Inventory Planning Techniques for Shopify Makers
“Unless commitment is made, there are only promises and hopes; but no plans.” - Peter F. Drucker.
Commitment is a scary thing, and no, not because of its connotations to marriage. It’s because commitment means you’re willing to put time and energy into something which can be difficult.
If you’re running a Shopify store, you’re probably scoffing, “Of course I know about commitment!”
However, running a business is (or can be) fun and exciting, but other small businesses, 43% of them to be exact, avoid tracking their inventory.
Why? Because it’s difficult.
But, by not focusing on your inventory planning you’re potentially hemorrhaging a considerable amount of revenue from your business.
According to Business Wire, the associated costs of poor inventory planning each year are from:
Preventable Returns: $642.6 Billion;
Stock Shortages: $634.1 Billion; and
Overstocking: $471.9 Billion.
Tragic, but these costs can be reduced by simply taking the time to develop your inventory planning.
So let’s delve into it!
What Is Inventory Planning?
Inventory planning is the process a company follows when deciding how much product is needed and when production should start to fulfill sale orders within the business's production capacity.
According to businessdictionary.com, “Inventory planning has a direct impact on a company's cash flow and profit margins, especially for smaller businesses that rely upon a quick turnover of goods or materials.”
A company's inventory planning will be affected by what type of workflow they follow.
For example, a make to order or a make to stock business. An MTS business will have products in stock ready to fulfill a sales order. While an MTO business will make products after receiving a sales order.
But, regardless of workflow, any small business owner who produces and sells products on Shopify or through any other channel will have to track several inventory types such as:
Without proper inventory planning, you can quickly become overwhelmed by having dedicate resources to update your inventory movements.
Ideally, you want to have robust inventory planning since it helps you with forecasting and to determine how much product you should produce to meet the expectations of the market demand.
So, to quickly summarize, what is inventory planning? Pretty darn important, that’s what!
Let’s look at just some of the techniques and practices makers selling on Shopify can adopt when investigating their inventory planning.
Inventory Planning Techniques
Let’s start with some quick techniques that you can use when carrying out your inventory planning techniques.
1. Safety Stock
Even if you’re a business with an MTO workflow, it’s generally a good practice to have safety stock on hand, just in case you become overwhelmed with an influx of new orders.
The idea of safety stock is to set the minimum amount of product you’d like to have on hand to act as a buffer to avoid stock-outs.
2. First-In, First-Out (FIFO)
FIFO is the process of selling your oldest stock first, often used by businesses that handle perishable goods.
However, it’s an inventory planning practice that can be adopted by other businesses too. If you have items sat at the back of storage, they’re likely to become damaged or outdated the longer it stays there, FIFO helps you to avoid losing old products.
This system is also good for monitoring which items are performing well and allows you to act quickly to prevent storing dead stock.
3. Have a Contingency Plan
Prepare for the worst, hope for the best.
Even the most seasoned of manufacturers experience issues with inventory planning. However, the way to avoid this is to have back-up plans in place to be ready for any scenario.
By analyzing risks that could affect your business, for example, a late delivery on material or you have a slow-moving product that is driving up carrying costs, you can develop a plan that can be executed should this happen.
It’s better to plan now than to encounter an issue which grinds your business to a halt.
4. Demand Planning
Taking the time to do your demand planning will allow you to estimate how much inventory you should be aiming to produce during any period.
Once again, even if you MTO your products, taking the time to complete this analysis will help you understand the trajectory of your business.
To do this you’ll need to examine:
- Current trends in the market;
- Your last year’s sales;
- This current year's growth;
- The season and the health of the overall economy;
- Any promotions you have planned; and
- How much you plan to spend on marketing.
Anything and everything that you think will help you get the most accurate forecast during your inventory planning should be taken into consideration.
Are you selling on Shopify? Since there are certain programs on the market developed in mind for makers searching for Shopify inventory software, meaning you can start improving your inventory planning today!
Tips for Inventory Planning
There’s a lot that needs to be considered when organizing your inventory planning, but we’re going to give you some tips that are a good starting point when trying to get your Shopify inventory organized.
Shopify’s Inventory Management
First things first, you need to understand what you’re getting into if you are going to stick it out with the built-in Shopify inventory management that’s offered by the platform.
Most sellers using Shopify are dropshippers, and the Shopify inventory management system is more catered toward these types of store owners, meaning makers can use this to track their finished goods. However, even then Shopify has limitations such as the limit on the amount of Shopify product variants a store can have.
If you’re manufacturing your own wares, you still need to track raw materials and plan production which isn’t offered by Shopify’s own inventory management system. To be able to do this on Shopify you’ll need to find a 3rd party app that can integrate with your Shopify account.
PRO TIP: Want to learn more about how makers can thrive selling their products on Shopify? Well then, make sure to take advantage of the free ultimate Shopify guide for makers e-book. Inside you’ll learn everything you need to know to optimize your business.
Another simple and easy step you want to take when inventory planning is looking at your current workshop space and determining if it can be reconfigured to achieve a more optimal workflow.
This is known as routing manufacturing. You make the cleanest and quickest route to get your raw materials through the required processes right up until it becomes a finished product.
It might sound simple when inventory planning, you might think “Well it has to get from point A (inventory) to point B (workstation) then on to point C (delivery).”
However, some makers produce bespoke products or a variety of items, which means that depending on the manufacturing order, products might travel different ways around the shop floor.
Therefore, it’s important to take the time to develop your routings:
Routing = a list of tasks needed for a manufacturing process for each product.
This is quite a philosophical question: forward scheduling vs backward scheduling, which is best for you?
Forward Scheduling: Beginning production at the earliest possible time.
Backward Scheduling: Starting production as close to the deadline as possible.
One answer may seem more logical, but there’s no right answer. Depending on the workflow you use, this is going to affect how you keep inventory and when you decide to buy more material.
Either type of scheduling comes with its own advantages and disadvantages, but choosing one of these now is going to help you later when developing your master production schedule.
There are several different ways that you can organize your inventory, but ABC inventory is the easiest and quickest way you can quickly sort your inventory planning.
This technique follows a 80/20 formula, the principal believes (as a rule of thumb) that 20% of your inventory, is going to bring in 80% of your sales.
So, the idea is that you divide your inventory (including material) into three sections: A, B, and C.
A: Will be comprised of your top selling products and should be placed closest to the workshop to make it the most accessible section of inventory.
B: These will be the products that sell but not as well as the products placed in section A.
C: These will be the underperforming products or spare parts which would be mostly in the way if not placed “at the back of the shelf.”
PRO TIP: You can see the importance of nailing your inventory planning, so why not educate yourself further? We have an essential inventory management guide for any Shopify maker curious about how they can optimize their business.
So, there you have it, just some quick tips for you to consider when inventory planning. But, if you want to take your inventory planning to the next level, be sure to utilize the resources linked in the blog.
However, if you want to optimize your inventory planning and make your Shopify store the very best, you’re going to need to follow the same steps as other businesses and get yourself a Shopify inventory management software.
Implementing Smart Inventory Software
How other businesses organize their inventory planning is by trading in their inefficient Excel spreadsheets for smart inventory software, like the one offered by Katana, that allows business owners to:
1. Develop Inventory Planning
Katana’s unique auto-booking system takes any available material or finished products and allocates it to the most recent sales order or manufacturing order. This allows you to get real-time updates on inventory levels. You can even set reorder points so Katana will notify you when inventory levels are running low.
2. Develop a Master Production Schedule
Katana’s visual dashboard gives you an overview of the status of production with our RAG system. A task list lets you and your employees see what is left to do and how long is left until manufacturing is completed. Finally, our nifty drag-and-drop system allows you to reprioritize the work order, and Katana will automatically redistribute material to the new work order.
3. Integrate Your Shopify Account
Best of all, you can integrate your Shopify account with Katana. The process couldn’t be any simpler, you just type in your store, decide if you wish to import all your existing Shopify products and synchronize your stock levels, and hit connect! Now you can fulfill sale orders, complete manufacturing orders and finish your inventory planning all from one dashboard.
Why not see for yourself in the videos below?
That’s it, just some of the many inventory planning techniques a maker can use when selling on Shopify.
Following these points, and by integrating smart inventory software into your business, you can avoid the Shopify inventory issues that plague other makers selling on Shopify such as:
- Issues with managing raw material inventory;
- Knowing when to order new material;
- Growth-restricting spreadsheets; and
- The not-so-easy-to-navigate Shopify inventory management system.
If you’re still not sold on upgrading to a smart inventory software, maybe one of our customers can better explain the benefits.
Puppy Cake owner Kelly Costello said that “[Katana] has saved me nearly $20,000 in annual payroll.”
Since ditching spreadsheets for Katana, Puppy Cake has been able to get a better understanding of their operations, inventory, and time management, drastically improving their inventory planning and saving them a huge amount of revenue.
Why not hear it straight from the “puppy’s” mouth!
And that is all for now. If you have any questions about inventory management for Shopify, please do not hesitate to drop us a comment below or message us on social media.
Until next time, happy manufacturing!