Inventory management has lots of moving parts. You sell products online and across multiple retail stores. New suppliers ship inventory at different times of the month. Just one miscalculation in future demand can cause a stockout, while overestimating demand can result in excess inventory and inflated carrying costs.
With so much to contend with, it’s no wonder why many retailers look for advice on how to improve their inventory management processes.
This guide shares 10 of the best tips and strategies for growing retailers that want to make smarter replenishment decisions, improve data accuracy, and optimize inventory levels to reduce inventory costs.
How to improve inventory management
- Unify your inventory data
- Use inventory management software
- Set up stock alerts
- Categorize inventory
- Diversify suppliers
- Conduct regular inventory counts
- Use mobile tech
- Invest in automation
- Optimize your warehouse layout
- Improve your receiving inventory process
1. Unify your inventory data
Managing inventory is difficult when stock sits in different places. Perhaps your store’s POS system shows you have five units of a particular item in-store. Once they sell out, you can’t confidently tell a customer that it’s in stock at another location or that they can have it shipped from your warehouse.
Unifying your inventory data brings all of your stock data together. It combines ecommerce and POS on the same platform, which minimizes data silos and creates a single source of truth not just for inventory data but also for information about your customers and orders.
Bared Footwear is just one retailer benefitting from Shopify’s unified data model. It previously relied on Lightspeed POS to process in-store transactions, but as its ecommerce business grew, the disjointed inventory data became problematic.
“We had no way of making sure that we didn't oversell without shutting down a sales channel or reducing the amount of stock available to the online customer, which was really frustrating operationally,” says Alexandra McNab, COO of Bared Footwear. “It was also a really negative customer experience—we wanted to be able to welcome our customers to our stores during sales.”
Since migrating to Shopify, Bared Footwear has prevented sellouts by unifying inventory data across all sales channels. It even introduced a new endless aisle fulfillment option that now represents 4% of in-store orders.
2. Use inventory management software
Inventory management software helps you optimize inventory levels and increase real-time visibility over your stock. It shows how many quantities you have of each SKU across each storage location—retail stores, fulfillment centers, and third-party logistics (3PL) partners’ warehouses included.
Inventory systems also give granular data about your stock. They can create inventory reports that show:
- Best and worst-performing SKUs
- Items with the highest sell-through rate
- Top-selling products by sales channel or store
- Inventory with the slowest lead time
- Products you expect to become popular
This data informs your open-to-buy (OTB) budget when reordering inventory.
Say, for example, that market trends indicate that sales for summer sandals pick up in June. POS data shows that the size 9 variant was the most popular among all footwear categories. Suppliers have a six-week lead time on sandals, so you submit a purchase order on April 5th. This gives you enough time to meet customer demand while spending your OTB budget wisely.
💡Pro tip: If you use Shopify POS Pro, you can utilize Stocky to manage your inventory. Stocky helps you track inventory levels, forecast necessary inventory, suggest reorder quantities, and manage stock adjustments from your Shopify admin.
3. Set up stock alerts
Stock alerts notify you when quantities of a particular product fall below your minimum stock levels. They help prevent stockouts by giving you enough time to replenish the stock before you sell out.
If you want to receive notifications for low stock levels, consider installing an inventory alert app from the Shopify App Store. Then, calculate the optimal reorder point for each SKU by taking the following factors into account:
- Supplier lead time
- Maximum daily sales
- Average daily sales
Now’s also a great time to set your safety stock level. This extra inventory acts as a buffer if you encounter an issue that causes a stockout—like unusually long supplier lead times or transportation issues where new inventory goes AWOL. Safety stock means you’ll have some inventory on-hand to sell to customers in the interim.
4. Categorize inventory
Categories don’t just help customers locate products they’re interested in. Effective category management shows your best (and worst) performing collections to make smarter restocking decisions. You won’t need to contend with inventory storage fees or carrying costs when prioritizing expansion opportunities similar to your top-selling categories.
Category performance reports also identify your most valuable suppliers. If most of your sales come from your footwear category, for example, strengthen relationships with those vendors. This can help you negotiate prices, maintain a continuous supply of inventory, and be first in line for any new product launches.
5. Diversify suppliers
Diversification is a business strategy that minimizes risk. The same applies to supply chain management, particularly for your inventory.
Suppliers might leave the business, experience quality issues, or raise prices unexpectedly. Being able to source inventory from another vendor helps maintain a continuous supply of stock—at a controlled price—if something goes wrong with your existing supplier.
Most inventory tools also let you monitor supplier performance. Take an unbiased look at whether they’re meeting quality expectations, delivering inventory promptly, and their economic order quantity. Chat with those who fall short and put plans in place to replace them if they’re still underperforming.
6. Conduct regular inventory counts
Inventory counts verify that the quantities of products in your inventory management system match the actual stock in your warehouse or store. This helps highlight data entry issues, theft, or inventory shrinkage that lead to financial loss and stockouts.
Regular inventory counts also help you maintain financial accuracy. You’ll need to value your stock on financial statements such as tax returns and profit and loss accounts.
Plus, accurate counts and real-time inventory tracking lets you analyze past sales data to identify patterns and forecast future sales. This can help you manage inventory more effectively—but it all starts with an accurate picture of your stock.
7. Use mobile tech
The issue that many retailers face is that physical inventory counts are time-consuming. It’s also easy to miscount. Barcode and RFID scanners solve these problems. You can point a scanner at a product label and have the quantities automatically updated in your inventory management system.
Barcodes and RFID tags don’t just help monitor inventory—they can also speed up the checkout process. Retail associates can point the scanner at the product label and add each item to the customer’s cart, without having to search the POS interface for the right SKU.
8. Invest in automation
Acting as smart assistants for busy retail managers, automated inventory management systems remove the manual legwork of inventory tracking. They improve operational efficiency by removing repetitive tasks off your plate so that you can do what you do best: sell.
You can use an automated inventory system to:
- Forecast future demand for a particular SKU.
- Update inventory quantities in your centralized system from multichannel orders.
- Accept preorders to gauge customer interest.
- Manage returns and process refunds.
- Generate inventory reports.
You can also use a tool like Shopify Flow to automate tasks in your store. For example, you can:
- Hide out-of-stock products: Create a workflow using the "Inventory quantity changed" trigger to automatically hide products when they go out of stock.
- Receive notifications for low stock: Set up a workflow to notify you when a product's inventory falls below a certain threshold.
- Manage inventory levels: Use the "Product variant inventory quantity changed" trigger to perform actions like adding product tags or updating product details based on inventory changes.
To start, install the Shopify Flow app from the Shopify App Store and access it through your Shopify admin. Once installed, you can create workflows using triggers, conditions, and actions to automate inventory management tasks.
9. Optimize your warehouse layout
The layout of your warehouse greatly impacts how efficiently it runs. You can adjust your layout to maximize space, reduce transportation time, and streamline fulfillment processes for orders you fulfill from the warehouse.
This doesn’t just apply to large warehouses or distribution centers. Carefully consider how you store inventory in your retail stockroom. Bestsellers should go closest to the door, and categories should be grouped. The easier it is for a retail associate to find a product, the quicker they can serve a shopper interested in the item.
Pro tip: With Shopify POS, sales aren’t limited to inventory that you hold in-store. Use ship-to-customer to process a customer order in-store and pass their order to your distribution center or 3PL partner for fulfillment.
“With shipping, I can take orders in-store, fulfill the order from our warehouse, and ship the order directly to customers,” says Dustin Kroft, founder of Kroft.
“That’s huge for us because we’re not always going to have stock on hand—especially for larger items that take up a lot of space in our back store—but can still transact in-store and offer customers next-day delivery.”
10. Improve your receiving inventory process
What happens when inventory arrives at your retail store? The answer shouldn’t be, “Employees keep boxes stacked up in the corner of the room and pick from them to fulfill orders and restock shelving displays.”
Define a clear receiving inventory process to keep your stockroom organized. Here’s what that might look like:
- Create a designated space in your stockroom beside the unloading dock.
- Do a quality control check to confirm that the box contains the right products in the correct quantities.
- Update your inventory management system with the new quantities.
- Place the new inventory in the correct location in your stockroom.
Implement these inventory management techniques with Shopify
Efficient inventory management has long been a thorn in a retailer’s side. With Shopify, you can let go of traditional inventory management challenges and lean on unified data that offers real-time inventory visibility—no matter where your stock is.
“Compared to our previous POS system, we’ve seen a 47% reduction in operating costs and close to a 3% reduction in transaction fees, which are impossible to ignore,” says Guillaume Jaillet, chief omnichannel officer at Frank and Oak.
“And this doesn’t even factor in the development work that would have been necessary before to connect the dots between OMS, digital, POS, loyalty, you name it.”
How to improve inventory management FAQ
How can we improve inventory management?
- Use an inventory management system.
- Configure stock alerts.
- Set safety stock levels.
- Build a good range of reliable suppliers.
- Use real-time inventory reports.
- Optimize your warehouse layout.
- Improve your receiving inventory process.
- Invest in proper inventory management technology.
- Conduct regular inventory counts.
What are the three tools used to improve inventory management?
Inventory software, barcode scanners, and RFID tags are a retailer's most important inventory management tools. These tools let you point a scanner at a product label and automatically update the quantities in your inventory system.
How do you manage inventory effectively?
- Categorize inventory.
- Run regular inventory reports.
- Use inventory technology.
- Configure stock alerts.
- Diversify your vendors.
- Invest in inventory automation.
- Optimize your stockroom layout.
- Unify your inventory data.
- Conduct regular cycle counts.
What are the five steps to effective inventory systems?
Here’s what an effective inventory management process looks like:
- Plan and forecast customer demand.
- Raise a purchase order with your supplier.
- Receive, quality check, and store your new inventory.
- Improve inventory control and tracking.
- Monitor inventory reports.
