Decentralized Inventory Management for eCommerce Stores
Decentralized Inventory Management for eCommerce Stores
As an eCommerce business grows, order fulfillment and determination of warehouse locations become a matter of crucial importance. One of the questions online stores often ask themselves is whether they should decentralize their inventory to distribute their stock across multiple warehouses in different locations.
Decentralizing the inventory is helpful to ship the products quickly to their customers. Large eCommerce businesses like Amazon has smaller regional facilities across the country. It helps them to serve their customers better. But it requires huge planning and efficient inventory management skills to implement decentralized inventory. In this blog, we discuss when and whether you should implement decentralized inventory, its benefits and drawbacks, and tips to manage multiple warehouses smoothly.
- What is decentralized inventory?
Decentralized inventory refers to distributing the stock across multiple warehouses or facilities in different geographical locations to ensure that the goods are already relatively close to the customer, which enables greater delivery flexibility and shorter delivery times.
For example, you are an online store based in the California and you have frequent customers from California, New York, and Oklahoma. You have only a single warehouse in California and you ship products from this facility to all parts of the USA. This is called centralized inventory system.
Your customers in California will get their products quickly because your facility is close to them. On the other hand, customers from New York and Chicago are not very happy because of the longer shipping times. So, you decide to open regional warehouses in Chicago and New York in addition to the existing California facility.
Now when you get an order, you can check which facility is close to the shipping address of the customer and ship the product form there. If the product is out of stock, in that facility, you ship from the next closest warehouse. This is called decentralized inventory management system.
It may sound appealing but it requires strategic planning and a top-notch management system to implement and run decentralized inventory management system smoothly.
- Advantages of decentralized inventory
When you scale up your eCommerce business, implementing decentralized inventory can be a worthwhile investment. Online retail giants like Amazon rely on this strategy to ship products to customers anywhere in the country as fast as possible. Let’s examine some of the benefits of decentralized inventory.
Faster order fulfilment/delivery
If you have warehouses across the country, you can deliver the products from a warehouse that is close to the customer. It helps you to reduce the shipping time.
Reach wide customer base
Your potential customers from different geographical locations will realize that you can deliver the products quickly. So, you can build a strong and wide customer base across the country.
Increase customer satisfaction
Online shoppers expect their products to arrive as quickly possible. If you have only one warehouse to keep the stock, the shipping time to customers from distant places will be very long. It may discourage your customers to shop from you they may go for your competitors.
However, if you have multiple warehouses located at different parts of the country, you can reduce the shipping time of customers form any part of the country. It helps you to attract more new customers.
Lower shipping cost
By reducing the shipping distance, you can also reduce the shipping cost. It helps to avoid the situation where customers hesitating to make the purchase due to higher shipping cost. It means more sales. You shouldn’t forget that establishing and maintaining multiple warehouses are very expensive. However, this extra cost will be covered by the increased sales.
Less affected by emergency or catastrophe
Distributing your stock across multiple warehouses helps you to avoid losses due to emergencies and catastrophes. For example, natural disasters like flood and landslides may affect the operation of a warehouse. Sometimes, the power grid, or transportation system may be completely out of order for a couple of days. If this happens, you will not be able to fulfill the orders. You may have to wait until the situation gets better.
However, if you have warehouses in different locations, problems in one warehouse will not affect you much. You can deliver the products from other warehouses.
Apart from natural disasters, fire or accidents in the warehouse and the inventory management issues also often affects the operation of warehouse. Sometimes, all the products in warehouse may get damaged due to fire or flood. If you have only one warehouse, you will be forced to stop operations for a while which incurs huge loss for your business.
- Disadvantages of decentralized inventory
While there are so many advantages for the decentralized inventory at one side, it also comes with its own issues. From multi-warehouse communication to inventory management and from stock visibility to personnel issues, there are lots things to go wrong.
Inventory management gets complex
When the products are stocked across different warehouses, the inventory and supply chain management become complicated. It also makes keeping track of the inventory in each warehouse accurately. Fortunately, there are many inventory management systems specifically designed for managing multiple warehouses.
Higher operational cost
Having multiple warehouses is more expensive than operating based on a single warehouse. Each warehouse will have expenses for rent, personnel, and other amenities.
Moreover, suppliers are not generally willing to split the order and deliver them to your different warehouses. So, you may need to pay additional shipping fees to your suppliers.
- How to combat challenges and implement efficient decentralized inventory management system
Despite the challenges, decentralized inventory has many unique benefits that help a growing eCommerce business to expand its market share and consumer base. But you need to setup it the right way to reap all the benefits.
Multi-warehouse management system
The first thing you should have in place is an inventory management system or an ERP that will help you to keep track of inventories and shipping in all warehouses in real time.
Keep stock balanced
You have to consider the customer demands to determine how many percentages of the total stock of each product have to stocked in each warehouse. For example, one of your products might be selling very high in New York but not in other cities. So, you may want to keep most of the stock of that product in your New York facility. You can look at the previous order patterns based on geographical location to get this insight.
Give special attention to best-selling products
You should ensure that a minimum level of stock of your popular products are available in all warehouses to ensure you can quickly deliver them to customers anywhere in the country.
Make warehouse wise inventory record
When you count the stock of your products, don’t count the aggregate inventory across all warehouses. Sometimes, the stock of one product will be lower in one warehouse and higher in other warehouses. In this case, you should be aware of that lower stock in one warehouse so that you can replenish your stock in that warehouse.
Train the personnel
If you have multiple warehouses, the chances of inventory management going wrong is very high. So, you should provide comprehensive training for the employees in each warehouse.
- Deciding whether your business needs multiple warehouses
While there are many advantages for decentralized inventory, it’s not beneficial for all type eCommerce businesses. Here are a few factors that you should consider while deciding whether you should go for decentralized inventory.
Weight of the products
If you sell heavy products like furniture or fitness machines, having multiple warehouses may not be that worthwhile. The shipping costs for heavy items like this are high. For such products, it is better to ship the items directly from the supplier or manufacturer to customer.
Expected delivery time
Customers may have different delivery speed expectations for different types of products. For example, when they order fast-selling products like electronic devices or computer accessories, they expect to get the products within maximum 2 days. In this case, it is better to have multiple warehouses.
However, if you sell luxury items or large products like big home appliances or furniture, customers may be fine even if it takes more than a week to get it delivered. In this case, you don’t really need to setup multiple warehouses and decentralize the inventory.
Opportunity to expand customer base
If you are heavily regional company and your products has no scope across a wide geographical area, there no point in having warehouses at different parts of the country.
Competence to manage multiple warehouses
As mentioned earlier, managing multi-warehouse inventory system is a taunting job. It requires strategic planning, strong inventory management expertise, and technology infrastructure. Before, jumping into the decentralized inventory system, you need to be sure that you are well-equipped to handle the shift and run the operations smoothly.
Multiple warehouses and decentralizing the inventory is one of the essential parts of scaling an eCommerce business. It helps online store businesses to expand their customer base and speed up the delivery. However, it shouldn’t forget that it requires meticulous planning and efficient inventory management system in place to run your business smoothly.