Inventory: Where to Position It – Part 3

By Josh Coughlin, CTO

Welcome to part 3 of this series in which I share episodes from my days working at a manufacturer. In the last blog I wrote how acting early on poor performing items can mitigate lost revenue & profit and increased capital carrying costs.  Poor performers can affect the financials not only for your company, but the retailer(s) you serve for the quarter or possibly the entire year.  In my experience the action taken to mitigate the damage is taken too late. It is all reactionary. However, acting early can have a significant impact on saving profitability. Even before goods are shipped from overseas, you should start thinking of where and how to bring product closer to the end consumer.  If you use only one warehouse, then your options are limited. However, if you have multiple warehouses or can contract the use of a 3PL your options increase dramatically.

The game changed when Walmart started requiring their vendors to include the freight factor in cost sheets.  This was usually looked at quarterly and was an average percentage of what it cost Walmart to get product from a vendor’s warehouse to the stores.   When you were competing against other vendors for the same program, you could lose the program with a 1-2% increase in freight factor..  In a perfect world you could get the order while the goods were still in your overseas factory.  You could label the order and ship to 2 or 3 warehouses which would service the closest DC’s, cutting down the cost as well as the all-important transit time.  While in theory this makes perfect sense, I have never seen a manufacturer make it happen with a mass retailer.  This is due to any number of reasons, leading to the order not being sent to the manufacturer with sufficient time to get it positioned for initial floor sets.

It is challenging to do the kind of detailed analysis necessary to determine where demand is coming from for traditional brick and mortar orders, however E-Commerce is far easier.  Consumers increasingly expect shipping to be free. When it is not, it can create a pause in the buying process.  The last thing you want is the consumer to say, “Maybe I can get a comparable product where shipping is free.”- and there goes your sale.  For manufacturers who drop ship, you can analyze your transactions to see where geographically your sales are- and position inventory appropriately. If you use Amazon to fulfill your orders you can take advantage of their expansive network of warehouses.  Putting the right product closest to the consumer will cut down on your shipping costs as well as reducing ship times, creating a happy customer and more profit for you.  ERS can help you take E-Commerce transaction data and conduct this type of analysis quickly, creating an enormous ROI for companies.  Learn more here.