Is Distributed Inventory The Way To Go In 2020?
Customers demand fast and low-cost shipping and distributed inventory might be the perfect solution to meet that demand.
In fact, online businesses have been using distributed inventory methods for several years now to ensure their products are as close as possible to their customers when an order comes in. Distributed inventory has become the most effective way to reduce transit time and costs while simultaneously enhancing customer service and minimizing both loss and damages. Coupled with the guidance of an experienced 3PL such as Redwood Logistics, distributed inventory is the game changer you are looking for. Schedule a free consultation with our Management team today so we can show you how.
Now, let’s take a look at what distributed inventory actually is, and if it is the right inventory and transit management system for your business…
What is distributed inventory?
Distributed inventory is quickly becoming the primary method for companies, especially those in the e-commerce industry, to ensure they can offer the best delivery options to their customers.
Distributed inventory refers to a hub and spoke model system that divides products into multiple warehouses and fulfillment centers. You’re essentially sending products to multiple fulfillment centers that are independently-run, in order to bring your inventory as close as possible to your customers. Not only can this method improve the general efficiency of freight movement, it also helps to optimize last-mile logistics efforts.
In more traditional models, a retailer stores all their goods in a single centralized warehouse. When a customer places an order, the order is picked and packed from that warehouse and sent to its final destination.
But what if the warehouse is in upstate NY and the order is coming in from Seattle? Getting fast, low-cost delivery across the country is nearly impossible in a situation like that.
Inexpensive and speedy delivery is what consumers require in order to even click “purchase.” That’s what a distributed inventory system looks to address. It brings inventory as close as possible to the consumer, so the product can arrive on their doorstep as fast as possible once it’s ordered.
How does distributed inventory work?
The goal of any inventory management system is to ensure the right inventory at the right quantity is at the right place at the right time. It’s hard to determine exactly how much inventory will be needed in a given location, but machine learning and artificial intelligence is making the predictive data process even more accurate than ever. The prevalence of this technology enables the distribution of inventory to be as accurate and customer-centric as possible.
To make this happen, retailers typically partner with a 3PL (third-party logistics provider) to establish a distributed inventory system. They work together to figure out where the majority of the retailer’s customer base is and the demand of the customers in those areas. From there, they can use predictive analytics and purchase history to determine how to best distribute inventory based on quantity and location.
The inventory is then sent out to their respective warehouses. Because the orders for those goods have not yet been placed, they can take slower routes to the fulfillment centers than if a customer were awaiting their delivery. Oftentimes, the goods will travel by rail, large LTL trucks, or a mix of multimodal methods to get to their destinations most cost-effectively (as opposed to expensive air travel).
- With a distributed inventory system, goods are stored closer to the customer. This allows for much faster delivery times after they’re ordered. That means retailers can offer one-day or two-day shipping to their consumers without raising the price.
- Plus, they can offer fast shipping at lower costs. The last mile is usually the most expensive, so making this process more efficient is highly cost-effective for retailer and consumer alike. Heavier packages especially see greater cost savings when traveling shorter distances.
- It offers enhanced inventory control. It’s not one huge lump of inventory in a single warehouse. With less stock in each center, it’s easier to manage, trace, and keep track of the products in each center.
- This, in turn, leads to a reduced loss and damage rate.
- There is also less of a surplus. Distributed inventory requires in-depth prediction and analysis of customer purchasing trends. Businesses that use this system tend to see a lower surplus of unmovable goods sitting in their warehouses.
- With low-cost and fast shipping, customers are less likely to abandon their cart. (In reverse, if shipping is too expensive or takes too long, customers are more likely not to buy.) A distributed inventory system is correlated to increased revenue for businesses.
- In addition, the distributed inventory method lends itself to a more positive customer experience overall. The goods arrive quickly and at a lower cost, which makes customers happy.
- In most cases, retailers are partnering with 3PLs to utilize the distributed inventory system. 3PLs have a wide network of warehouses and partners, which enables an expansive system for your business. You also don’t have to pay for the infrastructure of multiple warehouses when you utilize a third-party logistics provider. You have the reach without the cost.
- Distributed inventory can make reverse logistics (returns) easier. Goods can be returned to local fulfillment centers, rather than have to make the entire return trip to a centralized location. This saves a lot of time and resources, while allowing that product to get back on the shelves (and repurchased) quickly.
Distributed inventory reduces transit time and shipping costs by increasing the proximity of goods to customers. In a world where fast and inexpensive transit is king, distributed inventory offers an extreme advantage for retailers.
There aren’t many downsides of utilizing a distributed inventory system, as long as you’re working with a 3PL. If you’re trying to do it on your own, developing the required infrastructure and staffing can be a significant challenge. Most online businesses can’t (and shouldn’t) do this sort of inventory system on their own without a network of 3PL partners behind them. (In fact, many of the largest companies won’t even buy their own distribution centers. It’s too costly, too much to manage, and too risky.)
Furthermore, even if you are working with a 3PL, the distributed inventory system can really only work with strong prediction and analytics. Without a deep understanding of your consumers and their demand, you could easily end up with distribution centers that are over-stocked or under-stocked. The best 3PLs will mitigate these concerns with advanced technologies that can analyze and predict consumer behavior for your business.
Is distributed inventory right for me?
Distributed inventory is the way to go in 2020. We have no question that with all the changes that are going on in the world, offering speedy delivery at a low-cost is going to be a necessity in order to compete in e-commerce. A distributed inventory system isn’t hard to implement, as long as you have the right 3PL partner and technologies to back it up.
At Redwood Logistics, we offer everything from flexible freight management to supply chain consultation, and from TMS integration/implementation to smart docking. We believe in creating custom solutions with only the most innovative technologies. Check out our extensive array of services and offerings here.
Then, contact us for your FREE consultation to figure out the best inventory and transit management system for your e-commerce business. Our experts look forward to chatting with you about all of your unique business needs.