How to mix inventory management techniques for multi-channel expansion
The latest cool kid on the retail block is multi-channel selling. From multinational retail giants to fast-growing ecommerce start-ups, many are finding ways to use different stores to take their business to the next level.
And it’s easy to understand why. Whether you sell online on instore, multi-channel expansion can help you diversify your income and supercharge growth.
But multi-channel selling isn’t always a bed of roses. Without the right inventory management techniques, issues like stockouts, overstocks, and wastage can quickly dampen your progress.
In this post, we’ll dive into what inventory management is and why it matters. We’ll also share our top inventory management best practices and tips to help you build a seamless multi-channel experience.
What is inventory management?
Inventory management is the umbrella term for all the tasks you undertake to manage stock in your store. For example, in a typical week, you may order inventory, distribute units across your warehouses, and replenish (digital) shelves.
The best inventory management techniques help your business stay on top form by helping you:
- Spotlight winning products
- Uncover developing product trends
- Gauge current customer wants and needs
Why inventory management is important for every merchant
In today’s competitive market, it’s crucial you put your best foot forward to stay ahead of the pack and achieve your goals.
Seamless inventory management offers that proverbial “foot forward,” by helping you get and stay on track in many ways.
Let’s zoom in on some of them.
1) Set your brand up for long-term success
Setting up good inventory tracking systems and processes early on will ensure your business isn’t overwhelmed by errors and redundancies as you grow.
You’ll also be able to make smart inventory optimization moves to protect yourself from supply chain issues such as:
- Directing inventory to optimal locations
- Syncing stock manufacturing, shipping, and distribution schedules with marketing initiatives and sales velocity
- Identifying and rectifying potential stock issues early
- Building adequate stock reserves
2) Guard your margins and overall profitability
If there’s one thing that can destroy profitability, it’s making the wrong decision with your stock. Inventory mistakes slice into your margins and you’ll drain money from your accounts to resolve them.
On the other hand, a well-optimized inventory management system stabilizes cash flow, lowers costs, and keeps your margins intact.
So, if you’re looking for a simple way to make your multi-channel business more profitable, onboarding a comprehensive inventory management system is a good shout. Keeping your stockouts and overstocks to a minimum can reduce costs by 10%.
3) Avoid losing ground with stockouts
Stockouts cost your business more than lost sales; they also spark worry among your buyers. In 2021, 75% of shoppers were concerned about items being out of stock. Not only do stockouts dampen the customer experience, but lower sales rankings, customer perception, and brand loyalty soon follow.
Beyond consumer perception and damage to your brand, you could also lose out on rankings that you worked hard for. When a top-ranking listing goes out of stock, you don’t just take your old place on Amazon SERPs once you restock. You need to fight your way back up through your competitors, who would have gained more ground while you were unable to sell.
With the right inventory management techniques and systems, you can dodge stockout setbacks like these and thrive in your multi-channel expansion. Plus, you’ll have the means to welcome your competitors’ customers when they go out of stock to grow your market share even further.
4) Prevent aged inventory and the high costs that come with them
Overstocks and deadstock are every retailer’s worst nightmare. Due to depreciation and changing market trends, they become less valuable over time. Yet you’ll need to pay to keep them thanks to long-term storage fees and admin charges.
It’s important to prevent these issues from occurring in the first place, which is where great inventory management techniques truly shine.
Uplevelling your strategies will positively affect how quickly products move off your shelves. They can also help you maintain ideal stock levels, considering factors like seasonality, cyclicality, product rank, and marketing budget.
5) Gain a competitive advantage
Inventory mistakes are common in retail and eCommerce. In the US, retail operations accuracy averages at 63%. That’s a lot of expensive and avoidable errors to account for on a year-end statement.
So, it’s likely some of your competitors are struggling to handle their inventory too. This position creates an opening for your brand to step out, shine, and win over shoppers.
For example, with an Amazon-style inventory management operation, you can:
- Get stock to customers faster (e.g., same-day shipping)
- Offer different shipping options (e.g., free shipping, sending to a parcel locker or partner store)
- Ship items for less and pass cost savings on to customers
- Offer stress-free returns
2 Main inventory management techniques
Now that we’ve covered why it’s so important to manage your inventory wisely, let’s talk about how most sellers do it.
There are plenty of different ways to manage inventory, so it can be hard to choose the right one for your specific business and growth stage.
However, there are two main inventory management techniques that give us a good view of the options.
- Pull System
- Push System
1) The pull strategy
When a brand uses the Pull strategy, product demand instead of forecasts dictates how much you manufacture, ship, and distribute. Businesses tend to opt for the pull strategy when an item has low demand, or it would be too costly to keep surplus stock if the items don’t sell well.
In action, the pull strategy could look like this:
- Making a small bulk order
- Testing the product in the market
- Maintain good communication with suppliers
- Adjusting your next order according to current trends
- Pre-empting overstock issues
For example, a fast-food retailer typically waits until an order comes through before making the product, e.g., a burger and fries. So, in this scenario, we can say the fast-food retailer “pulls” the raw materials through its fryer and grill to make the goods.
The Just-in-Time (JIT) strategy
A popular inventory management technique that’s classified under the pull system is called “Just-in-Time” inventory. Under the JIT approach, a business makes their product(s) right before they’re needed to reduce wastage and inventory-related costs.
Given the short notice offered in JIT, this approach works best for companies with a clear understanding of their customer demand, a lean supply chain, and excellent relationships with manufacturers and suppliers.
Some tell-tale signs of a JIT strategy in action include a:
- Business ordering smaller inventory loads regularly
- Retailer dispatching goods to the final destination once manufactured
- Company having multi-skilled staff
- Flexible inventory setup and processes that must accommodate low stock
For an example of JIT in full force, you can observe home furniture retailers who place orders to their manufacturer once a customer pays for their item, e.g., a sofa and coffee table. The retailer arranges the manufactured goods to go directly to the customer instead of their storefront.
2) The push strategy
Guided by inventory forecasts, a business manufactures a product and pushes it through its supply chain to the shop floor (or shelves). Retailers usually reserve the push strategy for high-demand products, since it makes sense to keep more inventory on hand to fulfill demand.
You’ll typically see the push strategy characterized by things like:
- High dependency on inventory forecasts (estimates)
- Large inventory orders
- Higher waste levels
- Pre-empting understock issues
For instance, during the pandemic, many sellers of products like hand sanitizers, face masks, and spray bottles took on an approach resembling the push system to meet the sudden uptick in demand. Retailers sought out as much stock as possible to keep up with the stealthy increase in these products’ popularity.
The Just-in-Case (JIC) strategy
A popular inventory management technique that’s classified under the push strategy is called “Just-in-Case” inventory. In the JIC approach, companies proactively purchase enough inventory to meet even unexpected demand.
Thanks to the higher order volumes, merchants who utilize the JIC strategy may be able to take advantage of more bulk purchase discounts, while staying in stock even during unexpected supply chain delays or sudden demand.
A few common JIC strategy identifiers include:
- Businesses order larger volumes of inventory
- Longer intervals in-between re-orders
- Fast-growing or scaling brands that have increasingly higher demand levels
- A surplus of inventory that can be dispersed across multiple locations
How to mix inventory management techniques for multi-channel expansion
The beauty of using inventory management techniques throughout your multi-channel selling journey is flexibility.
You can mix and match different approaches to create a strategy that serves your business goals and customers. For example, you may use a JIT model for slow-moving goods, and JIC model for your best sellers.
To give you some inspiration, let’s dive into how you can craft the ultimate inventory management strategy for your brand as you grow your business.
1) Identify your business growth stage and targets
Where your business goals and where your company is in its growth journey now will significantly impact which inventory management approaches are a good fit.
Before you decide how to approach inventory management, pinpoint your business’s growth stage and outline your key goals for the next 12 months. Normally, we would recommend planning for longer forecast periods, but as we’ve learned recently the industry can be quickly disrupted in under a year.
If you plan to add SKUs, diversify your sales channels, or increase your acquisition spend to get more customers, these decisions will impact how you should approach inventory planning.
2) Pick and mix inventory management techniques
To set your business up for stock management success as it scales, it’s critical you handpick strategies and tactics based on the size you’re aiming to scale your business to. This approach will ensure your systems and processes aren’t overwhelmed and outdated once you reach your next growth level. Rinse and repeat this tactic until you reach your desired business size.
As your business grows, uplevel how sophisticated your use of each strategy becomes Here are some ways you can combine the Push, Pull, JIT, and JIC strategies and other helpful methods based on your business’ growth stage:
- Make small inventory orders to test on each sales channel in line with current market trends.
- Adjust your next inventory order for every sales channel based on recent product performance (30-60 day window).
- Use pre-orders and build a waitlist to assess item demand and then ship goods straight from your manufacturers to your customers.
- Barcode products to make them easier to locate and train staff to scan each item as they move goods and prep orders.
- Use AI-backed inventory forecasts, supply chain data, and current market trends to assess product demand.
- Place larger orders (with reserves) for your top-performing products. Have methods in place to shift goods that don’t sell. E.g., promotions and sales.
- Utilize a barcode system with robotic product sorting to speed up the pick and pack process and accuracy.
- Use the real-time data you collect from barcodes to gain insight into product popularity and restock requirements.
- Prioritize your stock with ABC analysis (split your products into 3 categories with your star products going into group “A” with the strictest controls and most up-to-date records. Average performing products in group “B” with medium control and record-keeping, and laggard items in group “C,” with the least stringent controls and fewer records.
- Ensure your store uses a perpetual inventory accounting system that records goods availability and cash availability live.
3) Maintain relationships with backup suppliers
Whether you’re just getting started in your retail journey or have hit household name status, supply chain issues and sudden market changes can and will surprise you.
Stay prepared by building a multifaceted disaster recovery plan.
For example, ensure you always have:
- Reliable second-line suppliers locally and internationally
- Trustworthy freight forwarders as a backup to your existing providers
- Reserves for products that reflect how long it takes to manufacturer, ship, and process the item
- Some products in production and “goods at sea”
4) Onboard a comprehensive distributed order management system
No matter where you are in your multi-channel selling journey, relying on manual tools like spreadsheets and calendars to manage stock can lead to some sticky situations. So, count on advanced technology to do the heavy lifting instead.
This approach will reduce human errors and support the inventory management techniques you implement. For best results, look for a distributed order management solution that can help you monitor key business areas and tasks like:
- Purchase order assessment
- Freight booking and tracking
- Inbound and outbound shipment management
- Picking and packing analysis
- Customer order management
- Inventory levels analysis
- Barcode tracking
5) Fail fast and often
When it comes to determining how to manage inventory, many overlook mindset. But a winners’ attitude is essential to take your stock management from good to great.
Don’t be afraid to fail.
Keep learning, testing, reiterating, and pushing the boundaries to create the best inventory management system possible. And, when the road gets rough, call-in help from supply chain management experts to slash your learning curve and mistakes.
Wrapping up – Choose your inventory management techniques wisely for more revenue with less headache
Multi-channel selling is critical for a resilient business. It can help your brand scale at breakneck speed and acquire the revenue and profits you dream about.
But your multi-channel stores can’t thrive in a vacuum. You’ll need to use the right combination of inventory management techniques in your strategy to support your stores.
So, level up your systems, processes, and methods as your product selection expands, and business matures. Also, look for ways to streamline every area in your supply chain to make your multi-channel selling more profitable.
Finally, become an eternal student, learning and relearning the ropes as your multi-channel stores break through new growth levels. Before you know it, you’ll have a highly profitable multi-channel business that is selling and restocking like a well-oiled machine.