A retailer’s whole accessible inventory for the items it carries is compiled in a virtual inventory, which is a digital database. SKUs held by a retailer in their physical shops, warehouses, and distribution centres as well as SKUs owned by brands they collaborate with but may not always stock in-house can all be included in virtual inventories. 

By making items accessible from any place, a virtual inventory gives merchants more possibilities than traditional inventory provides. Along with fostering consumer loyalty, creating a virtual inventory aids in the competitiveness of merchants of all sizes.

One of the most effective alternatives available to merchants today is to create a plan that includes a virtual inventory. For merchants who wish to grow and exceed customer expectations, going beyond the physical restrictions of a retail shop or warehouse and extending product or brand offerings is a game-changer.

Purpose of Creating a Virtual Inventory  

Expanding Product Mix

If a virtual inventory offers a bigger or richer product variety than the competitors, then displaying it gives a business an edge over them. The amount of product lines the business offers, including kitchenware, apparel, and tools, is referred to as width. Your firm has a better chance of attracting clients who are seeking a certain product if it has a larger product selection.

Risk Mitigation

A business has a certain quantity of real estate where it may set up shop, be it in a warehouse or on the shelves of a retail store. If a business buys goods that are difficult to sell, it could have to discount those goods, which would reduce its initial profit or perhaps force the business to write down some of those goods. The corporation may provide newer or specialised items to its clients with less risk thanks to a virtual inventory because it need not carry every item.

Customer Loyalty

Your consumer could decide to start moving some or all of his purchases to one of your rivals after engaging with them, which would result in a reduction in revenue for your company. By reducing the possibility that customers may search elsewhere for particular items, having a virtual inventory can increase customer loyalty.

Benefits of Virtual Inventory

Virtual warehouses manage inventory data and product movements in real time, which lowers costs and improves flexibility overall. Depending on the circumstances facing a firm, the precise advantages of virtual warehouses may vary, but they often include streamlined omnichannel sales, quicker customer order fulfilment, and decreased inventory risk. 

Efficient Expansion

Virtual warehouses enable organisations to expand their product offerings without having to buy or lease extra warehouse space by gathering data from their entire supply chain.

Real-time Inventory Control

A business may maintain real-time inventory control with a virtual warehouse. By monitoring item expiry dates, for example, this helps prevent dead stock. When a company is informed that an item is about to expire, it may advertise it to encourage speedy sales.

Reduced Inventory Risk

By minimising the quantity of actual inventory and stock a firm must maintain, virtual warehouses decrease inventory risk. Many businesses struggle with physical space constraints, so they cannot afford to keep inventory that doesn’t sell well. A corporation may carry less inventory by using a virtual warehouse since it allows them to readily observe and fulfil requests from many locations rather than warehousing every item in every warehouse.

Enhancing Omnichannel Operations

A virtual warehouse may make omnichannel retailing easier for a business. For instance, it may enable a business to provide its goods outside of the confines of its own locations. By keeping the inventory management system current and exchanging that information with customer relationship management (CRM) and order management systems, virtual inventory, for instance, may allow procedures like buying online, picking up in-store, or buying online, and returning in-store.

Managing in-store Customers

Additionally, virtual inventory keeps out-of-stock merchandise from becoming an issue for your in-store clients. By reserving a portion of your inventory for recurring in-store traffic and designating the remainder for online orders either through your own eCommerce store or a marketplace like Amazon. This gives you stock protection, and if necessary, you may change the segmentation in the future to suit sporadic demand.

Manage Pre-orders

Supporting pre-orders for new items is an essential aspect of virtual inventory. This is particularly important in the case of “hot items” like the newest pair of designer shoes. Let’s say you have 1 million units on order from the supplier and want to allow buyers to place pre-orders a week before the product is really on sale. You may decide how many units will be made available for presale and keep track of how many are available, sold, reserved, in-flight, or being refilled using virtual inventory.

Challenges of Virtual Inventory

• Virtual warehouses have several major IT infrastructure concerns. 
• A number of associated systems, including ERP, inventory management, and warehouse management, are needed to develop a virtual warehouse system. 
• If inventory management systems and warehouses are not connected, problems may occur because if they are, firms may wind up keeping more goods in each channel. 
• A major time and resource effort is necessary to guarantee that all systems are connected and communicate information in real time while working with many suppliers.
• In addition, setting up too many virtual warehouses might cause inventory management issues for some businesses. 
• For instance, distinct virtual warehouses for various channels, sales areas, or even extremely large and essential individual clients, might be set up. 
• Conflicts may develop, though, because several virtual warehouses are using the same real inventory data. 
• Conflicts may be handled, although doing so may need strict business process rules or automated conflict avoidance algorithms.

Difference between Physical Inventory and Virtual Inventory

Physical Inventory	Virtual Inventory
For all the items in the catalogue for which stock management has been enabled, the physical inventory reflects the stock, inventory, or amount of units that are present in a warehouse or warehouses at a particular time.	Based on the physical inventory at a particular moment, buy orders pending receipt and purchase orders pending shipping or delivery, the virtual inventory indicates the stock, inventory, or amount of units that will be stored in a warehouse in the near future.
Physical stock is what you see in your stores/warehouse.	2. Virtual inventory contains items that have been billed but haven’t been picked up from the warehouse or purchase orders that have been placed but haven’t been delivered to the warehouse yet.
Physical Location is nothing more than a warehouse’s interior location. This might be considered one of the locations, shelves, or racks used for loading and unloading goods.	3. Virtual Locations are mostly made to store lost or discarded inventory or to receive goods that are being transported to the relevant warehouse.
Physical inventory serves as the logistical foundation for each transaction as the goods advance towards a particular channel for fulfilment.	4. Virtual inventory is the retailer’s total opportunity for sales.

Conclusion

A retailer’s whole accessible inventory for the items it carries is compiled in a virtual inventory, which is a digital database. Along with fostering consumer loyalty, creating a virtual inventory aids in the competitiveness of merchants of all sizes. If a virtual inventory offers a bigger or richer product variety than the competitors, then displaying it gives a business an edge over them. By reducing the possibility that customers may search elsewhere for particular items, having a virtual inventory can increase customer loyalty. 

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