How to Manage Your Inventory With Shopify
Shopify's built-in inventory reports create transparency and highlight potential issues, such as excess inventory for slow sellers or out-of-stock items.
Shopify is a robust e-commerce platform with many built-in features, reports, and a large store of 3rd-party apps.
One of the built-in features is inventory management.
Unfortunately, many small businesses that sell products don't take advantage of features like inventory management and instead track their inventory manually using spreadsheets or paper, often with disastrous consequences.
5 Troubling Signs of Poor Inventory Management
If you are unsure whether your company's inventory management needs an urgent upgrade, check for five troubling signs like unfulfilled orders, inaccurate reports, write-downs, write-offs, and high warehouse costs. If left unaddressed, these can lead to significant financial losses and operational inefficiencies, such as unnecessary downtime, high expenses, loss of sales, and dissatisfied customers.
Inventory mismatches. When a business regularly struggles to fulfill its orders despite high inventory levels, it ties up a significant amount of working capital in its inventory that is unavailable for marketing or operational improvements.
Inaccurate information. A company that does not know the exact inventory level of each part in real time and struggles to provide accurate inventory efficiency ratios due to its manual processes wastes scarce time on compiling information that will likely be inaccurate and unreliable for business decisions.
Write-downs. Parts stored for a long time might not be as valuable as new ones. Think of rust. They could even run on outdated software. If that business can still sell these parts but at a lower price, the value of the inventory might need to be reduced below the original purchase price to reflect that change. The resulting expense on the income statement is called a write-down.
Write-offs. If parts have become entirely unusable or obsolete and must be discarded, they need to be written off, and the corresponding expense recorded as a write-off in the income statement.
High warehouse and insurance costs. Warehouse space is expensive, and so is insurance. If a company carries excess inventory, indicated by a low inventory turnover ratio (typically below 2), the business probably uses more warehouse space than necessary.
Shopify's Inventory Management Is Easy to Activate
If Shopify is your e-commerce platform, activating inventory management or inventory tracking is easy.
From your Shopify admin panel, go to Products and click the product you want to track.
If the product has variants, click the variant.
In the pricing section, enter the Cost per Item.
In the inventory section of the product/variant, check Track Inventory.
In the quantity section, enter the quantity for each location.
Click Save.
You can also bulk-edit multiple products at the same time. Go to Products and check each product you want to edit. Then click bulk-edit.
Out-of-Stock Items
If a product is out of stock, Shopify overlays the product picture on the website with an out-of-stock label. That way, customers cannot add this item to the shopping cart until more inventory is received and recorded in the system. When the quantity changes, Shopify automatically removes the out-of-stock label.
Shopify's 7 Built-In Inventory Reports Explained
Shopify's built-in inventory reports offer many key data points to help you manage your inventory more effectively.
These reports create transparency and highlight potential issues, such as excess inventory for slow sellers or out-of-stock items. They give you a head start, allowing you to address any issues before they become big problems.
Month-end inventory value. This report lists your product variants, their ending quantity, and month-end value. It shows how much money is tied up in inventory and for which items.
Sell-through rate by product. This report lists the sell-through rate by product to identify your top-selling and slow-selling products. Generally, a higher product sell-through rate is better than a lower sell-through rate. The industry standard is 80%.
Days of inventory remaining. This standard inventory metric divides the ending quantity of a product by its average daily quantity sold, resulting in the number of days the inventory will last. The higher the metric, the longer the inventory will last, assuming that the amounts you sold in the past are a guide for future sales.
ABC analysis by product. This report categorizes your products into three grades, depending on their revenue contribution. A-graded inventory items have the highest annual consumption value and are your money makers, accounting for 80% of your revenue.
Average inventory sold by day. This report lists the average quantity of an item sold per day. It lets you quickly find the inventory items with the highest daily unit sales.
Month-end inventory snapshot. Similar to the month-end inventory value, this report shows the monthly ending quantity of each product variant.
Percent of inventory sold. This report displays the percentage of the quantity sold compared to the starting quantity of an item.
Manufacturing Inventory Management
As Shopify's inventory tracking logic requires a flat product hierarchy, it usually works well for industries that only resell finished products.
However, if your business builds final products using bills of materials (BOM), you would need to add an app like MRPeasy to handle production planning and inventory management. Look for an app that seamlessly integrates with Shopify. You can probably find one for your business in Shopify's app store. As the saying goes, there is an app for everything — fortunately.
How to Identify Your Top-Selling Products: A top-selling product has a high gross profit and sells in large quantities, contributing significantly to a company's profit.
How the Metric Days of Inventory Remaining Can Help Grow Sales and Free Up Cash: The inventory ratio Days of Inventory Remaining uses past sold quantities to predict how many days a product will still be available until inventory runs out.
