Multichannel Inventory Management: Problems & Solutions

This post was originally written by Dan Virgillito in August 2017 and has since been updated for accuracy and readability. 

Even without COVID-19 related international border closures, multichannel inventory management is one of the top challenges in ecommerce. Both overstocking and being out of stock can cost you the equivalent of nearly 12% of sales every year. Carrying costs, reverse logistics, and a negative customer experience imperil future repeat sales.

Fulfilling orders efficiently, regardless of the channel through which orders are placed, requires knowing how much stock you have, where it’s located, and the ability to ship inventory from the warehouse closest to the customer automatically.

In a post-COVID-19 world, supply chain diversification and resilience will become vital strategic objectives. Becoming operationally efficient is the only way to counter the 31% decline in average order value (AOV) some ecommerce brands have experienced since the pandemic began. Executing in a new world requires mastering multichannel inventory management.

Here’s how.

Multichannel inventory problems

Multichannel inventory management requirements

Multichannel inventory management solutions

Upgrade your inventory management capabilities

Don’t have time to read the full article? We brought in the experts from Deloitte, 6 River Systems, and UPS to share best practices for logistics management and supply chain during a pandemic. Watch the webinar.

Multichannel inventory problems

The nearly $2 trillion in costs associated with mismanaging inventory consists of the mostly hidden cost associated with overstocks, out-of-stocks, and preventable returns.

• Overstocks (e.g., too much inventory)—$471 billion
• Out-of-stock items (e.g., Not enough inventory)—$634 billion
• Preventable returns (e.g., shipping the wrong item)—$642 billion

Successful multichannel ecommerce involves more than simply listing products on a variety of platforms: It requires a multichannel inventory management solution too. For most retailers, it’s hard enough keeping track of inventory and orders when selling on a single platform. But when you’re selling on a Shopify store, as well as Amazon, eBay, Etsy, and in physical locations, inventory management can be a nightmare.

Fully 55% of ecommerce brands still use pen-and-paper manual processes to manage logistics. Research indicates, however, that inventory opacity, inaccurate or nonexistent demand forecasts, and a lack of automation thwart multichannel fulfillment in the following ways:

• 28% of companies lack inventory visibility across stores, warehouses, and vendors
• 34% of companies lack necessary software integrations
• 38% of companies lack order management, inventory management, point-of-sale (POS), and third-party logistics (3PL) software

Without proper inventory management, you risk angering your customers with out-of-stock messages, delays, and cancellations due to inefficient fulfillment processes.

Multichannel inventory management requirements

Many brands rely on inventory management workarounds, like using multiple stores to track inventory by location. But this increases your workload when you have to recreate, sync, or update inventory for each store. Manually tracking inventory with spreadsheets relies on fragmented data, making it impossible to operate across channels, and prevents the inventory visibility needed in peak seasons or for special events like flash sales.

Multichannel inventory management solutions allow you to focus on growing your business rather than inventory management. Today’s cloud-based solutions are powered by artificial intelligence (AI) and leverage automation to streamline workflows. They let businesses easily track, manage, and organize inventory sales, purchases, and production across channels.

Here then are some of the benefits of implementing a multichannel inventory management solution:

#1: Real-time visibility and synchronization

You need a view of your inventory quantities and locations to fulfill orders across channels. It’s a no brainer. It’s next to impossible to manually update and synchronize inventory counts between locations and across platforms. Without real-time visibility, costly out-of-stocks, deadstock, and preventable returns are more likely.

Fast-growing, high-volume brands rely instead on multichannel inventory management solutions that sync inventory across channels and provide real-time visibility from a centralized hub on which they can rely as a single source of truth. These solutions allow businesses to improve sales and reduce the time spent in managing inventory.

Case study: How Chubbies synchronizes inventory

For instance, Chubbies—the men’s shorts company—acknowledge that keeping their customers satisfied is more complicated than just their hilarious marketing campaigns and radical shorts. The lack of visibility into inventory was one of their barriers to growth as the company expanded into new channels.

Chubbies brought on Stitch Labs as their inventory management solution, allowing them to move products from their warehouse to their virtual warehouse, which gave them a threshold of reverse and synchronized inventory. With this preventive measure, they stopped customers from ordering out-of-stock products entirely. On their highest volume day, they reduced backorders by 93% from the previous year.

#2: Optimize demand forecasting

Improved inventory visibility also helps brands better track their inventory turnover ratio, a key metric in assessing the health of the business. This type of insight informs product pricing adjustments and future restocking decisions, improving profitability.

Turning inventory quickly means it’s not tying up your working capital and taking up valuable warehouse space. It’s essential to have the right balance of inventory—you need to know how much product you’ll need and where to allocate it.

If you limit the inventory you hold but market it effectively across multiple channels, you run the risk of overselling—selling items you don’t have in stock. Robust inventory management systems can help you identify out-of-stock (OOS) patterns. For example, retailers can identify OOS trends by regularly auditing inventory and noting the days and times of week stockouts are most likely to occur.

Likewise, OOS can be also be prevented by implementing inventory management solutions that position brands to set specific rules that automatically reorder inventory when certain thresholds are met.

Image from Skubana

Inventory management systems can help you accurately forecast demand and better position you to manage and replenish inventory appropriately based on marketing spend as well as the historical impact of seasonality. Combining quantitative and qualitative modeling in this way better predicts demand and allocates inventory accordingly, maximizing profitability.

If you’re a multichannel sports retailer, for instance, it would be useful to know exactly how many basketballs were sold on each of your channels during December for the last five years. This would allow you to make informed purchase and marketing decisions for the coming Christmas season.

An efficient multichannel inventory management software also allows you to scale up during a rush or holiday season and scale down during the off-season. As a result, you’ll be able to reduce costs by not purchasing inventory until it’s needed.

Case study: How LowCarb Canada prevents stockouts

To illustrate, LowCarb Canada—a health food retailer that provides low carb grocery alternatives for Canadian consumers—used Stitch Labs to avoid overstocks and out-of-stocks.

With two Shopify websites, two brick-and-mortar outlets, and more than 2,000 SKUs, the VP of Purchasing, Andrew Singh, was spending 15–20 hours a week on inventory management. He was making and updating purchase orders—some with 400 different SKUs—manually, and was ballparking order estimates to save time.

While ballparking helped them move stock quickly, it also led to repeated stockouts. Andrew went looking for a better tactic to order goods strategically and forecast demand based on historical estimates.

“Using forecasting with Stitch allows our warehouse to run out of products at the same time,” said Singh. “I’m buying intelligently and saving money by consolidating our shipments.”

Forecasting accuracy becomes critical as multichannel retailers scale and subtotals increase by a staggering amount. Stockouts can be even more costly at these levels, so a multichannel inventory management solution is critical.

#3: Locate inventory closer to customers

To ship faster and cheaper, you must have the right inventory in the right locations. Having multiple strategically located fulfillment centers or retail locations positions brands to intelligently route orders to the fulfillment center nearest the customer.

While local fulfillment is vitally important for international customers, it can also help reduce delivery times across wide geographical areas such as the United States, and fragmented geographical areas such as Japan or Indonesia.

Multiple fulfillment centers also help reduce transportation and delivery costs. Savings can be passed to the customer, or allow for incentives such as free shipping.

Part of a multiple fulfillment center strategy is integrating an order management system (OMS). An OMS allows you to check stock levels across multiple locations, pick a fulfillment center closest to your customer, send order details straight to that location, and have stock levels automatically update across all your channels.

The importance of systems integrations such as these for inventory management and order fulfillment can’t be understated. In fact, integration is the top challenge in fulfilling multichannel orders worldwide:

Image from Statista

In addition to seamless integration, automating fulfillment processes are crucial in streamlining inventory management and order fulfillment.

Automation frees up your team to focus its time on growth opportunities instead of repetitive stock reordering tasks. With automation, you’ll never run out of inventory as you receive automated backorder notifications and replenishment reports in real-time.

For instance, if the quantity of an item in stock drops below the reorder value, automation can instantly alert you that the item needs reordering. With the right integrations, replenishment may be automated, too, or the automated restock alert may be checked against predictive demand forecasts and reordered.

Case study: How Rohr Remedy optimizes inventory management

Rohr Remedy, an Australian company that sells skincare products based on traditional bush medicines, was having trouble managing inventory across their retail, wholesale, and online channels. They were looking for an inventory management system that could easily integrate with their current systems such as Xero and Shopify, and eventually decided to work with Trade Gecko.

According to Emily Rohr, the founder of Rohr Remedy, the benefits of switching to a multichannel inventory management system were startling.

“In using Trade Gecko, we’ve definitely reduced the amount of time we spend on inventory,” she said, “and that’s made a massive difference in us being able to supply our customers. We’re getting more orders because we’re more streamlined.”

The Multiple Warehousing feature has been particularly beneficial for reducing delivery times and keeping customers happy, as it allows the company to allocate every order based on shipping location.

Multichannel inventory management solutions

Many of the top multichannel inventory management providers offer simple one-click integration with Shopify Plus. When evaluating the right solution for your business, understand that there will likely be overlap with other systems you already have. Your OMS, for example, may overlap with features in the inventory management solutions (IMS) you’re evaluating.

It’s also important to understand the product roadmap for the solutions you’re evaluating. Specifically, some IMS ultimately aim to become a full enterprise resource planning (ERP)-like system, SSOT, or Commerce Operating System. Be sure you evaluate IMS in the context of the features already offered natively in your ecommerce platform.

Below are IMS to evaluate:

Shopify Fulfillment Network (SFN) is a 3PL that when combined with your Shopify Plus commerce platform offers an end-to-end multichannel inventory management solution that gets orders to your customers easily and quickly. With a vast network of strategically located fulfillment centers nationwide, full-service 3PLs like ours ensure you have the right merchandise at the right location so orders ship faster and cheaper. SFN provides businesses with AI-powered inventory intelligence that recommends where inventory should be stored. Not only does it easily integrate with your existing systems, but it also enables a branded experience and same-day fulfillment capabilities.

TradeGecko is a powerful cloud-based IMS that combines all your sales channels, locations, and currencies for easy management of products, orders, and customers across multiple Shopify stores. It integrates with popular bookkeeping software such as Xero, QuickBooks Online, and ShipStation, allowing you to send quotes and invoices with built-in credit card payments directly to your customers. The TradeGecko mobile app allows you to create and manage orders, view detailed reports, and track sales trends while on the go.

Stitch Labs is an inventory operations platform that helps you centralize your orders and inventory across all your sales channels, to streamline multichannel operations, boosting productivity, and increasing profitability. The IMS lets you avoid overselling and stockouts by creating alerts and automatically generating orders and stock adjustments based on real-time data. With Shopify Plus insights, you can quickly identify which products and channels are driving profitability, while accurately responding to forecast and demand.

Orderbot is an order and inventory management system that allows you to consolidate orders that flow from multiple channels with clear inventory and fulfillment visibility. It contains all the key functionality you need, such as multi-currency, integrated payment gateways, a fully published API, and import/export capabilities. Whether you have one or more warehouses, multiple Shopify stores, B2B channels, or even marketplace integration with Amazon, Orderbot’s focus on visibility helps you keep up to date with both current and future orders.

Upgrade your inventory management capabilities

Whether you’re running an ecommerce store that is currently selling products across multiple channels, or you’re thinking about reshaping your business to incorporate multiple channels, it’s essential to recognize that manual inventory management is no longer sufficient for proper inventory management.

Cloud-based multichannel inventory solutions can help you organize your business, keep your customers happy, and give you the best chance for future growth.