Determining Whether or Not to Split Inventory
Honey, we’ve gotta split. No, not like that! Storing your inventory in multiple locations, as opposed to just one, could spell out huge benefits for your online business. While not as delicious as banana splits, splitting your inventory is way better than splitting up, wouldn’t you agree?
Read on to learn more about inventory distribution and how you can weigh the pros and cons of your next big business decision. Who knows, it might be just the thing your business has been missing!
What is Distributed Inventory?
In the fulfillment world, distributed inventory is a common strategy used to maximize storage space and keep products closer to customers. Instead of a single fulfillment location, multiple locations are used so that orders get to their end destination faster, and, more often than, not cheaper.
The key word here is speed. In an increasingly saturated market, having the upper hand in delivery times is just one of the many methods you can use to keep your eCommerce store ahead. If you’re questioning just how important that is, think about Amazon’s enormous success — it’d be hard to argue that their 2-day (now 1-day) delivery didn’t do wonders for them. Truth is, convenience sells. And, what’s more convenient than crazy fast shipping?
Factors You Need to Consider
What Kind of Demographic You Have
The driving reason behind splitting inventory, for most companies, is accessibility to customers. As we mentioned earlier, faster shipping times make your eCommerce store more appealing to customers. However, accessibility can come in different forms.
Let’s say, for instance, that you ship accessories exclusively related to a local sports team in Maryland. In this scenario, it wouldn’t make sense to invest in multiple locations when your customers are located in such a specific area in the United States. Or, for example, let’s say you sell fishing gear that’s particularly popular in the coastal Northeast. With a fulfillment center nearby, there’s no need to expand outward.
By analyzing your past order history, you’ll also be able to spot where most of your customers are ordering your products from. If 75% of your orders are from California, it might not be wise to expand to the East Coast until there is enough of a presence there.
Of course, many eCommerce stores are not locally targeted. If you sell dog accessories, they’ll be in high demand all over the United States (or globally!). Products like that aren’t tied to a particular region, which means they’re great candidates for inventory splitting.
Inventory Management Capabilities
Aside from your demographic, you’ll need to consider whether splitting inventory is even possible in the first place. Assuming you’re outsourcing to a 3PL, not all of them will offer that as an option in the first place. If you’re working with a small fulfillment center, it’s likely they will only have one location available, in which case you can kiss your inventory-splitting dreams goodbye.
If you’re shopping around and think splitting inventory might be in your future, make sure to bring that up to your fulfillment partner. You can even request a software demo to get a feel of what you’ll be working with and how they handle your various fulfillment needs. Make sure to spend extra time focusing on the methods your 3PL uses to manage inventory, especially if it’s being stored in multiple locations.
If you’ve got a high order volume, chances are that splitting your inventory can secure you some savings. Yes, multiple locations = more savings! We know, it sounds contradictory. Allow us to explain.
When it comes to shipping costs, how far the shipment travels plays a key role. The further the shipment’s destination is from its origin, the more expensive it is to ship (typically). Therefore, with your inventory being closer to its destination, you can expect cheaper rates overall.
It might also be in your best interest to split your inventory, cost-wise, if you’re shipping heavier products. Depending on the shipping service you choose, lighter products will experience the same rates, more or less, regardless of where they’re being shipped to. However, with each added pound, shipping rates can quickly skyrocket. By storing your products in different facilities, that won’t be such a concern!
It’s important to note that, by storing your inventory in multiple locations, you’ll be subject to multiple storage costs as well. However, a quick cost analysis will reveal whether these added fees will be offset by how much you’ll be saving overall. This is a great point to consider when making your final decision.
So… Should You Do It?
If you have customers scattered from coast to coast, the proper inventory management software set in place, and the financial incentive to do so, then a resounding yes is your answer.
If, on the other hand, your customers are clustered in one geographic area and you lack the software and savings to make splitting your inventory worth it, then it’s a solid no.
Simple, right? While many business decisions can get tricky, this one is a relatively straightforward one. But don’t get it twisted — it’s an important question to ask yourself and your team periodically. As your business grows, so do your needs, which is why the perfect solution now might be not-so-perfect in the future. Wondering if your business is ready to conquer quick delivery from coast-to-coast? Contact one of our experts today!