There are a lot of decisions to be made when managing an eCommerce business, and while centralised inventory management may not be the most glamorous aspect, it is nonetheless essential to your early stability and growth.
Deciding how and where to store your inventory is crucial because the strategy that you apply to your inventory management will have a knock-on effect on the various other parts of your supply chain.
In this article, we focus on the importance of effective and efficient centralised inventory management for eCommerce businesses.
Inventory management – to centralise or not to centralise?
There are two broad categories of inventory storage – decentralised and centralised. In this article, we’re going to focus on centralised. But first, let’s talk about why inventory management matters so much.
Why does centralised inventory management matter?
Inventory management is important as it allows businesses to accurately plan for demand, reduce costs associated with overstocking, and maintain customer satisfaction.
Having an effective inventory management system is an absolute necessity because, with such a system in place, you’ll be positioning your business for success. Here are some reasons why:
Reduced fulfilment and inventory costs
One of the main benefits of an effective inventory system is that it reduces the cost associated with storage and shipping. You’ll be able to minimise both dead stock and obsolete inventory, which will result in reduced inventory carrying costs overall.
Accurate order fulfilment
An effective inventory system also ensures that orders are accurately fulfilled. This is especially important for eCommerce businesses as customers place high importance on accurate order delivery times.
Centralised inventory means better customer satisfaction
When it comes to delivering your eCommerce products, you’ll need to ensure that the orders are not only delivered within the right time frame but that the right product is being delivered in the first place.
Ensuring customer satisfaction by keeping delivery costs at a minimum through accurate inventory management is a surefire way to keep customers coming back.
Better inventory planning
Effective inventory management also allows you to better plan for demand. You’ll be able to accurately gauge how much stock will need to be replenished, allowing you to keep costs down and customer satisfaction levels high.
You’ll also ensure that you don’t waste valuable space or miscount inventory.
What is centralised inventory management and how does it work?
Centralised inventory management is a system where all of your stock is stored in one central location. It allows you to better manage and control your supply chain, as well as reduce the cost associated with storing inventory.
Centralised inventory management works by allowing businesses to control their stock from a single centralised location, and then manage logistical functions such as order fulfilment from that hub. This can be done through the use of an inventory management system, which will allow you to track and monitor your stock levels in real time.
There are three main elements to this type of inventory system.
Transportation and Logistics
The first element of centralised inventory management is transportation and logistics. This refers to the movement of stock from a centralised location to individual stores, warehouses, or customer locations.
The second element is product organisation. This refers to the ability to efficiently store and locate SKU (Stock Keeping Units) within a warehouse, as well as the ability to accurately track inventory numbers.
SKUs are numbers that retailers use to differentiate products and track inventory levels. Products are usually assigned an eight-digit alphanumeric SKU number with fields such as price, manufacturer, colour, style, type, and size all noted.
Centralised inventory means a unified team
Through a unified team in one location, you can ensure that your warehouse space is running as smoothly as possible. With a single group of personnel, each will have its own designated roles and responsibilities. These usually include:
- Forklift operators
- General labourers
- Material handlers
- Warehouse managers
What are the pros and cons of using centralised inventory management?
So now that we understand what centralised inventory management is, let’s take a look at the pros and cons of actually implementing it.
Pro: Streamlined inventory control and management
Centralised inventory management can enable you to better control and manage your stock.
You’ll be able to keep track of SKU levels, efficiently store items in the warehouse, and accurately dispatch orders.
Pro: Lower operational and facilities costs
You’ll also be able to keep costs down when employing a centralised inventory management system. This is because you only have one central location for all of your stock, rather than multiple warehouses or fulfilment centres.
Pro: Easier multi-channel fulfilment
Centralised inventory management also makes it much easier to fulfil orders through multiple channels. This includes online and offline orders, as well as different points of sale.
Con: Makes it harder to scale your operations
It can be difficult to scale your operations. This is because you have all of your stock in one place, which means that if you need to expand you will have to find additional storage space and hire more personnel.
Con: No backup inventory in case of unexpected disasters
Finally, centralised inventory doesn’t offer any backup in case of unexpected disasters. For example, if a weather event was to prevent your inventory stores from being able to move products, then customer orders will be delayed and your bottom line will be impacted.
Overall, while there are both benefits and drawbacks to using centralised inventory management, if you’re operating a small eCommerce business that ships to a local customer base and plans to scale gradually then a centralised inventory management system allow you to streamline inventory control and reduce facilities and operational costs.
ParcelPlanet is your trusted centralised inventory and order fulfilment partner
ParcelPlanet is a trusted fulfilment partner that can help you manage and grow your eCommerce business through an effective and efficient order fulfilment solution.
If you would like to find out more, contact an experienced member of our team and let us help you take your eCommerce business to the next level.