In Part 1, we shared some of the key challenges and causes of ineffective inventory management. How there are nearly $2 trillion in mismanaged inventory costs across three main areas.
- Overstock inventory accounts for $471 billion
- Out-of-stock items accounts for $634 billion
- Preventable returns accounts for $642 billion
We touched on the areas businesses need to focus on to avoid these three pitfalls, in particular as it pertains to multichannel inventory management requirements to scale your business. In Part 2 of “How Automating Your Multichannel Inventory Management Will Scale Your Busines”, we’ll look closer at specific ways cloud-based inventory management software does these things. We will dive into:
- Real-time inventory visibility and multichannel syncing
- Provide accurate forecasting
- Know what inventory is closest to customers, and know what customers need inventory closer
Real-time inventory visibility and multichannel syncing
How do you prevent customers from being upset, and possibly even leaving you a bad online review when you’re are actually out of stock of a product they just ordered on your website or on an online marketplace? Your customer support may be able to resolve the issue with the customer. But they still just had a bad experience with your company and their loyalty to your brand just took a major hit.
Isn’t it far better to prevent this scenario from ever becoming a problem to begin with? Of course! Real-time inventory visibility and multichannel syncing of inventory makes this possible.
When your various channels automatically know your real-time inventory levels, as well as where that inventory is located, and how fast it can be shipped/delivered, you can not only prevent orders of out of stock items in a multichannel environment, you can also optimize inventory levels, increase accuracy and reduce costs in fulfillment.
Your multichannel inventory management solution needs to be able to
- Synchronize inventory levels in real-time between your website, marketplaces, warehouse, and fulfillment.
- Help prevent costly out-of-stock items, dead weight stock, and preventable returns.
Provide accurate forecasting
When your multichannel inventory management platform knows accurate inventory levels, utilizes artificial intelligence (AI), quantitative and qualitative analytics and modeling, you’re able to accurately forecast sales and revenue, and even account for seasonality. Additionally, when your system also has automated inventory optimization capabilities, you are able to reduce overhead, increase scalability, and increase profitability.
To do this, your inventory system must be capable of tracking and calculating how inventory turnover ratio, (which is how quickly individual products turnover). It must also be able to identify inventory out-of-stock (OOS) patterns.
An effective inventory management system can utilize this information and includes automated inventory reorder rules to make sure you are in stock on the right items at the right time, based on demand and seasonality.
For example, do certain items tend to move faster at the beginning of the month, vs. the end of the month? What about seasonality? If your inventory system is able to track trends, how quickly different items sell at different times of the month, and even different times of the year, you can make sure you have optimal inventory levels leading into different time periods. This way you make sure you don’t carry to little, or to much inventory at the product level, ensuring profitability throughout the year.
Couple this with your website traffic and traffic conversion analytics. This information can also help you know where to focus your marketing efforts to drive more sales. You can rachet up your traffic volume, (depending on market size), based on knowing your ability move and keep stocked popular items. Your forecasting capabilities are then able to not only project what sales to expect based on your sales trends, you also can plan for growth effectively and know what to expect when you aim to increase your market share.
Know what inventory is closest to customers, and know what customers need inventory closer
One of the things that has made Amazon so successful, has been factoring inventory location into both optimal management of inventory, but also for increasing the speed of product delivery to customers. This, in turn, increases customer satisfaction and the likelihood of that customer ordering from your business again and again.
The right multichannel inventory system will also help you know what product is where, and what inventory levels should be at specific locations relative to demand.
When you know what inventory is closest to customers, you can ship that inventory to them faster, and at a lower cost. And as the old saying goes, it is 7 times cheaper to keep a customer than it is to acquire a new one. What often isn’t considered here is that not only do you save on acquisition costs, you increase the lifetime value (LTV) of your customers, which increases your overall profitability.
Another important consideration is whether you need to have more inventory of specific items at different locations. Do you tend to have more orders of one product in one geographic region, versus another?
To ship faster and cheaper, you must not only know what inventory is closest to your customer, you also need to make sure you have the right inventory in the right locations based on previous purchase trends for a given geographic region.
If you currently only have a single fulfillment location, these trends can indicate where you should consider having an additional fulfillment center(s). When you get your products to customers as quickly as possible, you increase customer retention, and reduce your fulfillment costs overall.
This also makes it easier for you to offer your customers purchase incentives, like free shipping. Since free shipping on most goods is now becoming the standard, it’s important to manage your inventory cost effectively and relative to where your customers are purchasing from, in order to scale.
When considering a multichannel inventory management platform, make sure that it integrates Ecommerce with your fulfillment center. When it is, you can automate shipping products from most cost effective locations, and make sure you have optimal inventory levels per fulfillment center to have what you need on hand to ship, when you need it.
Simply put, you want to automate as much of the order fulfillment process as possible. When you streamline inventory management, (including optimal inventory levels per location,) along with order fulfillment you increase profitability, increase customer satisfaction, and increase the LTV of the customer. This will enable you to effectively grow and scale your business.
To this end, you’ll want to make sure that your multichannel inventory management solution integrates with tools like ShipCaddie, and eCommerce platforms, such as Shopify. These seamless integrations make it far easier to begin leveraging the power of automated inventory management systems.
Expand Your Inventory Management Capabilities to Scale Your Business
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.