The Ultimate Shopify Inventory Management Guide

Well-established ecommerce businesses are well aware of the fact that running a Shopify store involves much more than just selling products. In order to efficiently fulfill and ship orders in good condition, your inventory must be well-organized. Exact answers on how much stock is in a facility, where specific SKUs can be found, and which lots were touched last empower staff to make the most of both their time and use of warehouse space.

When sales inevitably grow on Shopify, optimized inventory management can turn out to be an operational advantage for businesses in competitive markets. In this comprehensive guide, we'll explore the ins and outs of Shopify inventory management, from basic setup to advanced strategies, so you have all of the knowledge and resources you need to confidently take growth to the next level. 

What Is Shopify Inventory Management?

Shopify inventory management encompasses the jobs of organizing, storing, and tracking the quantity of a Shopify store's stock. It's just like general inventory management, only tailored to the order and fulfillment processes of this specific ecommerce platform.

There are a couple of other differences that can improve or potentially complicate your experience if not recognized ahead of time. Shopify's inventory management system is designed to work seamlessly with the platform's built-in features as well as apps on the Shopify App Store. Where success with regular inventory management is a matter of implementing the right processes, setup and synchronization hold particular importance in successful Shopify inventory management.

Why Is Inventory Management Important on Shopify?

Whether for Shopify, another traditional ecommerce platform, or an emerging social commerce platform like TikTok Shop, inventory management is a fundamental element of online sales. A well-organized system can make all the difference in your business' ability to fulfill orders and in turn, customer expectations. Stockouts, surpluses, spoilage, wasted space, and a variety of other negative outcomes become more likely with less visibility into inventory. 

Opportunities for cost and time savings are also lost. How can you expect to make strategic decisions without a proper view of the playing board? You won't know if or when cutting back on inventory is necessary or if you're missing out on potential sales.

Perhaps most importantly, proper Shopify inventory management positions ecommerce businesses to grow unfettered. Scaling up is a different story otherwise, plagued by efficiency-killing bottlenecks.

Setting Up Your Inventory on Shopify

Setting yourself up for success with inventory management on Shopify starts with the actual setup process. In the sections below, we walk through each step in detail.

Set Up Your Shopify Store

If you don't have one already, create a Shopify account by going to Shopify.com and clicking "Start free trial." The following page will ask you to provide an email address, set a password, and name your store.

Add Products to Your Shopify Store

Next comes filling your Shopify store with items to sell. You can upload up to 100,000 unique SKUs – just make sure that product page SEO, images, and descriptions for each one are optimized.

To add products:

1. Navigate to "Products" > "All products" in your Shopify admin.
2. Click "Add product" and fill in the details:
   • Title: Make it clear and descriptive
   • Description: Include key features and benefits
   • Images: Use high-quality photos from multiple angles
   • Price: Set your regular and compare-at prices
   • Inventory: Enter the quantity and SKU
   • Shipping: Add weight and customs information
3. Set product status to "Active" when ready to sell
4. Click "Save" to publish your product

Pro tip: Use product tags and collections to organize your inventory and make it easier for customers to find what they're looking for. This also helps with your store's overall SEO and navigation structure.

Organize Products and Collections

Next, Shopify will need to know where you keep inventory. Add all physical locations (i.e., warehouses and fulfillment centers) and assign each location a name and address on the "Locations" page in "Settings." Also under settings, "Products and Inventory" has controls for turning inventory tracking on or off and offers the option to automatically stop selling products when they're out of stock.

Assign products to specific locations in the "Inventory" subtab under the "Products" tab in the Shopify Admin panel. You can then view and adjust inventory quantities at each of your store's connected warehouse locations in the “Select a Location” section under "Products" > "Inventory".

If you need to change which locations stock a specific product, go to the product page, click "Edit locations," and check or uncheck the locations accordingly. 

Managing Your Inventory on Shopify

Shopify inventory management is just like regular ecommerce inventory management – everything just revolves around this specific platform's back-end tools. In the following sections, we'll show you how to make the most of them.

Track Inventory Levels

Inventory level tracking – and particularly real-time inventory level tracking – can make your life a whole lot easier as a Shopify merchant. Luckily, there's a pre-built feature for this in Shopify. To access it, go to the "Inventory" section under "Products" in your Shopify admin. Here, you can view current stock levels for all products across all locations.

Manage Stock Alerts

Stock alerts are your Shopify store's way of waving a red flag. They're essential for maintaining optimal inventory levels and avoiding the depletion of buffer stock.

Here's how to set them up:

1. Go to "Settings" > "Notifications" in your Shopify admin
2. Scroll to "Product out of stock" and click "Edit"
3. Set your preferred threshold (e.g., 5 items remaining)
4. Choose who receives the alert (usually you or your inventory manager)
5. Save your changes

When you receive a stock alert, take action by:

1. Reviewing the product's sales history and forecast
2. Checking supplier lead times
3. Placing a reorder if necessary
4. Adjusting your reorder point for this product

Adjust Inventory Quantities

Regular inventory adjustments are important because they provide an opportunity to identify and address damaged goods, returns, and miscounts that would otherwise impact your records. View and change SKU quantity counts in the "Inventory" section under "Products" in your Shopify admin. Click on a product, then select "Edit quantities" to make changes. You can add or subtract stock, transfer between locations, or set a new total.

For bulk updates, use the "Bulk Editor" tool. Select multiple products, click "Actions," then "Edit quantities" to adjust inventory across several items at once.

When making adjustments, consider:

1. Recent sales trends
2. Upcoming promotions or seasonal demand
3. Supplier lead times
4. Storage capacity and costs

Remember to sync physical counts with digital records regularly. This helps catch discrepancies early and maintain accurate inventory levels.

Best Practices for Shopify Inventory Management

Everything we’ve discussed about Shopify inventory management so far pertains to the fundamentals – what you’ll need to know and do in order to keep an online store operational. Achieving efficiency and long-term success with inventory management requires additional work. The following best practices will help you stay on top of this important responsibility on an ongoing basis.

Conduct Regular Inventory Audits

Regular audits are a way of checking in on the status of your Shopify inventory. You don't want to have too much or too little of any product for too long because that can mean wasting storage space or risking stockouts. Regular reviews catch trends before they become big enough to have such ramifications.

Most ecommerce businesses conduct audits on a quarterly or annual basis, depending on their size and sales volume. However, for high-turnover items or during peak seasons, more frequent checks may be necessary.

Cycle counting is a practice worth implementing if you want a high-level view of inventory status without disrupting daily operations. This method involves counting a small subset of inventory on a rotating basis. Paired with quarterly or annual full counts, it can help you catch discrepancies as early as possible.

Remember, accurate inventory data is crucial for making informed business decisions, so treat these audits as a priority, not an afterthought. They're your best defense against inventory shrinkage and the key to maintaining a healthy stock balance.

Forecast Demand and Stock Levels

The health of your inventory tomorrow is directly tied to the orders you place with suppliers today. Ensure each decision about quantity is well-informed by consulting historical data on seasonal demand. Most Shopify stores see spikes in order volume during specific times of the year – Black Friday and Cyber Monday more generally, but also market-specific peak periods. For example, a store selling outdoor gear might see increased demand before the summer camping season.

Taking previous ebbs and flows into account to determine a safe average can be done manually, but the end estimate is always more accurate with software. Many inventory management solutions for Shopify offer built-in forecasting tools. These use machine learning algorithms to analyze your sales history, identify patterns, and predict future demand. 

There are some things that software won’t know about, though, like new product launches and marketing campaigns. Combine predictive analytics with real-world context and human judgment to make the best decision for your Shopify store.

Set Up Reorder Points and Safety Stock Levels

If and when order volume unexpectedly soars, you'll appreciate having safety stock to meet that increased demand. As mentioned in the section about inventory audits, it's important to strike a balance between enough stock and too little stock. Reorder points and safety stock levels help maintain this balance.

Set reorder points for each product based on its lead time and average daily sales. When inventory drops to this level, it's time to place a new order. 

Calculate your reorder point using this formula:

Reorder Point = (Average Daily Sales x Lead Time) + Safety Stock

Safety stock is extra inventory kept on hand to prevent stockouts due to unexpected demand or supply chain issues. Determine safety stock levels by considering factors like demand variability, lead time variability, and desired service level.

Use Shopify's inventory management features or third-party apps to set up automatic reorder notifications. This ensures you never miss a crucial restocking opportunity and keeps your inventory levels optimal.

Remember, these numbers aren't set in stone. Regularly review and adjust your reorder points and safety stock levels based on changing demand patterns, supplier performance, and business goals.

Automate Inventory Management Processes

Just because you can do inventory management on your own doesn't mean you should. There are lots of time-savings to be reaped by delegating monotonous tasks to machines. Automation is a game-changer for Shopify inventory management. It reduces human error, saves time, and allows you to focus on growing your business instead of getting bogged down in repetitive tasks.

Shopify offers built-in automation features, but third-party apps can take it even further. Look for a Shopify integration for your store and any other systems you use.

Some key processes to automate include:

• Reordering: Set up automatic purchase orders when stock hits reorder points.
• Low stock alerts: Get notified when inventory drops below a certain threshold.
• Stock updates: Automatically adjust inventory levels across all sales channels.
• Order fulfillment: Streamline picking, packing, and shipping processes.
• Reporting: Generate regular inventory reports without manual data entry.

Use SKU Systems

Your Shopify inventory will only ever be as good as the SKU system used to organize it. A well-structured SKU tracking system allows for quick product identification, streamlined order fulfillment, and easier inventory audits.

When creating SKUs, use a consistent format that includes relevant product information. For example, a SKU for a red t-shirt in size medium might be "TS-RED-M". This system makes it easy to identify product attributes at a glance.

Implement barcode scanning to speed up inventory counts and reduce errors. Most Shopify POS systems support barcode scanning, allowing you to quickly update stock levels or process sales.

Report on and Analyze Your Inventory Data

As an ongoing process, inventory management will need to evolve alongside your Shopify store. Data is an invaluable tool in this respect, and it's easy to summarize with Shopify's inventory reports feature. Use it to monitor key metrics like inventory turnover rate, sell-through rate, and total inventory value on a rolling basis. You'll find this and other reporting tools under the "Analytics" tab on the Shopify Admin panel. 

Inventory Management for Multichannel Selling

All of the information we covered in the sections above outlines how to set up fulfillment if you exclusively sell on Shopify. Omnichannel merchants have a much more complicated task on their hands – not only configuring Shopify to work with their inventory management system but also configuring other ecommerce platforms to work with Shopify.

Synchronizing Inventory Across Multiple Channels

Omnichannel sales are pure chaos without inventory synching. Imagine trying to keep track of stock levels across Shopify, Amazon, Facebook Shop, and a Walmart storefront without a centralized system. It's a recipe for overselling, stockouts, and ultimately, frustrated customers. 

Third-party inventory management systems consolidate data across sales channels so no product or purchase goes unaccounted for. In automatically recording changes in stock levels, the software can also issue low stock alerts and reorders when inventory dips below a certain threshold on any channel. This ensures you're always stocked up and ready to meet demand, regardless of where the sale originates.

Inventory syncing is particularly crucial during high-volume sales periods like Black Friday or when you're running promotions across multiple platforms. It prevents the embarrassing situation of accepting orders you can't fulfill because your inventory count wasn't accurate across all channels.

Handling Inventory Transfers

Because no two sales channels are made equal, it's inevitable that you'll need to transfer inventory between platforms at some point.

This could be due to a variety of reasons:

1. One channel is performing better than others, requiring more stock.
2. You're phasing out products on certain platforms.
3. You're testing new products on specific channels before a wider rollout.
4. Seasonal demand fluctuations affect channels differently.

To transfer inventory in Shopify, navigate to "Products" > "Transfers" in your admin panel. Click "Create transfer" and select the origin and destination locations. Add the products and quantities you want to transfer, then Click "Save as Draft." Marking the transfer as "Pending" will officially change the inventory values – just keep in mind that you can't make any edits after doing so. 

Common Challenges with Shopify Inventory Management

Shopify inventory management isn’t without its challenges. On one hand, you have the traditional pitfalls that come with overseeing stock for any online store. Then there are also platform-specific considerations to keep in mind. Let this section serve as your primer on potential problems and solutions.

Seasonal Stock Changes

Holiday rushes, summer slumps, and back-to-school bonanzas all require careful planning and execution. Failing to anticipate these changes can lead to overstocking (tying up capital in unsold goods) or understocking (missing out on potential sales).

To navigate these choppy waters:

1. Analyze historical data to identify patterns
2. Use demand forecasting tools to predict future trends
3. Implement a flexible inventory strategy that can adapt to sudden changes
4. Consider just-in-time inventory for seasonal items to minimize storage costs
5. Develop relationships with suppliers who can accommodate rush orders

Returns, Refunds, and Exchanges

Reverse logistics is a critical but often-overlooked component of running an ecommerce store. It refers to the systems and processes in place to handle orders returned by customers, issue refunds or coordinate exchanges where necessary, and inspect products before restocking or reselling. The first step to making it all easier for yourself is writing a detailed ecommerce returns policy. Shopify has a free tool that generates custom returns policies in minutes. With a clear definition of what is and isn't acceptable, you can move on to streamlining the process.

In-house returns operations warrant a dedicated team. They'll need their own space to process returns, inspect items, and restock or dispose of products as needed. They should also be equipped with the right tools and software to efficiently manage the returns process.

Alternatively, a third-party logistics (3PL) provider specializing in returns management can handle the entire returns process for you.

Inventory Discrepancies

While their likelihood can be mitigated, inventory discrepancies still impact even the most well-organized Shopify merchants. Certain situations are conducive to errors, such as entry errors during stock counts, damaged or defective items not being properly accounted for, and sync issues between Shopify and other integrated platforms.

Your best chance at mitigating serious discrepancies is to remain consistent with cycle counts and regular audits. Also, make an effort to be proactive – the goal isn't just to identify discrepancies but to understand why they occur and prevent them from happening again. 

Future Trends In Shopify Inventory Management

With the only predictable thing in business being unpredictability itself, you have good reason to stay on top of changes in Shopify inventory management. Let's explore some of the exciting developments shaping the future of inventory management on this platform:

Predictive Analytics

Predictive analytics has been around for a while but has only recently reached an exciting level of sophistication. New software is capable of analyzing historical sales data, seasonal trends, market dynamics, and, hopefully one day, external factors like weather patterns and social media trends to forecast future demand.

Artificial Intelligence and Machine Learning

The buzz that has been surrounding Artificial Intelligence (AI) and Machine Learning (ML) lately is well-warranted considering how significantly they're impacting inventory management. AI-powered systems can analyze vast amounts of data to optimize stock levels, predict demand fluctuations, and automate reordering processes. Machine learning algorithms can identify patterns in sales data, customer behavior, and market trends to make more accurate forecasts and recommendations.

These technologies can help Shopify merchants:

• Reduce overstocking and understocking
• Optimize warehouse space utilization
• Improve order fulfillment accuracy
• Enhance demand forecasting
• Automate routine tasks, freeing up time for strategic decision-making

As AI and ML continue to evolve, they'll become increasingly accessible to businesses of all sizes, not just large enterprises. Shopify merchants who embrace these innovations early will likely gain a significant competitive advantage in managing their inventory more efficiently and effectively.

Internet of Things (IoT)

Smart warehouses are efficient warehouses, especially when it comes to inventory management. The Internet of Things (IoT) may soon make the need for manual checks redundant. IoT devices like smart shelves, RFID tags, and connected sensors provide real-time tracking of stock levels as items move in and out of warehouses. This constant stream of data enables more accurate forecasting and reduces human error in stock counts.

It's easy to get excited about the idea of an IoT-powered warehouse, but it's also easy to be overambitious with implementation. Start small with a pilot project in one area of your facility before making significant technological investments or operational changes.

Sustainability

Ecommerce businesses with environmentally-conscious customers can benefit by taking advantage of a growing market of sustainable packaging materials and eco-friendly shipping options. Strategic efforts to minimize space and energy usage in inventory management have the capacity to reduce both environmental impact and operational costs.

Shopify Inventory Management Solutions

Beyond fundamental knowledge and best practices, it’s worth considering how specialized Shopify inventory management solutions can also make your ongoing responsibilities easier to handle. The various options available today cater to different business needs – review our summaries below to find the right one for yours.

Inventory Management Features on Shopify

Shopify's offering of native inventory management features is simple but practical. Small-scale online stores can usually get by with the following.

• Inventory Tracking: Monitor stock levels across all your locations
• Low Stock Alerts: Get notified when products are running low
• Inventory Adjustments: Easily update quantities for accuracy
• Inventory Transfers: Move stock between locations
• Variant Tracking: Manage inventory for product variations
• Barcode Support: Scan products for quick updates

These native features are great for small to medium-sized businesses. They're user-friendly, require no additional setup, and integrate seamlessly with other Shopify tools. However, as your business grows, you may find them limiting. They lack advanced forecasting, automated reordering, and multi-channel synchronization capabilities that larger operations often need.

Inventory Management Apps

If native functionalities aren't enough, explore the Shopify App Store for integrations that can enhance your visibility and control over inventory management. They’re a good middle ground for businesses that sell a moderate volume of multi-SKU orders. 

Inventory Management Software

Rapidly growing ecommerce businesses will need something a little more comprehensive than the above to handle inventory management on Shopify – or any other ecommerce platform, for that matter. Software systems are a major upgrade for their ability to provide real-time visibility into stock levels, automate reordering processes, and integrate with multiple sales channels.

Shipfusion's proprietary inventory management software does all of that and more, plus it comes with the benefit of being able to centralize your inventory management and fulfillment operations under one roof. 

Make Shopify Inventory Management Easy with Shipfusion

As an ecommerce business, your number one priority should always be getting customers to buy what you have to offer. All of the logistical aspects of running a Shopify store are best handled by an outside expert with adequate time and resources for those more complex jobs. 

From inventory management and order fulfillment to returns processing and special warehouse projects, Shipfusion is a white glove third-party logistics (3PL) company that exceeds industry standards across the board. Count on our technology-empowered team to get products picked, packed, and shipped to near-perfect accuracy – even amidst spikes in demand. With dedicated Account Managers on-site at warehouse locations across North America, a partnership with us means being able to grow without limits. 

Learn how the Shipfusion team can act as the perfect extension of yours by contacting a fulfillment specialist today.