What Is Inventory Positioning in Supply Chain Management?
Have you ever looked around the house for your car keys, even though they were in your pocket the whole time? Now, imagine trying to find something specific in a warehouse full of inventory. That can easily turn into quite a nightmare, especially if your warehouse isn’t properly organised.
For retail and eCommerce owners, sorting through every product that comes in from suppliers is just another part of the supply chain. Fortunately, they don’t have to randomly search for this or that. Instead, business owners implement inventory position strategies that allow them to easily find whatever they’re looking for.
If it weren't so, order fulfilment would be quite slow, customers wouldn’t receive their products on time and the entire business venture would collapse eventually. So you see, even something seemingly trivial, like knowing where and how to place certain products within your warehouse, is an essential link in the entire supply chain. But what exactly is this inventory placement, and why does it matter so much? Well, let’s find out then.
What is Inventory Placement? - The Fundamentals
As mentioned before, inventory positioning basically comes down to knowing where and how to store certain items in your warehouse. Based on demand forecasting and order fulfilment, you can place fast-moving goods closer to the loading dock so that such products can easily be packed, labelled and shipped out as soon as the order is processed.
How Does Inventory Placement Work?
As you might’ve guessed by now, inventory position isn’t just about placing goods in the correct space or spot in your warehouse. There’s always a good reason why this product should be stored here and not there. But before we delve into how items should be placed, we must first explore the why.
The thing is that every retail or online store owner must categorise their inventory first. This involves determining which products are of the highest value and in the highest demand, which products are somewhere in the middle and which products are not so high in value and not as sought-after as the rest. Now, you can use a stocking strategy that suits you most to accomplish that, but the most common strategy and often the most reliable one is the so-called ABC analysis.
As the name suggests, this analysis helps segregate your inventory into three categories based on revenue and optimal inventory levels. Categorising your inventory this way not only helps you determine which products are your bread and butter but also helps you understand how these items should be stored and where. Here’s an example.
As you can see, your warehouse inventory will consist of various products that are more or less sought-after by your customers or potential customers. This is why categorising inventory is of vital importance.
After all, it will help you determine how to place inventory accordingly so that there are no delays, inconveniences or any other issues that may potentially halt order fulfilment and thus block the entire supply chain.
This brings us to how and where to place certain items. Regarding how, it will all come down to circumstances and the types of products you’re selling. For instance, if your highest-value products are in any way fragile, you must ensure that they’re properly secured and stored in a location where they can easily be transported from their spot in a warehouse to a shipping vehicle.
If you store them all the way in the back, for instance, you increase the risk of damage since it takes longer for these products to reach the vehicle. An employee may accidentally drop the box or the forklift driver can accidentally collide with a shelf. You get the picture.
Why is Inventory Placement Important?
Every strategy that optimises the supply chain in one way or another has a specific purpose. This purpose often goes beyond the benefits of the supply chain itself. In this case, inventory position, when done properly, of course, can yield a lot of benefits to the business. That said, let’s have a look at a few examples.
- Faster order fulfilment - When certain products are easily accessible and within reach, orders can be processed much faster and said products can be shipped out quicklier.
- Improved customer satisfaction - Faster order fulfilment means more satisfied customers who will be more likely to make purchases again. Improved customer retention leads to loyalty, and loyalty means a higher CLV (Customer Lifetime Value) metric that will generate more revenue for your store.
- Increased sales - Increasing customer satisfaction means you’re meeting, if not exceeding, customer expectations. That doesn’t just mean more frequent purchases from existing customers but also word-of-mouth promotions that will help you acquire new customers more easily. The end result is increased overall sales down the line.
- Optimised supply chain - Inventory positioning can greatly impact the entire supply chain. When optimised properly, inventory placement results in reduced waste, faster shipments, reduced shipment costs and most importantly, it ensures stockouts don’t happen.
Things You Need to Know When Placing Inventory
Inventory positioning isn’t set in stone. This is very important to understand because when consumer preferences and purchasing behaviour change, you will have to adapt and do so quickly. This also means you’ll have to change your inventory placement.
Even though the market isn’t as volatile as it can be, changes can still happen suddenly. Being proactive and prepared is how you remain on top, no matter what the market may throw at you. Therefore, here are a few things you should keep in mind when placing inventory.
- Use demand forecasting - No one can predict the future, but that doesn’t mean you can’t predict certain patterns in consumer behaviour. Forecasting demand is exactly that - predicting how consumer purchasing habits may shift under the influence of certain market trends.
By leveraging modern technology and predictive analytics, you can prepare for the future by acquiring goods and materials that will be in demand. Knowing which items to procure will also help you understand where to put them once they reach your warehouse.
- Have a plan B in place - Even with predictive analysis and demand forecasting, it can be quite difficult to know exactly how consumer behaviour may change and in which direction it will go. That said, consumers don’t change their purchasing habits based on market trends alone.
More often than not, outside factors like the state of the global economy, the geo-political situation or the presence of natural disasters may also greatly affect how consumers behave. In such cases, managing inventory can be more costly than profitable, so you might want to consider an alternative approach.
A good example is consignment inventory, where you don’t keep inventory per se. Instead, you still offer a broad range of products, but you don’t have them in stock. You actually procure them once the order has been made, at which point you buy them from the supplier who sends the product your way. This eliminates the need for storing inventory for a prolonged time, because you move products from suppliers to customers straight away.
- Consider outsourcing - Knowing where and how to place inventory isn't all that difficult to figure out. Having the means to do so is a completely different story. Maybe your warehouse doesn’t have the capacity, or you lack the technology to make everything as efficient as possible. If so, you should strongly consider outsourcing your inventory to a third-party distribution centre, where inventory placement won’t be something you need to worry about.
Make Inventory Placement More Efficient With Bezos
Fulfilling orders, optimising logistics, and inventory placement are just the tip of the iceberg in a sea of things eCommerce businesses must worry about on a daily basis. To say that it can get overwhelming and frustrating would be a monumental understatement. Here at Bezos, we understand the challenges such businesses face.
That’s why we made it our mission to help out eCommerce businesses in every way possible. With our latest fulfilment technology and a global fulfilment network, we can assist you in more than just inventory placement.
In other words, we can help out with any aspect of your supply chain, and we’ll provide continuous support for as long as you need us. So, reach out to us today and let’s plan how to grow your online store together!
Conclusion: Inventory Position in Supply Chain
Every aspect of the supply chain, even something that seems inconspicuous, such as inventory position, has a part to play in the grand scheme of things. If a single link is poorly optimised, the entire chain is compromised. That usually means dire problems for businesses.
When faced with a warehouse full of goods, the question: “Where should we put all this?” isn’t just a question but a strategy that should be carefully planned and executed. That said, when goods are placed where they should be, the entire process of order fulfilment becomes much more seamless and your eCommerce store stands to benefit from it in more ways than it meets the eye.
FAQ:
What is the formula for inventory position?
Put simply, inventory position can be used to determine the overall inventory levels for businesses, which are later used to determine if a store can meet the demand or whether they’ll need to restock at some point. This can be calculated using a simple formula:
- (On-hand inventory + On-order inventory) - Backorders = Inventory Position
What is an example of inventory positioning?
A good example of inventory positioning would be to place in-demand items in a spot that’s easily accessible and close to a loading dock for faster transport and order fulfilment.
Moreover, another good example would be to place bulky items on bottom shelves for ease of access and for preserving structural integrity. But most importantly, the best example is to have enough items in stock in an optimal location so that the company can avoid out-of-stock situations when fulfilling orders.
What is the inventory role?
The role of inventory is to stock items you wish to sell. That way, when customers make a purchase, you can pull a product out of your inventory and ship it away instead of procuring the product from a supplier or manufacturer once the order has been made.
In other words, having inventory means that the delivery time to customers is much shorter and, therefore, you’re able to make more sales by having certain goods in stock, ready to be transported at the moment's notice.
What is the inventory position in a supply chain?
Inventory position in the supply chain refers to the process of storing goods in a particular way so that they can be easily moved and transported according to demand.
Therefore, when an order is placed and processed, employees in the warehouse can immediately locate the necessary goods and prepare them for shipment.
Looking at the big picture, the supply chain can continue to operate without any delays or inconveniences simply because the goods can flow through the warehouse on their way from suppliers to customers.
