Understanding Inventory Management

Introduction

Inventory Management (MSI) in Magento Open Source and Adobe Commerce controls product availability, allocation, and fulfillment across one or many locations (Sources). By understanding Salable Quantity, Stocks (website-level availability), and Source Selection Algorithms, you can increase in-stock rate, reduce shipping costs, and fulfill faster.

Applies to: Magento Open Source and Adobe Commerce 2.4.x. Inventory Management (MSI) is available in 2.3 and later and is enabled by default.

Key Concepts

This section highlights the core MSI entities and terminology used throughout the Admin and storefront.

  • SKU: Unique identifier for a sellable product.
  • Source: A physical location that stores inventory (for example, warehouse, store, dropship vendor). Admin path: Stores > Inventory > Sources.
  • Source Item: The quantity and status of a specific SKU at a specific Source.
  • Stock: A virtual grouping of one or more Sources mapped to a Sales Channel (website). Admin path: Stores > Inventory > Stocks.
  • Sales Channel: A website that sells products. Stocks are assigned to websites to control availability per site.
  • Salable Quantity: The sellable amount of a SKU on a Stock (website). It aggregates quantities across assigned Sources and subtracts reservations and thresholds.
  • Reservation: A record created at order placement that decreases Salable Quantity to prevent overselling before shipment.
  • Source Selection Algorithm (SSA): Logic that chooses which Sources fulfill a shipment (for example, Source Priority, Distance Priority).
  • Backorders: Option to continue selling when Salable Quantity is at or below zero.

Callout: A Source is a physical place (warehouse/store). A Stock is a logical group of Sources that serves a website ( Sales Channel). Products are sellable on a website if their assigned Sources belong to that website’s Stock.

How It Works

From order placement to shipment, MSI allocates inventory and updates availability in a predictable lifecycle.

  1. Order placement: When a customer places an order, Adobe Commerce/Magento Open Source creates a Reservation that reduces the SKU’s Salable Quantity on the assigned Stock (website). Physical Source Item quantities do not change yet.
  2. Shipment: When you create a shipment, the system applies the Source Selection Algorithm to pick one or more Sources and deducts Source Item quantities accordingly. The corresponding Reservation is released.
  3. Cancel/Refund: If an order is canceled or refunded before shipment, the system writes a compensating Reservation to restore Salable Quantity.
  4. Salable Quantity calculation: Salable Quantity ≈ Σ(available Source Item qty across the Stock’s Sources) − Σ(active reservations) − Out-of-Stock Threshold. If Backorders are enabled, Salable Quantity can go negative.
  5. Where to view: Add the Salable Quantity column in Catalog > Products (Columns > Salable Quantity) to monitor website-level availability.

Benefits and Advantages

MSI features map directly to measurable business outcomes you can track and optimize.

  • Lower shipping costs by shipping from the nearest Source using Distance Priority SSA (typical 5–15% savings).
  • Higher in-stock rate via aggregated inventory across multiple Sources, improving conversion.
  • Faster fulfillment by routing orders to Sources with availability and proximity, reducing order cycle time.
  • Fewer oversells through Reservations and Out-of-Stock Thresholds, lowering cancellation rate.
  • Flexible omnichannel options (for example, store pickup) by modeling stores as Sources.
  • Example KPIs: in-stock rate, oversell incidents per 1,000 orders, average delivery time, shipping cost per order, order cancellation rate due to OOS.

Common Challenges and Considerations

Be aware of frequent pitfalls and configure MSI to mitigate risk.

  • Backorders: If enabled without clear expectations, you may oversell. Configure at Stores > Configuration > Catalog > Inventory > Product Stock Options > Backorders.
  • Out-of-Stock Threshold: Set a safety buffer to account for shrinkage, damage, or returns.
  • ERP/WMS Integration: Ensure external systems respect Reservations. If orders are imported after shipment, run consistency checks to avoid mismatches.
  • Indexing and performance: For high volume, set inventory indexers to Update by Schedule to keep storefront responsive.
  • Multi-website mapping: Assign the correct Stock to each website to avoid cross-website availability leakage.

Use Cases and Scenarios

These common setups illustrate how to apply MSI to meet business goals.

  • Single warehouse: One Source, one Stock mapped to one website — simplest setup for many SMBs. Benefit: straightforward operations with minimal configuration.
  • Multi-warehouse: Regional Sources assigned to a single Stock; Distance Priority SSA reduces shipping time/cost. Benefit: lower shipping cost and faster delivery.
  • Dropship vendor: Model each vendor as a Source; set low priority so in‑house inventory is used first. Benefit: expand catalog without carrying inventory; protect margin by preferring owned stock.
  • Store pickup: Each store is a Source; enable In-Store Delivery to offer pickup. Benefit: increase store traffic and reduce last‑mile costs.
  • Pre-sale with backorders: Enable backorders for select SKUs to capture demand before replenishment. Benefit: monetize demand early while communicating ship dates.

Alternatives and Comparisons

Choose the right approach based on complexity, systems, and scale.

  • MSI-only: Best for first-party owned inventory with simple to moderate complexity; minimal integration overhead.
  • MSI + ERP/WMS: Use MSI to expose availability and allocate on the storefront; use ERP/WMS as the system of record for master inventory and fulfillment. Sync via REST APIs (/V1/inventory/source-items) or message bus.
  • Legacy single-source (pre-2.3): Not recommended; MSI is standard since 2.3 and supports multi-location operations out of the box.

Business Impact

Define a simple measurement plan to quantify results from MSI configuration and tuning.

  • Establish baseline and target for: oversell incidents per 1,000 orders, average delivery time, shipping cost per order, in-stock rate, and order cancellation rate due to OOS. Compare pre/post changes to attribute improvements.

For Merchants

  • Reduce shipping cost per order by routing to the closest Source (typical 5–15% savings depending on geography and carrier mix).
  • Increase in-stock rate and conversion by pooling inventory across Sources and websites where appropriate.
  • Improve gross margin by prioritizing in-house inventory over dropship vendors when both are available.

For Customers

  • Faster delivery estimates based on nearby fulfillment.
  • Fewer out-of-stock messages and order cancellations.
  • Clear backorder messaging when items ship later, maintaining trust.

For Operations

  • Higher pick/pack efficiency by allocating orders to Sources with stock concentration.
  • Reduced customer service workload via fewer oversells and cancellations.
  • Easier inventory reconciliation with Reservations and built-in consistency checks.

Common Misconceptions

Clarify frequently confused terms to avoid configuration mistakes.

  • "Qty" vs "Salable Qty": Source Item Qty is physical per Source; Salable Quantity is aggregated and reservation-adjusted per website (Stock).
  • "Stock" vs "Source": Stock is a logical grouping tied to websites; Source is a physical location where inventory is stored.
  • "Backorders" do not create inventory; they allow selling into negative Salable Quantity and require clear messaging and lead times.

Implementation Considerations

Use these steps and references to set up MSI correctly and keep data consistent.

  • Create Sources: Admin > Stores > Inventory > Sources > Add New Source. Define contact info, address, and enable.
  • Create Stocks: Admin > Stores > Inventory > Stocks > Add New Stock. Assign Sources and map to the target website(s).
  • Assign products to Sources: Admin > Catalog > Products > Edit product > Sources section. Assign Sources and set quantities/status for each Source.
  • Configure inventory options: Admin > Stores > Configuration > Catalog > Inventory. Set Backorders, Out-of-Stock Threshold, and Notify for Quantity Below.
  • Choose SSA: Admin > Stores > Configuration > Catalog > Inventory > Source Selection Algorithm Options. Source Priority is default; Distance Priority requires accurate Source location data.
  • APIs: Update source items via REST POST /V1/inventory/source-items; manage sources via /V1/inventory/sources.
  • Indexers: For scale, set indexers to Update by Schedule (Admin > System > Index Management) to maintain storefront performance.
  • Troubleshooting reservations: Use CLI to detect and fix mismatches:
    • bin/magento inventory:reservation:list-inconsistencies
    • bin/magento inventory:reservation:create-compensations
  • Multi-website mapping: Ensure each website is assigned the correct Stock, and only the intended Sources are included.

Quick Start

  • Add your first Source (Stores > Inventory > Sources) and enable it with accurate address/location.
  • Create a Stock (Stores > Inventory > Stocks) and assign your Source; map the Stock to your website.
  • Edit top SKUs (Catalog > Products) to assign the Source and set quantities/status.
  • Configure Backorders and thresholds (Stores > Configuration > Catalog > Inventory) per your policy.
  • Choose SSA (Stores > Configuration > Catalog > Inventory > Source Selection Algorithm Options). Start with Source Priority; consider Distance Priority when you have multiple regions.
  • Place a test order on the storefront and verify Salable Quantity changes and SSA selection at shipment.
  • In-Store Pickup (In-Store Delivery)
  • Product types and inventory (Configurable, Bundle, Grouped)
  • Backorders and stock notifications
  • Distance Priority SSA setup and source geocoding
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