How to Make Shopify Inventory Management

a Process You Won’t Hate

The sentence “inventory management” can send a shiver up any merchant’s spine. After all, counting and keeping track of all inventory is just too tedious and boring. Or so we tend to think . Nowadays, businesses strive to automate almost all repetitive tasks, and Shopify inventory management is not an exception.

So, how is it possible to make the process of sourcing, storing, and selling inventory stress-free? The shortest answer is: use an inventory management software! However, not everything is as simple as installing one app and calling it a day. In this article, we will share with you how to avoid simple mistakes and turn Shopify inventory management into a process you won’t hate!

What Types of Inventory Exist

Before we can explore what is the best inventory management system for Shopify, we need to define what exactly inventory is.

Since not all ecommerce stores produce their own products, their inventory is going to look different from the companies that manufacture their goods. The main distinction is that manufacturing companies have a much broader range of inventory types compared to regular retail stores. Let’s talk about that in more detail.

Inventory types for manufacturing companies

Types of inventory for companies that produce their own items varies based on production stages. Each production stage has their own associated type of inventory. Generally, manufacturing companies categorize their inventory into five types:

• Raw materials. These are the materials a company uses to create products. After the product is finished, raw materials are left unrecognizable from their original form, like oil or plastic.
• Components. Components are similar to raw materials, except that they can be recognized after the product is completed, such as buttons or screws.
• Work In Progress (WIP). WIP inventory refers to items in production.
• Finished goods. Finished goods are items that are ready to sell.
• Maintenance, Repair and Operations (MRO). MRO inventory refers to expendable materials, equipment, and supplies needed to efficiently maintain a business.

When it comes to Shopify inventory management, things start to get a little more complicated. For such a business model, the Inventory section in your Shopify dashboard is quite scarce, offering to add and track only finished goods. It also provides merchants with Inventory reports, however, these reports are limited in their analytics and don’t offer a deeper insight into your business. Which means companies that produce their own items will require a more advanced Shopify inventory management system.

Inventory types for retail stores

Since regular retail stores don’t manufacture their own products, their one and only “production stage” is sourcing the products from manufacturers. However, we can still outline several types of inventory that need to be managed continuously. We can categorize these types of inventory by their status:

• In-stock items
• Out-of-stock items
• Dead stock items
• Damaged items
• Returned items

Keep in mind that these inventory types are also applicable to manufacturing companies, which means it’s integral to manage them efficiently. Being able to provide the right product in the right place could be a deciding factor in whether or not you will close the sale. We will touch on this more below.

While it’s possible for smaller stores to only use Shopify’s native inventory management system, the lack of in-depth analytics, reports, and tracking will be too insufficient for medium and larger stores. What kind of alternatives to inventory management on Shopify exist we will discuss a little later. For now, let’s settle why inventory management is absolutely necessary for your business.

Benefits of Shopify Inventory Management

As we mentioned before, inventory management is the system a business uses to source, store, organize, and move inventory through their supply chain. It ensures businesses have the right amount of product in the right place and at the right time. Improving your Shopify inventory management has several different benefits:

• Avoid spoilage and dead stock
• Save on storage costs
• Avoid running out of stock
• Improve cash flow
• Optimize fulfilment

Let’s briefly stop and take a closer look at each one of them.

Avoid spoilage and dead stock

If you’re selling a product that has an expiry date, like food or makeup, there’s a very real chance it will go bad if you don’t sell it in time. You may also run into an issue of dead stock. It’s the kind of stock that can no longer be sold. Not because it’s expired, but because it may have gone out of season, out of style, or otherwise become irrelevant.

For example, seasonal items that include specifications like “New Year 2024” can no longer be sold after a certain period, converting such products into dead stock. Managing your inventory on Shopify effectively helps you avoid unnecessary spoilage and inventory waste.

Save on storage costs

Overstocking can be pretty expensive for a business, especially if you stock a lot of luxury inventory. By stocking the right amount of products, you won’t waste money on storage space. There will also be fewer cases of spoiled or expired inventory since your turnover rate will be optimized. Furthermore, the potential gains of having what your customers need in stock whenever they need it are certainly worth considering.

Avoid running out of stock

There is nothing more frustrating for a customer than finding the product they were looking for only to discover that it’s out of stock. Worse than that could only be selling an item that was not marked as out of stock and is technically non-existent in your warehouse.

Having a solid Shopify inventory management system helps combat the issue of missing out on sales because you failed to stock an item in time. For this, you must implement a solid software that will automate the process of checking and reordering stock when the levels are low. We will touch on this later.

Improve cash flow

When you have a solid inventory management system you’ll know exactly how much product you have in real time. Based on the sales, you can analyze the consumer trends and make more accurate predictions on what is going to be in demand in the future. This will also make your job easier in the long run, as you’ll be able to look back at your historical sales reports and figure out what improvements must be made.

Optimize fulfillment

Having a practical inventory management system can make the order fulfillment process a bit more stress-free. For example, you can use tactics like inventory distribution. It essentially means having inventory in multiple fulfillment centers or warehouses to ensure your products are closer to your customers. This speeds up delivery time while reducing shipping costs, which is certainly a win-win scenario.

You will also have a much better time when it comes to order tracking. A lot of third-party management integrations offer to track orders in real time, as well as partially automate return processes.

But what are these softwares we keep talking about? And is it really possible to automate inventory management in Shopify? Well, let’s start putting the pieces together.

What is Shopiy Inventory Management Software (IMS)?

An inventory management software (IMS) is an integrated program designed to keep track of inventory, orders, and fulfillment. Ecommerce businesses use an IMS to not only avoid inventory shortages, but also to streamline and optimize their entire order fulfillment process. This includes tracking your inventory all the way from suppliers or manufacturers to the moment the order reaches its customer.

When choosing an IMS for your store, there are seven key components that you should look for:

• 1. Order management
• 2. Inventory control
• 3. Multi-channel sales management
• 4. Comprehensive reporting and analytics
• 5. Sales forecasting
• 6. Automated replenishment order
• 7. Point-of-sale (POS) system

Let’s go over what each of these components mean.

#1 Order management

The basic principle of order management is monitoring the stock levels of your inventory to make sure you don’t sell an out-of-stock product. Ideally, an IMS should prevent you from selling an item you don’t have in-stock altogether.

#2 Inventory control

A good IMS has a real-time syncing and calculating system that prevents you from over-stocking or under-stocking items. This also helps you optimize your storage space and warehouse costs.

#3 Multi-channel sales management

Nowadays, businesses rarely sell through a single sales channel, so having an IMS that synchronizes your inventory from multiple stores and warehouses is a must.

We Broke Down Everything You Should Expect

When Opening Up Multiple Shopify Stores!

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#4 Comprehensive reporting and analytics

Having access to in-depth sales reporting is a major factor in being able to analyze your previous sales and accurately project your future steps. Which is why we recommend choosing an IMS with advanced reporting and analytics tools.

#5 Sales forecasting

It’s no longer uncommon for an IMS to have a demand forecasting tool. In conjunction with comprehensive analytics, the IMS can make accurate forecasts and predictions about future sales volume at any given period.

#6 Automated replenishment order

One basic feature of an IMS is alerting you about low stock levels just in time. However, most modern IMSs strive to automate every repetitive task, which includes automatically placing orders for restocks when certain inventory gets to minimum stock level.

#7 Point-of-sale (POS) system

This goes without saying that a solid IMS must include a POS system. A lot of merchants sell in brick-and-mortar stores to this day, so being able to track the inventory that you sold in a physical store and maintain accurate sales records is a must.

It may seem that finding an IMS that includes all of these components is a tough task, but we can assure you that there’s plenty of fantastic IMSs out there. Below, we provide you with a few suggestions on which IMS you should look into. Keep reading to find out what they are!

Shopify Inventory Management Strategies

While introducing a solid IMS is the most important step, you still need to understand what kind of strategies and algorithms the software uses. You can also use these strategies without integrating an IMS into your store.

We want to highlight the six following inventory management strategies:

• Periodic Automatic Replenishment (PAR) levels
• First In, First Out (FIFO) method
• ABC analysis
• Demand forecasting
• Regular inventory auditing
• Outsourcing inventory fulfillment

Let’s review what each of these strategies entail one by one.

#1 Set Periodic Automatic Replenishment (PAR) levels

PAR levels refer to a minimum and maximum quantity limits that you set for a certain item. When the quantity approaches the minimum level, the item should be reordered. Conversely, maximum levels keep you from holding too much of an item in stock, which could expire or otherwise go to waste.

PAR levels vary by product and are based on how quickly the item is sold out and how long it takes to get it back in stock. To find out what the appropriate PAR levels are for each of your products, you should analyze your sales throughout the year. Keep in mind that trends and consumer habits change, so be sure to adjust your PAR levels when they no longer make sense.

#2 Use First In, First Out (FIFO) method

The FIFO method is an important principle of inventory management. It means your oldest stock (first in) gets sold first (first out). This is especially important for perishable products, so you don’t end up with unsellable or spoiled inventory.

While it’s a staple of inventory management, in reality you’ll often sell a mix of newer and older merchandise. The FIFO method works well for companies with seasonal inventories, makeup, food, as well as inventory that can quickly go “out of style”.

This method is a winner, because it’s quite simple and logical, since it follows the natural flow of inventory. It also helps match inventory costs to the current market value, which means you won’t lose money due to inflation.

#3 Conduct an ABC analysis

An ABC analysis is an inventory management technique that shows the businesses best and worst performing products. It’s based on the Pareto principle — the idea that 20% of your top-performing products account for 80% of your store’s total revenue.

Source: LeanDNA

The ABC categorization looks like this:

• A = % of stock that represents 80% of your revenue
• B = % of stock that represents 15% of your revenue
• C = % of stock that represents 5% of your revenue

Your A stock represents your most profitable and valuable products. You’ll want to make sure you always have these products on hand so you don’t miss out on future sales. On the other hand, your C stock is your slow-moving or dead stock. This is stock you might want to sell at a discount.

There is a lot more to learn about ABC analysis and how to properly conduct it. You can read up on Shopify’s tutorial which explains how ABC analysis works and how to apply it to your store.

#4 Understand the demand forecasting

Demand forecasting is the process of making estimations about future customer demand over a defined period, using historical data and other information. Of course, there is no way to 100% correctly predict customer demands and, consequently, your future sales. But learning to analyze the market and your past sales is a great skill for a merchant to have.

Accurately predicting demand provides a better understanding of how much inventory you’ll need and reduces the chances of storing unnecessary stock. This will ultimately ensure you maintain optimal stock levels throughout the year.

Here are a few things to look at when forecasting your future sales:

• Trends in the market
• Last year’s sales during the same week
• This year’s growth rate
• Guaranteed sales from contracts and subscriptions
• Seasonality and the overall economy

Luckily, these days inventory management softwares learned how to forecast demand based on their own algorithms. In fact, the predictions made by a program may be even more accurate than doing it manually. Which is why we recommend installing an IMS that includes this feature.

#5 Don’t neglect regular auditing

This goes without saying that you should be regularly auditing your inventory. In most cases, you’ll be relying on reports and analytics from your IMS to know how much product you have in stock. But it’s still recommended to conduct a physical inventory count at the end of the year to make sure all of the numbers match up.

#6 Outsource inventory fulfillment

As the business grows, it becomes increasingly difficult to keep track of all of the stock and orders. You might not have the time or manpower to ensure your inventory is properly distributed, orders are fulfilled, and returns managed. Though it might come at a cost, using the services of a fulfillment company can greatly relieve this issue.

Hiring a fulfillment company essentially means your inventory will be stocked at specific fulfillment centers and will be packed and shipped by a warehouse team. Top-notch fulfillment companies have great warehouse management softwares (WMS), where you’ll be able to view each stock unit, its status, and location.

Since we’re focused on Shopify inventory management, further below we will review the best IMS and WMS systems that provide their own easy-to-use Shopify apps.

Best Shopify Inventory Management Apps and Softwares

In today’s world, inventory management is mostly automated. The majority of third-party integrations provide merchants with in-depth analytics and sales reports. However, not all apps deserve your attention and investment. We put together a list of the best Shopify inventory management apps and softwares, going from least to most expensive. As well as outlined their most prominent features, so you can make the most informed choice possible!

#1 Stock Sync

Stock Sync is one of the most popular and recommended Shopify inventory management apps in the Shopify App Store. With more than a thousand reviews and a solid rating, this app is certainly worth the attention.

Key features of Stock Sync:

• Supports feed formats such as CSV, Rest API, SOAP, HTML, JSON
• Comprehensive inventory feed management
• Scheduled inventory updates
• Works with empty stores that are preparing to add SKU’s
• Sync to multiple vendor’s websites
• Manipulate product pricing

Stock Sync will be a great fit for small and medium businesses, since it covers all of the basics of inventory management on Shopify. The app comes with a 14-day free trial. After that, the price for a monthly subscription ranges from $5 to $49.

#2 Realtime Stock Sync & Bundling by Trunk

Realtime Stock Sync & Bundling by Trunk is a more simplistic app for Shopify inventory management. Its strongest features are bundling and kitting management and real-time inventory syncing. Despite the app’s functionality being quite basic, it gained major approval among users and holds one of the highest overall ratings.

Key features of Realtime Stock Sync & Bundling by Trunk:

• Real-time stock level syncing
• Low stock alerts
• Bundling and kitting
• Multi-channel inventory management
• Duplicate SKU syncing

This app would fit a smaller multi-channel seller that sells bundles and kits and needs to have a basic IMS for variable products. The app comes with a 14-day free trial period. The pricing for monthly subscription is based on the number of orders you have per month. Subsequently, the plans start at $35/month for up to 100 orders and end with $279/month for up to 10,000 orders.

#3 Katana

Katana is a manufacturing ERP with a comprehensive IMS that was designed to fit businesses that produce their own products, instead of reselling items. Katana offers a live inventory management system that allows you to track and manage your raw materials, finished products, and more in real time. They also provide merchants with a top-notch Shopify inventory management app.

Key features of Katana:

• Real-time tracking of all kinds of inventory
• Management of product variants and materials in one place
• Multi-channel inventory syncing
• Automated reorders to prevent stock-outs
• Monitoring inventory across multiple warehouses

Katana would best fit a business that manufactures their own products and requires a more in-depth IMS. They offer three subscription plans, as well as a custom-quote plan, which range from $99/month to $599/month.

#4 Skubana

Skubana is a more advanced IMS that integrates with Shopify. It acts as your main operating system that centralizes every aspect of inventory management in one place. Skubana also allows you to print shipping labels to automatically route your orders to 3rd party fulfillment centers.

Key features of Skubana:

• Multi-channel inventory management
• Integration to Shopify, Shopify Plus, and Shopify POS
• Integrates with Amazon and Walmart
• Automatic low-stock replenishment
• Dynamic analytics and extensive reports
• Demand forecasting

Since Skubana provides an all-in-one solution to Shopify inventory management, it is pricier than compared to other integrations. However, it would perfectly fit a medium or large business that needs to automate and centralize routine tasks. This app works on a custom fee model which is determined after a free demo. The minimum fee is $1,000 per month.

#5 ShipHero

ShipHero is a WMS that’s focused on making your warehouse management on Shopify and order fulfillment easier. While ShipHero’s strongest feature is fulfillment, it also provides a solid IMS app for Shopify and offers a variety of useful features. You will be able to view and adjust your inventory, as well as monitor your stock levels and order fulfillment from one place.

Key features of ShipHero:

• Multi-channel inventory management
• Multi-warehouse inventory management
• Label printing, picking, packing, and shipping functions
• Inventory and order tracking in real-time
• Automatic cycle counting
• Reduced shipping costs

ShipHero is a fantastic solution for businesses that run their own warehouses or want to use a fulfillment company. Subscription plans start at $1,850/month and offer custom-quote plans.

Frequently Asked Questions About Inventory Management on Shopify

Before we say our parting words, we want to highlight some frequently asked questions about Shopify inventory management and try to give you the most comprehensive solutions.

Question #1: How can I manage an inventory of customizable products?

Answer: This is a common issue for merchants that have a main stock product (e.g. a T-shirt) which is then linked to multiple other products (e.g. customizable prints on T-shirts). To efficiently manage an inventory of customizable products, you will definitely require a bundling app like Bundleup. Such apps will help you create and categorize bundled products, as well as provide accurate inventory syncing and stock levels calculation.

Question #2: How do I display hundreds of variants of my products?

Answer: Due to Shopify’s rules, merchants can only add 99 variants to a single product. So in case you want to display more than 99 variants, your only option is to find a suitable app. One of the best solutions for this is Bold Product Options – an app that lets you add as many product variants as you want, in addition to many other customization features.

Question #3: How to bundle products with minimum order quantity per product?

Answer: Since Shopify doesn’t provide an out-of-the-box solution to set a minimum (and maximum) order quantity per product in a bundle, apps like Bundle Builder or Bundle Products can come to the rescue. These apps also offer a free trial period, so you can test each of them out to see which one fits your needs best.

Question #4: Can you use Shopify for inventory management?

Answer: While it’s possible to only use Shopify inventory management system for smaller businesses that don’t hold much inventory, it’s not a robust solution for larger stores with hundreds of products and variants. Opting for an inventory management software or application will result in a much more organized system that is less likely to cause any issues in the long run.

Question #5: Does Shopify POS have inventory for management?

Answer: For plans that include Shopify POS, Shopify provides a free inventory management app called Stocky that keeps track of the products you sell in physical stores. You can also look for inventory management software that integrates with Shopify POS.

Question #6: How do I track inventory on Shopify?

Answer: Inventory tracking on Shopify is quite basic in function and provides automated product quantity updating. To enable inventory tracking on Shopify, follow the steps below:

• 1. From your Shopify admin, go to Products.
• 2. Click the name of the product that you want to track.
• 3. If the product has variants, then click the variant that you want to track.
• 4. In the Inventory section, click Track quantity.
• 5. In the Quantity section, enter the quantity information for each location.
• 6. Click Save.

Question #7: What to do if none of the solutions fit your needs?

Answer: Sometimes merchants are unable to find a perfect solution that meets all of their criteria. This can happen due to unconventional business models or simply because third-party solutions were poorly made. For example, you need just one feature from a big app and don’t want to pay for other features you already have or might not need. In this case, developing your own custom functionality would be your best bet. Custom Shopify app development allows for total control over the features needed, as well as offering expert insight into Shopify’s functionality.

One more piece of parting advice: choose a development company that has in-depth knowledge of Shopify and its structure. That way you can ensure your Shopify store runs smoothly and correctly for years to come.

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Final Thoughts

The days of manually managing your inventory are long gone. Now, advanced and modernized inventory and warehouse management softwares are the new standard. However, just because the ecommerce niche is striving to automate every tedious task they can, doesn’t mean you don’t have to understand how the algorithms work.

In this article, we shared with you why you should implement a Shopify inventory management system and how to make the most out of it. If you still have any questions regarding Shopify management and development, feel free to get in touch with us anytime! Our team will gladly help you resolve any issue you might have.