What Are the Benefits of Inventory Distribution?
Inventory distribution can give merchants of all sizes competitive advantages that improves customer satisfaction and drives up top-line revenue. These advantages include:
- Improved delivery speeds: Distributing inventory closer to end customers enables 1- to 2-day shipping, which is the baseline expectation for most ecommerce shoppers. Fast shipping promises not only drive customer satisfaction but actually increase top-line revenue. In fact, 75% of shoppers say they are more likely to make a purchase when 1- to 2-day delivery is offered.
- Lower fulfillment costs: Inventory distribution lowers TNT for more affordable shipping rates and also prioritizes Ground shipping over next-day air.
- Decreased carbon emissions: Shipping emissions increased by almost 5% in 2021 as a result of the ecommerce boom. A 2021 consumer survey revealed that sustainability is a key component of the purchasing decision for most shoppers. Distributing inventory lowers TNT, which in turn lowers carbon emissions. The less distance a package travels, the less carbon it emits.
- Eliminate single points of failure: Supply chain resilience has been thrown into sharp focus after years of supply chain disruptions, but the truth is, disruptions have always been part of doing business. Distributing inventory across multiple fulfillment nodes eliminates single points of failure. If a fulfillment center is unable to fulfill orders due to weather, stockouts, or power outages, you can reroute orders to an alternate facility. Inventory distribution is especially important for Amazon sellers fulfilling through Seller Fulfilled Prime (SFP). Failure to comply with SFP standards can lead to account suspension, so it’s important to have a backup fulfillment center to keep SFP orders moving.
Why Don’t All Merchants Distribute Inventory?
Inventory distribution may seem attainable for small to mid-sized businesses (SMBs). Their primary challenges are:
- Increased capital investment: Inventory distribution requires more than just diluting existing assets. Adding a single warehouse to your network could require a 30% increase in inventory as an upfront investment.
- Additional inbounding: The cost of inbounding to additional warehouses and the cost of labor for receiving and storing it is increased with distributed inventory.
- Increased storage costs: Putting more inventory on the shelves leads to higher storage fees.
Simply put, many SMBs do not have the capital to invest in the additional inventory required to stock multiple warehouses or may not have a high enough average daily volume (ADV) to negotiate with multiple warehouses or 3PLs.
However, inventory distribution is attainable for businesses of any size through a partnership with a co-warehousing or on demand warehousing solution. An on demand warehousing model allows merchants to share space and labor within a large 3PL network. When multiple merchants’ inventory and shipping volume is aggregated together, it becomes a much more attractive partnership for top-tier 3PLs, enabling smaller merchants to distribute smaller volumes of inventory across a warehouse network.
The Keys Successful Inventory Distribution
According to McKinsey, retailers that pivoted to a distributed inventory model for ecommerce fulfillment saw the greatest success during the pandemic. McKinsey concluded that the key to successful inventory distribution is having the right products in the right place at the right time.
Knowing which SKUs are popular in which markets, how fast those SKUs will move, and which SKUs are commonly purchased together creates two margin-protecting outcomes:
- Decreased chance of missed sales opportunities due to stockouts
- Faster inventory turns for higher margin on sales
McKinsey concludes that the right inventory in the right place at the right time requires three primary business functions:
- Demand forecasting: This includes procuring not only the right amount of inventory but the right kinds of inventory, down to the SKU level. Forecasting should be based on a combination of past sales data and wider industry trends.
- Automated inventory replenishment: Implementing a solution like a hub and spoke network allows you to replenish fulfillment centers quicker and more efficiently to respond to changes in demand.
- Order fulfillment logic: An advanced fulfillment technology will route customers’ orders to
Ware2Go’s Distributed Network
Ware2Go is a UPS company that makes inventory distribution achievable for merchants of all sizes to enable 1- to 2-day ground shipping across the US. A diverse network of warehouses, supported by best-in-class fulfillment technology and an integrated freight solution make Ware2Go a true end-to-end supply chain solution.
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