{"id":14993,"date":"2023-04-06T08:42:02","date_gmt":"2023-04-06T15:42:02","guid":{"rendered":"https:\/\/michaeljbrumm.com\/dcl-v3\/?p=14993"},"modified":"2023-10-03T07:59:05","modified_gmt":"2023-10-03T14:59:05","slug":"cost-benefits-multiple-warehouses","status":"publish","type":"post","link":"https:\/\/michaeljbrumm.com\/dcl-v3\/blog\/inventory\/cost-benefits-multiple-warehouses\/","title":{"rendered":"Cost Benefits of Using Multiple Warehouses\u2014When is Distributed Inventory More Cost Effective?"},"content":{"rendered":"

Distributed inventory is an <\/span>ecommerce inventory strategy<\/span><\/a> that entails splitting product stock between multiple fulfillment centers. Products are stored in two or more facilities in different geographic regions. The opposite of distributed inventory is centralized inventory, where all products are stored in one place and fulfilled from that distribution center.\u00a0<\/span>\u00a0<\/span><\/p>\n

Many <\/span>3PLs who provide fulfillment support<\/span><\/a> for ecommerce brands will have a distributed inventory option. It\u2019s a great fulfillment method for some, but not all businesses. It certainly costs more to split your inventory, so it\u2019s wise to analyze your overall costs to see if it\u2019s an effective strategy for you.\u00a0<\/span>\u00a0<\/span><\/p>\n

Ultimately if you\u2019re a high-growth brand, you\u2019ll want to distribute your inventory at some point, here\u2019s how you\u2019ll know it\u2019s the right time.\u00a0\u00a0<\/span>\u00a0<\/span><\/p>\n

Factors that Affect Distributed Inventory Costs<\/span><\/b>\u00a0<\/span><\/p>\n

Before deciding to <\/span>distribute inventory across multiple warehouses<\/span><\/a>, it\u2019s worth noting the major costs that you\u2019ll incur by doing so.\u00a0<\/span>\u00a0<\/span><\/p>\n

Storage and stock levels\u2014one of the biggest costs of splitting inventory is additional storage costs. You may have too much or too little inventory in storage for a while before you start optimizing your order flow from multiple locations. If your warehouse facilities charge a lot for these anomalies, you might end up paying extra.\u00a0<\/span>\u00a0<\/span><\/p>\n

Inbound shipping\u2014first you\u2019ll need to pay for transportation of your products to the new facilities. if international freight costs are low, it may be advantageous to import products to multiple ports (East and West Coasts, for example) to cheaply move inventory closer to multiple distribution centers. Distributing inventory will increase your inbound shipping costs, whether it\u2019s to ports, or domestically to your multiple warehouses.\u00a0<\/span>\u00a0<\/span><\/p>\n

Domestic shipping\u2014the costs of last-mile delivery is a big factor in any ecommerce brand\u2019s inventory strategy. The shorter the distance, the cheaper your overall domestic shipping bill. Distributing inventory will generally help lower last-mile shipping costs.\u00a0<\/span>\u00a0<\/span><\/p>\n

Inventory tracking\u2014having safety stock on hand is imperative to eliminate stockouts and backordering. Distributing inventory will mean re-evaluating your inventory formulas\u2014including safety stock, reorder points, and inventory on hand\u2014to ensure you don\u2019t lose money on lost customers due to backorders or being out-of-stock.\u00a0<\/span>\u00a0<\/span><\/p>\n

Technology infrastructure\u2014managing two or more warehouses of products is much more complex than managing one. Keeping an optimized amount of inventory on hand is no easy task, multiply that by more locations and you\u2019ll need to make sure your inventory tracking technology can handle the task. You may need to upgrade your technology systems, which might be a big upfront cost.\u00a0<\/span>\u00a0<\/span><\/p>\n

The Advantages of Distributed Inventory\u00a0<\/span><\/b>\u00a0<\/span><\/p>\n

There are many <\/span>advantages to splitting inventory<\/span><\/a> to be fulfilled in multiple warehouses. Before getting swept up in the benefits, it\u2019s important to fully analyze the costs you\u2019ll incur in doing so. Distributed inventory can be a lot to manage administratively\u2014don\u2019t forget to factor in your time to the overall costs.\u00a0<\/span>\u00a0<\/span><\/p>\n

Here are the factors to consider when weighing the cost benefits of distributed inventory.\u00a0<\/span>\u00a0<\/span><\/p>\n

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  1. Faster delivery times to the end-customer. The biggest advantage is fulfilling products closer to the customer. This goes for all types of customers\u2014retail, B2C, marketplaces. If your products require any customization (a colored case, software update, size and fit, etc.) you can do this and still ship to customers within 2-day or same-day shipping.\u00a0<\/span>\u00a0<\/span><\/li>\n
  2. Reduction in last-mile shipping costs. As stated above, the closer you are to your end-customer, the cheaper it will be to ship products. This is particularly helpful if you are shipping primarily direct-to-consumer. You\u2019ll be able to offer a wider range of shipping options for your customers, potentially even free shipping because you won\u2019t have a lot of costs to absorb.\u00a0<\/span>\u00a0<\/span><\/li>\n
  3. Inventory redundancy as a buffer for any issues. With inventory split in multiple locations you\u2019ll rest assured that you always have a safety stock to send out if there are issues. This may be due to inclement weather, carrier issues, WMS failures, or ordering problems.\u00a0<\/span>\u00a0<\/span><\/li>\n<\/ol>\n

    \u00a0<\/span>Why Your Fulfillment Center Location Matters\u00a0<\/span><\/b>\u00a0<\/span><\/p>\n

    When setting up split inventory, the <\/span>location of your distribution centers<\/span><\/a> is one of the biggest considerations. If your products can be fulfilled closer to your customers, that\u2019s the end goal. If your 3PL\u2019s warehouses aren\u2019t near your customer base, then it won\u2019t make sense to move inventory to those locations.\u00a0<\/span>\u00a0<\/span><\/p>\n

    Some questions to ask your 3PL\u00a0<\/span>\u00a0<\/span><\/p>\n