 100 orders you need to fulfill immediately, and you don’t have the stock to do so.
Enter the always-hated, “We’re sorry, but even though we told you that you could buy that widget, we have to put you on backorder,” email. You just created a bad customer experience, souring what should have been a huge opportunity for your business.
If you were selling widgets on eBay or Amazon, you’re in even more trouble. Your seller account will get dinged, and at worst, suspended.
Endless Aisle With Drop Shipping
While real-time inventory updates helps make sure you don’t oversell, what if you had an “endless aisle” of products, so that you never ran out of inventory in the first place?
Drop shipping is a process that enables you to offload fulfillment to your supplier, instead of having to carry the inventory yourself. There can be some additional overhead costs, but it allows you to streamline fulfillment and avoid tying cash up in inventory.
Let’s continue with the same example…
If you had real-time inventory updates and an integrated drop shipping relationship with your widget supplier, that point in time where you ran out of stock would be much different.
As soon as you sold the last on-hand widget, you would start forwarding incoming orders directly to the widget supplier. The supplier, who has many more widgets in stock simply fulfills the orders directly. They pass status data back to you, so your store can reflect the order status.
And, all of this happens, unbeknownst to the customer. They still get their widget, which is all they care about.
You can use drop shipping as a fallback, or you can make the decision to fulfill every order via drop shipping (many eCommerce businesses begin this way). Drop shipping costs you a bit more, per sale, and it requires a more robust supplier relationship, to ensure accuracy and financial reconciliation. But, it’s a tool you can keep in your toolbox.
Check out Magento Drop Shipping: What It Is and How To Set It Up to learn how to get started.
Centralized Inventory Management
If you run a single Magento webstore and you don’t sell products anywhere else, online or offline, you can get away with centralizing your inventory data in Magento. But, for most businesses this is not a best practice.
If you business includes one or more brick & mortar stores, you’ll have some inventory data in your point-of-sale (POS) system. If you sell on Amazon or eBay you need to manage the amount of inventory that you make available for those marketplaces. Magento is not capable of handling these complexities gracefully.
At this point in your business, you need to use a dedicated, centralized inventory management system that updates your inventory numbers in real-time as orders flow through. This is the only way to ensure your inventory in stores, fulfillment locations, drop shippers, etc. is cohesive and accurate.
What about extensions that centralize inventory management?
There are some extensions (not the ones to dedicated inventory management systems) that claim they can solve this problem for you. But, beware!
These extensions will often integrate Magento directly to other systems, continuing to use Magento as the “inventory master”. For adding one additional channel (e.g. Magento + Amazon), this might be sufficient.
But, point to point integration is not best practice and does not scale.
Consider your growth objectives. Build your business on a foundation of scalability and best practice. Expect to grow. Then, when you do, your platforms won’t inhibit you.
If you’re interested in a robust solution, check out our centralized inventory management solution if you are looking for exactly what was described above.