We put the summary in the beginning so you can decide whether to read on below for more details.
You can drop ship, ship items yourself, “Fulfill by Amazon” (FBA) and/or use third party fulfillment (3PL) plus manage all your listings and keep inventory in sync. The key is to manage your inventory counts in a single database that also controls your listings, warehouse stock, retail stock and supplier counts.
Interested? Read on. There are 2935 words and the average read time is 11 minutes and 45 seconds.
Accurate inventory counts are the holy grail for merchants. The task is complicated when you have your own inventory in multiple locations and you drop ship product from vendors who may or may not provide their own counts. Toss FBA into the mix and maybe a 3PL and inventory is practically guaranteed to be a mess.
You absolutely, positively must have all your inventory managed from a single database. So how do you do that?
That database needs a software solution running on top of it that manages everything. The advent of multi channel and omni channel complicates inventory locations. Your software needs to know when something has been sold on one channel so it can remove it from all the others. It also needs to know when you receive items ordered from vendors so it can add that amount to each channel. And, if you use 3PL or FBA it needs to track their inventory as well.
Your software needs to control:
- Locations – For each product maintain a separate location for each quantity. This could be warehouses, retail stores, drop shippers, 3PL providers and FBA.
- Listings – As items are sold on each channel deduct that quantity from every listing. So, if you have 10 of an item and 2 sell on Amazon and 1 sells in your retail store your total available to list is 7. However…
- Received Inventory – Just as important as tracking quantities sold you need to know how many you have received from vendors and automatically adjust your inventory accordingly. In the above example your quantity is 7, but if you just received 10 from a vendor the new total is 17. You also need to track inventory sent to FBA and 3PL providers.
- Overrides – Adjusting inventory counts regardless of quantity. You have 17, but you only want to list 10 on Amazon.
- Drop shipping, 3PL and FBA – Include/exclude quantities available from your vendors and automatically communicate to them orders to fulfill and from them shipping information to send back to the customer.
- Accounting – Either manage your accounting directly or communicate with a third party application (e.g., Quickbooks)
- Reporting – Without it you don’t know if you are making or losing money.
Let’s look at each one of these individually.
Your inventory probably exists in more than one place. Even if you have a single warehouse you likely have multiple bins for the same item or a staging area where items live for a short time before moving to a permanent location. Each item you sell needs to have a place to store the quantity for each of these locations and those need to roll up, with optional exclusions, to your total available to sell.
Some likely locations are:
Warehouse 1, Bin 10 10
FBA 123456 20
Drop Ship Vendor A 50
Retail Store 1 5
Dock A 100
Total quantity in stock 185
The quantities for each of these are dynamic. If an order comes in from your webstore and you fulfill it from your warehouse the quantity in that particular location needs to change. That means it is important that the imported order immediately tag the location from which it is drawing stock. As you receive merchandise from vendors that quantity may move from a temporary staging location to one or more permanent locations (e.g., Dock A > Retail Store 1 and Warehouse 1, Bin 10). Your total quantity in stock does not change when you move inventory between locations but the individual location quantity does.
Each product may have multiple listings, including multiples on the same channel. If your inventory counts are off your listings will be incorrect and you could undersell (bad) or oversell (worse). Assuming you have conquered the Locations issue above and your inventory counts are accurate the next step is ensuring your listings reflect those quantities as quickly as possible.
Quantity Changes: If you have product ABC with 2 locations (Warehouse 1 and Warehouse 2) and each location has 10 in stock then each listing should show a quantity of 20. If you have multiple listings for the same product then those listings must be linked. For example, if ABC has listing 123 and listing 456 both on Amazon and you have a total quantity of 20, when you sell 2 your remaining quantity is 18. If those listings are not linked however each would show a quantity of 20 (for a total of 40) and when 2 sell on listing 123 it would show a remaining quantity of 18 while 456 would still show 20 (for a total of 38).
Linking listings must therefore be made in your software solution. ABC in the above example would be a single product in your database. Attached to it would be listings 123 and 456. As items sell your software would upload the new total to both listings simultaneously. In the example above 123 and 456 would each show a quantity available to sell of 20. When 2 sell each would be updated to show a quantity of 18. Note that each showing a quantity of 18 is not a total quantity of 36. Because they are being simultaneously updated on a regular basis the total you are presenting decrements in unison (i.e., first you have 20 of each, then 18 of each and so on until you sell all 20 and each shows a quantity of zero).
Price Changes: Equally important as updating quantities is updating price changes. You can manage prices in your local database and upload those to your listings on a regular basis. This allows you to make individual or en masse changes and upload those to your store. Those price changes may be based on changes in your costs, supply and demand fluctuations or an attempt to be competitive with pricing.
This latter response, competitive pricing, is dynamic. You need to be responsive and even proactive with pricing to undercut your competitors without sacrificing too much of your margin. Fortunately there are several repricer services available. Some are part of your software solution. Others are 3rd party solutions that can work with your software. Either is a good choice as long as the repricer offers you sufficient logic to compete (e.g., the ability to set floors and ceilings, rules for how you want to compete etc.) and it responds quickly to changes on the marketplace. Some repricers are faster than others.
While most solutions decrement quantities as items are sold many do not increment items received by suppliers. The main cause of this is purchasing and receiving is done, either out of necessity or choice, in another software program. Frequently this is an accounting package like Quickbooks. If you choose to use a separate program you will need to either synchronize it with your database or manually update quantities to add new stock.
Alternatively if your software allows you to list on channels and manage your purchasing that is a superior solution. Quantities can be updated in real time and listings can be updated as frequently as your channels allow.
Another challenge is purchasing inventory to send to 3rd parties like FBA and 3PL providers. If you purchase and receive in a single program you can move items to a location for the 3rd party. For example if you purchase items for your 3PL provider then be sure to “receive” them (even though they are going directly to the 3PL) in your software into their designated location.
In the scenarios above inventory quantities have been adjusted to match the actual number in stock. This however may not be the quantity you want to use for all your listings.
- If you have an item with high turnover and limited availability you may want to offer a lower quantity in your listings. For example, if you have 50 of an item that sells quickly you may want to list 25 to give yourself a buffer against overselling.
- For items that have multiple drop shippers you may want to modify the available quantity. Drop shippers serve more than one client so you would not want to commit their entire inventory to your listings. A percentage of each works well for this (e.g., 3 drop shippers with a total of 100 items available might equate to 10 that you would list or simply 10% of the total).
- When you have multiple locations for an item you may want to exclude one or more of these. Omni channel marketers may want to exclude their retail store stock. If you both stock an item and use drop shippers to fulfill it as well you may want to list only your quantity in stock or that plus a percentage of your drop shipper’s stock as described above. You almost always want to exclude FBA stock.
- For items you make yourself or order just-in-time you may not have any quantities in stock. Uploading zero makes these unavailable to sell. For these items you would publish an estimated quantity which would appear as an actual quantity in your listings. It is better to randomize these numbers a bit rather than showing each item as 999 for example. You can also base estimates for items you make on raw materials you have on hand for them.
- Low stock items can potentially oversell so when a quantity reaches your tolerance number you would automatically set it to zero. When additional stock becomes available it would revert to the actual or modified quantity so it is available to sell again.
Each of the above scenarios can be handled manually but if you have a lot of products the task becomes overwhelming. Creating logic in your software to automatically modify counts at the listing level eliminates the manual process and produces better results for both you and your customers.
Drop Shipping, 3PL and FBA
You can expand your offerings to customers by using services to help you provide products and fulfill orders. In order to make the most of each you need a system to ensure everything remains in sync.
Drop Shipping: In addition to managing quantities your ability to communicate effectively with drop shippers can make or break your relationship with customers. No one wants to oversell an item, miss a shipment date or forget to keep a customer apprised of order status. How you communicate with drop shippers can vary from completely manual to fully automated. The most common approaches follow.
- Manual – While not the most desirable method this can work for low volume drop shippers especially for hard to find products. When an order comes in you can fax or email it to your drop shipper and wait for them to fulfill it. They will typically fax or email back a response with the shipping details so you can update the order status for the customer to see.A manual process can still be partially automated. When you receive an order your software can create a fax or email that is sent to the drop shipper without your intervention. Follow up emails can be automated as well to remind your supplier to fulfill an order that is still showing pending in your system. When you receive an email response with shipping information you can avoid keying it into your system by either having them send a csv file that you can import or by using a service that can scrape an email and its attachments into a file you can import.
- Web Portal – Some vendors provide a web page where you can place orders, create purchase orders etc. These typically require manual entry but some offer an api that allows a developer to communicate directly with the portal. They may also offer automatic or manual import/export of files.
- FTP – A common vehicle for exchanging files with vendors is an ftp site. You can push orders in a csv or xml file. You can also receive files from your vendors. This process can be fully automated. As you receive orders or at a given time per day your software can auto create a file and push it to your vendor’s ftp site. Simultaneously it can poll your vendor’s site for response files containing shipping information, costs etc. and download and import them.Your software can then upload the shipping confirmation for your customer to receive. This provides a completely hands off drop ship arrangement.
- EDI – This offers greater security and data verification but is more difficult to implement. EDI is frequently used by retail chains (e.g., Walmart). There are several different protocols including AS1, AS2, AS3, AS4, ebMS etc. Some larger drop shippers use EDI and typically require it once you reach a specified volume of sales. Your software should support EDI but will likely require setup to work with the protocol chosen by your vendor.
3PL: These vendors are similar to drop shippers with the main difference being they are warehousing your goods. That means you are tying up capital in inventory but it usually also means a higher margin than drop shipping. You can communicate with 3PL vendors the same way you do with drop shippers as explained above. In addition to sending orders however you will also need to create purchase orders and send received goods to the vendor to replenish your stock. These additional functions can be fully automated as well depending on your vendor’s capabilities and your software solution.
FBA: Fulfillment by Amazon is effectively a 3PL solution. Amazon stores your products and ships them to customers who purchase them on Amazon, and if you choose to do so on other sites as well (e.g., ebay, your webcart). Also like a 3PL you replenish stock in FBA, but Amazon requires you use their online interface for this which creates shipping labels to their various warehouses.
Your software can duplicate the purchase orders created in Amazon’s app and can also track actual FBA counts. This is important as it allows you to verify that Amazon’s inventory is correct and challenge any mistakes. For listings you typically want to exclude FBA inventory from the available quantity to list, however the main exception to that is when you use FBA to fulfill items on a channel other than Amazon. You want your software to be able to selectively include/exclude FBA counts in listings.
Even if your software solution includes its own accounting module you also probably want it to update your current accounting system. Most bookkeepers/accountants prefer working in a familiar system and a large percentage use Quickbooks. The takeaway here is, your inventory management solution may have a great accounting option but make sure it can export to 3rd party software.
There are 2 critical elements vital to reports – a report writer with options to create your own reports at a granular level and good data. Most systems include a report option This may be a full featured report writer or a set of canned reports that may have some options to modify them. In the latter case you can often purchase a third party report writer, like Crystal Reports, and run it against your data using its ODBC driver.
Good data can be elusive. How your system stores not just the final data results but the transactions that occurred in the interim determines what you can learn from your database. For example, when receiving inventory in Quickbooks only the final total is stored. If in this example you had 10 items and received 5 Quickbooks would report only that you had 15. You want to know that you had 10 and added 5.
You collect data every time you receive an order, change a product or update a customer’s account. Look for software that maintains as much detail as possible without compromising performance.
You are not limited to products you store in a warehouse and ship directly to customers. Third party fulfillment and drop ship options can expand your product offering dramatically. With the right tools you can manage them seamlessly.
Modern software manages multiple listings. But you need more if you want to leverage third party options. Your inventory lives in multiple locations and each must be accurately tracked even if you do not control all of them. Communication with third parties like drop shippers and third party logistics providers that fulfill orders for you is critical. Your image is at stake and customers see only your company.
As inventory is dispersed to Amazon FBA, multiple warehouses and fulfillment services tracking becomes vital, and complicated. And even if you are able to track actual numbers in stock you still need the ability to modify what quantities you show to the world. Not everything is for sale to everyone.
Once you have a handle on where everything is going you need to roll up all that data into meaningful reports and keep your accountant happy. That requires detailed, accurate data.
There are a lot of options available commercially to list your products on the web. Many have good inventory control as well. Some are adept at managing third party providers. And a very few do everything and are adaptable to your unique business.
This guide was designed to help you identify the resources you use now, or would like to use, to expand your product offerings to customers. Once identified you can put into place automation to ensure everything goes smoothly before you commit to a course of action. By using the right tools you promote customer satisfaction and loyalty.