The bread and butter of inventory management is tracking product quantities. That’s because failure to get an accurate count leads to serious issues — incorrect amounts can either lead to an overstock, too much product on hand, or a stockout, too little product on hand to meet demand.

Tracking is a matter of adding and subtracting, but make no mistake, it can get tedious. There are a few common ways to monitor product counts that scale with how much inventory and how many sales channels you’re working with.

Spreadsheets

The most basic, spreadsheets offer a centralized place to keep tabs — literal tabs in many cases — on inventory. Once stock arrives, add your product quantities to the sheet. Once an order is made, subtract from that product’s quantity. It’s that simple, and tracking can be made easier by implementing Excel functions.

While they work fine, they can get time-consuming to manage, especially if you’re selling on multiple channels, working with a variety of products, or dealing with orders that contain multiple products.

Channels

Most online sales channels, from eBay to Shopify, will offer some form of inventory tracking. You can add the products and their quantities to the channel, and it will automatically adjust the count for every order made on the channel. All you need to do is input updated product counts when you restock.

Of course, some of the same issues with spreadsheets flare up when tracking via channels. If you’re running a multichannel business, juggling inventory counts throughout various channels can be overwhelming. Not only will it involve manually updating quantities inside each at the end of every day, it’s decentralized, which leaves greater room for error.

At a certain point — particularly when order volumes or product quantities get too high and when channels are numerous — inventory management software will come into play.

Inventory Management Software

Inventory management software tools provide a centralized, automated option for tracking and updating inventory quantities. That means no arithmetic-ridden spreadsheets, little to no manual updates, and less risk of human error.

The gist is straightforward, each of your channels — whether it’s sales or supply-side — connects with the software, making it a hub that users can log into to get a look at all matters inventory.

And inventory management systems can also morph into order management systems.

One of the primary benefits of inventory management software is its compatibility with various fulfillment models. Whether you’re running your operation in-house or having third parties store and ship product for you, inventory management systems assist in keeping inventory organized and aligned across every channel.

As for how they work, let’s start with the first part of dealing with inventory: purchasing inventory through purchase orders.

  1. An e-retailer’s products are imported into the inventory management system, and suppliers are then added and assigned to their respective products. If on-hand inventory already exists, the count is imported or manually entered as well.
  2. Through the inventory management system, the e-retailer creates and sends a purchase order to their suppliers when it’s time to purchase product that requests a certain amount.
  3. Depending on the fulfillment model, the supplier will ship the product requested to either the e-retailer’s HQ (when fulfilling in-house) or a third-party logistics provider’s warehouse (when outsourcing fulfillment).
  4. As inventory trickles in, product quantities are noted in the purchase order, and the count for each product is adjusted accordingly.

Now for the channel side of things.

  1. So long as the inventory management software supports them, a merchant first integrates each of their sales channels with the system.
  2. If they’re working with a third-party logistics provider (3PL) — a service that stores and ships product — the merchant will need to integrate that channel as well.
  3. Once an order is made on a sales channel, the inventory management app will make note and import the order.
  4. The merchant then fulfills the order, and the inventory management tool tweaks the product count accordingly, relaying the new amount back to every integrated sales channel.
  5. If a 3PL is used, the inventory management tool will take that imported order and route it directly to the integrated 3PL. Once fulfilled, order specifics like the tracking number are then routed back to the inventory management tool which then relays them to the sales channel where the order as placed.

Supply-Side Connections

Integrating with suppliers is where things get a little trickier. Some e-retailers want a clear look at how much inventory their suppliers have on-hand, especially those that dropship or fulfill just-in-time. They’re heavily-reliant on their suppliers and prefer the peace-of-mind that comes with inventory visibility.

But an inventory management solution typically only creates integrations with channels that are popular with its target customers like the sales channels Shopify and Amazon or third-party logistics providers like Fulfillment By Amazon and Shipwire.

Plenty of suppliers are out there that sellers tap for products, and they’re more than likely not supported by the inventory management system. That’s where APIs — Application Program Interfaces — come in. An API acts as a blueprint that maps out how a software developer can assemble an integration with some software.

An inventory management provider typically constructs an API that third-party developers use to build custom integrations. In this supplier situation, an e-retailer that wants their inventory tool and supplier to be directly connected will have to pay for it in one of three ways.

Third-party developers

Just like we’ve been saying, it’s perfectly possible to find a third-party developer to do the dirty work for you. You can place a freelance job opportunity on hiring websites like Upwork and Fiverr, or use independent development agencies.

Suppliers

Suppliers might be willing to build an integration with the inventory management tool for a cost, especially if you’re working with a large order volume. Ask, and they most likely will offer a quote.

Inventory management provider

Obviously, whatever service you’re using to manage inventory is interested in getting your business, so they’ll do what they can to get an integration built.

Some inventory management providers are willing to build that custom supplier integration for a payment. They will either charge a recurring fee for every feed they build between the app and your supplier, or they will require a lump sum up-front to construct it. Others will curate developer directories, creating listings for third-party developers and agencies that show off their work, their websites, and their pricing.

Long story short, nearly every part of your business revolves around inventory, and inventory management tools bring each of those parts together in a single, unified place.