Mastering multichannel inventory management
Operating a multichannel business can bring with it many complexities, not least how you’ll manage inventory levels across all of your sales channels.
Delivering a consistent service to your customers becomes tricky when they are buying and interacting on many channels. Multiple touchpoints like the ones involved with multichannel retail can present more opportunity for delay, human error and bottlenecks - and you risk losing control over your business and your most valuable asset - your inventory.
Taking an order for an item you no longer have available to sell is expensive, both in terms of the potential missed opportunity, and the time and effort it takes to communicate with your customer and avoid any disappointment. But equally, it’s also expensive to carry inventory that isn’t offered for sale across all of your sales channels.
When your inventory is wrong, everything’s wrong. Taking control of your inventory management is the answer; you’ll find 15 best practice tips below to help you to do just that.
1. Maintain a centralized view of your inventory.
When the orders start to roll in, you need to get the goods into the hands of your customers with the minimum fuss and effort. You cannot possibly build an efficient process if you do not know what you’re holding or where it is, thus, a centralized view of your inventory is crucial.
When using this type of system, remember to:
Specify which orders are fulfilled from which warehouse, to simplify your workflows and ensure you provide your customers with great service.
Don’t forget your physical stores. Maximize your opportunity to sell by ensuring store staff have visibility of inventory in the warehouse and vice versa, and keep track of products on the shelf as well as in the warehouse.
When you send inventory out to pop-up shop locations, make sure you move this inventory into a new virtual warehouse, so that you can still track it.
2. Structure your product database for success.
For inventory management software to work properly, and for your reports to make sense, you need good data, which means your systems and sales channels need to have the right data structure.
Keep these points in mind:
Maintain a single, unique SKU for each inventory item
Build kits and bundles correctly
Handle variants such as size and color properly
Understand the different units in which you may be buying and selling - perhaps pallets, crates, and cartons
3. Get your whole team on board.
Inventory management isn’t just for store and warehouse managers. Everyone on your team needs to understand how to keep everything shipshape. If your sales team spots an inconsistency, for example, they need a way to report it. Otherwise, it will cause more problems later, and you may miss out on sales.
To get everyone on board:
Document your processes. Write down the correct processes for receiving products, shipping orders, dealing with conflicts, handling stockouts, and any other key workflows you have.
Train your team. Don’t assume that everyone understands the processes you’ve written down. Inventory management can be complex, so it’s always worth running through each process with your team to make sure you’ve explained it well and haven’t missed anything.
4. Listen to your system.
To keep your inventory from getting out of control, it’s crucial that your actions match what your systems tell you:
If it says to pick from a certain location, pick from that location. No exceptions. If there’s nothing to pick, set that shipment aside and correct the system first.
If your software says you have zero of a product on hand because all of them are allocated to sales, don’t ignore the warning.
When a walk-in customer wants to buy the last of a product that was sold online a few minutes before, don’t sell it again. Instead, suggest an alternative. Being face-to-face puts you in a good negotiating position.
If you do have to bypass the system, make a note and fix the problem as soon as possible.
5. Check your system everyday.
You’ll save a lot of time in the long run if you check your system daily and correct mistakes right after they happen. Try a checklist like this one:
See that received products are entered into the system. It helps to maintain a folder for your supplier delivery notes with two sections: ‘received’ and ‘not entered’. Then, at the end of the day, make sure the ‘not entered’ section is empty.
Check that shipped orders are recorded. You can double check this by creating a goods out area where you keep all packed orders. If, at the end of the day, this area is empty, there shouldn’t be any open shipments in the system either.
Complete any transfers between stores or warehouses. They are as important to manage as goods in and goods out.
Process any remaining returns or exchanges. Finalize customer returns taken during the day and make sure the inventory is accounted for:
If you have a place for quarantined inventory, reconcile what’s there with your software to make sure you aren’t losing anything.
If the products are suitable for resale, get them back ‘on hand’ as soon as you can.
6. Take note of inventory forecasting best practices.
Most retail businesses overstock. Reducing the amount of products in your warehouse puts more cash in your bank account, but it increases the risk of stockouts. The way to mitigate this risk is to know what is on its way and when.
7. Place purchase orders with your suppliers.
Purchase orders are your official, written records of purchases, and they are essential for inventory control, forecasting, and reporting. Advanced inventory control systems automate a lot of this, showing you which items need to be reordered and enable you to create new POs with the touch of a button. But if your system doesn’t generate purchase orders automatically, then you should still record each purchase in your system manually.
Either way, this gives you:
Written records to prevent mistakes and disagreements
Documentation to cross-reference against suppliers’ delivery notes
Histories of purchases to help you decide what to buy in the future
Notes to inform your team about what’s going on when you’re not there
8. Enter received orders promptly.
When a new delivery arrives, record it in your inventory system right away. This requires discipline when you’re busy with employees, placing new orders, and inundated with deliveries from different suppliers. But if you sell a product before it’s been entered into the system, things are going to get a whole lot messier. Pausing to enter your receipts immediately saves you time and headaches in the long run.
9. Reduce receiving errors with barcodes.
To cut back on inventory errors - especially when your sales volume is high or a lot of your products look alike - barcodes can really help. All you need is inventory control software that supports them and a barcode scanner. Then, when you receive a delivery from a supplier, you simply print out barcode labels and attach them to each item. Scanning the labels displays the numbers on your screen as if you were typing them on the keyboard. No more typing or transposing numerical errors!
10. Use weekly cycle counts for an accurate inventory.
No matter how careful you are, there will always be odd errors that creep into your inventory control system. It’s important to regularly reconcile your real-world inventory with the numbers in your system. Try weekly cycle counts (i.e. stocktakes) in which you spend some time every week checking one or two product categories, preferably those that are stored close to each other for efficiency. Using this continuous cycle counting, aim to cover all product lines at least once every four weeks.
11. Keep track of write-offs and gifts.
Your business may occasionally sponsor events or donate to charities. When you do, purchased products go out the door without sales attached to them. These write-offs need to be managed carefully in your inventory control system in one of two ways:
Create a new customer in the system and add the donated items to a zero-value sale. This method enables you to see the total cost of your donations over time.
Reduce your inventory using the inventory correction process in your system. If you have a more advanced system, you may be able to create correction codes for future reporting on your total donation cost.
12. Stay on top of returns.
Following a well-defined return and receiving process - and capturing the reasons for returns - is essential to successful inventory management. Take a look at our complete guide to returns management best practices here.
13. Account for consignment inventory.
If you accept products on consignment - meaning you don’t pay for them until you sell them - from your distributors, then you have an inventory challenge to manage. You don’t own these products, so while you want them to be available to sell on all channels, they shouldn’t appear on your inventory value report.
Depending on the inventory control system you use, the most common way to handle this is to add your consignment inventory to a different “virtual warehouse” in your system. You can then filter reports to include or exclude inventory for that warehouse. And when you’re making inventory available to customers, you include inventory from all your warehouses.
14. Watch out for dropshipping.
Another practice that can make inventory control a challenge is dropshipping, which is when you’re selling products that are shipped directly from your suppliers to your customers. With suppliers who never run out of inventory, this is easy. But with most suppliers, you need a way to track the inventory available to sell.
The best approach is to accept direct inventory feeds from your suppliers’ systems to your system. The feeds update the inventory on your sales channels automatically — so you can sell the products as soon as your suppliers have them on hand, without selling products that are out of stock.
This method isn’t 100 percent reliable — you’ll probably only get an update once a day — but it can be better than setting products up as “non-stock tracked”, so anything can sell at any time. Also, think hard about the cost of not integrating with your suppliers’ systems before spending time and money on an automated process.
15. Stay vigilant with Third Party Logistics companies.
If you use outsourced warehousing, or Third Party Logistics (3PL) companies, for inventory storage and shipping, you need to design your inventory management system carefully. While 3PL companies have their systems, you still need your own system to integrate with sales channels, accounts, orders, returns, and so on.
In fact, you’ll follow all of the same inventory control best practices you’d follow if you had your own warehouse. When goods are received at the 3PL warehouse, for example, you need to be told that they arrived and were allocated against the correct purchase order with the correct cost prices. Similarly, when the 3PL company counts inventory and notices a discrepancy, the data and system updates need to be done the same way you’d do them in your own warehouse.
Multichannel inventory management software
With a reliable inventory management system at the center of your business, you can ensure your inventory levels are synchronized across all of your channels, and that you have a centralized view of what you have and where it’s located.
And for what it’s worth, we’re certainly not condoning conducting your inventory management in Excel, or any kind of spreadsheet. Although this will give you the centralized view you’re after, it won’t provide you with real-time inventory updates and automatic synchronicity across your sales channels.
Instead, any decent inventory control system will be able to:
Automate inventory updates so that any change to the availability figures are immediately reflected across all of your channels.
Ensure your complex bundle products reflect the correct inventory level based on the scarcest component part.
Reserve or allocate inventory to orders as soon as they are placed, which in turn should trigger an update to all channels immediately.
Ensure newly delivered inventory immediately updates yours sales channels, maximizing the opportunity for sales.
A centralized view of your inventory also ensures that when orders roll in, you’re able to get the right products, in front of the right customers, at the right time. Without a centralized view, you can’t possibly develop efficient processes if you don’t know what you’re holding or where it is.
Once again, a multichannel inventory management system is really going to come to your aid. You’ll be able to:
Specify which orders are to be fulfilled from which warehouse.
Ensure your in-store staff have visibility over inventory within the warehouse and vice versa, and allow them to keep track of inventory on the shelf as well as in the warehouse.
Enable your team to temporarily place inventory sent out to pop-up shop or event locations to a ‘virtual warehouse’, allowing you to track inventory in the same way as you would for a permanent location.
In order for your multichannel business to operate at peak efficiency though, you’ll also need to ensure your inventory management software is working its hardest for you.
Although your systems should bring you the above benefits and more, you need to optimize both the software and your inventory management practices. To find out how best to do that, check out these tips!