Scaling an eCommerce business in today's market presents unique challenges, particularly when it comes to inventory management. With fierce competition from established brands and emerging marketplaces, businesses face increasing pressure on their bottom line.
In such an environment, operational efficiency—specifically inventory management—becomes crucial for maintaining profitability. Tracking inventory costs and margins and optimizing supply chain efficiency can make a huge difference - about 1 trillion worth.
So how do you practice effective inventory management that leads to better cost tracking and margins? Let's start with where you're going wrong:
Shopify's In-Built Tools for Inventory Tracking
Shopify is a helpful platform to get your business up and running. It provides all the features an eCommerce business needs to get started—website themes, payment gateways, a blogging platform, etc.
However, inventory tracking is one crucial aspect of running an eCommerce business that Shopify hasn't cracked.
If you're dealing with limited stock keeping units (SKUs), Shopify is a breeze. You manually enter inventory counts for each item, enable multilocation inventory tracking, and you’re set to go!
But the rudimentary inventory management system fails to deal with a large number of SKUs or product variants. If you're using Shopify's in-built tools, you'll have to create separate entries for each item painstakingly.
What's worse?
In a time when TikTok, Instagram, and other social channels are taking the eCommerce world by storm, or when retail business is switching to eCommerce and vice-versa; Shopify syncs well with different social channels, marketplaces, and other sales channels. However, the multichannel inventory tracking features leave much to be desired.
You’ll waste time using spreadsheets and creating separate CSV files for each sales channel, juggling between multiple tabs to keep up. You're better off using inventory management tools like Prediko to solve for this issue.
Even with this arrangement, tracking inventory costs and margins are a distant dream.
Shopify's native analytics provide valuable but limited insights into inventory performance. The platform offers a month-end inventory snapshot that captures ending product quantities, complemented by daily average sales metrics for each product variant. The system also calculates the percentage of inventory sold within specific periods, offering a basic understanding of stock movement.
For more strategic insights, Shopify implements an ABC analysis system, categorizing products based on their revenue contribution. This helps identify your most valuable inventory items, while the product sell-through rate indicates how quickly different items move through your warehouse. The platform rounds out its analytics with a "days of inventory remaining" calculation, which estimates stock duration based on historical sales patterns.
However, these metrics, while useful for basic inventory management, fall short in several crucial areas. They don't account for seasonal demand fluctuations, fail to provide predictive insights for future inventory needs, and offer limited support for multi-channel selling environments. For businesses operating across online stores, physical locations, and social commerce platforms, these limitations can result in significant operational challenges.
Step-by-Step Guide to Tracking Inventory Costs in Shopify
Implementing effective inventory tracking in Shopify requires a systematic approach. Here's a comprehensive guide to setting up and optimizing your inventory management:
- Initial setup in Shopify
- Enable inventory tracking: In your Shopify admin, navigate to "Products." For each product, activate "Track quantity" under Inventory to begin monitoring stock levels.
- Configure meaningful SKUs: Assign unique and descriptive Stock Keeping Units (SKUs) to each product. Use a consistent naming convention like "CATEGORY-STYLE-COLOR-SIZE" (e.g., "SHIRT-VNECK-BLK-M") for easy identification and organization.
2. Configure multi-location settings
- Add locations: If you have multiple warehouses or stores, register each location in "Settings > Locations" within your Shopify admin.
- Assign inventory: Accurately record the initial inventory count for each location.
- Set reorder points: Determine and set reorder points for each location based on local demand patterns to ensure timely replenishment.
3. Implement channel synchronization
Access "Sales Channels" in your Shopify admin and integrate all your selling platforms. For each channel:
- Integrate channels: Connect all your sales channels (e.g., online marketplaces, social media) to your Shopify store under "Sales Channels."
- Enable real-time sync: Configure inventory updates to occur in real-time across all connected channels.
- Set buffer stock: Establish buffer stock levels to prevent overselling and ensure sufficient inventory across all channels.
- Define channel-specific pricing: If necessary, set up unique pricing rules for each sales channel.
4. Set up analytics and reporting
- Create custom reports: Utilize Shopify's built-in analytics to generate custom reports focusing on inventory turnover rate.
- Automate low-stock alerts: Configure automated notifications to alert you when stock levels for any product fall below a critical threshold.
- Track sell-through rates: Monitor how quickly products are selling across different sales channels.
5. Enhance with Prediko integration
- Connect to Prediko: Integrate your Shopify store with the Prediko platform.
- Import historical data: Import your historical sales data into Prediko for accurate forecasting.
- Configure AI settings: Customize the AI-powered demand planning settings within Prediko to suit your business needs.
- Utilize automated recommendations: Leverage Prediko's automated reorder recommendations to optimize inventory levels.
6. Establish regular maintenance procedures
- Weekly reconciliation: Conduct weekly inventory reconciliations to ensure accuracy between physical stock and recorded inventory.
- Monthly analysis: Analyze monthly sales and inventory performance to identify trends and areas for improvement.
- Quarterly reviews: Review demand patterns quarterly to adjust inventory levels accordingly.
- Annual audits: Conduct a comprehensive annual stock audit to ensure inventory accuracy and identify any discrepancies.
Advanced Tools for Inventory Cost and Margin Tracking
Modern eCommerce businesses require sophisticated inventory management solutions that go beyond basic tracking. While several tools exist in the market, each offers distinct advantages and limitations for Shopify merchants.
1. Prediko
Prediko stands apart by addressing these common limitations through its AI-powered approach to inventory management.
Automated inventory updates
Prediko's centralized buying table shows inventory across locations, accounting for all SKUs and variants. Its strong integrations with Shopify and other sales channels allow it to automatically update your inventory in real-time.
You can choose from over 90 filters (by product type, health, and supplier) to create a customized view of your inventory. It even displays a "health bar" which highlights the stocks that are at risk or have run out.
Demand forecasting
Prediko is an AI-powered inventory management solution specifically for Shopify. By analyzing historical sales data, market trends, and seasonality, Prediko provides businesses with highly accurate demand forecasts.
It provides daily and weekly insights into sales performance, helping businesses understand customer buying patterns and identify potential issues. This enables them to optimize stock levels, reduce the risk of stockouts and overstocking, and make data-driven purchasing decisions.
Performance analysis
Prediko also analyzes how much inventory is tied up in individual products, allowing businesses to optimize stock levels and avoid holding onto excess stock. This not only frees up capital but also reduces the risk of obsolescence.
Furthermore, Prediko's demand planning feature takes things a step further. It analyzes historical data and trends to create a top-down sales plan. This plan allows businesses to compare their actual revenue against planned revenue, providing valuable insights for adjusting strategies and optimizing sales performance.
See Prediko in action:
2. Katana
Katana is an inventory management tool with features like purchase order management, inventory tracking, and live inventory insights. While Katana offers real-time inventory tracking and production planning, it requires manual entry of sales orders which can be cumbersome. Moreover, managing product variants individually across multiple channels remains a challenge.
3. TradeGecko/QuickBooks Commerce
TradeGecko (now known as Quickbooks eCommerce) is primarily an accounting platform with inventory management features. Due to its niche, it excels in calculating profit margins on your inventory item sales. It also provides multi-channel inventory management.
However, its focus on accounting and finance may limit its usefulness for operational insights and visualizations. Additionally, while it supports major marketplaces like Amazon, its social commerce integration remains basic.
4. Stocky (by Shopify)
Shopify's own Stocky app provides native integration advantages but inherits many of the core platform's limitations. Its reliance on basic ABC analysis and standard metrics makes it insufficient for businesses requiring sophisticated forecasting and multi-channel inventory optimization.
Best Practices for Multi-Channel Inventory Tracking
Successful inventory management in a multi-channel environment requires a strategic approach beyond basic stock tracking.
1. Ensure real-time syncing to avoid stock outs or overselling
Maintaining accurate inventory levels across all sales channels is crucial. Real-time syncing ensures that order information is instantly reflected in your inventory across all platforms. This prevents stockouts, overselling, and order cancellations, improving customer satisfaction, and reducing operational costs.
2. Regularly update product costs for accurate margin calculations
Accurate product costs are essential for calculating accurate margins. Regularly update costs to reflect changes in supplier prices, shipping fees, and other relevant factors. This ensures that your pricing strategy remains competitive and profitable.
3. Use data analytics to identify high-margin products and low-performing items
Leverage data analytics to identify high-margin products and low-performing items. Analyze sales trends, inventory turnover rates, and customer demand to optimize stock levels and maximize profitability.
This data-driven approach allows you to make informed decisions about which products to prioritize, which to discontinue, and how to allocate inventory across different channels.
Prediko enhances these best practices through its AI-powered platform, offering automated cost updates, real-time channel synchronization, and sophisticated analytics that identify optimization opportunities. The platform's predictive capabilities help businesses anticipate demand fluctuations and adjust inventory levels proactively, rather than reactively.
Common Challenges with Inventory Tracking and How to Overcome Them
Without the right tools and processes in place, you're bound to face challenges like cost complexity or manual errors. Here are the most common challenges and how to solve them:
1. Manual errors
Manual data entry in inventory management is prone to human error, leading to inaccurate stock levels, order cancellations, and lost sales.
Implementing automated solutions, such as inventory management software with real-time data synchronization, significantly reduces human intervention and minimizes the risk of errors. This ensures accurate stock levels across all sales channels, preventing stockouts and overselling.
2. Channel disparities
Managing inventory across multiple sales channels (e.g., Shopify, Amazon, eBay) can be challenging. Discrepancies in inventory data across these channels can lead to stock outs, overselling, and frustrated customers.
Utilizing integrated tools that seamlessly connect and synchronize inventory data across all sales platforms ensures a unified view of stock levels, preventing these issues and improving overall operational efficiency.
3. Cost complexity
Accurately factoring in shipping, taxes, and fees into your margin analysis is crucial for maintaining profitability. Ignoring these costs can lead to underpricing products and ultimately eroding profits. Implementing best practices for cost calculation, such as utilizing shipping calculators, tax automation tools, and regularly reviewing fee structures, ensures that these factors are accurately accounted for in your margin analysis.
This allows you to set competitive prices while maintaining healthy profit margins.
We Are Jolies' Success Story: Transforming Inventory Management
We Are Jolies, a French lingerie brand, experienced increasing challenges with managing inventory as they expanded their product line. Manually tracking inventory across their online store, physical POS, and social media sales channels became time-consuming and error-prone. This led to frequent stockouts, frustrating customers, and impacting sales.
We Are Jolies implemented Prediko, an AI-powered inventory management solution, and these are the results they generated:
- Significant Reduction in Stock outs: Prediko's accurate demand forecasts minimized the risk of stockouts, ensuring that the right inventory was available across all sales channels.
- Improved Customer Experience: By consistently fulfilling customer orders, We Are Jolies enhanced customer satisfaction and built stronger brand loyalty.
- Potential for Increased Profitability: Reduced stock outs likely freed up capital tied up in excess inventory and minimized the risk of dead stock, potentially contributing to increased profitability.
Scaling a business requires a laser focus on operational efficiency. Rising costs, intense competition, and increasing customer expectations demand an automated approach to inventory management. While Shopify provides a strong foundation, its native inventory tracking features may fall short for businesses with complex needs.
By leveraging advanced tools like Prediko, businesses can overcome the limitations of basic Shopify inventory management. Prediko's AI-powered features, such as automated inventory updates, accurate demand forecasting, and in-depth sales analysis, empower businesses to make data-driven decisions, optimize stock levels, reduce the risk of stockouts and overstocking, and ultimately improve profitability.
Explore Shopify inventory management solutions like Prediko today and unlock your business’s full potential!
