Maximize Efficiency and Profits
The Ultimate Guide to Inventory Management
The Ultimate Guide to Shopify Inventory Management: Maximize Efficiency and Profits
Many of the small eCommerce stores don’t track their inventory. If you’re one of these store owners, you might want to act upon it immediately. Inventory management is a must if you want a long-lasting and sustainable eCommerce business. In this article, we will define inventory management, tell you why it’s critical, and list down the ten best inventory management tools for Shopify.
So let’s get started!
What Is Shopify Inventory Management?
In simple terms, inventory management is a process that helps you track products and raw materials you have in your Shopify store.
Let’s take an example to understand it better:
Suppose you own a small pasta shop. If you want to track sales, revenue, and future projections, you must know how much pasta you need to sell. But to know how much to sell, you ought to know how much to buy. This is where inventory management comes into the picture. If you don’t know how much pasta you have or need, the following things can happen:
- You might be low on pasta packs and lose potential sales opportunities.
- You might have extra pasta packs and end up throwing them away.
- The worst, you might promise a customer that you can fulfill their order, but you don’t have any pasta packets left.
To avoid all these scenarios, leverage inventory management.
Benefits of Inventory Management
Reduced Risk
When you have a proper inventory management system, you know exactly what raw materials and products you have for your store. This reduces the risk of going out of stock or piling up products that aren’t selling.
Cost Saving
By knowing what needs reordering and what does not, you can save a boatload of money.
Increase in Productivity
With inventory management in play, the guesswork goes out of the picture, thus increasing your productivity as you know about every product in your store.
Increased Profits
Track inventory of all the products in your store; this keeps you from ordering unnecessarily, thus increasing profits.
Why Is Shopify Inventory Management Crucial for Your Business?
1. Avoid Spoilage
As in the case of the pasta example mentioned above, if you sell a product that might rot over time or has an expiration date, you might want to leverage inventory management. Getting to know which product/ingredient will be expiring soon is essential in such cases.
2. Avoid Deadstock
Deadstock is the one that can’t be sold to your customers anymore. It’s not just because the product has expired; maybe the product has gone off-season or out of style. If you have a store selling Halloween costumes, you want to ensure you sell all the costumes before Halloween. Inventory management can help you predict your sales, keep tabs on the inventory, and avoid deadstock generation.
3. Optimize Cash Flow
The basic working of an eCommerce store is - you buy a product from a supplier, hold it in your inventory, and sell it when a customer orders it. The only stage where you make money via your eCommerce store is when someone buys a product. You have no profit till the products sit idle in the inventory. In fact, you have to pay to buy and keep a product in some warehouse. With a proper inventory management system, you can optimize cash flow.
4. Save Storage Cost
Store costs depend on the number of products you store in a warehouse. The more you store, the more it costs. With inventory management, you can know the optimal quantity of products you need to balance ordering and selling. This will help you save a big chunk of money that you might be paying for warehouse storage unnecessarily.
5. Improve Customer Experience
Depending on the products in your inventory, you can promise customers when they will receive the product. This way, you can get into the good books of your customers and get better reviews.
How to Build an Inventory Management System for Your Business
1. Know the Product Demand
When you open a new eCommerce store, you must know how your product demand fluctuates throughout the year. It’s essential to get a better idea about your potential sales each month. Let’s say you have a store that sells snowboards. You can head over to Google Trends and see how the search traffic for the word snowboard fluctuates. To get more accurate data, you can select Category as Sports and change Web search to Google Shopping. Here’s what we got for the past 12 months when we ran a search for the term ‘snowboard.’
The above graph shows that there are good chances that you might not have many sales from March to August. So based on these projections, you can plan how to devise your inventory management strategy.
2. Forecast Future Sales Projections
If you have a sales history, you can simply go through it and know which month is the most profitable for you. You can also look for events/holidays where you make more sales comparably. Doing this will let you order and stock products in your inventory before peak sales. This way, you won’t be out of stock and lose potential customers when you need them the most. If your store’s new, you can refer to the Google Trends method mentioned above.
3. Set Minimum Stock Levels
A minimum stock level is a threshold value of your inventory. You shouldn’t allow the stocks in your store to fall below this value. Note: When it comes to inventory management, any eCommerce store’s goal is to know the lowest possible inventory they could keep to fulfill their customers’ needs without delays. To have a strong inventory management system, you must know the time it takes to replenish your inventory once the products dip below the minimum stock levels.
Conclusion
Effective inventory management is the backbone of a successful eCommerce business. By understanding demand, forecasting sales, setting minimum stock levels, and prioritizing products, you can streamline your operations and boost your profits. Start implementing a robust inventory management system today and watch your Shopify store thrive.