As a business that sells physical products, choosing the right inventory storage system is crucial to managing your inventory in a way that saves time, money, and resources.
With the right inventory storage solution, your inventory will become an integral part of your company’s growth. But with the wrong systems, you run the risk of your stock becoming lost, stolen, damaged, or unavailable when a customer wants to make a purchase. And these downsides and incorrect inventory records can lead to lost sales.
But choosing the right inventory storage method can feel overwhelming. That’s why we’ve created this guide to help you implement the most efficient, cost-effective, and productive methods of managing your inventory.
Table of Contents
What is inventory storage?
Inventory is made up of products awaiting purchase. How you store, track, and move those products is what determines your inventory storage solution.
Each solution takes account of the space available, budgets, spoilage concerns (for food, beverage, cosmetics, or other items like batteries that can expire), and your options when unloading stock. The two types of unloading methods are:
- Last-in, first-out systems, which are filled from one end and emptied from the other. They use drive-in racks or push-back racks that are closed at the upper level.
- First-in, first-out systems, which use drive-through racks and flow-through racks that can be accessed from various points.
Inventory storage options
There are three main inventory storage options to choose from. Here, we’ll take a look at each and explain the pros and cons of self-storage, third-party logistics (3PL), and warehouse storage.
If you’re just starting out or are fed up with the lack of control dropshipping offers, self-storage may be the best option for your business. With few products to store and a lack of funds to pay for a warehouse, finding some space in a garage, in a closet or spare room at your retail store, at home, or in a storage facility can be a short-term solution for growing your retail business, or a longer-term solution if you run a lifestyle business.
- Cheap or included in your store or living costs
- Manageable for new businesses
- Easy access to inventory
- Risk of damage or loss is higher
- Difficult to organize, causing regular frustrations
- Impossible to scale-up for growing businesses
Who it’s for
If you’ve recently opened a boutique or have a lifestyle business and are not looking to substantially grow in the near future, self-storage is cost-effective and an easy starting point for small business inventory storage.
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Third-party logistics (3PL)
Lots of existing warehouses have extra space that you can rent to store your inventory. This is called third-party logistics, or 3PL for short. Holding stock in one of these locations involves housing and shipping fees, but much of the responsibility for storing and moving your inventory is shifted from you to the 3PL. These 3PLs are often experts in their field and have the right resources to deal with your brand’s products.
- Management of your inventory is completely looked after for you
- Shipping is often quick and affordable
- Fulfillment centers belonging to the 3PLs will improve deliveries and save money
- Large 3PLs will likely have strong security practices in place
- You will have access to management and inventory tracking tools
- Possibility of bulk inventory discounts without the need for warehouse storage
- Storing slow-moving stock can become a cost burden
- Lack of control over stock
- Ongoing costs can be high
- A need for bulk stock investment to secure a spot in the warehouse
Who it’s for
If your retail business is growing and you’re opening more locations or expanding into physical retail after growing an ecommerce business, using a 3PL is an affordable inventory storage option, compared to running your own warehouse.
Warehouse storage is the most traditional inventory storage solution. When you’re ready to take this step, you can pay for a central location where all your inventory is stored. Keep in mind, you’ll likely also have to staff the facility.
Then all the stock you order or produce can be sent to the warehouse, and from there it can be processed, stored, and sent to your retail stores or directly to customers if you also have an online store.
Getting this right often requires an initial investment in both time and capital, but a reduction in longer-term operational costs make it worthwhile if the sales are there.
- Complete control over inventory
- Fewer errors thanks to easy-to-implement inventory management systems
- More professional than self-storage
- Long-term savings when compared to 3PL
- The warehouse may be too large for your needs or too small for scalability
- Can involve signing a long-term lease, creating risk in a constantly changing market
- Upfront investment can be high, including investing in the hiring and training of a team
- Location cannot be quickly moved if demand changes
Who it’s for
If your retail business is growing, you’re looking to save money long term, and you have the time and resources, it might be time to consider warehouse inventory storage.
Dropshipping is the one option that doesn’t really involve inventory storage, at least not for your business directly. Instead, you purchase products directly from a third-party supplier or suppliers.
When your business receives an order, your supplier is notified and the products are shipped directly to your customer.
- Your supplier takes complete care of the inventory storage
- Inventory costs are significantly lower without the need for a warehouse, 3PL, or fulfillment team
- Reduces risk and improves cash flow in the early stages
- Liability for any inventory shrinkage is held by the supplier
- No control over storage conditions
- Dropshipping costs are higher, which can hurt your margins
- Product quality and branding checks taken out of your hands
- Speed of supply is often slow
Who it’s for
If you’re opening an ecommerce store and don’t have space for inventory storage or don’t want to risk buying products that might not sell, dropshipping is a great starting point to test demand.
But if you have a boutique, you’ll want to make sure products are available for in-store purchases, so dropshipping is not a good choice. But you could consider just-in-time (JIT) inventory management—a type of dropshipping method where stock is shipped to your store just before selling it, rather than storing it for weeks or months until you need it.
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Types of inventory storage
- Central storage
- Block stacking
- Shelf storage
- Rack storage
- Point-of-use storage
Now it’s time to focus on the type of inventory storage that suits your business best. There are many factors to consider, including the type of inventory and the turnaround speed. Here, we’ll take a look at the different types of inventory storage solutions and what they’re used for.
Having everything in one place makes access to your inventory easier and tracking more accurate. You can store stock in bins or on shelves and racks. With central storage, you can ship inventory to all locations when needed, but it also means you have less reserved stock on location, which could lead to lost sales if there’s a spike in demand.
Block stacking keeps costs low, as your stock will be stacked from the floor or from pallets. This means you won’t need to buy extra equipment or materials, but you or your staff may struggle to access stock stacked at the back or lower down.
Quick moving stock such as sale merchandise is often stored using block stacking. For better organization, you can keep the same type of product on a single pallet. You’ll also need to keep self-supporting inventory at the bottom to reduce the chances of damage.
Shelf storage combined with bins is perfect for storing small quantities of products in several sizes. Organizing your stockroom is easy and you have the option of using stationary or mobile bins.
Some businesses remove aisles to save space and use mobile bins instead. You can even take advantage of automated carousels and other techniques to make product collection easier.
Rack storage is more convenient and offers more support than a block-stacking approach. The type of rack you use will depend on whether you’re operating a last-in, first-out or a first-in, first-out inventory management system.
Point-of-use storage places inventory at a store location or directly with the consumer when it’s needed. Just-in-time and repetitive production operations, which use point-of-use storage, do not have much need for a warehouse or central location.
If you only order inventory when it is needed, point-of-use storage will lower operational costs and reduce inventory error.
Inventory storage tips
- Clear out dead stock
- Track bestsellers
- Set reorder points
- Count inventory frequently
- Leverage inventory management systems
Let’s take a look at some of the best ways to keep on top of your inventory.
Clear out dead stock
When you invest in stock, you may not want to throw any of it away. That’s completely understandable, as it can feel like wasted money. But is stock you never use helping you? Try to get rid of any stock that hasn’t been used or sold within a year and only buy new stock once your old stock has been sold or taken out of your inventory.
Make sure you log an inventory adjustment to keep your books up-to-date. It’s important to track these changes for end-of-year accounting purposes.
The Pareto Principle, also known as the 80/20 rule, says that 80% of results are attributed to 20% of the causes. This works for inventory too.
Roughly 80% of your revenue will come from 20% of your product line.
With that in mind, keep the 20% of inventory that you sell the most nearby. To make sure you know which items are your bestsellers, put a tracking system in place. Make sure the numbers in your software match the physical goods.
Your bestsellers will experience the most change and will therefore be the easiest to lose track of, so they’re a great place to start.
💡 PRO TIP: With Shopify, it’s straightforward to track sales by channel, store location, or product over time. To get started, view Sales reports in Shopify admin.
Set reorder points
Set up a system to make sure you don’t over-order or under-order stock. Use the reorder point formula to set automatic thresholds for every product so you’re ordering the right quantity at the right time. What that threshold is will depend on the frequency of sales for each item.
💡 PRO TIP: Want to take the guesswork out of restocking? Set reorder points in Shopify Admin to get low stock notifications and ensure you have enough lead time to replenish inventory of a product before quantities reach zero.
Count inventory frequently
Do you actually know what products you have? A regular physical inventory count of stock is vital to determine exactly what you have, to reduce loss, and to prevent spoilage. You can also do cycle counts to avoid disrupting business operations.
Daily or weekly inventory reconciliation will help minimize theft and keep you up to date with inventory accounting.
Leverage inventory management systems
Skip the headache of using spreadsheets to manage inventory reports by finding an inventory management system that will enhance your processes. Stock information will become easier to access and you’ll vastly improve your tracking capabilities.
Improve inventory storage at your store
Now that you understand how to improve inventory storage and the different systems available for your retail business, it’s time to choose between self-storage, 3PLs, warehouse storage, or dropshipping.
Regardless of the inventory storage solution you implement, keep things running smoothly by clearing out dead stock, tracking your bestsellers, setting reorder points, counting inventory frequently, and leveraging the right inventory management system.
Manage your inventory with confidence
Only Shopify POS helps you manage warehouse and retail store inventory from the same back office. Compare inventory costs to revenue, see which items are selling out or sitting on shelves, forecast demand, and more.