Welcome to Chapter 8 of Sellercloud’s inventory management guide. In this chapter, we will cover multichannel and omnichannel inventory management.
In short, ‘multichannel inventory management’ is about handling your inventory when sold across several ‘channels.’
We’ll explain how selling across different platforms changes inventory management and how omnichannel inventory management differs from multichannel inventory management.
Confused? Head back to the inventory management homepage and freshen up on the previous chapters.
Multichannel Inventory Management Explained
Multichannel inventory management, also known as ‘multi-source inventory’ management, is where orders come to the warehouse from multiple locations (or sources).
These orders could be e-commerce, wholesale, or heading to an in-person, brick-and-mortar store.
‘Multi’ implies you have many sources of sales. As someone in inventory management, you must ensure the warehouse can fill the orders from these different sources.
It can get complicated when certain sources of sales have certain requirements and need to be handled in certain ways.
What Is Multichannel Selling?
Before going deeper into multichannel inventory management, we must briefly describe what multichannel selling means.
Multichannel selling is where your company sells products with more than one method. For example, your company may sell products at a brick-and-mortar store and one or more online marketplaces.
These methods are both ‘channels.’
As an e-commerce seller, you may sell on Amazon, Walmart, eBay, and Etsy—each one of these platforms is also referred to as a channel, and if you sell on more than one channel, that’s multichannel selling.
How to Manage Inventory across Multiple Channels?
You can make managing inventory over many channels easier in several ways. Here are four vital things you can do:
1. Optimize Your Warehouse Space
When you start selling on new channels, your warehouse will get busier, so every inch of space must be utilized as best as possible for two reasons:
- You might need more inventory to fulfill orders. If you can fit more inventory into your warehouse, you should (while still adhering to health and safety rules, of course).
- Inventory will move through your warehouse more frequently than before, so areas where inventory travels through the warehouse need to be more streamlined.
If you weren’t organized before, you really need to be now. You need to consider:
- The shape of the warehouse space you have.
- Areas for receiving inventory and areas to prepare for shipment.
- How your inventory is arranged—consider things like slow- and fast-moving inventory and category, for example.
Optimizing your warehouse also means considering key things such as warehouse lighting to ensure your warehouse is workable for your employees. Read more about warehouse layout.
2. You Must Plan For Demand
You should know that you must plan for demand by now and should be doing it anyway, even if you’re only selling through one channel.
There should be no guessing when ordering inventory from suppliers; it must be based on the demand for your products.
Planning for demand also means planning for seasonal changes and, when it comes to multiple channels, identifying how demand can be different on different channels and using that information to your advantage.
Don’t become overly focused on one channel. For example, it is very easy for a business that has just started e-commerce sales to overly focus on this channel and lose sight of brick-and-mortar sales.
3. Always Have Safety Stock at the Ready
You must monitor stock levels more strictly than when selling only on one channel.
Ideally, it should be impossible for a channel to tell customers a product is in stock when, in reality, you have already exhausted its supply through another channel.
Furthermore, even if you’re demand forecasting skills are top-notch, forecasting is not an exact science, and there will be times when demand will beat your expectations—you must be ready for this.
Safety stock (also known as buffer stock) prevents the sudden surprise of running out of stock. It gives you back some control.
There will also be times when stock arrives from your suppliers broken, unusable, or just late, or you’ll need to replace a customer’s broken order.
Safety stock is ready whenever that happens, and your primary inventory is depleted.
On top of that, you may participate in sales events or hold sales in pop-up locations. At such events, your inventory does not come from regular sources—brick-and-mortar or an e-commerce channel. This also counts as multichannel.
So, in such circumstances, you may need to set up a separate virtual warehouse as part of your multichannel operations so these orders don’t get mixed up with everything else.
4. Implement Software up to the Task
Time and time again, when it comes to inventory management tasks, software fulfills so many needs, especially as operations get more complex as they will with multichannel selling.
Undoubtedly, you will rely more on your software than before because it will give you a bird’s eye view of your entire inventory spread across many channels.
When you combine multichannel sales with different fulfillment methods, such as dropshipping, and different types of inventory, at-scale tracking is a monster of a task.
Furthermore, there are more steps where mistakes can be made. When you implement the right software, the workload is simplified, and it all works together seamlessly.
What Is Omnichannel Inventory Management?
Quite simply, omnichannel inventory management is synchronized inventory handling across multiple sales channels. The keyword in the sentence above is ‘synchronized.’
The first part, ‘omni,’ means ‘all.’ It is a key part of the words ‘omnipotence’ and ‘omnipresent.’ The use of ‘omni’ in omnichannel implies it is limitless and all-knowing.
Let’s dig into how synchronization separates multichannel and omnichannel inventory management.
What Is the Difference between Multichannel and Omnichannel Selling?
In some senses, omnichannel selling is like the evolution of multichannel selling.
Multichannel selling is like having different doors to a store—channels. Each door is a different way for a customer to make a purchase.
For example, with multichannel selling, the customer could go to the store in person, purchase through the phone, or even from their website online—these are different channels, or paths, to purchase a product.
But these different doors or paths are not connected.
So, if a customer makes an online purchase, the store might not know about it when they visit in person. Information is not typically shared between these channels well or at all.
This is where omnichannel selling is different—information is shared between channels. It’s like having one smart door or one channel for everything.
So, for example, if a customer makes an online purchase and then visits the store, the store will be aware of their past purchases and preferences, making repurchasing and upselling opportunities easier.
The key is that the different ways of selling products work together, and in doing this, the business can actually increase sales as the buying process for the customer is easier.
In some cases, if a customer visits a channel and doesn’t make any purchases, a business practicing omnichannel selling might send the customer an email with a special online offer.
You can read more about the differences between omnichannel and multichannel e-commerce here.
Now that that’s been covered let’s look at how it changes inventory management.
What Is an Omnichannel Warehouse?
An ‘omnichannel warehouse’ is designed to handle orders from various sales channels, like physical stores, online shops, and more, as mentioned above.
However, unlike traditional warehouses focusing on a single channel, an omnichannel warehouse is a hub where products are stored, managed, and shipped to fulfill customer orders across different platforms.
Likewise, in a multichannel warehouse, inventory may be split depending on which channel’s orders it will fulfill.
However, with an omnichannel warehouse, inventory is organized in a way that allows for efficient picking, packing, and shipping of items, regardless of the source of the order.
This means that products from online purchases, in-store purchases, and other sources are all stored together. This enables the warehouse to fulfill orders from any channel quickly and accurately.
Omnichannel warehouses typically feature advanced technological integrations with the primary goal of syncing inventory management across all channels and real-time updates on product availability.
Another aspect of an omnichannel warehouse is the ability to handle returns efficiently. Customers may return items they purchased online to a physical store or vice versa.
What Are the Challenges of Omnichannel Inventory Management?
Transitioning from traditional or multichannel selling to omnichannel selling is no easy task, and it will take businesses time to adapt to the new approach. Here are three of the most common challenges:
1. Maintaining Inventory Visibility and Accuracy
In an omnichannel setup, products are shared among different channels, making it crucial to have a real-time view of inventory levels.
As we explained in Chapter 7 (and will continue to repeat), real-time inventory tracking is necessary for many businesses to maintain competitiveness.
If inventory data is not synchronized properly, there’s a risk of overselling items that are out of stock or allocating products inefficiently.
As we have alluded to before, such challenges require robust inventory management systems to ensure inventory is accurately reflected across all channels.
2. Reporting Complexity
Reporting becomes considerably more complex when you adopt omnichannel selling. This is not only because there are more channels to keep track of and delivery methods to those channels.
It’s also because omnichannel selling can allow for a more complicated customer journey. Purchases and returns are less straightforward than they used to be.
They could, for example, return products to a store they purchased online. Likewise, the opposite is also possible; they could purchase a product online and pick it up in-store.
Because of this added complexity, it becomes harder to detect where issues took place because there are many sources of sales and potential directions a product could take to the customer.
All this means that you may need to spend more time looking through reports to identify problems in your inventory management.
3. Communication between Order Fulfillment and Inventory Management
Poor communication between order fulfillment and inventory management can lead to all sorts of blunders.
As mentioned above, with omnichannel inventory management, there are so many ways products end up with their customers, and so this challenge becomes exacerbated.
To work around this challenge, companies must ensure that employees employ effective internal communication, have proper communication channels, and have solid training on the different sales channels and delivery methods at customers’ disposal.
Advice for Multichannel and Omnichannel Sales and Inventory Management
As your company grows and transitions into a multichannel or omnichannel company, there are a few important factors to keep in mind.
Firstly, it’s more important than ever to have a single source of truth regarding orders and inventory—there should be no disagreements over inventory counts.
Software built for this kind of business model is necessary. If there is anything you remember from this chapter (and much of our inventory management guide series), it’s that to run such complex business operations. You need the tech to keep it in order.
Ideally, you want a centralized system to handle it all, one that pulls information from all your different channels and links with your warehouse inventory (and its different statuses—reserved, etc.) to confirm what you really have.
Stringing together a rag-tag selection of different inventory management software systems increases the likelihood of something going wrong.
That’s not to say you cannot use plugins that serve a specific service; it’s just that something needs to serve as the central point of all this information.
Software is what makes omnichannel selling work. Your sales channels are not automatically connected, and each will give you a different picture of your inventory. The software is what will give you that centralized picture.
If you decide that multichannel selling is better suited for your business than omnichannel selling, a good piece of advice is that some sellers separate inventory by channel in a multichannel warehouse.
This way, you can have one team working on one channel in one area of a warehouse and another team working on another channel.
Even better, some companies even use whole warehouses for one channel, a second for another, and so on.
Remember, it will take time to get used to managing inventory across multiple channels, but remember, omnichannel selling is the standard these days.
Lastly, ensure that you listen to the people you work with to get it running in a way that works for everyone.
Key Points From Chapter 8
Well done, you’ve now finished Chapter 8 on multichannel and omnichannel inventory management. Make sure you remember these key points.
- Multichannel selling is where a company sells products through more than one channel—this could be through a brick-and-mortar store and a website or multiple e-commerce sites platforms or both.
- The difference between multichannel and omnichannel is that multichannel sales don’t share information, while omnichannel sales do.
- To manage orders in a multichannel warehouse, you must optimize warehouse space, plan for demand, always have safety stock ready, and implement the most suitable software for your needs.
- The biggest challenges of omnichannel selling regarding inventory management are inventory visibility and accuracy, demand forecasting and planning, and order fulfillment complexity.
- A company must have advanced inventory management software, like Sellercloud, to successfully manage multichannel and omnichannel inventory.
Next up, in Chapter 9, we cover inventory management KPIs and metrics.