Decentralising Inventory — Does It Work?
Before the internet and cloud computing was a thing, it made more sense for businesses to manage inventory and get stock updates in one place. But decentralising inventory has made all the difference in managing inventory and fulfilling orders round the clock.
There are different distribution models of inventory management. Each model has its own benefits and limitations. You need to adopt a strategy that fits your glove. Without proper inventory management, you might end up eroding cash flow, mismanaging your stock, and holding dead stock.
Proper inventory management also helps streamline sales as it ultimately affects the ecommerce user experience. For instance, a customer places an order on your web store only to find out that the product is out of stock. You’ll not only lose a customer, but your brand image and reputation will also be tarnished.
What Is Decentralising Inventory?
If we were to explain it simply, a centralised inventory is like putting all your eggs in one basket. While it may be easy to manage, risks are also involved. On the other hand, a decentralising inventory is like distributing those eggs to mitigate the risks.
It is a system where the products are kept closer to the customer for more effortless order fulfillment. Businesses can cater to customers from more locations in less time. This provides an advantage in revenue generation and a better customer experience.
Why Do Businesses Prefer Decentralised Inventory?
Customer experience is the yardstick of brand value and reputation. Every second of your buyer journey matters. The first step in building trust in your product or service is to satisfy your local customers. Therefore, it becomes important to respond to customer queries quickly.
By decentralising your inventory, you can fulfill your orders with a shorter TAT to provide a better customer experience.
Since the products are stored in separate warehouses, each supply chain warehouse can be tuned to the demand in that specific area in order to provide the best experience. In this way, you can distribute your products to various locations across the country based on the volume of orders in that area.
For example, a textile business will fulfill orders better if it stores Tant sarees in a warehouse near West Bengal. Here, the demand would be higher than in a warehouse near Tamil Nadu, where customers prefer Kanjeevaram sarees.
Decentralising your inventory also allows your customers to avail the option of same-day or next-day delivery. For example, a business might offer their customers to order a product and deliver it on the same day for additional charges. It bolsters both your sales volume and your customers’ expectations.
Another advantage of decentralising your inventory is that it boosts the reliability and trustworthiness of your business. Local addresses on shipping labels increase credibility.
Suppose a business based out of Kashmir ships its products to Bengaluru. Customers are more likely to trust the brand’s products and services if they see the package label with a nearby shipping address. In this case, Bengaluru would be better than Kashmir.
Pitfalls Of Decentralising Inventory
It is not right to think of decentralising the inventory as a part of the supply chain with a Midas touch. There are several downfalls of having an inventory system which is not centralised.
When a business chooses to ship to warehouses in multiple locations, it may affect the bargaining power of suppliers wanting to send bulk shipments to a single location. One must have strategic service level agreements with their partners to ensure a proper supply of products.
Another reason decentralising inventory is hard to manage is that the control of operations and business culture can be diluted through the different warehouses across the landscape. This may not be the best practice and may not even be relevant for core business operations.
For example, warehouses in states having strong labour unions may face operational challenges during bandhs, protests and festivals. In cases like that, it must be ensured that enough employees are in rotation to bridge this gap.
Moreover, not all businesses can afford a decentralise their inventory management system. Managing distribution centres or warehouses also carry the costs of staffing and inventory. Maintaining several warehouses further multiplies these costs. However, with the help of 3PL fulfillment services, even small businesses can now store their inventory closer to their customers’ locations and avail of faster delivery.
Businesses may find themselves tied to a long lease or particular geolocation by decentralising inventory. This may be counterproductive if the business wants to shift the base of operations from that location. At the start, eCommerce businesses often need to try and test different strategies which involve moving their inventory from one location to another. This becomes easier if there is a centralised inventory. But with a decentralised inventory, the relocation is uneconomic and cumbersome.
Final Verdict
There is no concrete solution for managing inventory. Small-scale eCommerce businesses that are just starting can do with a centralised inventory. However, big businesses would want to reach their customers faster by decentralising their inventory. Additionally, a business can go for a hybrid inventory management model that combines centralised and decentralised models. There needs to be a balance between the models, and you must make data-driven decisions and be flexible enough to scale per market demand. It is better to have a choice than to be compelled to adapt to a new inventory model. Ultimately, one should cut their coat according to their cloth.
