Benefits of Centralized Inventory Management
For today's blog post lets look at whether centralizing inventory at one or two distribution centers a good idea for multi-channel sellers and e-commerce merchants? My thought is "yes"; because it allows you to deploy inventory to the highest performing channel, "light-up" new channels quickly and cheaply and allow you to bring on retailers with lower wholesale inventory investments.
A multi-channel seller is a merchant or manufacturer who sells through a variety of distribution channels. These can include online marketplaces, a web store, brick-and-mortar retailers, kiosks, 3rd party online stores for which the merchant drop ships, comparison shopping engines, etc.
“Centralized Managed Inventory” is an industry term meaning to hold inventory in a location or a couple locations rather than deployed and stored in retail outlets. It doesn't mean that all your inventory is one giant pile or in one giant warehouse. Rather, think of it as having the bulk of inventory that will be sold in a region available to be sold through all the sales outlets in the region. The inventory is at the "hub" that is accessible by ALL the retail outlet "spokes" that would normally pull from that inventory.
The alternative to this approach is to push inventory down to the end-points. If you sold through retail stores, the stores would need warehouses and each store would have its own supply of inventory.
Benefits of Centralized Managed Inventory for GROWTH:
Bring on brick-and-mortar retailers faster. If you sell wholesale to retailers, you may have noticed that many retailers are not making large inventory investments. I previously wrote about this when I got back from Toy Fair. If your business plan assumes that you will be holding inventory that can be deployed quickly to retailers, you will be able to attract more retail channels that will be able to work with you with a lower inventory investment. Basically, your telling your retailers that you understand that retailers want to lower minimum order quantities and want to resupply "on demand". (Aside: Many don’t want to hold any inventory and want the manufacturer/supplier to drop ship).
Drop ship for online retailers. Whether you have a large product catalog or small, your retailers may not want to hold any inventory. If you can ship direct-to-consumer from your warehouse you can simply have your online retailers route orders to your warehouse which will “drop ship” them to buyers. For more info see manufacturer drop ship.
Manufacturers can power "Web Fronts". The general idea is that if you have retail stores, turn them into showrooms, spending your retail investment on display and not overbuying retail space for "storage". Entice your buyers to explore in the store and they get the product shipped to them from your central inventory. I heard about this a couple years ago in FastCompany and blogged about this innovative business model recently.
Benefits of Centralized Managed Inventory for SAVINGS:
- Optimized Inventory Allocation – Industry jargon to say, you can more easily deploy inventory to the channel that is selling through the fastest without having to ship inventory all over the place, which gets expensive fast.
- Lower Rent – If have retail stores you can reduce your rental footprint by not having each store have a huge % of warehouse space. Warehouse space is tends get cheaper the more that you rent; so, if you keep your inventory in a few places you can drive down your storage costs
- Less Shipping Costs – Every time you ship a product that isn’t sold it decreases the margin on that product. By storing inventory centrally for your Web store or drop shippers you only ship when the product is sold. If you sell to retailers, you can offer them faster resupply and lower minimum purchases so they are more likely to sell through and buy more over time. If you sell through consignment distributors, you can either offer them drop shipping or deploy less product to this channel at any given time, and reduce the risk of unsold inventory being shipped back to you at the end of the season.
- Centralized Returns Handling – Every channel can ship returns back to the same warehouse for inspection and return processing.
- Better Inventory Transparency – Ultimately you need to know what you have in inventory to know what you have to sell. The more places that are holding your inventory the harder it is to know what you have and what you can put in front of buyers. Anybody who has bought shoes at a major retailer like Macy’s knows how frustrating it is to find the shoe you love only to be told that the store your in doesn’t have your size and you need to go across town to get it. At least they know where it is (sometimes), wouldn’t it be nice if they just shipped it to you at that point (maybe they do now and I just missed it because I’ve been shopping at Zappos).
- MORE shipping cost savings – move inventory closer to buyers and ship from the warehouse closest to the buyer.
Clearly, you need a very intelligent warehouse and order management solution to execute on this properly. Outsourced warehouse fulfillment services like Shipwire can provide this. If you have your own facilities hopefully they can do direct-to-consumer order fulfillment so that you can execute on B2C sales and handle drop ship order fulfillment.
Nate Gilmore Shipwire, order fulfillment, warehouse logistics service
This post is filed under Tools, Tips and Suggestions and has the following keyword tags: inventory, fulfillment, outsource, cost savings.
1 Comment
financehp says:
By storing inventory centrally for your Web store or drop shippers you only ship when the product is sold. If you sell to retailers, you can offer them faster resupply and lower minimum purchases so they are more likely to sell through and buy more over time.
Thanks
