Mastering Shopify Inventory Management: A Comprehensive Guide

Stock control refers to the coordination and supervision of inventory across its supply chain. The main purpose for which an inventory manager aims is to minimize inventory costs, retain a constant level of inventory, as well as quicker processing and despatch of items. In essence, it is the core element that largely dictates a successful retail business operation.

The blog takes you on a path leading toward effective stock control and eventual customer satisfaction. It also offers important findings about best practices to follow when it comes to managing your inventory, with an emphasis on Shopify inventory management.

What is Inventory Management?

Inventory management, as it applies to how companies treat goods during the distribution system. Inventory control provides a critical function in the field of e-commerce whereby companies are made aware of the quantity available for sale and get alerted every time there is a need to replenish the goods.

Therefore, a good inventory management system needs to achieve lower costs, efficient supply of customers’ needs as well as appropriate inventory levels. It should also simplify the data into readable form for concerned parties.

Some parts of inventory management include inventory control that deals with handling of stock whereas the latter concentrates on predicting, providing, and receiving services.

Types of Inventory Management Systems

Initially, early inventory management systems consisted of manual spreadsheets that stock managers had to update manually. Fortunately, the terrain of inventory management has changed over time allowing retailers to automate most of the inventory control procedures.

In the realm of inventory management, there exist three distinct categories:

Manual Inventory Management Systems

Traditional manual inventory systems entail the use of spreadsheets and at times pen-and-paper records. The process can be a substitute for small companies having simple inventory requirements and a lesser number of sales. This outdated method however is soon revealed to be inadequate when a firm wishes to enlarge upon either its product assortment or geographic reach.

Moreover, for bigger retailers and ones with high ambition for expansion, it becomes very inefficient to rely only on manual inventory management. Human error in data entry and record-keeping is constantly worrying since it can result in incorrect stock status and low operating efficiency. In addition, a costly and time-consuming exercise entailing manual counts, compilation, and inventory updates, which depletes human hours that could alternatively be channeled towards core business activities.

Perpetual Inventory Management Systems

Leading the way in inventory control is a perpetual inventory management system that utilizes real-time automation of stock management. This is a critical principle at the heart of this system, which entails promptly updating the inventory database when events transpire. The moment that product is sold, its bar code is instantly scanned which debits the products from its inventory database.

On this same note, a new stock that comes in is also scanned and added to the central database. The system ensures that stock details are accessible within the shortest time possible in all parts of the operations thereby enabling unmatched inventory control and visibility.

A perpetual inventory management system offers the most important advantage—the ability to provide complex information regarding any change in inventory. “` The granular perspective gives businesses an informed basis for ordering stocks, refills, and overall inventory management. It also replaces costly and inaccurate inventory counting processes that take considerable time, contributing to improved business operations.

The advantages of perpetual inventory are applicable to any size of business but their importance is manifested mostly in the case of retail stores that operates multiple branches or make many sales. This system is of paramount importance in such cases because it provides real-time data updates and precise inventory accounting allowing for smooth operations and satisfied customers.

Periodic Inventory Management Systems

Unlike perpetual and inventory management systems, however, work with a different assumption. Unlike real-time updates, this kind of system requires carrying out physical inventories for specified intervals. Periodic systems have this inbuilt feature which always makes companies reluctant to declare their figures before they conduct a physical count.

Although, this procedure may fulfill that purpose and is considered an appropriate approach for numerous businesses; they have practicable barriers in a big shopping or retail operation.

Periodic stock counting is however not applicable for larger organizations since it poses a problem. This means that for order processing to occur, it must rely on manual counting that could be using inventory data from weeks or even months earlier. As a result, every time a customer wants to buy a product, there is usually a need for a manual inventory check which consumes so much time and resources on the part of the business owners.

Periodic inventory can be done by small business owners especially when their stock is low. In most cases, these businesses discover that the periodic approach is both easier on them and cheaper to employ since they usually have simple inventory requirements. However, bigger retailers or those with large sales realize that real-time, persistent inventory management systems perfectly fit their business needs and expansion objectives.

✅ Discover now: Best Shopify Inventory Management Apps: Comparison And Guide

Why is Inventory Management Important on Shopify?

Proper inventory management is very important for any successful e-commerce operation, and it’s definitely true on Shopify. So, why does effective inventory management serve as a foundation of Shopify businesses?

• Cost Control: Proper inventory management can be achieved through cost control measures such as avoidance of over-ordering as well as low carrying costs due to reduced stock levels. This protects your capital by keeping it invested and ensuring that you do not tie it up with too much stock.
• Cash Flow: Inventory management contributes to an organization’s liquidity. Removing unnecessary stocks and optimizing purchases frees up working capital for further investment into the business.
• Customer Satisfaction: Accurate stock levels ensure that your customer always finds the products in times their wants. It increases their goodwill through enhanced shopping and loyalty.
• Waste Reduction: Proper inventory management reduces wastage by controlling the movement of perishable or time-sensitive goods. It helps reduce the risk of making products outdated or unsaleable.
• Order Efficiency: Order processing becomes more efficient with well-streamlined inventory management. This can enable you to process orders fast and precisely resulting in fewer mistakes, hold-ups, as well as additional expenses.
• Forecasting: The right information on inventory gives good projections for forecasting and trends in the future. This is what helps you beat fluctuations in the market.
• Profit Maximization: Efficient inventory management goes straight into profit maximization through cost reduction and increased sales. This guarantees that your company has achieved maximum revenue capacity.
• Operational Efficiency: Inventory management streamlines your operations. It ensures the effective use of human and financial resources in the management process.

Does Shopify Provide an Inventory Management System?

Yes, Shopify has an all-inclusive inventory management system for e-commerce stores. However, Shopify is famous enough among many people because it offers many necessary solutions for effective inventory management.

It has over a million users and covers 175 countries across the world. The widespread adoption of Shopify is due to its ability to simplify inventory management, which serves as a lifesaver to any business striving to excel in this era of fierce competition driven by consumers’ desire to acquire high-quality goods with minimal effort.

The Benefits of Shopify Inventory Management

The benefits of Shopify inventory management system are multifaceted and instrumental in ensuring a seamless e-commerce operation. These advantages include:

Tracking Inventory on Individual Listings

Shopify inventory management systems allow for precise tracing of inventory down to the listing level. For e-commerce companies with a wide variety of products, this feature is extremely important as it enables accurate tracking of available products on hand.

In this way, it limits the possibility of overbooking and helps to create proper service for customers. It is most advantageous for firms, which deal with exclusive or niche products or services.

Inventory Management for Product Variations

The inventory systems of Shopify serve well for those businesses whose products have multiple variations like different sizes, colors, and fashions. It simplifies the handling of these changes thereby ensuring proper accounting of stocks per variant. It simplifies product inventory management for option combinations so that it is consistent.

Making Bulk Updates to Inventory

Shopify provides an effective means of undertaking simultaneous adjustments of large portions within the inventory. Businesses enjoy this as a saving grace of time when they want to alter quantities, introduce new items on the market, or amend their previous entries with this attribute of speed.

In addition, bulk updates make processes easier, enabling quick adjustments of your inventory to reflect current market dynamics.

Transferring Inventory Between Locations

The transfer of goods within the network is made easier by Shopify’s inventory management system that connects businesses having several physical places, warehouse departments, or fulfillment centers. It helps in ensuring effective distribution of and balancing of stock for optimum use of resources and enhancing operations. As such, it is the most useful resource in keeping track of various issues that come up with a multi-location online business operation.

Tracking the History of Inventory Changes

The inventory change tracking feature in Shopify’s inventory management system also keeps a complete history of all the changes that have been made to the inventory over time. The historical tracking function is very beneficial for companies to track their strategies of inventory control. It assists in auditing, trend analysis, and correcting inconsistencies. The provision of access to the historical records of inventory changes enables businesses to improve their strategies and make intelligent predictions for the future.

Important features to look for with Shopify inventory management software

When selecting Shopify inventory management software, it’s crucial to consider the following important features to ensure that it aligns with your business’s needs and objectives:

Automated Order Routing and Processing

A good inventory management system should have the ability to auto-route and process orders. This is a useful function as it helps in directing orders to the right warehouses depending on issues such as available stock and customers’ nearness so as to minimize delivery time and transport expenses.

Inventory Management Capabilities

Inventory management software depends on its capability to appropriately trace, check, and manage your product inventory. Search for inventory updating in real-time, centralized stock management, and notifications when there is insufficient inventory. Also, it could provide companies with different products on their catalog with a way of managing their variations and bundling them.

Multi-Channel Operations

Choose multi-channel operations-enabled inventory management software in order to capture more customers. This also means that you can manage different sales channels (from your Shopify store to Amazon and eBay) in one place. It helps in managing stock, keeping it standardized at various stages.

Extensive Data Analysis and Reporting

Data are critical for making proper decisions. Ensure you are choosing a product with robust data analytics and reports. It is through advanced analytics that you are enabled to tell when sales are growing or declining and also help predict future demand as well as aid in optimizing your stock. You can generate customized reporting, allowing you easy access to useful information for your organization.

Automated Ordering of Stock

Automated stock ordering is useful in keeping optimum stock levels. The software should be in a position to prepare purchase orders from past records and predictions, taking into account current supplies. It also makes it easier to purchase goods, with reduced risks of running out of supplies.

Automated Replenishment of Inventory

Automated inventory replenishment works in a similar manner as automated ordering and guarantees that you constantly maintain good stock levels, requiring no human input. It allows you to prevent a problem with understocking and enhances your management of stock in general.

Inventory Management Techniques

Regardless of the inventory control system used, it is possible to implement about 11 inventory management techniques which will substantially increase your inventory effectiveness and improve your cash flow. These techniques are crucial for efficient inventory management:

1. Implement Six Sigma

Stock tracking constitutes more than just one approach to using Six Sigma in inventory management. It’s a systematic approach and set of tools for business process management. Regarding the management of inventory, Six Sigma helps small entrepreneurs in curtailing write-offs for overstock and obsolete items that may drain their cash. A structured approach like DMAIC in Six Sigma helps identify problems with inventory control and solve them.

In the process, companies establish why they have problems with inventories, whether due to a lack of uniformity recording or other deficiencies in the inventory system and offer remedies, for instance putting a place where all things are recorded centrally.

2. Set Par Level

It is imperative that every business should establish par levels as this is a basic strategy for carrying out balance inventory. Par stock level is the minimum stock that should always be available. Therefore, this is a clear indication that such inventories should be reordered when they go down beyond these predefined levels.

These par levels are different depending on customer demands as well as the product lead time. Periodic review and correction of par levels also ensures inventory optimization in order that neither overstock nor stockout would occur.

3. Follow the First In First Out (FIFO) Principle

The concept of First In First Out, or FIFO is extremely important in calculating COGS (Cost Of Goods Sold), especially for businesses that deal in perishable types of goods and merchandise. It defines that the eldest stock must be disposed of before fresh inventory can be gotten rid of. Companies that stick to this idea will avoid producing unsellable spoils, have efficient inventory turns, and have proper COGS for financial accounts.

4. Manage Supplier Relationship

Goodwill is not the only reason business partners need to have their relationship with suppliers as strong. It also helps in the proper control of inventory. Your suppliers are critical to guaranteeing that you maintain a well-stocked and flexible inventory.

The collaborative nature of their relationships with suppliers may facilitate negotiated MOQs (Minimum Order Quantity), advanced notice, and other good relations. It ensures that you communicate to suppliers what your expectations are, your sales forecasts, and possible production problems so that they can be able to prepare appropriately.

5. Create Contingency Plans

When it comes to inventory management, one should always be ready for eventualities. involvements capitalizing on change and innovation in order to have a firm hold on market trends. For example, unanticipated surges in sales, cash outflow deficiencies, space restrictions, errors, sluggish products, stock shortages, and even termination of trade partners will eventually happen.

You therefore need clear contingency plans that highlight what you’re going to do whenever such problems occur. The plans must contain a way of handling these problems, how they affect different aspects of the company, and possible means of minimizing the effects. These plans can be executed faster, helping in fast inventory management.

6. Conduct Regular Audits

Accurate inventory management begins with regular inventory audits. Although they are depended upon, inventory management software and reports must be verified by physically confirming that on-hand stocks correspond to recorded items.

The conduct of audits can be carried out in different ways such as the year-end physical inventory counts, the spot checks, and the daily cycle counting method which allows a daily reconciliation to be done every time and it is all distributed throughout the year. Audits on a regular basis ensure that inventory records are correct, reduce discrepancies, and keep in sync with stock.

7. Prioritize with ABC Analysis

By using ABC analysis, you will be able to properly categorize your inventory, thereby helping you understand your product portfolio. This technique segments your products into three groups: With respect to your revenue from A, B, and C. “A” commodities that make up approximately twenty percent of all your goods are generally, high-value and high-demand commodities that should be well supplied at all times.

A total of roughly 30 percent of your products are “B” items that moderate your income. Of your products, about 50% constitute “C” things that possess relatively low demand and give little for earnings. Classifying your inventory in this way helps you design distinct inventory management methods suitable for individual groups and enhances your overall inventory management efficacy.

8. Practice Accurate Forecasting

Effective inventory management depends on accurate demand forecasting. Although it is difficult to forecast the future, forecasting is crucial in planning and optimal control of inventory. A lot of things are involved like market trends, historical sales information, growth rate, fulfillment of the contract, seasonality, promotions, and spending on advertisements among others.

Careful analysis of all these factors helps you come up with projections that will influence your buying decisions and stock levels in a way to fulfills customers’ demands without overstocking or causing shortages.

9. Implement the Last In First Out (LIFO) Method

Another way of addressing this would be through LIFO, which stands for the Last In, First Out. This method of calculation takes for granted that whatever inventory has last been added in sells out first, a rule of great importance where prices go up often. Lower taxable profits arise because higher inventory costs are incurred and as such LIFO is mostly used to lower the taxable income. This approach is particularly useful for firms operating in highly volatile pricing regimes.

10. Try the Just-In-Time (JIT) Approach

JIT inventories aim at reducing stocks so that products are only restocked shortly prior to product exhaustion. This method involves high levels of planning and forecast but provides a cost-effective solution for businesses experiencing rapid growth patterns, launching products, and extending product lines. JIT is a strategy that helps lower holding costs and frees up capital that could have been locked because of excess stock.

11. Outsource Your Inventory Storage and Fulfillment

Lack of appropriate storage and fulfillment facilities often constitutes a major challenge while managing inventory. A possible solution might be outsourcing inventory storage and order fulfillment. A fulfillment service like the Shopify Fulfillment Network will allow you to distribute your inventory among a number of warehouses for distribution.

In this way, you can provide your customers with two-day shipping that is affordable. These partners also deal with returns that they may re-enter usable inventory into circulation, relieving you as the manager of time constraints related to returns in your company.

If you consider implementing all these comprehensive inventory management techniques in your business strategy, you are sure to enjoy more efficient operations, good finances, and higher customer satisfaction. You can successfully manage your e-commerce inventory by taking these techniques into consideration and aligning them according to your particular business requirements.

✅ Learn more: Best Shopify Fulfillment Apps For Increasing Customer Experience

The Final Words

In conclusion, knowing how well you can handle Shopify inventory management plays a pivotal role when it comes to the success of your online enterprise. Good management of inventories will make sure that you keep your customers happy while your profits increase.

We hope that this comprehensive guide was useful for your knowledge about Shopify inventory management. This guide will give some basic principles and practices on which to base decisions that you make whether you are a start-up business or an established enterprise.

For further in-depth information and additional resources on mastering Shopify inventory management, be sure to check out BSS Commerce Shopify. They offer a wealth of knowledge and expertise in e-commerce, providing you with the tools and insights needed to excel in the competitive world of online retail.