If you’re looking to optimize your ecommerce inventory management strategy, you’ve likely considered moving products into multiple warehouses. This can be an effective way to lower transportation costs and get products to customers faster.
There is a lot of information out there about the cost benefits of splitting inventory across multiple distribution centers, but what many ecommerce businesses don’t know is that distributed inventory isn’t the best strategy for every brand. It can be costly and limiting for your business.
Before deciding it’s the right time for a distributed inventory model, consider these important factors, they may help you see that your brand isn’t well-suited for multi-warehouse distribution.
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1. You’ll Need More Resources
Having inventory in multiple places adds a big layer of complexity to your inventory management, order fulfillment flow, and shipping strategy. With more items in more places there will be many more problems that can arise and need attention.
When you have stock in multiple distribution centers, you’ll need to have more resources managing your fulfillment. This is true even if you outsource fulfillment a 3PL. You’ll need resources on the following aspects of your inventory:
- Time to integrate stock into a new facility.
- Time to test orders, until they are exactly right.
- Cost of transporting goods to the new facility.
- Cost of two (or more) storage facilities.
- Cost of higher volume of products and packaging materials.
- Time allocating inventory and forecasting.
- Time managing ordering, fulfillment, and return issues.
- Time and cost of optimizing new routing.
You’ll also need to spend the operational time and resources to define your fulfillment network (which centers are best?), integrate all order fulfillment systems (your ecommerce platforms, APIs, EDI, etc.), set up proper order routing, and develop your inventory allocation system (forecasting, which SKUs will be in which facility, etc.).
If you don’t have the resources to manage inventory in multiple places, it won’t pay off and it will create more hassle and problems than efficiency.
2. You May Not Have the Same Flexibility
Having inventory in multiple places, closer to your customers seems like the dream, right? It’s actually not that simple. With inventory spread across multiple locations, you may have limited product availability and capital tied up in your stored products. This will leave you with less overall flexibility.
Each location may not have the same product assortment or depth of inventory, which can lead to lost sales opportunities, stockouts, and backorders. This may limit your ability to introduce new products or product variations across all locations.
It may not make sense to store all SKUs in all facilities, so you’ll have to choose which ones are located in each region. To get to the optimal inventory levels takes time and the added cost of moving products around.
Accurate tracking may also become more challenging as you expand distribution. Limited order visibility can lead to inaccuracies in inventory counts, difficulty in coordinating inventory replenishment, and slower response times to stockouts or overstocks.
3. You May not be Able to Scale as Quickly
It may seem that distributed inventory means expansion in all aspects of your brand, but that’s not necessarily true. If you’ve just expanded your inventory strategy, you’ll need to focus on smoothing that out before adding any more sales channels. Your attention will need to be on accurately forecasting, managing new routing, and fostering efficient fulfillment in a new location. You’ll have far less time to devote to nurturing new sales channels.
If you have any supply chain constraints, it’s going to be double-hard to get products into distribution on time because you’ll need higher volume, and they may need to travel farther. This makes dropshipping and JIT (Just-in-Time inventory) difficult and less efficient to execute.
Adding multiple inventory locations requires careful planning and coordination to maintain efficient inventory management and fulfillment processes. Scaling and overall business growth may have to take a back burner.
How to Properly Set Up Distributed Inventory
If you are considering moving products into multiple fulfillment distribution centers, here are a few best practice tips to follow.
- Identify faster moving SKUs and move those to new locations first. This way you won’t be left with overstock storage fees or deadstock in multiple places.
- Do a deep analysis of regions that buy certain SKUs before moving products around.
- Create campaigns and processes to keep products moving so you don’t tie up capital in products that aren’t selling and storage fees.
- Analyze your inbound shipping strategy before shifting to a distributed model, you may need to re-route to get products to multiple domestic regions.
- Determine the best way to allocate inventory and analyze for optimization regularly. Will you choose to send products to the closest zip code of your customers? Or allocate inventory on hand based on SKU type?
- Automate everything you can—from allocation to re-order points, take human error out of the equation by automating all processes possible.
- Ensure all integrations are properly set up: your ecommerce platforms, order management systems, WMS, analytics and tracking, inventory management systems, shipment tracking, and return systems.
If the thought of managing a new warehouse feels completely overwhelming to you, but you think your business is in the right place to make the transition, consult with your fulfillment provider about the pros and cons. If they can offer support with your distributed inventory, it will offer a big weight off your shoulders to know they’ll handle most of the integrations, order processing and tracking for you.
If you are looking for a 3PL partner to work with we would 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.
Tags: warehouse management
