The operational complexity of inventory management for any ecommerce merchant is directly correlated to the number of sales channels their products are sold on. With each new channel comes additional fulfillment requirements, less room for operational error, and the need for more accurate forecasts to buy inventory across a larger number of channels. Effective inventory management becomes a foundational principle for all other areas of your business as you start to sell your products in more places.
The Great Inventory Debate
There are two competing philosophies when it comes to inventory distribution between channels. Depending on the situation and your specific goals, both can be a valid approach, but it’s important to understand what you are looking to accomplish with multichannel sales and optimize for this goal.
Theory 1: Profitability Maximalism
This theory states that from a fundamental standpoint, the goal of any merchant should be to sell the highest amount of product at the highest gross margin possible. Based on this philosophy, it does not make sense to segregate a fixed amount of inventory out between channels. As a specific example, you should never cannibalize your highest-margin D2C sales for a large (but lower-margin) wholesale order.
Theory 2: Channel Diversification
For some merchants, having a diversified channel strategy is more important than maximizing the profit margin on every individual product sold. There are many reasons for this, but this often occurs when a merchant has a signed agreement with a large wholesaler to guarantee a certain amount of inventory for a period of time. Additionally, merchants will often prioritize channel diversity when they are exploring acquisition opportunities, as many acquirers will look at diversified channels as a strong tailwind for the business and a reduction in platform risk.
With Fulfil, the channel diversification theory is made simple to implement by using Inventory Pools to dedicate a certain amount of inventory of each product to each individual channel. Probability maximalism is also supported natively using Fulfil’s Listing functionality, which allows you to list the the same inventory for an individual product in multiple channels.
The Ops of Inventory Management
Graduating from selling on a single channel to multichannel sales is a big step for any ecommerce merchant, and it’s important to confirm that you have the necessary tools and processes in place in order to set yourself up for success. You can start by looking at what these additional channels will require from an operational perspective, and work backwards from there.
For example, if you started on Shopify but are looking to expand to Amazon, and are looking at using FBA specifically, you’ll need to ensure that the inventory management software you are using has the capability to manage inventory at multiple locations. Additionally, it would be helpful to be able to partially receive Purchase Orders at different locations, and transfer inventory between locations in a simple way.
Outside of location management, forecasting and purchasing also becomes increasingly important with every additional channel that’s added. Specifically, it’s critical to have a centralized software that can connect to all of your sales channels and act as a single source of truth for your procurement team to operate within. If planning next quarter’s sales requires exporting data from multiple different platforms and consolidating in spreadsheets, your purchasing team is going to struggle to have a live, bird’s eye view of essential metrics like sales velocity and projections.
Finally, it’s important to consider any physical operational workflows that may need to be adjusted or optimized with the additional sales channels. Specifically, we’ll often see merchants increase the frequency of cycle counting in the warehouse, particularly when using inventory pools, to ensure the highest level of inventory accuracy.
Good inventory management is a fundamental prerequisite to enable successful multichannel growth. With a solid understanding of your goals, a plan, and the right tools to get there, effective inventory management can become a lever to launch your brand to the next level of growth. To learn more about how Fulfil can help your team successfully scale multichannel ecommerce operations, book a demo with our team.