How Does Decentralized Inventory System Help in Adapting to Changing Buyer Behavior & in Growing eCommerce Businesses in 2022? Benefits And Challenges Of Having A Decentralized Inventory Management
Ordering merchandise, shipping, storing, and selling become critical decisions that must be made as firms expand. Increased industrial storage is required to expand the range of items offered and enable products to reach a greater geographic area. A critical choice during this expansion phase is whether to transport goods from a single central site or smaller warehouses dispersed around the country. Both centralised and decentralized inventory has benefits and drawbacks, and their use depends on the organisational structure, individual objectives, and management methods.
According to the U.S. Census Bureau, manufacturers, retailers, and merchant wholesalers in the United States had inventory worth more than $1.9 trillion in June 2018. Believe it or not, according to experts, roughly 90% of a company’s inventory is stationary. It is kept in storage, whether on racks in a warehouse or on shelves in a store. A company’s merchandise is only genuinely in transit 10% of the time.
So it becomes essential for the organization to think about managing their inventories. In this article, you will learn about centralized and decentralized inventory systems with how to maintain a decentralized inventory system, which helps expand the reach of your business.
- What is a Decentralized Inventory Management System?
- How Can a Decentralized Inventory Aid in the Development of Your Online Business?
- 6 Factors to Consider Before Implementing Decentralized Inventory Control system
- What is the Weight of my Goods?
- To What Location Do I Deliver Orders?
- What Are The Running Expenses For Several Warehouses?
- What is the Amount of Orders Each Month?
- Do Businesses Really Need Additional Warehouses?
- Is the Current Technological Setup Ready for Several Warehouses? Do You Require a Solution for Managing Many Warehouses?
- 7 Best Practices For Maintaining A Decentralized Inventory System
- Centralized vs Decentralized Inventory Management System
- WareIQ As an Inventory Management and Fulfillment Partner
- Centralized Vs Decentralized Inventory Management FAQS
What is a Decentralized Inventory Management System?
Decentralized inventory refers to an inventory management system in which the items are moved from a central location to other warehouses, further decentralising the process. This technique is appropriate for businesses whose clients are dispersed across the country. Quick delivery also contributes to enhancing client happiness and service.
Decentralized inventory aids in more effective and quick emergency response. The risk of fire and other natural disasters is reduced since all the commodities are kept in various warehouses. Products are more vulnerable to dangers if kept in a single location.
For example- As an illustration, imagine that you own a Delhi-based online business with regular consumers from Maharashtra, Rajasthan, and Karnataka. You only have one warehouse in Gurugram from which you transport goods to particular regions of the nation. A centralized inventory system is what this is.
Due to the proximity of your location to your consumers in Rajasthan, their orders will arrive swiftly. Customers from Maharashtra and Karnataka, on the other hand, are dissatisfied with the extended shipment delays. As a result, in addition to the current facility in Gurugram, you plan to establish regional warehouses in Mumbai and Karnataka.
When you receive an order, you can determine which facility is nearby to the customer’s delivery location and send the product there. If the item is out of stock at that location, you ship from the nearest warehouse. A decentralized inventory management system is what this is.
Although it may seem enticing, implementing and maintaining a decentralized inventory management system successfully calls for strategic planning and a top-notch management system.
4 Challenges Of Having a Decentralized Inventory and Multiple Warehouses
A large body of management theory supports decentralized warehouses, but ignoring the difficulties they provide would be naive. Instead, we need to consider a few things, including administration, inventory visibility, and employee-related problems across various warehouses.
Supply chain management becomes more challenging when inventory is dispersed among several distribution sites. However, when everything is in one place, management is focused there, reducing processes and lowering expenses.
Retailers can feel as though they have to give up inventory management due to a lack of clarity when there are products in numerous locations. Although ERP systems should in theory support these tasks, they’re not always reliable and can occasionally lead to inventory shortages or errors.
Management Of Decentralized Inventory
Naturally, managing numerous sites is more difficult than managing just one. More staff, inventory, and administration are necessary when there are many warehouses involved.
Warehouse operations may easily become complicated and disorganised if warehouses are shared, serve as distribution centres, or serve as drop shipping destinations. Even if everything could run perfectly in one place, increasing inventory locations might make procedures more difficult and even endanger regular business operations.
Coordinating Warehouse Shipment Costs
Calculating a rate or lead time for shipping from a single location is almost always constant. Shipping from the same location each time implies predictable cut rates and transit times, giving clients the transparency they expect in their purchase.
The number of considerations increases significantly when locations are included in the equation. Which warehouse will handle shipping for the order? Does the customer’s closest warehouse have the variety of goods they need? Have you got a lot of stock in one place but a dangerously low quantity in another?
Of course, making decisions in several locations is more difficult than doing it at a single location. But how will this impact the choices you make about your inventory? Prior to adding more sites, it’s critical to build a plan for these factors.
Having the proper tools in place is essential for controlling shipping costs between warehouses.
Utilizing Decentralized Inventory Management to Address Challenges
A multi-location distribution system or decentralized inventory offers several advantages over other approaches, despite its difficulties. Businesses that struggle with long lead times, dissatisfied consumers due to transit periods, or a lack of distribution flexibility should carefully consider multi-warehouse management and how it might address these issues.
The option of having smaller or fewer facilities is another benefit of a decentralised supply chain for e-commerce firms. These warehouses can be handled quickly and adaptably, providing retailers with greater insights into the levels, demands, and shortfalls of inventory replenishment.
In the end, merchants almost always benefit from the flexibility that comes with decentralized inventory management.
WareIQ, an eCommerce fulfillment company, empowers online brands with a superior-tech platform to compete with Amazon like service levels by bringing their average delivery timelines from 5-10 days to 1-2 days.
How Can a Decentralized Inventory Aid in the Development of Your Online Business?
Decentralized inventory could be a wise investment for growing e-commerce companies. With smaller, local facilities, businesses can deliver goods to clients more quickly.
In addition, warehouses may be able to act as client pickup places depending on their location, a service that is becoming more and more popular every day.
Lower Shipping Expenses
Your distribution options are immediately doubled when you add even a single warehouse location for your goods. You may be able to significantly reduce transit times and shipping costs owing to greater proximity to more consumers, depending on the strategic position of your facilities.
Shipping costs decrease when warehouses are positioned closer to delivery sites.
Expand Your Consumer Base
Similar to the advantages of lower transportation costs, expanding your network of sites can help you reach clients who live farther away.
If their order will be delivered in just a few days, a consumer interested in a pair of shoes from our go-to shoe shop is far more likely to order. Shipping may take a few weeks if the business just had one location, providing customers with an incentive to purchase somewhere else.
Your prospective consumer base will grow as a result of expanding your footprint, which will increase your revenue.
Quicker Local Delivery Times
Having numerous warehouses boosts a local customer’s ability to pick up purchases directly or provides them access to same-day delivery, especially in the age of curbside pickup and same-day delivery. With these choices available, shoppers might be able to purchase and get goods on the same day.
You can only provide immediate pickup to consumers in one location if you have one warehouse. However, distributed warehousing brings your items and additional consumers together.
6 Factors to Consider Before Implementing Decentralized Inventory Control system
A decentralized inventory system can appear to be the magic solution for a failing eCommerce warehousing company in the continuously changing eCommerce fulfilment industry. It may not be the best method for everyone due to a few factors that may alter its effectiveness.
Before implementing decentralized inventory control, take into account a few variables that may have an impact on how it functions for your company.
What is the Weight of my Goods?
It might not be beneficial to have inventory in many locations if you sell heavy goods, such as furniture or exercise equipment. It might not be a wise investment to transport merchandise first to a warehouse before sending it from the production or import site because shipping prices for things like this are already rather high.
To What Location Do I Deliver Orders?
It might not be a good idea to distribute merchandise outside of the general area of your consumer base if your business is largely reliant on local clients. A seller of umbrellas, for instance, definitely doesn’t need to move their business from Seattle to Arizona and may even lose financially if they did.
What Are The Running Expenses For Several Warehouses?
Spreading your items over many locations can not be advantageous if they need specific attention, such as refrigeration or routine quality inspections. Given how expensive it already is to store this kind of merchandise, increasing the expense of keeping them might not be a wise investment.
What is the Amount of Orders Each Month?
Using numerous warehouses is generally not essential if you just transport a few high-value items each month. It could be best to keep things straightforward and centred with only one site while eCommerce companies are still in the beginning or growth phases. It can be required once you’ve ramped up and are getting a bigger stream of orders.
Do Businesses Really Need Additional Warehouses?
The eCommerce logistics industry is now buzzing about decentralised inventories. Given all the talk about it, it could appear essential to expanding your company. However, now might not be the best moment to consider decentralising your inventory if your shipping issues do not include inventory location.
Is the Current Technological Setup Ready for Several Warehouses? Do You Require a Solution for Managing Many Warehouses?
Do you currently use an ERP? a management system for warehouses? What software do you currently use to manage your business? Make sure your systems are strong enough and prepared to manage the shift before making the jump to distributing your products. The single most important action to do before starting the shift will be to be well-prepared.
7 Best Practices For Maintaining A Decentralized Inventory System
Researching and implementing an Enterprise Resource Planning(ERP), or a Warehouse Management System(WMS) will be one of your initial stages. Your work will be a lot easier and business operations will run much more smoothly if a software solution is in place to handle things.
Are you prepared to explore dispersed inventory? It’s a wise choice that will benefit you. To fully profit from the distribution, you’ll need to set it up properly in the meantime. Here are a few of our pointers for successfully managing Decentralized Inventory
Balance Your Stock Levels
In order to maximise storage space and prevent fulfilment delays, your data should be used to establish stock levels. To effectively manage your inventory across all warehouses, you must determine your maximum, minimum, average, and order levels by taking a look at your product sales, inventory turnover, and lead time rates. To keep expenses low, it’s crucial to maintain strict control over your stock levels and make sure they are balanced. Why? Because it reduces waste and guarantees you are not putting too much strain on your finances with high stock expenses.
In order to select which warehouse to stock which goods and maximise product levels, you need also pay attention to the following KPIs:
- Your per-order processing fee
- Your lead Time Statistics (or order fulfilment latency)
- Your Ideal Order Rate
Watch Your Bestsellers Closely
The most crucial goods to maintain will be your most well-liked offerings. Setting up minimum inventory levels of these items at each site is a smart move to make sure you can send them out from each warehouse swiftly. It’s crucial to anticipate these trends and have extra stock of these items because they will frequently sell out.
Count Product Stock In Decentralized Inventory System
It’s crucial to make sure you do stock counts at each facility. Ecommerce retailers frequently make the error of believing they simply need to track the overall quantity of items without taking into account the product levels at each warehouse when transitioning to a decentralized inventory system. To guarantee that the stock levels we indicated are balanced at each warehouse, you must be aware of all of your items there.
If you aren’t utilising decentralized inventory management software, you’ll need to work hard to keep an eye on product counts at each warehouse since running out of a product at one warehouse can cost you time and money.
When you have a lot of items, divide your inventory counts into focus lists so that you don’t have to count every item all the time. The most effective approach to achieve this is to separate your items into high-risk (those with the poorest history of inventory counts) and high-value categories (products with the highest revenue potential.)
Utilize Both Movable and Fixed tracking
Long-term headaches may be avoided by making an investment in your inventory management. To build a reliable inventory management system, fixed and mobile tracking are required. Why? Since you can precisely assign warehouse destinations by combining fixed and movable tracking options, you can be sure that you always know whether the hardware needed to process the order is up to par, where each product is placed, what its status is, and which products are ready for fulfilment and shipping.
Simply said, it streamlines and expedites your fulfilment services. Here is a brief explanation of each for those who are unfamiliar with warehouse management jargon-
Fixed tracking, sometimes referred to as asset tracking, is the continuous observation of your production-related machinery as well as any equipment that supports your warehousing and fulfilment centre operations. To track the location and status of equipment, utilise RFID tags or barcodes.
Movable tracking, sometimes referred to as inventory management, is the process of keeping track of each product and how many you have on hand, as well as which items need to be refilled and which ones are in excess. In a nutshell, it’s the administration of your inventory and figures in real-time.
Not Every Product Needs to be Stored in Every Warehouse
The number of goods you sell will increase along with the size of your eCommerce logistics business. It makes no sense to keep all of your goods in every warehouse. As we mentioned above, one of the greatest strategies is to divide your inventory into best- and worst-sellers, and then stock your warehouse appropriately. To enable speedier, more affordable delivery, you may, for instance, make sure that your bestsellers are present at each warehouse site while keeping all of your slow sellers in one warehouse and your medium sellers in another.
Remember that clients may request many products at once that may be stocked at different locations. Due to the possibility of having to fulfil items from several locations, this may result in additional shipping and packaging expenses. It would be beneficial if you compared these expenses to the warehouse layout you choose and, where it is practical, matched goods that are frequently stored together.
If you aren’t arranging warehouses with decentralized inventory management software, label your items as out of stock once they have been transferred to the new location.
Real-Time Data Update
The most important decentralized inventory management advice is to make sure that your ordering systems and warehouses’ data are in sync to avoid delays. You can get away with this manually if you operate a tiny business from your home with just one warehouse. However, if your company is expanding and adding more than one warehouse site, a robust decentralized inventory management system, like the new Multi-Warehouse Management feature, is the only method to handle data in real-time. This feature enables you to:
- Build decentralized inventory warehouses
- Control inventory levels and move it across warehouses
- Management of warehouse inventory allocation depending on channels
- Implement connectors with 3PL and Amazon FBA
- Manage dropship orders
- Implement automatic order routing by the supplier
- Make invoices, shipping labels, and packing slips.
- Receiving order notifications
- Integrate with shipping software and carriers
- Access order status in real-time across all markets
Utilize Cross Docking and Wave Picking
Make sure you are preparing for a lean operation when organising your decentralized inventory management. In other words, you aim to minimise expenses. You may accomplish this with the use of two warehouse management systems: wave picking and cross-docking.
In the latter, a product is dispatched out as soon as it is received. Alternatively, if you make your goods, consider it a method that allows for considerably less storage space, lowering warehouse expenses. However, it becomes difficult to retain this storage option as your organisation expands without creating fulfilment issues.
Wave picking entails greater storage capacity so that orders may be completed in sequence throughout the day, making it preferable for larger, expanding businesses.
Utilizing these strategies can ensure a distinct, lean system in your intricate shipping system if you have adequate inventory management software.
Centralized vs Decentralized Inventory Management System
The primary difference between centralized inventory and decentralized inventory is that the former refers to an inventory management system in which the goods are moved from the primary warehouse to various warehouses that are close to the consumer’s residence. The latter refers to an inventory supervision mechanism in which all necessary operations are carried out in a central setup.
This inventory management system conducts all activities in a single place. Despite the possibility of separate product-based storage areas, storage is frequently done in one big warehouse. The same crew handles all inventory, and the same transportation techniques are used. The majority of e-commerce businesses, including Amazon.com, use it.
Utilizing centralized inventory has several benefits, such as:
- It makes it simpler to promote and uphold the corporate culture.
- Operating expenditures like rent and other utilities have decreased significantly.
- The lowering of expenses results in higher profits.
- Better customer service is delivered by emphasising the use of trained personnel, improved methods for responding to questions and requests, and improved tools.
- Management responds quickly to any issues with goods or procedures.
Despite the many benefits, a decentralised inventory has a number of drawbacks, such as:
- Rush delivery and high transportation expenses, particularly in the long term, may be passed on to the client.
- Result in competition for resources like human resources
Decentralized inventory entails distributing your stock among several sites. Large retailers like Amazon frequently use these multi-channel distribution techniques. This method offers a wide range of advantages as well. When items are kept in warehouses close to clients, merchants may reach them in more places in less time. Additionally, it reduces the danger of keeping all goods in one location in the unlikely case of tragedy or poor management.
The following are the main benefits of decentralized inventory:
- When compared to a centralized inventory management system, the system’s distribution flexibility is substantially greater.
- There is a bigger decrease in the cost of transportation.
- Additionally, the shipping time is drastically cut down.
The following are the main drawbacks of decentralised inventory:
- Significantly greater operating and investment expenditures.
- Inventory management calls for additional physical labour and personnel.
- Additionally, the control expense is somewhat greater.
- The likelihood of incorrectly allocating products is higher.
Tabular Representation: Centralized Inventory VS Decentralized Inventory System
|Parameters of Comparison||Centralized Inventory||Decentralized Inventory|
|Meaning||It is an inventory control system where products are kept in one location and then shipped to numerous customers.||It is an inventory management method where the items are moved from a central location to different storage facilities.|
|Decision Making||The board of directors, area managers, and occasionally the CEO also participate in this system's senior management, which makes all important and minor decisions.||This system is decentralised since middle and lower management carry out the decision-making process.|
|Manpower Requirement||Since just a small number of individuals are needed to operate at a central place, the necessary manpower is relatively lower.||As more employees are needed to labour at several sites, the manpower need is significantly higher.|
|Stability In Prices||In this system, the price of items is guaranteed to be stable and consistent.||The stability and consistency of product pricing under this approach might not be guaranteed.|
|Location||The primary place where items and inventories are kept is in that one location.||Products and inventory are kept in a number of places.|
|Pilferage||In a centralized inventory management system, there are very few opportunities for theft.||A decentralized inventory management system completely eliminates the possibility of theft.|
Centralized vs Decentralized Inventory Management: Which is Right for Your Business?
- Decentralized inventory is defined as inventory that is held in many locations and warehouses, as opposed to centralised inventory, which is defined as inventory that is stored at a single location.
- In the case of centralised inventory, top management makes the decisions, but in the case of decentralised inventory, lower and middle management make the decisions.
- Less labour is needed for centralized inventory control. On the other hand, the latter situation necessitates more personnel.
- In contrast to a decentralized inventory management system, which may not guarantee price consistency, a centralised inventory system guarantees price uniformity.
- The likelihood of theft from consolidated inventories is quite low. On the other hand, there is absolutely no chance of theft with the latter.
The two main warehouse distribution types are, broadly speaking, centralised and decentralised. Between the two, there is a third choice, but all models are vital and relevant. Understanding your clients, regional presence optimization, fulfilment capabilities, and other factors are necessary when selecting one for your company.
Because there is just one site rather than several, inventory management is simpler and more cost-effective with a central warehouse. Transport costs, however, can be rather high depending on how far shipments must go. Not all clients or consumers will be in close proximity to the core hub.
A decentralised strategy keeps the warehouses dispersed and much closer to the final consumer. Over the centralised paradigm, order fulfilment, shipping times, and customer service frequently increase significantly. With a shorter distance between nodes, transportation expenses are also significantly reduced. However, operating costs are substantially greater and rise as more sites are opened.
Both models provide options for outsourcing and cutting-edge automation to build a more streamlined and effective company.
It frequently boils down to the demands of the typical consumer. Which model will best serve their needs, and how can the organisation help?
WareIQ As an Inventory Management and Fulfillment Partner
It is feasible to create a hybrid system using both methodologies, with WareIQ. The hub of operations, where all the inventory or product is normally kept, is a central warehouse. They are known as branch warehouses or decentralised warehouses and support several nodes that are located closer to the end-user.
Only high-demand items are stored and managed in the branch warehouses, with real-time analytics and efficient distribution based on market demand. In other words, the smaller warehouses provide clients with faster delivery of the most popular items together with superior customer support. All of the inventory that the company controls, including more specialised items, is kept at the central warehouse. Additionally, it restocks the branch warehouses as needed.
The combination of centralized and decentralized inventory is made possible and more effective than it would be without WareIQ’s cutting-edge technologies, such as advanced computing, machine learning, AI, and big data.
With WareIQ, What Does Having Such a Decentralized Inventory Mean to Your Brand and Service?
Benefits to business and consumers for having a decentralized inventory with WareIQ are as follows:
- Faster Pan-India delivery with better shipping timeline/tracking.
- Data-driven optimization of your business.
- Efficient and smart inventory placement powered by the philosophy of “supply where there is demand”.
- Helping meet the customers’ expectations of an Amazon-level service.
- Reducing cancellations due to delays in delivery.
Managing a central warehouse is cheaper but it comes at the cost of the cons we have discussed earlier. Outsourcing the decentralization of your inventory to a platform like WareIQ can actually bring down the overall costs as it improves business and customer retention. It also helps in achieving better operational efficiency- i.e providing superior services to the customers at the same cost. Also, managing local demand surges and scaling your business in new cities becomes easier.
For a customer, it means faster delivery (within 1 day) and options like same-day pickups. They may no longer be bound to Amazon when they expect the same. It also increases their reliability and trust in the brand.
- Pan India Fulfillment & Darkstore Network: Plug-and-play fulfillment infrastructure with no minimums, which is compliant with Amazon Seller Flex, Flipkart Assured, Myntra and other marketplaces
- Inventory & Network Planning Excellence: Best-in-class AI models for sales forecasting, product segmentation, and inventory management to reduce inventory by 40% and increase revenue by 10%.
- Vertically Integrated Fulfillment Tech Stack: Our Fulfillment Tech Solution supports integrations with 20+ top marketplaces & D2C platforms, and prominent national, regional and hyperlocal couriers, enhancing reach by covering deliveries for 27,000+ pin codes
- Supply Chain Productivity Applications: Integrate a host of supply chain productivity apps with a single-click to your existing CRMs, ERPs & accounting software to manage your logistics workflows from one command center. Use Apps like RTO Shield to get 100% RTO protection, Branded Tracking to turn your order tracking page into a profitable marketing channel, and many more.
Trusted by 300+ top Indian brands, we are helping them accelerate online sales and expedite their growth through a synergistic combination of advanced technology, robust fulfillment infrastructure & seller enablement services!WareIQ is backed by leading global investors including Y Combinator, Funders Club, Flexport, Pioneer Fund, Soma Capital, and Emles Venture Partner.