Top 5 Hacks for Optimal Inventory Levels on Shopify
Managing your Shopify inventory levels the right way is as good for your customers as it is for your business. Getting it right means you aren’t tying down your business in stock whilst also making sure that your deliveries are on time.
Selling your products direct to consumer on Shopify is a beautiful, but dangerous game.
Sure, all is good when deliveries are on time and your stockroom is in order. But what happens when it’s not?
Which is why it’s vital to make sure you find those optimum Shopify inventory levels.
Problem is there’s not always time.
Customers can turn on you as fast as a fiddler if their orders are late due to understocking.
And your cash flow can drop off a cliff when you get to overstocking.
Sometimes you need those fast-action solutions to turn the ship around.
So, here are 5 hacks designed for product making businesses who are selling on Shopify to get their inventory levels on point.
And if you haven’t got time for all of them, then make sure to scroll down for the final hack to rule them all.
The master tool for managing Shopify inventory.
Hack #1 Kill the Dead Stock
It’s easy to walk through a tightly packed stock room and get a fuzzy feeling about all that lovely product on your shelves.
But unless those products get moving off those shelves then you might be in more trouble than you thought.
Get checking for the dusty boxes that have overstayed their welcome, because they might be piling up as dead stock. In other words, products that are stuck in inventory and will be there for some time.
Even well-run companies have been known to hold 20-30% of dead stock, so it’s a very common problem.
They could have ended up this way for several reasons:
An item has dropped in popularity;
A product or material has become obsolete;
Overzealously stocked too much inventory; or
Poor inventory management has led to forgotten items.
The quickest way to work your way to attractive Shopify inventory levels is to start here. Because freeing up this dead wood is going to make space for the products your customers really want.
Once you find out what your dead stock is, you need to find clever ways to get rid of it without being more wasteful than before.
Of course, you can totally get creative here and every direct to consumer business has its own special relationship with customers to capitalize on.
But the simplest way would be to do some promotional deals and inventory kitting to move it on.
If you discover to your horror that you had a corner full of unmovable stock, then you can consider selling them to liquidation retailers who will move your products on at discount.
Might seem counter-intuitive to your business, but it will be much quicker to recoup on these losses when you have a stock room where the inventory is constantly on the move.
Hack #2 Analyze with ABC
So, you’ve cleared up all the dead stock. Good job hacker.
But that’s only the first firewall.
The next is to make sure you are organizing your stock in a way that avoids getting that dead stock in the first place. And that means becoming aware of which products are selling more or less.
You can do this by classifying them into groups using ABC inventory analysis.
Because as it happens, there is often a recurring pattern in sales in which a small set of products sell the most while there are a lot of products that sell few.
You could separate them into the following as a general rule of thumb:
Item A - Top 15% represent 70% of sales
Item B - Middle 20% represent 20% of sales
Item C - Bottom 65% represent 10% of sales
It can be too easy to over stock out of worrying for your sales. But the truth is that having a bursting stockroom is not where you want to be with your Shopify inventory levels. It’s just going tie your business cash and assets down, which could be better used elsewhere. ABC analysis can help you avoid this by preemptively focusing your attention on the products that matter most.
Okay, so analysis done. But where’s the hack in this?
Well, this is where the magic happens. Because once you identify products with their classification of A, B or C you can start to give priority to them, so you achieve the optimal inventory levels for your Shopify store.
Here are 3 mini hacks to make up the whole:
Make sure that you are well-stocked on A items and have low stock on C items;
Set appropriate safety stock by understanding at what point a product is in its life; and
Prioritize products in the A category with more focussed attention and resources.
You’re going to have a much clearer picture of what is going on, not just in your Shopify inventory levels but also in the entirety of your product line here.
The matrix is looking clearer already, eh?
Hack #3 Melt Down Manufacturing Lead Times
Often you will have classified your inventory with ABC and rid yourself of dead stock but still find that you are overstocking.
In which case welcome to the third level where we delve into the deep web of manufacturing lead time.
Warning: calculations ahead.
This is a metric which looks at the time taken from scheduling production for a product to the moment it is completed and ready to be taken off the shelf.
Melting it down is going to mean you have less items on the shelves, plus the bonus of decreasing your delivery times for customers.
To find it you’re going to need to sit behind the screen and put your hacking glasses on for a moment.
What you want to start by doing is adding up the following times for each of your products after an order is received:
Planning and purchase orders made -> Wait/delay time -> Materials received -> Wait/delay time -> Frame made -> Wait/delay time -> Wheel made -> Wait/delay time -> Put together -> Manufacturing completed
Once you have that total number you have found yourself with a benchmark.
You can start now to bring that number down by diving into the details and considering how you can reduce those little periods of time which make the whole.
It’s basically a way of squashing your daily floor operations down to size in an orderly and manageable way. You can be sure the first time round there will be lots of quick fixes that become clear to you.
And the effects on your Shopify inventory levels will become apparent a lot sooner than you think.
Puppy Cake is an online pet treats store that manages their day to day operations in great amounts of detail to get optimal inventory levels.
But to take their business to the next level they adopted Katana Smart Manufacturing Software to:
- Improving the efficiency of their day-to-day operations by more than 75%;
- Finding a new method of monitoring their material inventory management; and
- Developing, implementing, and improving scheduling to optimize production planning.
Hack #4 Fix a Reorder Point
It’s getting heated on the fourth level.
But trust us when we say it’ll all be worth it in the end.
Now you need to make sure that you are making your purchases at the right time.
“How do I do that?” I hear you plead.
No fear, for reorder point is here. A method with which you can calculate the point that stock for each product is at its optimum Shopify inventory levels.
As you can imagine it’s going to be of great use daily when checking your inventory levels, and even better for your customers who will now always see their favorite products in stock.
To start with here you are going to need to calculate the reorder point for each of your products.
The simplest formula is as follows:
Reorder point = Maximum Daily Usage x Maximum Lead Time Days
Using your Shopify analytics you can estimate the maximum quantity of products or materials you need per day and multiply with the maximum expected lead time.
If for example you sell 5 puppy cakes a day on average, and they take 3 days to make including purchasing then you have a reorder point of 15. Any time you have less than 15 puppy cakes in stock then you know it’s time to get making again.
As you can imagine this number is key to efficiently managing your Shopify inventory.
But of course, doing all of this manually and constantly keeping track sounds like a pain rather than a hack, right?
Well not if you have the right tools to back you up.
That’s where the master hack comes in...
Hack #5 Smart Manufacturing Software
Katana Smart Manufacturing Software assigns a reorder point for each of your products and materials. Then you can always see whether you are missing items or are in excess of them. When you are at 0 you know that you’ve hit that sweet spot.
All well and good with these fast fixes to bring you closer to that enlightened state of Shopify inventory levels. But what remains now is the tool that brings it all together.
How else do you plan on tracking those reorder points?
Certainly not Excel spreadsheets we hope. That’s a sure-fire way to end up in a web of inefficiencies.
Instead, you can make use of Katana Smart Manufacturing Software. The ultimate hack for Shopify product making businesses.
It’s an all-in-one solution that streamlines your purchasing, manufacturing, and sales orders in direct integration with your Shopify store.
The raw materials management will automatically book your materials for separate sales and manufacturing orders so that they don’t overlap with each other.
That means that you can find and maintain optimal Shopify inventory levels without having to trawl through a mess of spreadsheets. It’s all there to see, color-coded and designed for the maker’s eye.
Here are just a few of the major benefits:
Managing your product and material inventory levels
Fully functional Shopify Order Management System
Integrating with accounting software like Quickbooks
Moving on from tedious inventory Excel sheets
Schedule your production planning
Having your entire order fulfillment cycle in one place
This isn’t just a fast fix for now.
It’s the master hack because it’s going to gather all the tools you need to manage your product making business from top to bottom. And that includes ideal Shopify inventory levels that prevent over stocking and under stocking.
But beyond that, the point here is to take away the manual work of running a Shopify store and allow you to focus your energy on growing your business.
The only thing is, you might end up hanging your hacking gloves up forever.