Distributed inventory is a concept where inventory which needs to be sent to retailers is divided into multiple shipments. These shipments are sent separately to fulfill the requirement of the retailer.
Dividing inventory into many shipments allows goods to reach all places where inventory needs to be sent. Spreading inventory across different fulfillment centers keeps it closer to the end customer and reduces transit time to a great extent along with lowering shipping costs.
How Does Distributed Inventory Work?
Distributed inventory uses a kind of hub and spoke model that aims at improving the efficiency of distribution efforts.
Fulfillment centers function as independent warehouses from where customer orders can be fulfilled from the nearest location. In fact, whenever there is a hike in a demand for a certain product at any one fulfillment center, others can help distribute inventory when required.
How to choose fulfillment centers?
- Figure out where the customers exist and understand their demand
- Fulfillment centers should be closer to customers so that orders can be fulfilled faster
- The closer the inventory to customers, orders can be fulfilled via road instead of air, making shipping cheaper
- With closer fulfillment centers, businesses can achieve one day or two-day delivery
Advantages of Distributed Inventory
In case you’re not sure whether a distributed inventory system will work for your business, consider the following aspects to decide.
Reduced Transportation and Shipping Costs
In the distributed inventory system, inventory is distributed to multiple locations strategically chosen according to their proximity to the consumers. You can see which areas of your business have a high density of customers and if you have a fulfillment center near it.
That way you can significantly reduce transportation costs and delivery as you don’t have to fulfill orders from only a single location.
Decentralized Inventory means Greater Inventory Control
By placing inventory in various warehouses according to demand and location, you can practice tighter inventory control in those fulfillment center. Instead of worrying about the huge amount of inventory at a single main warehouse, warehouse managers can focus on the fulfillment center assigned to them and conduct better inventory management.
Expand to Newer Markets
A benefit of distributed inventory is you don’t have to ship each order by yourself. You can collaborate with 3PL companies to fulfill orders efficiently. This gives you the opportunity to expand into new markets with the help of those 3PL companies.
With a traditional supply chain process, it is impossible to satisfy the demands of customers far and wide. A distributed inventory system makes inventory management simple, reduces delivery times, shipping costs and increases inventory control.