Creating a purchase order

A PO can be created through an IMS that is connected to your Shopify store and any other sales channels you have, or it can simply be created in a standard platform such as Google Docs, Google Sheets, Microsoft Excel or Microsoft Word.

If you’re raising your first order through a platform like Alibaba, you’ll notice it’s a lot like shopping online, where you simply select items and add them to your cart — and so a PO isn’t usually required. However, as you get bigger, or if you’re designing your own products, you’ll find yourself negotiating with your regular suppliers outside of those platforms, and instead via email or other forms of communication like Zoom or even WhatsApp — this is when I recommend you start using POs.

If you’re not using an IMS (and for most newly established online stores, I would guess that you’re not), then here’s the key information that a PO needs to include:

• The date
• A PO number
• The name of the SKU you are ordering
• The quantity
• The unit price
• The grand total (in the correct currency)

Figure 11-1 shows an example purchase order containing one item.

If you’re using an IMS, it’s likely that you’ll have the option to record payments on the PO as you make them, so you can keep track of what you’ve paid and what you owe. This is a really useful feature, as it’s universally expected that a buyer will pay some form of upfront deposit to commence the production of an order, especially if the objects are customized or there is a large order quantity.

Keeping track of deposit and balance payments can be a nightmare, so I encourage you to record the payments on your purchase orders as you make them, whether you are using an IMS or managing your inventory manually.

Receiving a purchase order

In the same way that ordering or buying stock is sometimes known as raising a purchase order, receiving stock is also known as receiving a purchase order. Receiving a PO has two components:

1. Physically taking receipt of stock
2. Receiving inventory into your online store or IMS

Receiving inventory into Shopify

Landed stock is stock that has landed in your warehouse, as opposed to being in transit; stock on hand (SOH) is stock currently in your warehouse ready to be sold (so not in transit — although stock in transit is still owned by you if you’ve paid for it, and therefore it should be in your total inventory count). To receive inventory into Shopify means entering the details of your landed stock, or SOH, into Shopify so you can begin to sell it through your online store.

At this point, you may recall that in Chapter 5 I showed you how to create products in Shopify — now it’s time to add inventory quantities to the products that you have created.

One way you can do that in Shopify is through the Transfers function in the Products section of your Shopify admin. The Transfers function enables you to record, track and receive incoming purchase orders and inventory from suppliers. You can even use this function to create purchase orders at a basic level — essentially, you’re transferring stock from your supplier to your business.

Transfers can help you manage your purchase orders and inventory in several ways:

• You can record incoming inventory after you’ve submitted and confirmed your purchase order (PO) with your supplier.
• You can indicate whether you’ve received full or partial inventory, which allows you to process inventory at your own pace.
• Your product inventory updates automatically after you receive the items from your supplier.
• You can see the number of incoming items and their expected arrival date in the product’s details.

To receive items using Shopify’s Transfers function, you first need to create a stock transfer. To create a stock transfer, follow these steps:

1. From your Shopify admin, go to Products → Transfers.

   All your transfers are displayed on the page that appears.

2. Click on Create Transfer.

   The Create Inventory Transfer page appears.

3. If you want to enter the name of your supplier, then select one in the Supplier section.

   You can add a new supplier by clicking on Create New Supplier, which is located on the Create Inventory Transfer page — click on Select Origin at the top of the Create Inventory Transfer page and then enter your supplier’s contact and location information.

4. If you use multiple locations and want to change the location for the transfer, you can change it in the Destination section, which is next to the Origin section at the top of the Create Inventory Transfer page.

   Using the Origin and Destination sections at the top of the Create Inventory Transfer page, you can create any origin (supplier you order stock from) or any destination (location you want stock delivered to).

5. In the Shipment section, enter a date in the Expected Arrival field.

6. If you want to assign a reference number or tag to the transfer, then enter it in the Additional Details section. Tags can have up to 255 characters.

   These tags are not the same as product or collection tags, but they’re a nice way to easily keep track of your shipments. For example, if you create a tag called ‘Wholesale’, you can search for all your wholesale purchases by typing Wholesale in the search bar on the Transfers page.

   Using tags enables you to search for and find Transfers quickly. You can use reference numbers and tags to filter and organize your transfers on the Transfers page.

   For example, you can create an Urgent tag to show that this is an urgent request, which is helpful because after you’ve created multiple transfers, they all appear on the Transfers page.

7. In the Products section, either enter the name of the product that you want to add to your transfer, or click on Browse Products to view a list of your store’s products and collections. Use the checkboxes to select individual products or variants.

   If you need to add a new product to your transfer, then you can do so by opening another browser tab and creating a new product in Shopify there. When you return to the tab with your transfer, you can search for the product that you just created and add it to your transfer.

8. After you’ve used the checkboxes to add the products that you want to include in the transfer, click on Add Products.

9. On the Add Transfer page, enter the quantities for each product that you are expecting to receive from your supplier.

   Make sure that you’ve added the correct number of items as you cannot edit the quantities after you begin receiving inventory.

10. Click on Save Transfer.

    After you create a transfer, you can view incoming inventory amounts on the product details page for each of your products in Shopify.

After you have created your stock transfer, you are ready to receive items into Shopify.

To receive inventory into Shopify, follow these steps:

1. From your Shopify admin, go to Products → Transfers.
2. Click on the transfer number — this number is generated each time you create a transfer.

3. Click on Receive items.

   The items you have transferred will be received into your inventory, making them available to sell (assuming you enabled the product for sale when you created the product).

   If you don’t need to review inventory line by line, you can click on Mark as Complete as a quick way of indicating that you’ve received, rejected or cancelled all the remaining items on the transfer.

   Inspect each unit of stock you receive as it’s unfortunately common to have issues with purchases of stock, especially with new suppliers — whether it be poor quality, incorrect sizes or overall issues with quantity. I suggest that you review your inventory line by line before marking the transfer as complete.

4. For each item, click on All or enter the number of items that you’ve received in the Accept column.

   For example, if you order 50 pairs of blue jeans but only receive 49, then you need to enter 49 so that you don’t oversell. Overselling is when a customer orders the stock but you don’t have the stock on hand to fulfill the order.

5. Click on the ‘…’ button and enter the number of items that you need to reject (damaged items, for example) or cancel. The quantity of the items adjusts accordingly.

   For example, if 10 pairs of jeans arrive with water damage, you need to reject these so that they’re not added to your inventory and sold — and so that you can raise the issue with your supplier.

   You can always manually enter stock numbers; for example, if you’ve received extra items from your supplier that you’re willing to accept, you can specify a greater number of items than you expected in the Accept column.

6. Click on Save.

7. To finish the transfer, click on Archive.

   Only transfers that have a Completed status can be archived.

You can see all Pending (open), Partial, Completed and Archived (which shows as a greyed out Completed status) transfers on the Transfers page of your Shopify admin. If you need to update a transfer at a later time, you can click on its transfer number to open and edit the transfer.

When you receive inventory from your supplier, Shopify updates the products in your admin with the number of units you have received, which means that you don’t need to update it manually. For this to work, you must enable Shopify’s inventory tracking option for your products and variants — refer to Chapter 5, where I talk about how to add products to your store and set up the inventory section of your product pages.

You can enable inventory tracking by clicking on Products → All Products, finding the name of your product, and then clicking on Track Quantity in the Inventory section.

If you don’t fancy using the Transfers function, you don’t need to, although I do recommend moving to some form of automated PO creation or stock transfer system sooner rather than later. If you’re looking for a shortcut, however, you can manually adjust your inventory in Shopify — you just need to have set up inventory tracking in the product or variant you want to adjust.

Follow these steps to adjust inventory quantities for your products:

1. From your Shopify admin, go to Products → All Products.

   A list of your products appears.

2. Click on the product that you want to track.

   The Product page appears.

   If the product has variants, then click on the variant that you want to track. For example, if you’ve received an order of jeans, and you have 10 in Small, 10 in Medium and 10 in Large, you need to click on each size variant and edit the quantity of each.

3. In the Inventory section, which appears partway down the Product page, select Track Quantity.

   Set the quantity by entering in the number of units of stock that you have available to sell.

4. Click on the green Save button in the bottom-right corner.

Turn back to Chapter 5 if you’ve forgotten how to enter your retail and cost prices — which you can edit at any time.

Everyone loves a shortcut, right? To update your stock quantities quickly, follow these steps (also see Figure 11-2):

1. From your Shopify admin, go to Products → Inventory.

   A list of all your store’s inventory appears, along with the quantity available.

2. On the left-hand side of the headings, where it says Edit Quantity Available, change the inventory count as follows:

   • To adjust the count, click on Add and enter a number.

     You can use a negative number to subtract from the inventory.

   • To set a new total inventory count, click on Set and enter a number.

   The new total is shown under Quantity.

3. Click on Save (the option to save appears for each row that you are editing, directly next to the Edit Quantity Available box).

Shelving equipment

Shelving, also known as racking, is going to become a core part of your online business — whatever the size of your storage space. Unless you’re in the business of selling large, bulky goods, it’s not typical to use pallet racking (large steel frames that hold pallets, typically accessed using a forklift rather than by hand — not that it would fit in your garage anyway), but even in a fully fledged warehouse you will typically see what is known as RET shelving.

RET (rolled edge type) shelving, sometimes known as long-span shelving, consists of steel frames, with timber boards for shelves. Dimensions can range but, for your home, you may be looking at something 1,500cm wide, by about 54cm deep, with room for about four or five rows of shelves. The shelves clip out of the frames easily and can be adjusted in height, making them perfect for adapting to different-sized products. Brand new, these shelves can cost $100–200 per shelf but a shrewd buyer can pick them up second-hand for $20–30. A great way to find this equipment is to look out for when another warehouse is closing down or doing a makegood, which is when a tenant is leaving a warehouse and dismantling their equipment to leave it in its original state.

Make sure the top row isn’t above hand height so you can pick your orders easily — without needing a ladder.

Locations

Your shelves hold your locations — the plastic or cardboard boxes, tubs or totes in which you store your products. I have seen some pretty creative locations in home storage set-ups, from shoeboxes to shipping cartons, with a square cut out of the front, for easy access when picking items. The purpose of these locations is to hold your products, also known as stock-keeping units (SKUs), which are short serial numbers used to identify your products and which include variations in your products, such as different colors and sizes (see the nearby sidebar ‘Barcodes and SKUs’ for more on SKUs).

Only have one SKU per location, so your pickers (those people designated to pick your orders from the shelves — which in the early days, is probably going to be you) don’t get confused by having to sort through various different products.

Keeping one SKU in each location also helps you avoid picking errors — where possible, you want to eliminate the risk of human error in order fulfillment. The goal is to make your warehouse as user-friendly as possible for your picking and packing processes.

Layout and design

It may only be a small space at home when you get started, but good practices that will serve you well throughout your ecommerce journey have to start from somewhere — and starting them early is a great way to hone your ecommerce skills without huge risk. This is as true for the layout and design of your storage space as it is for picking the right products. I always say ‘start small, act big’ — it will hold you in great stead for scaling your business.

Even if you are starting with one bay of shelving, you can begin the habit of naming each bay, shelf and location (this is really important for efficient order fulfillment, which I cover in Chapter 13). A bay is another name for a group of shelving — one RET system equates to a bay. Again, the logic behind the labelling of each and every location in your space is to save time, and therefore money, in the long run.

The best large-scale example of an effective storage layout and design can be found in every IKEA store. Those guys are so clever; anyone can simply go and pick their own order by following the code on the product display label. An IKEA-style approach is a tried-and-tested method of inventory management, and it’s a great way to get started, even for a small business.

Imagine you have your eye on the Waddydorf Study Table in Beige Timber. You check the product label and see that it’s located in Aisle A, Bay 3, Location 32. When you make your way down to the warehouse area, you simply follow the enormous signs that say Aisle A, and once inside Aisle A, you can locate Bay 3, which, lo and behold, has a Location 32, where your trusty new table awaits you.

Consider laying out your shelving in a similar way to IKEA. Many shelving providers out there sell smaller, cheaper versions of RET shelving that are perfect for an online seller. Some companies have even copied the steel-based concept of a RET shelving unit and made them from cardboard, producing shelves that can be set up as needed while taking up minimal space in the meantime — very clever!

If your stock has already arrived and you don’t have your shelving set up, you can use the same principles with your cartons. Stack them one on top of the other (weight permitting), cut a hole in the front of each carton (like a letterbox, but where you can reach in and pull your orders out), and label each carton as a location.

Beware of taking on too many fixed costs too soon. Before you look at moving into a warehouse, forecast your inventory holdings over the course of any proposed lease you’re going to take. If you take a warehouse hoping to grow into it, you can often end up losing a lot of money. It’s much easier to take a short lease, outgrow it and move, than it is to be stuck in a long lease in a space that is double the size of what you need.

Wherever you store your products, at home or in a warehouse, you need to know the point at which you are going to hit capacity and begin thinking about your next space six months before you reach that point.

Changing a product’s availability status

Product availability enables you to control the status of your products and the sales channels in which they appear. A product’s status determines if a product is available in your store.

In Shopify, the product status of newly created products is set as Draft by default.

You change a product’s status in a two-stage way:

1. Switching your product from Draft to Active — which makes your product live and visible on your online store’s front end.
2. Selecting the sales channels in which you want your product to be available to purchase; for example, if you’re selling across marketplaces in addition to your own online store.

You can set the following product statuses in the product page of each product by navigating to the top-right corner of the product’s page, to Product Status, and selecting Active or Draft:

• Active: The product details are complete and the product is available to be displayed in the sales channels.
• Draft: The product details need to be completed before it can be displayed in your sales channels.

Making products available to your sales channels

You can control where you are selling a product by making it available to your active sales channels. If you decide not to make a product available to a particular sales channel, then it will be hidden from that channel’s product catalogue.

You might hide a product from a sales channel for a variety of reasons:

• You have seasonal products that you want to display for only part of the year.
• A product is out of stock but you will have more in stock at a later date.
• You don’t want to sell a product right now, but you might offer it again later.
• You want to offer online exclusive, or in-store exclusive, products.
• You don’t want to sell a product through a particular sales channel.

Follow these steps to adjust a product’s availability across your sales channels:

1. From your Shopify admin, go to Products → All Products.

   A list of your products appears.

2. Click on the product you want to make available to open the product’s page.

   The product is available to the sales channels listed in the Product Status section to the right of the page.

3. Change the product status from Draft to Active.

   An Active status makes your product available to sell and visible on your store’s front end (the customer-facing part), whereas the Draft status keeps your product in draft mode.

4. Below Product Status in the top-right corner of the product’s page, click on Manage, located next to the Sales Channels and Apps section.

   Note: before you click on this, you will see a list of any sales channels you have already added to your store directly under the Sales Channels and Apps heading (see Figure 11-3), along with a green circle (if your product is active across that channel) or an orange circle with white inside (indicating that the product has not been activated on that particular sales channel yet).

   A dialogue box appears with options to select which sales channels or apps you want to activate.

   

5. Select the sales channels and the apps you want to make the product available to.

   In Figure 11-4, you can see that my store has five sales channels or apps installed (for more on these channels and apps, check out Part 5 of this book), with four out of five activated:

   • Online Store: My Shopify online store.
   • Google: The Google marketing channel.
   • Facebook: Facebook’s Shopify app allows you to create Facebook ads.
   • Pinterest: Another app that allows my store to create shoppable Pinterest pins.
   • Shop: This is Facebook’s own sales channel, which allows me to create a Facebook shop and sell across it. I also look at this briefly in Chapter 17.

   

6. Click on Done.
7. Click on Save.

If you’re wondering which extra sales channels are good to start with, you can link your Shopify store to popular channels such as eBay or Amazon, plus many other marketplaces, using apps in the Shopify App Store. Refer back to Chapter 3 where I explore different sales channels you can add to your store.

Month-end Inventory Snapshot

This report gives you a snapshot of the quantity of each product variant you are holding at the end of each month.

If you notice a negative number in the quantity of any of your products here, it may be for one of these two reasons:

• You have inventory tracking available enabled, and you oversell a variant or product.Overselling means to sell more stock than what you have available. For example, if you have five units of a product in your inventory but you sell eight units, you will be oversold by three units, so you will see –3 as your quantity.

  Overselling does serve a purpose — I use it for putting items on presale, and when I know that stock is on the way I sometimes allow customers to purchase the product, informing them in the product description as to when that product will be sent to them.

• You don’t have inventory tracking enabled. If this is the case, your default inventory is always set to 0, and each time you make a sale, your quantity drops below 0.

To allow overselling of a product, tick the box in the product’s page in the Inventory section that says Continue Selling When Out of Stock (see Figure 11-6).

Average Inventory Sold Per Day

This report, as the title suggests, tells you how many units of each of your products you’re selling each day. I love this report because it’s useful in helping you decide how many units of certain products you need to reorder (also known as replenishment). It also helps tell you when you’re likely to sell out of products.

For example, if you’ve decided that your aim is to always hold 90 days of inventory cover (meaning enough inventory to sell for 90 days), then you can use this report to see how many units you need to order. If you’re selling one unit of a certain product on average per day, then you need to order 90 units to last for 90 days. Likewise, if you have 30 units of that product on hand and you’re selling on average one per day, then you will be sold out in 30 days. If your supplier takes more than 30 days to manufacture and send you your order then you’re at risk of running out of stock before the next batch lands!

Mastering simple replenishment is a huge lever for growing an online business, so I suggest you keep a keen eye on this report, make sure you aren’t over-ordering or under-ordering, and never, ever order based on gut feeling — let the data decide!

Percent of Inventory Sold

Another favorite of mine, this report’s great for monitoring your sell-through (the percentage of units sold per product, divided by the number of units received into your store, expressed as a percentage).

The percentage of inventory sold is important to see if your products are on track to sell as well as you planned. For example, if your goal is to hold 90 days cover, then you want your percentage of inventory sold to be 100 per cent after 90 days, and so if you’ve sold 50 per cent of that stock after 45 days (the halfway point to 90 days) then your product is on track to sell-through within 90 days. If your product is not on track to meet your target cover period, it either means you’re ordering too much stock or your sales are too slow, so you need to either order less or sell more, which isn’t as easy as it sounds — welcome to the world of buying!

ABC Analysis by Product

ABC Analysis by Product is another of my go-to reports. This report tells you what your most valuable and least valuable inventory is, according to the contribution it makes to your store’s overall revenue.

The grading system works on the Pareto principle — that 80 per cent of your revenue comes from 20 per cent of your products (which are your Grade A products). If you’re finding that you have less than 20 per cent of your products marked as Grade A, it may be a warning that too much of your revenue (80 per cent) is coming from a very small group of products (less than 20 per cent), which means you need to do better with your buying as you are dependent on so few products.

The grading system for the ABC Analysis by Product report looks like this:

• A-grade: Your top-selling products that collectively account for 80 per cent of your revenue
• B-grade: The products that collectively account for the next 15 per cent of your revenue
• C-grade: The products that collectively account for the last 5 per cent of your revenue

Never, ever sell out of your A-grade products, unless it’s deliberate, such as deliberately trying to remove a product from your range. Sticking to this simple rule can drive significant growth to your business.

If you need to run a sale, start by looking at your C-grade products — they’re only contributing 5 per cent of your total sales so they probably haven’t made a positive return on your initial investment, so you won’t miss their revenue.