How Regional Inventory Placement Can Transform Your E-commerce Fulfillment Costs while accelerating speed
September 19, 2024
Large marketplaces like Amazon & Flipkart efficiently implement Regional Inventory Placement to lower their net logistics cost while ensuring fast parcel deliveries and minimizing returns.
What is Regional Inventory Placement?
Regional Inventory Placement refers to a strategy where inventory is strategically stored and distributed across multiple regions closer to the customer base. This helps reduce shipping costs and improve delivery speed by minimizing the distance that packages travel during last-mile deliveries.
Importance of Last-Mile Logistics
In logistics, the last-mile often comprises 60-80% of the total cost for most brands. Therefore, efforts to optimize this stage offer significant savings in the value chain.
Logistics Zones in India
In India, logistics zones are categorized as follows:
- Zone A & B: Cover local and regional deliveries.
- Zone C & D: Cater to metro areas and national shipping.
There are notable differences in both cost and speed between these zones, as well as in RTO (return to origin) percentages. Regional Inventory Placement helps brands mitigate these challenges by positioning stock closer to where the demand is.
Cost and Speed Analysis
Let’s consider an example of shipping a parcel to Bangalore:
➡️ Shipping from NCR to Bangalore (Zone C Shipment) would typically cost INR 50/shipment (500g) by air and take about 48
➡️ However, shipping this locally within Bangalore (Zone A Shipment) would cost INR 30/shipment and take only 24 hours.
This translates to a savings of INR 20 per shipment in last-mile delivery. Assuming fulfillment costs (storage, pick & pack) are similar in both locations, the additional expenses come from first-mile logistics and potential excess inventory holding costs. From our experience, this typically adds up to INR 8 per shipment.
Resulting Savings
The result: a net saving of INR 12 per shipment, along with an improvement in delivery speed by one day. For a business processing 3,000 orders per month, this means monthly savings of INR 36,000, which adds up to INR 4,32,000 annually.
Reducing Return Rates
In addition to cost benefits, Regional Inventory Placement reduces return rates (RTOs). Shipping directly from a nearby location reduces the chances of items being damaged or lost during transit. Shorter distances also decrease the risk of delays and customer dissatisfaction, which are common causes of returns.
According to our data, Zone D RTOs are three times higher than Zone A, and double compared to Zone B. These higher return rates not only increase costs but also impact future repeat purchases in those regions.
Managing Regional Inventory Placement
It’s crucial to note that Regional Inventory Placement should be carefully managed to avoid excessive costs. For instance, inventory holding and first-mile transportation expenses may sometimes outweigh the savings if not properly optimized. In such cases, brands might only achieve faster shipping without the desired cost savings.
Also read: How to Manage Batch and Expiry in Fulfillment
Our Solutions at WareIQ
At WareIQ, we offer brands intelligent fulfillment solutions with real-time insights on Regional Inventory Placement. Our platform helps create efficient inventory plans to lower holding costs while ensuring fast delivery times. Additionally, our daily stock replenishment between fulfillment centers across regions enables low-cost transfers, all seamlessly managed through a centralized system.
If you’d like to explore how we can help reduce your logistics costs while improving delivery speed, feel free to reach out to us.
