Shopify sellers know: Inventory management is a crucial aspect of any e-commerce business.
Done right, proper Shopify inventory management can help you avoid stockouts, overstocks and unhappy customers.
Done wrong, poor inventory management practices can torpedo your profitability, your brand and your chances to build a base of loyal, repeat customers.
Inventory management directly impacts fulfillment cost – especially the cost of shipping orders to customers, which is often one of the largest selling cost components of an ecommerce order. That’s why large Shopify sellers often distribute inventory to multiple locations, putting it closer to customers in order to reduce shipping time and expense.
Shopify has long supported multi-location inventory management. Shopify Multi-Location Inventory is a robust feature designed to help merchants manage inventory across multiple physical locations, such as warehouses, retail stores, and distribution centers. This capability allows businesses to track and allocate inventory more efficiently, enabling them to fulfill orders from the nearest location, reduce shipping costs and enhance the customer experience.
Using Multi-Location Inventory, Shopify merchants can allocate inventory by location, create fulfillment prioritization rules, and gain insights into inventory movement and location-specific performance.
So far, so good.
But the Shopify Multi-Location Inventory system shares a shortfall with almost all other inventory management tools: it can only tell you what actually happened – not what should have happened – when you fulfilled an order. And that difference is critical to the bottom line.
Here’s an example:
Let’s imagine a customer living in Florida orders a product to be delivered in two days or less from a seller who has fulfillment locations in Atlanta (400 miles from Florida) and Salt Lake City (2300 miles from Florida).
The order should ship from Atlanta, but the product is out of stock there, so the order is shipped from Salt Lake City – at a much higher fulfillment cost for air transport to expedite the package and deliver it in two days.
But the lost net income due to high shipping costs is not the only issue with this order. Traditional inventory forecasting techniques replenish inventory based on actual shipments from a location – which hides the extra cost of orders that should have been shipped from a different location, but inventory wasn’t available. So you run the risk of continued stock outs at one location and while overstocking the other.
Fortunately there is a better way.
Ideal Order Insights for Shopify tracks each order you ship. Need to route an order to another location due to stock-outs? Ideal Order flags it, then calculates the cost difference between what it actually costs to ship the order compared to what it should have cost if inventory had been available. Ideal Order aggregates the data by location and SKU so you’ll know the exact cost of not having inventory available and can prioritize inventory allocation based on total cost savings.
Plus Ideal Order calculates Ideal Demand – pinpointing where inventory should be placed based on actual customer demand. Use it to understand demand hot spots and optimize your inventory distribution. Why replenish inventory from where it was shipped from at extra expense? Replenish to where it should be shipped from instead.
But Ideal Order does more to optimize fulfilling your Shopify orders. Ideal Order measures each order across nine factors including carton utilization, carrier costs and more. Each of those order attributes are then compared to what the optimized ideal cost could be, giving you a powerful tool to manage inventory, improve forecasting, increase automation, establish quantitative supplier SLAs and create internal KPIs to drive organizational alignment.
The bottom line results can be dramatic. Current Etail customers leveraging the power of Ideal Order have seen an average of thirty percent decrease in shipping costs and a six percent increase in gross margin.
Plus Ideal Order works with the IMS, OMS, WMS and other systems you already have in place. Ideal Order is a standard feature of our enterprise SaaS order optimization solution but is also available as a stand-alone option for Shopify users.
Want to learn more? Click here for a self-guided walkthrough.