Multichannel Inventory Management: Benefits and Challenges

Few companies these days can get away with selling their products through a single channel, whether online or in physical outlets. Retailers known for their brick-and-mortar stores, for example, now typically supplement sales on their own ecommerce platforms or on online marketplaces such as Amazon and Etsy. Others that launched exclusively online have begun opening physical locations. Apple and Microsoft, which once went to market through distributors and resellers, now operate branded retail stores. Many startups launch their products on social media sites before expanding to other online as well as physical store channels. Some companies test new products in temporary pop-up shops before they move them into established locations.

The increasingly multichannel nature of sales is compelling adoption of proper multichannel inventory management practices. But that’s not always an easy transition for businesses that have long stored, tracked, counted, packed, and shipped their inventory through one simple model. This article discusses the main benefits, best practices, tools, and challenges involved with managing inventories for multiple channels.

What Is Multichannel Inventory Management?

Multichannel inventory management involves managing inventory that is available for customers to purchase through multiple sales channels, including brick-and-mortar stores, ecommerce platforms, social media sites, mobile apps, and third-party distributors.

By selling across channels, manufacturers, distributors, and retailers give customers the shopping experience they prefer for different products, which typically boosts overall sales. But this go-to-market strategy also introduces challenges associated with the complexity of storing, tracking, and distributing goods that need to be readily available to diverse channels.

Key Takeaways

• Most businesses now sell their products, whether raw materials or finished goods, across multiple digital and brick-and-mortar channels.
• The process of handling items before they go to customers and cost-effectively shipping those items becomes more operationally complex as companies add more sales channels.
• Multichannel inventory management aims to keep inventories readily available to serve multiple sales and distribution channels, while minimizing the risk of overstocking or stockouts, delayed shipments, and incorrect orders.
• Inventory management systems can take much of the pain and risk out of adjusting to a multichannel sales strategy by providing a single, real-time view of items stored across all inventory locations, forecasting demand, optimizing stocks accordingly, and automating key fulfillment processes.

Multichannel Inventory Management Explained

Selling goods over multiple sales channels increases the chances of losses stemming from mismanaged inventory. But sound multichannel inventory management practices, supported by capable technology, can minimize the associated risks, empowering businesses to serve customers in the channels of their choice and boosting revenues.

Single Channel vs. Multichannel Inventory

If you sell through a single physical or digital channel, your inventory can usually live in one place, as products are typically delivered to all customers the same way. For the most part, accurate and timely demand forecasts make it relatively easy to determine optimal inventory stocks in warehouses and distribution centers, and to track that inventory from supplier to customer.

Multichannel inventory adds another layer or two of complexity. When orders for goods, parts, and raw materials can be placed through multiple sales channels, such as retail outlets and different online platforms, they typically must be provided to customers through multiple distribution channels served by dispersed and distinctive inventory locations. That makes it trickier to efficiently maintain and manage appropriate inventory levels at all locations—without understocking or overstocking—to fulfill all customer orders.

Benefits of Properly Managing Multichannel Inventory

Properly managing inventory for multiple channels typically requires additional investments in technology, training, and logistics, as well as more sophisticated planning. What follows are the main benefits of those investments.

• Stockout avoidance:

  Few things frustrate businesses more than having customers wanting to buy products that they don’t have in stock. It’s especially frustrating when that inventory is sitting in a warehouse or distribution center but not available to buyers placing orders through some channels. Companies can avoid these kinds of stockouts, however, by managing inventory in a way that balances the placing of stock across inventory locations based on intelligent analysis of data obtained from all existing sales channels.

• Real-time visibility:

  Companies should be able to view the status of their inventory stocks in real time, not just in storage locations but also up and down the entire supply chain, all the way to the customer. This visibility ensures they always know what they have on-hand and where it’s kept, what is scheduled to arrive at and exit distribution sites, and the status of all orders. Some of this information can also be shared with customers to help them quickly purchase, track, and obtain the products they desire.

• Cost savings:

  Properly managed multichannel inventory can drive down costs by improving the efficiency of procurement, storage, and fulfillment processes. Proficient inventory management often allows businesses to simplify their logistics networks, reduce storage and stocking costs, and keep shipping fees to a minimum.

• Optimized inventory levels:

  Proper management helps businesses optimize their stock levels in all inventory locations fulfilling products ordered across sales channels. This optimization allows companies to reduce the inventory they have to keep on hand without fearing a stockout, which frees up cash and makes it less likely unforeseen expenses result from items becoming spoiled or obsolete while sitting on shelves.

• Business growth:

  By selling through multiple channels, businesses can grow faster—especially startups still struggling to establish a widespread presence on retail shelves. But a clever social media campaign or creative ecommerce site can fuel rapid sales growth only if the inventory is available to fulfill surges in demand.

• Better customer experience:

  Customers don’t want to spend time carefully selecting a product only to learn that it’s out of stock, especially when they decide to try something new on an impulse buy. They don’t want to make a return trip to a store or wait weeks for products ordered online to be shipped. They don’t want to click an ad for a product that appeals to them only to learn the color, model, or design they want isn’t available. By helping ensure that stock is available, proper inventory management practices help businesses improve the customer experience and the reputation of their brands.

Multichannel Inventory Management Challenges

Selling and distributing products across multiple channels introduces complexity that typically adds challenges to the process of managing inventory. Those challenges include:

• Stockouts and overstock: Selling across multiple channels makes it more likely a business will have too few or too many of its products stored in various inventory locations. Stockouts, in which an item is unavailable, at least for buyers on some channels, result in lost sales and disgruntled customers. Overstocking, in which more inventory is on hand than needed to meet customer demand, increases carrying costs, ties up financial capital, and potentially causes the need to scrap items if they expire or become obsolete.
• Inconsistent stock levels: Sometimes discrepancies occur between the inventory recorded in a tracking system and the actual items stored in inventory. The complexity of a multichannel sales strategy makes such inventory discrepancies more likely, causing unexpected stockouts or overstocking. Theft, damage, spoilage, or human error all can lead to this problem.
• Poor demand forecasting: It’s harder to forecast customer demand for multichannel businesses—seasonal variations, changing market trends, and competitive pressures might affect sales channels in different ways. Poor demand forecasting exacerbates the challenges of balancing inventory levels to effectively serve all sales channels, often ramping up the cost of maintaining inventory in multiple locations and causing delays or failures in fulfilling customer orders.
• Reverse logistics: Moving a product forward through a complex logistic network, from supplier to end customer, isn’t easy. Moving it backward, sometimes all the way back from customer to manufacturer—a process that’s much more common when people buy goods online that they haven’t seen or tried on—is even harder. Finding effective methods for managing inventory when processing returns, from restocking warehouses to sending items back to manufacturers to address defects, is a common challenge for businesses that sell across channels.
• Channel-specific challenges: Every sales channel has a set of associated inventory challenges. Brick-and-mortar stores need to have goods directly on-hand for buyers who want to try them out and take them home immediately. Ecommerce platforms need to be able to quickly ship items across a wide geographic area. Posts on popular social media sites that link to direct purchasing features could go viral and spike demand. Businesses have to overcome the specific inventory management challenges of every channel they sell through.
• Lost sales and poor customer experience: Poorly managed inventory processes can result in lost sales due to shortages at inventory locations serving specific channels. Such stockouts not only leave money on the table, failing to convert inventory into revenue by fulfilling orders, but they often frustrate customers, who might turn to competitors and be hesitant to again engage with the brand.

Tips for Effectively Managing Multichannel Inventory

While there aren’t many hard and fast rules for managing inventory, adhering to some of these general guidelines and best practices can help.

1. Conduct Regular Cycle Counts.

   This auditing method involves routinely performing counts of segments of inventory in specific areas of a warehouse, rather than performing a full count in a single go. Cycle counting helps companies avoid having to pause operations while verifying that what’s in stock matches what’s recorded in a database. This technique often helps companies discover and correct flaws in their inventory management system.

2. Automate Manual Tasks.

   Modern IT systems can automate previously manual inventory tracking, order processing, inventory replenishment, and picking and packing tasks in a way that improves accuracy and efficiency. Automated alerts notifying inventory managers of low stock levels, reorder points, and updated demand forecasts, as well as notifying customers of the status of backorders, are also extremely useful for managing multichannel inventory.

3. Standardize SKUs.

   Stock-keeping units, or SKUs, aren’t always as standardized as they could be for the purposes of inventory management. Because these alphanumeric codes for tracking items and distinguishing products are established internally, with no formalized conventions, businesses typically come up with their own methodologies for how they should be assigned and used. Regardless of their methodology, it’s essential for businesses that fulfill orders across multiple sales channels to standardize SKUs across all inventory locations so that they can effectively share stocking data, balance inventory, and avoid discrepancies.

4. Optimize Returns Management Procedures.

   Multichannel sales lead to more returns. That’s fine, as long as businesses have a well-defined return policy and efficient returns management procedures. Those procedures should make it clear to customers when they will get replacements or refunds, as well as identify effective shipping methods for returning items and restocking them in inventory locations.

5. Centralize Data.

   Effective multichannel inventory management requires a central source of data on every sale made at a store or online platform, as well as real-time data on stocks at every inventory location and node in the logistics network. This centralized view helps businesses balance inventory stocks and effectively plan to meet anticipated demand across all channels.

Multichannel Inventory Management Software and Technology

Properly managing multichannel inventory requires sophisticated IT systems that seamlessly share data with each other, automate critical processes, and help planners make data-driven decisions to allocate inventory across locations. A spreadsheet might be workable (though not advisable) for a single channel, but it will almost certainly lead to problems and lost sales opportunities in a multichannel environment.

• Ecommerce platform integrations: Any ecommerce platform, whether it’s on your own website or is a third-party marketplace, should feed purchasing data in real time to applications that play a role in managing inventory, sales, and fulfillment. Ecommerce integrations are essential for synchronizing all online sales data with the systems that allocate stock levels and track inventory across warehouses, distribution centers, and stores.
• Point-of-sale (POS) systems: Point-of-sale systems equipped with the latest features are critical components of inventory management. POS systems should not only process payments for sales originating in stores and other in-person settings, but they also should feed that data back to systems that manage multichannel inventory. The systems can also report data useful to predicting future demand at specific locations and channels.
• Demand forecasting and planning systems: Careful planning is key to optimizing inventory stocks and deriving the most revenue from a multichannel sales strategy. Forecasting is the first step—sophisticated tools, including AI, can help predict future demand across different sales channels. Based on those forecasts, demand planning software can help businesses make informed decisions as to how to stock inventory locations at levels that minimize the chances of overstocking or understocking.
• Enterprise resource planning software: Inventory management systems are typically part of a broader suite of ERP applications, which serve as the central hub of business operations and data. ERP software should sync and share inventory information across finance, marketing, sales, supply chain, HR, and other applications, giving the entire organization a unified and comprehensive view of inventory stocks across all locations that serve sales and distribution channels.
• Inventory management software: This core software for managing inventory should incorporate features that facilitate multichannel sales and distribution. It needs to track items passing through all inventory locations, preferably all the way back to the suppliers, and follow those items to the end customer to record delivery and return status. In a multichannel environment, the software can help balance inventory across warehouses, distribution centers, and retail backrooms that serve various sales channels in order to improve efficiency and reduce costs. It can also automate stocking, counting, and packing processes conducted at those distinct inventory locations.

Choose the Right Inventory Management Solution

Several system capabilities are particularly useful for those companies managing inventory that sells across multiple channels.

A suitable inventory management system should consolidate records for all existing SKUs, including items in stock and those moving through the supply chain, while offering centralized, real-time visibility into and control of those records. The solution must also integrate with all other systems that intake, process, and retain sales data, particularly sales platforms such as ecommerce sites, online marketplaces, and point-of-sale systems in physical stores.

Most multichannel businesses also benefit from demand forecasting capabilities that help them anticipate sales across channels and optimize inventory stocks accordingly to avoid overstocking or understocking at any inventory location.

Get Better Inventory Visibility With NetSuite

NetSuite Inventory Management comes with features that help businesses cost-effectively ramp up sales across multiple physical and online channels.

The cloud-based solution, part of the NetSuite ERP suite of integrated sales management, financial planning, and ecommerce tools, provides a single, real-time view of all items across inventory locations, whether they’re massive warehouses or the backrooms of small stores. It tracks those items from supplier to customer. NetSuite Inventory Management also facilitates demand-based planning by forecasting sales based on historical demand and seasonality, while monitoring stock levels and sell-through rates to determine when to transfer items between inventory locations to optimize their availability.

Multichannel Inventory Management FAQs

What is a multichannel inventory strategy?

A multichannel inventory strategy involves managing inventory in a way that optimizes fulfilling orders placed across multiple online and physical sales and distribution channels.

What are two methods of managing inventory?

Two common inventory management methods are Just-in-Time (JIT) and Always Better Control (ABS). The JIT strategy involves receiving goods only as they’re needed in production processes, minimizing holding costs. ABS analysis categorizes inventory into three groups: A items are high-value and tightly controlled, B items are of moderate value, and C items are of low value and more loosely managed.

What is channel inventory management?

Channel inventory management is the process of managing inventory—tracking, distributing, and replenishing everything from parts and raw materials to finished goods—across the entire supply chain, all the way to the end customer, for every channel that a company sells through.