Multichannel Inventory Management – A Guide

In the past, everyone operated offline via their brick and mortar stores. Then came the wave of the internet, which led to the creation of online-only brands like Xiaomi and OnePlus. These companies had no physical presence and either resorted to their website or ecommerce partners like Amazon for sales.

But everyone soon realized that there was a need to go multichannel. It would enable them to reach a wider audience and sell more. 

So, we then saw a slew of brands that expanded, some from online to offline and online, and others from offline to online and offline. Given that the results were spectacular, there was a significant catch. They were failing to manage their inventory efficiently.

It led to the birth of the term – multichannel inventory management. What is it, and why has it become a buzzword for organizations? We discuss it all in this article.  

What is inventory management?

Inventory management is a process that allows companies to track their current stock levels and help them understand how much stock to order and when. The practice focuses on identifying inventory from purchase to sale, identifying trends and practices to ensure that the organization understands their optimum stock levels for fulfilling customer expectations and generating early warning signals.  

Why do you need an inventory management system?

An inventory management system is a tool that helps in facilitating inventory management. The software allows you to track goods in real-time throughout the organizational supply chain. Inventory management software helps in overcoming the inherent challenges of inventory management.

Inherent complexities of inventory management

Inventory management has been a significant thorn in the business’ growth. The problem was exacerbated because of the lack of visibility, centralization, and automation. Here are the inherent complexities of multichannel inventory management –


Today, retailers are losing USD 634 billion annually due to running out of stock. The primary reason behind it is phantom stock, i.e., the stock present in the inventory management you follow but isn’t physically available in your warehouse. While the cause can be any, the impact can be catastrophic, not only on your sales but also on goodwill.

Multiple sales channels

Given that most modern organizations focus on multichannel sales, it means you will have multiple exit points for your stock. It makes keeping a tab on stock levels challenging. Add to that, these channels will inadvertently have returns, it can turn into a mess in no time.

Poor warehousing strategy

The multichannel strategy followed by the brands has led to the brands trying to optimize their speed and coverage across all channels. In addition, it has led to them dividing their stocks across multiple fulfillment centers. 

But most of them do it without a workable strategy in place, which leads to poor warehouse space management, longer delivery times, and higher shipping costs, especially when the same order travels to different warehouses.

Poor warehousing strategy
Image by THAM YUAN YUAN from Pixabay

Inaccurate forecasting

When you have multiple channels to fiddle with, there is a high chance of you suffering from poor data quality. 

If you are using inventory management software, it may be of some help, but even then, a Zentail survey reports that 54% of all sellers lack access to inventory software that can forecast. It leads to them relying on moving averages which is not the best way to anticipate upcoming trends.

What is multichannel inventory management?

Businesses that sell goods will have inventory in place. 

While some may have raw materials, WIP, and finished goods, others will only have finished goods in their warehouse. Irrespective of the type of stocks, managing them is a task that requires much more than human resources in the present landscape.

Also known as multi-source inventory, multichannel inventory management refers to a process wherein the company accounts for and tracks stock levels stored at all the locations and sold across channels, such as via their website and different marketplace partners.

While managing inventory levels is the priority, businesses also prioritize how the information related to it is passed across departments. It allows them to handle stocks better and gain a competitive edge within their ecosystem.

Benefits of multichannel inventory management

A robust multichannel inventory management software plays a vital role for every ecommerce business. Here are the benefits it offers –

1. Data integration

Having software allows you to get rid of manually having to track and document inventory movement. Given the plethora of channels in place, manually handling it could lead to a high likelihood of human error, making them inaccurate and redundant for decision making.

In contrast, having a centralized solution that can handle these movements automatically can enable you to generate better turnaround times. It also helps you keep better track of the inventory and thereby synchronize your sales channel listings better with available stock at your disposal.

In addition, an inventory management system enables your team to access a single and unified location for evaluating and updating inventory-related data, which is available to everyone else in real-time. 

By undertaking seamless data integration, ecommerce brands can accomplish better control even when they scale.  

2. Supply chain automation

Imagine placing an order for an emergency item online because it was not available in the brick and mortar stores near you. 

The delivery timeframe is two days, but on the second day, a customer representative from the brand calls you and informs you that they do not have the said item and that you will have to wait or cancel the order. How devastating would that feel!

Ecommerce brands can escape this situation by using a superior inventory channel management solution. 

Businesses, especially ecommerce ones, work with a multitude of suppliers, which means that it is always challenging to manage their inventory. In addition, its ability to simplify the supply chain would ensure a superior customer experience every time.

An inventory management software is capable of acting as a database that provides you with critical insights surrounding your suppliers. In addition, it also helps you track their attributes, such as pricing, quantity threshold, production lead time, and minimum order size, all within a few clicks.

Modern inventory management solutions also use AI and ML to understand optimum inventory levels and automate the process of placing an order whenever a stock nears its replenishment levels. You can also set alerts to inform you of the position of critical inventories periodically to help you minimize the chances of supply chain disruption.  

3. Access to detailed inventory management metrics

With multichannel becoming a thing, it can be ominous for brands owing to the multitude of data available. What to use and what to leave out becomes a corridor of uncertainty unless you have the requisite tools to back your decisions.

A capable inventory management software gives you access to the best ecommerce inventory metrics relevant for your business. It also helps you track valuable KPIs that can help you understand where your business stands and what you have to do to improve performance.

Listed below are some of the vital inventory metrics to track –

  • Customer fulfillment rate
  • Inventory percentage
  • Carrying costs
  • Inventory age
detailed inventory management
Image by Jens P. Raak from Pixabay

4. Product supply optimization

With an able inventory management software at your disposal, you can get granular access to how your stock moves. 

It would allow you to segment goods based on their performance. The more you understand how your products sell, the easier it would be to handle your inventory.

An inventory management software lets you prioritize high-performing products, which in most cases would be generated by 20% of your products, raking in 80% of sales numbers. Your team can ensure that these 20% of products never go out of stock.

But holding too much stock is a double-edged sword. It is where forecasting comes into the picture. Inventory software is capable of processing historical data and forecasting demand. It would enable you to keep the minimum safety stock in place, allowing you to minimize costs while catering to sudden fluctuations.

Also read our article on “Ecommerce inventory management

Multichannel inventory management process

The multichannel inventory management process is similar to the multichannel order management process.

The inventory management process begins with the company receiving a customer order and ends with the items being delivered. 

For proactive businesses, it starts when you forecast your demand and place orders depending on how you anticipate the demands to materialize.

The primary goal of inventory management is to gauge the current inventory levels and their location in the warehouse. The management process tracks it through the production to it becoming the finished product and reaching the customer.

The process is built around the customer experience on one side and inventory levels on the other. 

In most cases, it is a fully documented process wherein the workforce updates the position of an item as soon as it moves from one place to another or changes from one form to another. It enables the team to have a complete overview of the process and figure out ways to contribute.  

Best practices for inventory management

There are a plethora of inventory management techniques that work. But they may not work for you unless you understand the intricacies of your business and choose the most suitable one for your needs. Listed below are best practices for inventory management –

1. FIFO and LIFO

First in, first-out (FIFO) refers to your team moving the stock that first entered the warehouse. Last in, first-out (LIFO) is a practice where the goods that last entered the warehouse is moved out the first.

2. ABC analysis

Here, your team segregates the inventory into three different segments according to their importance. It enables them to prioritize their inventory decisions based on the created segmentation.  

3. Sales forecasting

Sales forecasting practice refers to being proactive and anticipating the upcoming demand to enable your team to acquire the right stocks beforehand and not run in a stock-out situation.

4. Perpetual inventory management

This practice refers to tracking and documenting stock movement and usage in real-time.

5. JIT

Just-in-time (JIT) is a practice that enables the management to maintain the lowest stock levels possible throughout the supply chain.

6. EOQ

Economic Order Quantity or EOQ practice seeks to figure out the optimum inventory levels in a company’s warehouse and accordingly use it to place orders for stock refills.

Factors for choosing the best multichannel inventory management software

An ecommerce inventory management software is a vital cog in the company’s multichannel success. It forms the basis of all ecommerce endeavors, and therefore having the right solution to manage it becomes all the more important.

Thankfully, there are a plethora of options in the market when you are out looking for n multichannel inventory management software. 

While selecting the right tool can solve a host of issues plaguing your organization, it requires you to understand what the software offers and how you can use the same for your business’ benefit.

Here are some of the factors that drive your decision of choosing the best multichannel inventory management software –

1. SKU flexibility

Stock keeping unit (SKU) flexibility refers to the software’s ability to handle each item individually. 

SKUs become more critical if you plan to offer multipacks or virtual bundles. Having a deep SKU integration allows you to track core components and product variations along with kits and bundles. 

Having such a feature would enable you to be versatile and immediately access your product data. It would allow you to track your inventory levels across fulfillment centers in real-time and handle on-time replenishment with elan.

For example, a brand named Grosz shifted to a multichannel inventory module that allowed it to sync inventory across sales channels in real-time. It saved the brand ten hours every week and led them to double their Forever Gifts’ SKU count, which resulted in a 40% increase in sales without them overselling any product in their catalog.

2. Inventory forecasting accuracy

87% of online shoppers opine that the ecommerce shipping speed is a vital enabler in deciding whether they will shop with a particular online brand again.

If you want to improve speed, you will have to do so with accuracy as a bundle. For that, you will need superior forecasting abilities to help you anticipate where the next demand surge is coming from and the products you will need to benefit from it.

So, it is vital for you to choose an inventory software that offers superior forecasting abilities by tracking your historical data and using AI and ML to understand the future demand. 

Brands that are able to forecast better stand in a better position to be able to ride the trends and make the most out of them.

3. Reorder points and purchase orders

The traditional inventory system had brands creating POs (purchase orders) by hand and then feeding them into the system. It meant that there was manual intervention needed to update stock levels inside the software.

But how long will you survive when you cater to an omnichannel strategy and have multiple fulfillment points in place? 

It is why choosing an inventory management solution that includes PO automation is key to ecommerce success. 

It allows brands to create POs by auto-populating available information and having a central location to check order status in real-time. It also enables you to establish your reorder points and make sure that you are able to counter a sudden spike or fall in demand with ease.  

4. Barcoding and scanning

Omnichannel presence means that an ecommerce brand will have to optimize its warehouses to manage it all efficiently. 

The ever-changing inventory levels and fluctuating quantities mean a need to inculcate a superior solution for handling stocks. It is why most modern ecommerce brands have adopted barcoding and scanning facility. 

It allows them to track each inventory unit separately and ensure they know the exact location whenever the need arises.

But not all inventory management software is good at integrating barcoding into their system. Given the importance of being able to track each item individually, barcoding integration must be a priority while looking for the right inventory management software to choose.   

barcode scanning
Photo by Tiger Lily

5. Analytics and reports

When you let the software run the show, you benefit from deeper insights and analytics and reports not otherwise available with manual handling. It becomes all the more vital when you are dealing with a multichannel presence and have customers coming in from all of them.

So it is vital for brands to prioritize choosing an inventory management tool that allows you to draw critical reports and analytics pertaining to not only your inventory but also the functions related to it. 

Make sure that the information you seek is measurable and allows you to get a first-mover advantage without tweaking the existing business functions.

6. Customization features

You know that product X is a priority for your business and always wants to maintain higher than average stock levels. Or you know that Product Y can be delivered to you at arm’s length, and you can place the order only when the need be. But does your software allow you to make these tweaks accordingly, or is it all in your head?

Given the plethora of aspects an inventory management software handles, customizability is challenging to attain. 

But given that no two organizations operate the same way and there will always be exceptional circumstances attached to your stock, it is imperative to find a software that allows you a high level of customization that your team can easily implement and understand.

Examples of multichannel marketing

Ecommerce brands who have succeeded are the ones who have been able to tackle multichannel challenges and ride the waves for optimum traction. Multichannel marketing has been their strength, and they have been able to cater to customers across channels with ease.

Here are some examples of multichannel marketing that worked wonders for the brands –


Once considered a click-and-mortar store, Apple today is one of the prime examples of brands that have succeeded to woo customers across channels. Most of it can be attributed to the strategy they have in play. 

For example, when you walk into one of their stores, you will realize that they are not trying to sell their offerings. Instead, those are experience stores that will propel potential customers to place the orders on the spot or once they reach their homes.


Starbucks runs a loyalty program that is truly omnichannel. Customers earn points or “stars” with every purchase. 

These stars help you unlock tiers, and each such tier comes with some unique perks. You can use these stars to collect free drinks and food from any Starbucks store. 

It enables the brand to meet them across channels, such as their website, store, over the phone, or via their app, and then embark on creating an experience for them. It creates a sense of belonging among the customers and thereby increases loyalty.

Image by Şahin Sezer Dinçer from Pixabay

Under Armor

The brand by ‘The Rock’ is a fitness and fashion brand available across channels. It has a community of ardent fans and users within its application and uses gamification and other techniques to keep its customers connected and interested in the brand’s story. 

In addition, its social media handles are also known to propel people to undertake fitness seriously and lead a better lifestyle.


Adopting a capable inventory management system is inevitable for any ecommerce business looking to gain traction. 

Given the complexities that were already difficult to handle owing to multichannel presence and the arrival of the pandemic further making equations worse, there is a need for brands to optimize their inventory to be able to exert superior customer experience.

In addition, if you want to minimize inventory wastage and cut down unwanted costs associated with mismanaging stocks, you will have to take the help of an inventory management tool. 

It would help you reduce the frequency of running into stock-outs and overselling and will also help you optimize your warehousing capabilities by generating actionable insights pertaining to your business and its customers.  

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