Distributing products through a variety of storefronts affords the ecommerce business owner substantial benefits. It allows more insight into the demographics of customers, more visibility online, and is a proven path to growing revenue.
However, like all things in business (and life), if it were that easy, everyone would be doing it. Multichannel inventory management brings with it a host of complications, challenges, and hurdles.
In this post, we’ll do a deep-dive into what makes multichannel inventory management so effective, some common pitfalls to avoid, and how to utilize technology to maximize profits across a swath of storefronts.
What is Multichannel Inventory Control?
Multichannel inventory control is a series of activities and processes related to managing, tracking, and processing orders from multiple sales sources.
These sales sources (often called channels or storefronts) come in a variety of forms. They include online boutiques, wholesale marketplaces, brick-and-mortar retail stores, and many more.
Multichannel inventory management may also require storing inventory in offsite warehouses according to specific storefront requirements (like Amazon, for example).
Why Should You Care About Multichannel Inventory Control?
We’re firm believers that you should only make a business decision when it solves a particular problem or accomplishes a particular goal. Making the leap to multichannel inventory is no different.
Here are some of the potential benefits of switching to a multichannel model:
Multiple channels offer protection against unexpected market forces
If a financial advisor ever tells you to dump your entire life savings into a single stock, run away. The same principle applies to inventory management.
Imagine you’re a small electronics manufacturer engaged in a proprietary agreement with a big box store like Best Buy.
You’re getting a great deal, the supply chain is efficient and foolproof, and you’re experiencing hockey-stick growth. Then, you turn the corner into 2023 and a full-on global pandemic.
Physical stores are now ghost towns with lockdown mandates and employees on leave or sick at home. You rode the wave of a single channel, and now you’ve crashed.
With a multichannel strategy, you don’t need to ride those waves or live in fear of being tossed to and from by unseen market forces.
Back to the stock market analogy: a multichannel strategy is like an index fund, a collection of multiple stocks bundled together to mitigate risk.
With each subsequent storefront you add, you incrementally reduce risk. That way, when a particular social platform changes its algorithm or a big box chain shuts down, your business isn’t in dire straits.
Multiple channels mean a diversified revenue portfolio
Multichannel inventory management not only reduces risk but on the flip side of the same coin, it increases your potential reward.
If you’re only distributing your product on one or two marketplaces, you’re likely leaving money on the table. Different channels are often patronized by different demographics, many of which may be interested in whatever you’re selling.
Many storefronts have spent years developing brand trust with consumers. When you diversify your channels, you’re riding on the coattails of that trust.
Creating a portfolio of storefronts means you’re spreading your brand around in a way that increases visibility and awareness.
Multiple channels offer more insight into higher-performing markets
When you diversify your storefronts, you can quickly identify which channels are the most profitable for your business and double-down on them.
Allow me to illustrate this point with an example.
Worldwide Cyclery: A Multichannel Success Story
Jeff Cayley is an avid mountain bike racer with an entrepreneurial spirit and keen knowledge of the cycling industry. In 2011, he decided to turn his passion into a business by starting a mountain bike retailer.
His company, Worldwide Cyclery, started by selling their products on third-party marketplaces and a couple of brick-and-mortar stores.
Trying to control inventory in their own warehouse while also keeping track of distributors’ needs created significant problems.
No centralized multichannel management solution meant that barcode scanning was manual and cumbersome, the fulfillment process was inefficient, and staying on top of product location was a massive headache.
Jeff knew that if he wanted to scale his business and invest in more channels, he needed a more sustainable solution.
He invested in SkuVault as his multichannel inventory control solution and immediately started seeing the light at the end of the tunnel.
Thanks to channel syncing and integration with ChannelAdvisor, Jeff and his team were now able to better integrate into other areas of their business, provide great customer experiences, and create automated workflows to accommodate multichannel fulfillment.
In the two years since implementing SkuVault, Worldwide Cyclery has experienced 114% in revenue growth.
Read the full story of Jeff’s success as a multichannel ecommerce retailer.
Examples of Popular Ecommerce Channels
So we’ve talked a fair bit about the power of multichannel inventory management, but it might still feel a bit abstract to you. What are some examples of real-life channels that ecommerce businesses can utilize today?
Selling products on your website seems like a no-brainer. Your overhead is razor-thin, and you control every aspect of the buying experience.
However, developing a bug-free website that delivers a positive user experience is a lot more work than it sounds.
If you have any hopes of ranking highly in Google, you’ll need to invest months (possibly years in highly competitive industries) into developing authoritative, keyword-targeted content.
Bottom line: even if you choose to go with a user-friendly ecommerce content management system (CMS) like Shopify or WordPress, you’ll likely want to invest in some web development help.
You can find hundreds of competent, reasonably-priced freelancers on platforms like Upwork or Fiverr.
If you’re looking to save money and want to bootstrap it, go with an all-in-one website/blog/storefront platform like Shopify.
They offer robust customer support and lots of plug-and-play features that’ll help you go to market faster.
Trying to wrangle a broken WordPress theme with little to no support documentation is the last thing you’ll want to spend your time on, especially if you don’t have a background in web development.
Wholesale marketplaces are sites with a high level of authority, brand awareness, and trust. They regularly pull in millions of monthly visitors and (in the case of Amazon) have perfected the art of the online sale.
Most wholesale marketplaces understandably charge a percentage of your sales, but often, that’s a small price to pay when you consider the impact it can have on your brand.
Some popular ecommerce wholesale marketplaces include:
There are also specific wholesale marketplaces for particular niches and product types. For example, there’s a whole host of marketplaces dedicated just to musical instruments. These include:
- Musicians Friend
- Sam Ash
- Guitar Center
Almost every product category, be it home decor, pet supplies, or fitness, will have at least a half-dozen wholesale marketplaces.
You’ll want to do thorough research into each marketplace’s commission percentage and stocking requirements. Later in this post, we’ll talk in-depth about how to find channels and choose which ones to invest.
Social media stores
Having a social media presence and utilizing social ads has been a longtime strategy of many businesses. However, in early 2019, Instagram released Instagram Checkout: a simple, streamlined way to purchase products directly within the Instagram ecosystem.
Anytime you can reduce the friction a consumer feels in the buying journey, you will have a higher conversion rate. The same applies to Facebook’s Shop feature.
These are incredibly powerful channels in B2C industries that lend themselves well to shareable, social content. This way, you don’t have to fret over how to drive traffic from your Instagram audience to your website — you can convert them right where they are.
Indeed, marketplaces like Amazon and eBay have forever changed the way people purchase products online. (When was the last time you went Christmas shopping in person, at a real store?)
That said, brick-and-mortar stores are still a favorite of the older generations and a viable channel for ecommerce businesses.
Included in this category are the big players like Best Buy and Walmart. A lesser-known (and potentially more effective) strategy is to funnel products through small businesses and pop-up shop operations.
Challenges in Multichannel Inventory Control
If you’ve read this far, I’m sure your gears are turning as you contemplate the potential of moving into a multichannel strategy.
However, it’s not all sunshine and roses. We wouldn’t be honest if we didn’t caution you against some of the real challenges of a multichannel strategy.
The bottom line is everything gets more complicated when you start adding multiple storefronts. Your payment processes, your inventory management, your marketing, your customer service — it’s more work across the board.
That said, let’s dive into the specific pitfalls that come with a multichannel strategy and how to avoid them.
Stock-outs and deadstock
When you have one storefront or channel (just selling on your website, for example), it’s a lot simpler to designate stock in your warehouse to that one channel.
When you start introducing multiple channels, your inventory management is significantly complicated.
It requires asking the following questions:
- How much minimum stock does this storefront require, and how do I delineate that stock in my warehouse?
- Does this channel require me to ship a certain quantity of stock for them to fulfill via a 3rd-party fulfillment center? If so, how much?
- What are the demand trends of each channel, and how do I make sure I reorder the right amount of product to satisfy each storefront?
Answering any of these questions insufficiently puts your business at serious risk of dead stock (ordering too much inventory that never sells) or stock-outs (not having enough supply to meet customer demand).
Both dead stock and stock-outs are operationally costly, and the latter causes negative customer experiences that harm your brand’s reputation.
While I imagine it’s possible to manage multiple channels with a static inventory management system like a series of spreadsheets, it’d be a fools’ errand to try.
The time, human resources, and headaches you’d save by automating these processes with a robust inventory management system (IMS) is substantial.
SkuVault was built to handle multichannel management and helps you avoid deadstock and stock-outs by:
- Categorizing each product in your warehouse according to its appropriate channel
- Calculating demand and generating intelligent purchase orders
- Giving you both high-level analytics as well as channel-specific performance
Maintaining a central source of truth
One of the most challenging aspects of juggling multiple channels is staying apprised of sales trends on a channel-by-channel basis.
Most modern storefronts have a dependable back-end that helps you analyze your performance on that particular channel. But do you really want to spend your days logged in to three or four different back-end systems, trying to reconcile your sales information?
Sure, you can export CSVs and try to combine them in one monstrous Excel document, but how much time would something like that take, and how much is your time worth?
The answer to this headache is multichannel integration within your IMS platform. This means taking all relevant sales data and aggregating it into a single source of truth, one dashboard to rule them all.
SkuVault, for example, allows you to analyze your sales performance across all channels at a high level. However, if you’d like to drill-down and discover your more performant storefronts (or the ones lagging behind), you can view that data as well.
Multiple warehouse management and scaling logistics
If you adopt a multichannel strategy, it’s safe to say you’re keen to scale. You want to get your product onto more marketplaces, in front of more people, and generate more revenue; a multichannel strategy is a great way to do that.
However, with growth comes growing pains. These challenges include scaling your employees, order volume, and the big one: making the leap to multiple warehouses.
In addition to integrating all of your channel information, a modern IMS platform like SkuVault will integrate all of your warehouse information into a single dashboard.
This means you can still keep an eagle eye on the inflow and outflow of inventory from a central piece of software, no matter how many warehouses you have.
When you start introducing more warehouses, you also introduce more purchase orders, audit requirements, and employees.
As your business scales, SkuVault keeps it running smoothly with:
- Automatic reminders of when to order more product
- Intelligently generated purchase orders based on customer demand
- Picklists with the most efficient pick routes so your warehouse employees can process orders in the most efficient way possible.
How Do I Get Started With Multichannel Inventory Control?
Now that we’ve laid a foundation of the benefits, specific examples, and challenges associated with multichannel inventory management, we’ve arrived at the fun stuff: how to start.
If you’re currently operating within a single-channel framework and you’re ready to start reaping the benefits of multiple storefronts, follow this step-by-step process:
Step 1: Choose the best software for multichannel inventory management
As mentioned above, trying to succeed in multichannel inventory management without a robust IMS platform is nearly impossible.
Your IMS platform will be the cornerstone of your entire inventory strategy, so choosing the right one is a critical task.
Here are some essential features you’ll want to look for when deciding on which platform to invest in:
Deep inventory control functionality
This is the foundational benefit of any IMS. You must have the ability to control, manage, process, and visualize all the inventory coming in and out of your warehouse.
Demand forecasting, specifically with seasonal products, is essential. The need for forecasting is compounded by multiple channels with different demographics and demand levels.
As we’ve mentioned above, your IMS of choice should be able to sync all of your channels and give you a summarized dashboard of sales performance. The ability to look at sales on a channel-by-channel basis is also a must.
Purchase order management
A good IMS will not only generate purchase orders for you but will do so based on the estimated demand of each channel. In addition to this, many modern IMS platforms will remind you to create purchase orders when stock begins to dwindle. This will prevent stock-outs and poor customer experiences — a non-negotiable in a multichannel strategy.
Integration with other technology
Chances are, you’re using multiple (sometimes over a dozen) applications, platforms, and plugins to keep your ecommerce business running. These likely cover a broad spectrum of business processes like customer management, accounting, marketing, point-of-sale, and more.
This software group is also known as your “technology stack,” and your IMS must integrate seamlessly with your existing setup. You’ll want to make sure that any mission-critical software has an API or some form of integration with whatever IMS you choose.
We’ve specifically engineered SkuVault to solve these problems and offer these benefits to ecommerce business owners.
We’ve built SkuVault to integrate with all major ecommerce software applications. This way, you can streamline how you manage your inventory without fear of your IMS disrupting your existing technology stack.
For a full rundown of how SkuVault can level up your business, check out our list of integrations. You can also sign up for a live demo with our team to see the platform in action.
Step 2: Identify and invest in the next right channel
Once you’re set up with a solid, scalable IMS, it’s time to choose and invest in your second sales channel.
Don’t try to scale too quickly. Get comfortable with your second storefront; then, you can invest in more from there.
It’s easy to get stars in your eyes once you see those first sales come in and want to invest in all the channels. Avoid that temptation. Take it slow and steady.
Which channel is right for you?
There are lots of factors that you should weigh when deciding which channel to utilize. However, the fundamental question every business owner should ask when choosing a storefront is, “Is this where my target customer is?”
Research your competitors
One of the best ways to determine this is by performing a quick competitor analysis. Chances are, you’ve likely got two to three competitors that are in the same or a closely adjacent industry.
There is likely a considerable overlap in demographics between you and these competitors. Ergo, find out where your competitors sell their products, and that’ll probably be the best place to start.
Perform a Google search of these competitors (as well as the products or services they offer), and analyze the first few results pages, specifically the URLs.
You’ll likely start seeing names of specific storefronts that will begin to bring some clarity to where your demographic likes to shop.
For example, let’s say I own an ecommerce business that sells dog toys. I might do a Google search for “dog toys,” “best toys for dogs,” and potentially a branded search of a competitor.
Just from a cursory analysis, I can note the following marketplaces as viable channels for my dog toy business:
- Tractor Supply Co.
Step 3: Make a plan for resource and stock allocation
If you’re going to sell on someone else’s channel, you’re going to have to play by their rules.
That often means:
- Fulfilling a minimum amount of product quantity
- Parting with a percentage of sales as a commission
- Supplying professional photos, descriptions, and other metadata for your products
You’ll want to weigh the stipulations of each channel you’re considering against your goals.
Let’s go back to the hypothetical dog toys example in the previous section. Perhaps giving up a larger percentage of profit is worth the brand recognition you’ll receive from selling on a platform as authoritative as Petco or Petsmart.
Or maybe you want more control and a better deal, so you head for some of the lesser-known mom-and-pop shops on the 2nd and 3rd pages of Google.
All these things depend upon your long term business goals.
Earmark your inventory for your new channel
Once you’ve decided on your second channel, you’ll then want to create purchase orders and delineations in your IMS that prevent products from co-mingling.
For example, you don’t want stock earmarked for your website getting conflated with stock assigned to Amazon or another storefront.
This is a recipe for confusion and stockouts.
Step 4: Analyze the performance of your new channel and reallocate resources
After about six to twelve months, you’ll likely have enough historical data in your IMS to start analyzing the profitability and ROI of your second sales channel.
Sometimes, you’ll find that the effort, costs, and hassle of fulfilling orders in this channel simply isn’t worth it.
Your customers aren’t going there, the sales aren’t as impressive as you’d hoped, and you’re not keen on relinquishing those commissions month-after-month.
It’s okay to pivot to another channel or to run through these steps again with another storefront.
On the flip side, you might find that this channel goes gangbusters and blows your other sales sources out of the water. In that case, you may consider reallocating stock that’s earmarked for other storefronts and doubling down on the high performers.
Multichannel inventory is an excellent way to scale your business, but it requires some research, some foresight, and a robust inventory management platform like SkuVault.
We’ve mentioned many benefits SkuVault affords ecommerce business owners throughout this blog post. But we’d love to show you a custom demo and have a conversation about how we can help your organization, specifically.
To take the next steps toward a profitable multichannel inventory strategy, reach out for a demo today.