Inventory management is the backbone of successful e-commerce operations. For Shopify merchants, mastering stock control means the difference between smooth operations and the chaos of overselling, stockouts, and disappointed customers. Poor inventory management does not just hurt your immediate sales — it damages your reputation, affects your search rankings, and ultimately limits your growth potential.
This comprehensive guide covers everything Shopify merchants need to know about inventory management: from native platform features to advanced multi-location setups, from essential apps like Stocky to battle-tested best practices that prevent costly mistakes.
Whether you are running a small boutique or scaling a high-volume operation, understanding Shopify's inventory tools is essential for operational excellence.
Understanding Shopify's Native Inventory Features
Shopify provides robust inventory management capabilities built directly into the platform. Before exploring third-party apps, it is essential to understand and maximize these native features.
Basic Inventory Tracking
Every Shopify store has access to fundamental inventory tracking that handles the core requirements for most small to medium businesses.
Enabling Inventory Tracking:
- Navigate to Products in your Shopify admin
- Select the product you want to track
- Scroll to the Inventory section
- Check "Track quantity"
- Enter your current stock quantity
- Choose whether to continue selling when out of stock
For products with variants (size, color, material combinations), you must enable tracking on each variant individually. This granular approach ensures accurate stock levels across your entire product catalog.
Stock Quantity Management:
Shopify automatically adjusts inventory in several scenarios:
- Decrements when orders are placed
- Increments when orders are cancelled
- Adjusts when items are restocked via purchase orders or manual updates
- Syncs across connected sales channels
Continue Selling When Out of Stock:
This setting is critical for preventing overselling. When disabled (the recommended default), Shopify will mark products as "Sold Out" and prevent purchases when inventory reaches zero. Enable this only for:
- Made-to-order products
- Products with guaranteed supplier availability
- Pre-order items
- Digital products without physical inventory
Inventory Levels and Adjustments
Shopify's inventory adjustment interface allows precise stock management:
Viewing Current Inventory: Navigate to Products > Inventory to see all products with tracking enabled. This view shows:
- Product name and variant
- Current quantity on hand
- Incoming inventory (from purchase orders)
- Available quantity (on hand minus committed)
Making Adjustments: Click any product to adjust inventory. You can:
- Set exact quantities
- Add or subtract specific amounts
- Record adjustment reasons for audit trails
Adjustment History: Shopify maintains a complete history of inventory changes, including:
- Who made the adjustment
- When it occurred
- The quantity changed
- The reason provided
This audit trail is invaluable for identifying discrepancies and maintaining accountability.
Low Stock Notifications
Shopify allows you to set inventory thresholds that trigger notifications when stock runs low.
Setting Up Low Stock Alerts:
- Go to Settings > Notifications
- Enable low stock notifications
- Set threshold quantities for alerts
- Configure notification recipients
Strategic Threshold Setting:
Do not set the same threshold for all products. Consider:
- Lead time from suppliers (longer lead time = higher threshold)
- Sales velocity (faster sellers need higher buffers)
- Seasonality (increase thresholds before peak periods)
- Product importance (flagship products warrant higher safety stock)
A general formula: Low Stock Threshold = (Average Daily Sales x Lead Time in Days) + Safety Buffer
For example, if a product sells 5 units daily and takes 7 days to restock, set the threshold at 35 plus a safety buffer of 15-20 units.
Multi-Location Inventory Management
For businesses with multiple warehouses, retail locations, or fulfillment centers, Shopify's multi-location inventory feature is transformative.
Setting Up Multiple Locations
Adding Locations:
- Navigate to Settings > Locations
- Click "Add location"
- Enter location details (name, address)
- Configure fulfillment settings for the location
Location Types:
Shopify supports various location configurations:
- Fulfillment warehouses: Primary stock storage for online orders
- Retail stores: Physical locations selling and storing inventory
- Third-party logistics (3PL): External fulfillment partners
- Pop-up locations: Temporary retail presence
- Suppliers: For dropshipping or direct-ship scenarios
Inventory Allocation Across Locations
Each product and variant maintains separate inventory counts per location. This allows:
Accurate Stock Visibility: See exactly how much inventory exists at each location, enabling better purchasing and transfer decisions.
Channel-Specific Fulfillment: Route online orders to warehouse locations while preserving retail store inventory for in-person sales.
Regional Optimization: Position inventory closer to customer concentrations for faster, cheaper shipping.
Stock Transfers Between Locations
Moving inventory between locations is straightforward in Shopify:
Creating Transfers:
- Go to Products > Transfers
- Click "Create transfer"
- Select origin and destination locations
- Add products and quantities to transfer
- Save as pending or mark as received
Transfer Best Practices:
- Create transfers before physically moving stock to maintain accuracy
- Mark items as "In transit" to prevent selling inventory in motion
- Confirm receipt at the destination to update available quantities
- Document any discrepancies between transferred and received quantities
Fulfillment Priority Rules
When orders come in, Shopify determines which location fulfills based on configurable rules:
Priority-Based Routing: Set location priorities so orders route to your primary warehouse first, then to secondary locations if the primary lacks stock.
Proximity-Based Routing: For Shopify Plus merchants, advanced routing can consider customer location to minimize shipping costs and delivery times.
Split Fulfillment: When no single location can fulfill an entire order, Shopify can split fulfillment across multiple locations (though this increases shipping costs).
Essential Inventory Apps for Shopify
While Shopify's native features serve many businesses well, growing operations often need specialized inventory management tools.
Stocky: Shopify's Official Inventory App
Stocky is Shopify's free inventory management app, included with Shopify POS Pro subscriptions.
Core Stocky Features:
Demand Forecasting: Stocky analyzes your historical sales data to predict future demand. This helps you:
- Order the right quantities from suppliers
- Avoid overstocking slow-moving items
- Prepare for seasonal fluctuations
- Identify trending products early
Purchase Order Management: Create, send, and track purchase orders directly within Stocky:
- Build orders based on demand forecasts
- Send POs to suppliers via email
- Track order status through delivery
- Receive inventory with barcode scanning
Supplier Management: Maintain a database of suppliers with:
- Contact information
- Lead times
- Minimum order quantities
- Cost history and price negotiation tracking
Inventory Receiving: When stock arrives from suppliers:
- Scan barcodes to quickly verify shipments
- Note discrepancies between ordered and received quantities
- Automatically update Shopify inventory
- Generate receiving reports
Analytics and Reporting: Stocky provides insights including:
- Inventory turnover rates
- Stock coverage days
- Dead stock identification
- Cost of goods sold tracking
Third-Party Inventory Management Apps
Beyond Stocky, several apps serve specific inventory management needs:
Skubana/Extensiv Order Manager: Enterprise-grade inventory and order management for high-volume sellers. Features include:
- Multi-channel inventory sync
- Automated purchasing
- Advanced analytics and forecasting
- 3PL integration
TradeGecko/QuickBooks Commerce: Comprehensive inventory and order management with strong B2B features:
- Wholesale pricing and order management
- Manufacturing and assembly tracking
- Multi-currency support
- Accounting integration
Inventory Planner: Focused specifically on demand forecasting and purchasing optimization:
- AI-powered demand predictions
- Vendor lead time tracking
- Lost sales analysis
- Overstock identification
Katana: Ideal for businesses that manufacture products:
- Bill of materials management
- Production planning
- Raw material tracking
- Work-in-progress inventory
Cin7: Full-featured inventory management for complex operations:
- B2B and wholesale management
- EDI integration
- Point of sale integration
- Multiple warehouse support
Choosing the Right Inventory App
Select based on your specific needs:
For retail stores with POS: Stocky is the natural choice, providing seamless integration with Shopify POS Pro.
For multi-channel sellers: Choose apps with native integrations for your channels (Amazon, eBay, Walmart, etc.).
For manufacturers: Look for bill of materials and production planning features.
For high-volume operations: Prioritize automation, forecasting accuracy, and scalability.
For budget-conscious merchants: Start with Shopify's native features and Stocky before investing in premium solutions.
Best Practices for Preventing Overselling
Overselling — accepting orders for products you cannot fulfill — damages customer trust and creates operational headaches. Implement these practices to prevent it.
Real-Time Inventory Sync
The most common cause of overselling is inventory lag between sales channels.
Enable Automatic Sync: Ensure inventory updates propagate immediately across:
- Your Shopify store
- Connected marketplaces (Amazon, eBay)
- Social commerce channels
- Point of sale systems
- Third-party sales platforms
Sync Frequency Matters: For high-velocity products, even hourly sync may be insufficient. Implement real-time sync through:
- Direct API integrations
- Inventory management apps with live sync
- Webhooks for instant updates
Safety Stock Strategies
Maintain buffer inventory to absorb demand fluctuations and sync delays.
Calculating Safety Stock:
Safety Stock = (Maximum Daily Sales x Maximum Lead Time) - (Average Daily Sales x Average Lead Time)
For example:
- Max daily sales: 20 units
- Max lead time: 10 days
- Average daily sales: 10 units
- Average lead time: 7 days
- Safety Stock = (20 x 10) - (10 x 7) = 200 - 70 = 130 units
Adjusting for Risk Tolerance: Higher safety stock means fewer stockouts but more capital tied up in inventory. Balance based on:
- Cost of stockouts (lost sales, customer dissatisfaction)
- Holding costs (storage, insurance, depreciation)
- Cash flow constraints
- Product shelf life
Channel-Specific Inventory Allocation
For multi-channel sellers, allocate inventory strategically:
Reserved Inventory: Hold back a percentage of stock from certain channels to protect against simultaneous purchases.
Channel Priority: Determine which channels get first claim on limited inventory based on:
- Profit margins per channel
- Customer lifetime value by channel
- Channel penalties for stockouts
- Brand visibility importance
Dynamic Allocation: Use inventory management apps that automatically reallocate stock based on real-time demand across channels.
Pre-Order and Backorder Management
When stockouts are unavoidable, handle them professionally:
Pre-Order Settings: For products coming soon or temporarily out of stock:
- Enable "Continue selling when out of stock"
- Clearly communicate expected ship dates
- Set realistic customer expectations
- Consider requiring deposits for expensive items
Backorder Communication: When overselling occurs:
- Notify customers immediately
- Provide accurate fulfillment estimates
- Offer alternatives (similar products, store credit)
- Be transparent about the situation
Inventory Forecasting and Planning
Accurate forecasting prevents both stockouts and overstock situations.
Historical Sales Analysis
Your past sales data is the foundation for forecasting:
Key Metrics to Analyze:
- Average daily/weekly/monthly sales by product
- Sales velocity trends (increasing, stable, declining)
- Seasonal patterns and peak periods
- Day-of-week variations
- Impact of promotions and marketing campaigns
Data Quality Considerations:
- Account for stockout periods (zero sales when out of stock does not mean zero demand)
- Separate organic sales from promotional spikes
- Consider external factors (competitor actions, market trends)
Seasonality and Trend Adjustments
Apply adjustments to historical data for future forecasting:
Seasonal Factors: If December sales are consistently 2x the annual average, apply a 2.0 seasonal factor to December forecasts.
Growth Trends: If year-over-year growth is 30%, apply a 1.3 multiplier to historical data for future projections.
External Events: Plan for known events: product launches, marketing campaigns, holiday seasons, competitor actions.
Lead Time Management
Understanding supplier lead times is critical for timing orders:
Components of Lead Time:
- Order processing (supplier acknowledges and processes your PO)
- Manufacturing/picking (supplier prepares your order)
- Shipping transit (products in motion to your location)
- Receiving (your team processes incoming inventory)
- Quality inspection (verifying received goods)
Lead Time Variability: Track not just average lead time but also variability. A supplier averaging 7 days but ranging from 5-14 days requires more safety stock than one consistently delivering in 7 days.
Inventory Auditing and Reconciliation
Regular audits maintain accuracy between physical inventory and system records.
Cycle Counting
Rather than annual full-count inventories, implement ongoing cycle counting:
ABC Analysis: Categorize products by importance:
- A items: Top 20% of products generating 80% of revenue — count frequently
- B items: Middle 30% generating 15% of revenue — count moderately
- C items: Bottom 50% generating 5% of revenue — count occasionally
Cycle Count Schedule:
- A items: Weekly counts
- B items: Monthly counts
- C items: Quarterly counts
Reconciling Discrepancies
When physical counts differ from system records:
Investigation Process:
- Verify the count (recount for confirmation)
- Review recent transactions (sales, returns, transfers, adjustments)
- Check for pending receiving or transfers not yet recorded
- Investigate potential theft, damage, or administrative errors
- Document findings for future prevention
Adjustment Policies: Establish clear policies for:
- Who can make adjustments
- Documentation requirements
- Investigation thresholds (investigate all discrepancies over X units or $Y value)
- Root cause analysis requirements
Shrinkage Management
Inventory shrinkage — loss from theft, damage, or errors — requires active management:
Measuring Shrinkage: Shrinkage Rate = (Recorded Inventory - Physical Inventory) / Recorded Inventory x 100
Industry average retail shrinkage is 1.4%. Rates above 2% warrant investigation.
Reducing Shrinkage:
- Implement security measures for high-value items
- Train staff on proper inventory handling
- Improve receiving procedures to catch shipping discrepancies
- Use barcode scanning to reduce manual entry errors
- Conduct regular audits to deter and detect theft
Advanced Inventory Strategies
For scaling businesses, advanced strategies optimize inventory investment.
Just-in-Time Inventory
Minimize inventory holding by timing deliveries to match demand:
JIT Requirements:
- Reliable suppliers with consistent lead times
- Accurate demand forecasting
- Strong supplier relationships
- Flexible logistics arrangements
JIT Benefits:
- Reduced holding costs
- Less capital tied up in inventory
- Fewer obsolescence risks
- Smaller storage requirements
JIT Risks:
- Vulnerable to supply chain disruptions
- Less buffer for demand spikes
- Dependent on supplier reliability
Dropshipping Integration
For some products, let suppliers hold and ship inventory:
When Dropshipping Works:
- Testing new product categories
- Offering extended catalogs without inventory risk
- Selling bulky items with high storage costs
- Products with unpredictable demand
Inventory Management Considerations:
- Sync supplier inventory levels to your store
- Understand supplier fulfillment times
- Have backup suppliers for critical products
- Monitor quality across dropship products
Kitting and Bundling
Combine products into kits while maintaining component-level inventory:
Kitting in Shopify: Use apps like Bundler or Native Bundle to:
- Create product bundles from existing inventory
- Automatically decrement component inventory on bundle sales
- Set bundle-specific pricing and promotions
Inventory Implications:
- Track component-level stock for accurate availability
- Consider bundle allocation when forecasting components
- Plan component ordering to support bundle demand
Integrating Inventory with Your Tech Stack
Inventory management connects to multiple business systems.
Accounting Integration
Sync inventory with accounting software:
Key Integrations:
- Cost of goods sold tracking
- Inventory valuation for balance sheets
- Purchase order and invoice matching
- Tax implications of inventory changes
Popular Integrations:
- QuickBooks Online/Desktop
- Xero
- Sage
- NetSuite
Shipping and Fulfillment Integration
Connect inventory to shipping solutions:
Integration Benefits:
- Automatic tracking number updates
- Inventory adjustment on shipment
- Return processing with inventory credit
- Multi-carrier rate shopping
Key Platforms:
- ShipStation
- Shippo
- Easyship
- ShipBob (3PL)
Analytics and Reporting Integration
Feed inventory data into business intelligence:
Useful Analytics:
- Inventory turnover dashboards
- Cash-to-cash cycle analysis
- Dead stock identification
- Forecasting accuracy tracking
Common Inventory Management Mistakes
Avoid these frequent errors:
Mistake 1: Ignoring Carrying Costs
Inventory is not free to hold. Factor in:
- Storage costs
- Insurance
- Opportunity cost of capital
- Depreciation and obsolescence
- Handling and management labor
Mistake 2: Ordering Based on Gut Feel
Without data-driven forecasting, you will either overstock or understock. Even basic historical analysis beats intuition.
Mistake 3: Treating All Products Equally
High-value, fast-moving items need different management than slow-moving, low-value products. Apply ABC analysis to focus effort appropriately.
Mistake 4: Neglecting Supplier Relationships
Strong supplier relationships provide flexibility during demand spikes, priority during shortages, and better terms over time. Invest in these relationships.
Mistake 5: Infrequent Audits
Without regular verification, inventory records drift from reality. By the time you discover significant discrepancies, the root cause may be impossible to identify.
Getting Started with Better Inventory Management
Whether you are launching a new Shopify store or optimizing an existing operation, follow this implementation path:
Phase 1: Foundation (Week 1-2)
- Enable inventory tracking for all physical products
- Conduct initial physical inventory count
- Set accurate starting quantities in Shopify
- Disable "Continue selling when out of stock" for products without guaranteed supply
- Configure low stock notifications with appropriate thresholds
Phase 2: Organization (Week 3-4)
- Organize products with consistent SKUs and naming
- Set up locations if using multiple fulfillment points
- Establish adjustment policies and procedures
- Train team members on inventory workflows
- Begin tracking inventory performance metrics
Phase 3: Optimization (Month 2+)
- Analyze historical sales data for forecasting
- Implement safety stock strategies for key products
- Evaluate inventory management apps for your needs
- Set up cycle counting procedures
- Integrate with accounting and shipping systems
Phase 4: Advanced Management (Month 3+)
- Refine forecasting models based on actual results
- Optimize inventory levels based on carrying cost analysis
- Implement advanced strategies (JIT, dropshipping, kitting)
- Develop supplier scorecard and relationship management
- Build comprehensive inventory analytics dashboards
Key Takeaways
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Master native features first: Shopify's built-in inventory tracking handles most small to medium business needs without additional apps.
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Multi-location inventory unlocks scale: As you grow, proper location management ensures accurate stock visibility and efficient fulfillment.
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Preventing overselling requires vigilance: Real-time sync, safety stock, and proper channel allocation protect customer experience.
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Forecasting beats guessing: Historical analysis and trend adjustment produce better inventory decisions than intuition alone.
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Regular audits maintain accuracy: Cycle counting and reconciliation prevent inventory drift that causes operational problems.
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Apps solve specific problems: Choose inventory apps based on your actual pain points, not feature lists.
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Integration multiplies value: Connecting inventory to accounting, shipping, and analytics creates operational visibility across your business.
Ready to build a well-managed Shopify store from the ground up? Start your free Shopify trial and implement proper inventory management from day one. For existing stores looking to optimize operations, request a free consultation to discuss your inventory management challenges and opportunities.