When you run an eCommerce business using Shopify, you live and die by your inventory management. Oversell, and you risk upsetting and potentially losing customers. Buy too much safety stock, and you tie up cash you could otherwise use to invest in growth.
In this post we’ll dive into some inventory management best practices for Shopify eCommerce merchants. These practices will help you maximize your investment, turn inventory faster, and ultimately build a more profitable business.
What We’ll Cover
There’s a lot to cover when it comes to inventory management, so this post is going to focus on the following topics:
- Picking an inventory management solution
- Integrating Shopify inventory with other channels
- Minimizing your on-hand inventory
- Handling variant items on Shopify
- Handling kit items on Shopify
These are universal concepts to most eCommerce merchants, but I’ll make sure they all tie back to Shopify specifically.
Picking an Inventory Solution
Picking an inventory solution is a critical decision for a Shopify merchant. You don’t want to overpay for features you don’t need, but you don’t want to box yourself into a solution that doesn’t let you grow, either. Consider the following:
- How big is your business now? How big do you want to grow (and how fast)?
- What kinds of items do you sell?
- What other systems need to be aware of your inventory?
- What is your fulfillment process? Do you drop ship orders?
- How often do you update inventory?
Your answers to these questions will determine which kind of solution is best for you. Let’s look at what some of your options are:
Shopify’s Native Inventory Features
Shopify has built in inventory features, of course. This is your starting place when evaluating inventory solutions, because it’s your simplest way to go. For many eCommerce merchants, this functionality is more than enough.
Within Shopify, you can edit the inventory for a single product at a time, by going to Products > (name of product) > Inventory. You can also edit inventory values for multiple products in a grid, by going to Products > Inventory. (This one is a link in the sidebar.)
Shopify’s inventory features give you all the basics to increment, decrement, and set inventory levels for each of your products managed in Shopify.
When your business grows, you might find that Shopify on its own isn’t enough to manage your inventory efficiently. Maybe you’re expanding to additional sales channels, like Amazon. Maybe you require a back-end integration to an ERP or accounting system. Maybe you need to integrate with suppliers to adopt vendor-manage inventory practices.
If Shopify’s native inventory features aren’t enough, it’s time to consider a platform that integrates your eCommerce platform with the rest of your existing systems. (For the sake of disclosure, this is what nChannel does. And, we do it quite well.)
These types of solutions come in all shapes and sizes, and can range significantly in price. Many are available in the Shopify App Store, but your options aren’t limited to what is listed there.
When looking at different inventory solutions, some of the things you should consider are:
- Is inventory updated in real time? Or, is it near real time (e.g. every 5 minutes)? Or, is it something else?
- Does the platform master your inventory counts or does it rely on another platform (like an ERP) to do so?
- Is the inventory management embedded into an order management system?
- Does it support vendor-managed inventory, drop shipping, and supply chain integration?
You specific needs will determine what kind of integration you have an appetite for. But, don’t forget to consider what happens when you grow. An inexpensive, basic solution might sound great today, but will it still be right for you when your business grows?
Here are some more complicated situations that ultimately affect what inventory solution is best for you. See how they impact your decision.
Minimizing On-Hand Inventory
Inventory management is a balancing act. It’s balancing two opposing forces: you need to enough inventory to avoid running out, but you don’t want to buy as little inventory as possible.
Minimizing on-hand inventory is a challenge–one that many people dedicate their entire careers to understanding. There are steps you can take, as a Shopify merchant, to minimize your on-hand inventory, freeing up cash to invest in other parts of your business.
Some of the ways to do so are:
- Purchase smaller batches of inventory, more frequently (pull-based forecasting)
- Set up drop shipping relationships with suppliers. You can use drop shipping to prevent stock-outs or completely in lieu of carrying any inventory.
- Integrate with your suppliers, so that they can manage inventory for you.
- Improve your sales forecasting ability by using business intelligence tools. Even improving how you use Microsoft Excel can be hugely valuable!
These strategies all boil down to discipline about inventory management–about learning and executing good practices. But, some of them also involve integrating your systems. You can’t tie into your suppliers systems without technology integration. Again, this will impact your choice for an inventory management solution.
Handling Variant Products
Shopify allows you to manage variant products, which is a powerful and often necessary feature. Variants are simply versions of the same product. For example, if you sell t-shirts, the same shirt may come in an array of sizes and colors. Having to manage each product variation separately would be cumbersome. Shopify helps you manage them as a matrix of items and attributes.
The problem is that variant items can make managing inventory exponentially complicated. Now, you don’t just need to track how many t-shirts you have. You need to know how many large blue t-shirts you have. The number of SKUs you have to manage inventory for is the number of items x the number of attributes x the number of attribute possibilities.
Shopify lets you manage inventory for variant products, but look how complex it gets for a simple t-shirt with four sizes and three colors:
You can imagine how inventory values with tens or hundreds of variant products would become very complicated to manage in Shopify. If this is going to be an issue for you, definitely check out inventory management solutions that help you deal with variants gracefully. (See the considerations earlier in this post.)
Handling Kits/Item Bundles
Some eCommerce merchants choose to sell kits or item bundles, and that adds more complexity to your inventory management processes. Kits are pre-designated combinations of items, sold almost as if it were a single item. For example, if you sell musical instruments, you might sell a Guitarist’s Starter Pack that includes a new guitar, amp, cable, picks, and a book of lessons. You are technically selling five different items, but combined as one kit.
This method of selling has specific implications on your inventory. In the example of the Guitarist’s Starter Pack, you can’t just decrement the inventory for that kit as one item. Your system needs the intelligence to know that selling one Starter Pack means you sold one of each of the items making up the Starter Pack. This makes monitoring your inventory a little fuzzier–it’s no longer an “if this, then that” kind of process.
Shopify does not really help you manage kits out of the box, so you will have to evaluate a third-party solution. You may be able to go with a Shopify App like Product Bundles (5 stars on the App Store). But, you may want to consider a more full-featured platform that integrates product information management, order management, and inventory outside of Shopify.
What To Do Next
I’m guessing that you have a specific use case in mind if you’re looking for information on Shopify inventory management. You have a lot of options from free/cheap “plugin” kinds of solutions all the way up to expensive enterprise solutions.
This is what nChannel does, and we do it well. Check out our inventory management solution, which integrates directly into Shopify, Shopify Plus, and many of the other channels you may consider.
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