6 Benefits of Outsourcing Inventory Management

6 Benefits of Outsourcing Inventory Management

At its base level, inventory management refers to tracking the goods a company has in stock. It includes such activities as ordering, restocking, storing and inventory forecasting.

Many small businesses think that outsourcing order fulfillment and product storage to a third-party logistics (3PL) provider means completely turning over the inventory management process to them. The truth is a 3PL can provide valuable tools and data that will allow a seller to successfully manage their inventory in the most efficient as well as cost effective manner possible.

There are many ways a 3PL can help you with inventory management, here are the top six.

View real-time inventory counts

Since a 3PL holds your products at their fulfillment centers, you can check the quantity on hand, and units sold per day. This can help provide valuable insight if you have too much or too little inventory on hand at any given time. If you have too much inventory on hand it will likely cost a lot in storage fees.  And that’s money that could be spent on branded shipping materials, or absorbing expedited shipping fees. Storing goods is most often based on how much physical space your products take up. By keeping your inventory at the right amount based on your customer demands  you will save money on storage fees, and put it toward aspects of your business. 

Accurately predict inventory reordering

Data is king, right? By partnering with a tech focused 3PL you will be able to capture historical order fulfillment data to help project when you should reorder inventory (called a reorder point) to prevent stockouts and backorders. This can greatly help you improve your inventory control and cut down your lead time. You can set automatic  notifications to alert you when stock levels reach a certain point, reminding you to restock. If that number dips too low, you run the risk of running out of products which can lead to  missed sales, backordering, and customer service issues. On the flip side if you have too much inventory, it can result in having products that can no longer be sold due to decreased demand or being outdated.

Utilize inventory management software

The right inventory management software will provide the metrics, reporting, and updates that match your needs—whether that is needing to move unsold products, meeting a sudden and unexpected demand in sales, or re-calculating your inventory after making a mistake.  Accurate reporting of inventory levels is crucial, and your software should keep you on top of this when you need it.

One example of inventory management software is ERP, or Enterprise Resource Planning. ERP is used to manage business activities such as accounting, purchasing, and supply chain management operations.

It’s also important to get comfortable using electronic data interchange (EDI), which any good 3PL will provide. EDI allows all partners in the supply chain access to the same real-time information. Sharing information in an electronic format cuts down on administrative time and confusion, and allows changes to be made quickly when needed. For example, the manufacturers you work with will gain the ability to share a variety of transactional information with the vendors, suppliers, and brands all at once.  

Inventory management software is part of an overall inventory management system, or IMS. An inventory management system is the combination of technology, processes and procedures that oversee the monitoring and maintenance of stocked products. Those can be company assets, raw materials and supplies, or finished products ready to be sent to either sellers or end customers.

Control product grouping

A 3PL’s technology can provide the ability to select how you choose to group your inventory. This can include but is not limited to:

  • Merging the same product across multiple sales channels
  • Kitting items before they are shipped to customers
  • Preparing orders to send in bulk
  • Bundling your products for promotions

Ultimately these value added services will save your team time that should be spent on other parts of your business. It also ensures your product will get to the intended destination on time and accurately, whether that destination is a single customer, brick and mortar store, distributor, or another stop within the supply chain.

Provide strategic inventory locations

If your 3PL has multiple fulfillment centers they should be able to help you determine the best fulfillment center locations based on where your customers are located. This can help you store your physical inventory in the most advantageous locations.

Using one fulfillment center can make it difficult to efficiently reach your consumer base. Instead, distributing your inventory across major hubs or cities can ensure you ship to lower shipping zones, delivering orders more quickly and with less cost.

Each time an order is placed through your online store, the 3PL’s order management system will automatically choose the fulfillment center closest to the end customer to draw inventory and ship the order. Additionally, if you run out of inventory at one fulfillment center, you’ll have backup at another.

Discover trends to drive growth

As we mentioned above, having accurate insights about your customers’ purchasing trends can help you figure out the optimal inventory levels for your products.

For example, knowing which products are selling more quickly than you can keep them in stock—and which aren’t selling and —can empower you to make better manage your inventory to save money and keep your customers happy.

Some 3PLs provide automated reports with key metrics that will help you better control your inventory and drive business growth.  Important stats to track might include: the levels of you stock over a certain amount of time, peak order fulfillment times, revenue of orders shipped by day, sales by channel, and sales and quantity of orders by USPS shipping zone.

Bottom Line

Outsourcing logistics and fulfillment services often means getting the support needed to execute successful inventory management, which is still a hands-on job for any ecommerce business owner. A good 3PL shouldn’t just be an extra cost for a few automated logistics services and warehouse costs. The right 3PL for your business should be an integral member of your team, helping you build successful inventory management to prevent stockouts, backorders, and unnecessary additional storage costs due to mismanaged stock levels. Your 3PL should ultimately be a partner who supports the growth of your business.

There are many benefits to working with a third party logistics company (3PL), such as helping with your inventory management. If you are seeking logistics support we’d love to hear from you. You can read DCL’s list of services to learn more, or check out the many companies we work with to ensure great logistics support. Send us a note to connect about how we can help your company grow.