Strategies of Inventory Management
Let us try to understand the most effective inventory management strategies being used worldwide. The 4 most commonly used strategies are:
Drop-shipping
Under this system, inventories are not stored by the person running e-commerce platforms. They advertise the products on their platform and when the order is received, these e-commerce operators pick the products from third party and deliver them directly to the customer. In simple words, they advertise and sell someone else’s products under their own name. Such third parties act as suppliers of e-commerce operators.
Here, they simply act as delivery agent under the name of e-commerce platforms which they run. Say, for example, Online Shoppers is a very famous platform for a variety of products such as household, electronics, mobile and accessories, clothing and much more. But they don’t operate from a warehouse and supply products by purchasing through a third party, say, a local wholesaler. Now Online Shoppers received an order of a pair of T-shirts. It will purchase these T-shirts from his supplier, that is, local wholesaler and will sell it to the customer.
Advantages
Selling products with this strategy can benefit the operator in various ways. Some of the benefits of drop-shipping strategy are:
- It saves cost to the operator. As no stock is required to maintain, there will be no carrying costs and holding costs. Eventually, can be operated with minimum overheads.
- This strategy also requires lesser capital as compared to other strategies. This is because the operators don’t store inventory and hence, they do not own or rent a warehouse. This also means that no supervision or handling of stock takes place. A lot of costs are saved through this method.
- It is an accessible option. One can start an online business easily through this method. And with the least or zero management cost.
- The operator has a benefit of operating its online business through a location feasible to him. As he may have delivery persons at different place who can buy from suppliers at respective places and sell directly to the customer. This saves the cost of transporting goods in case if the e-commerce operator had maintained a warehouse.
- The customers are provided with wide variety of products range. As the operator is not required to store inventory, he does not have a fear of stock getting damaged or outdated. Therefore, he may offer a variety of products.
Disadvantages
Along with the various advantages of drop-shipping, there are certain disadvantages of drop-shipping too. These are:
- The e-commerce operator is required to keep a lower margin because he will not be able to get customers if his products cost more than local manufacturer or wholesaler. This means that ecommerce operator will earn a lesser profit.
- Sometimes they may face an issue with the inventory such as the stock is not available with the local suppliers which may lead to delayed delivery or cancellation of order.
- There may arise problems relating to the shipment of goods in case if the location of supplier and customers are very far.
- Drop-shipping has a disadvantage of customization. The e-commerce operator does not generally have an option to modify the packaging of order which also restrict the scope of branding.
Just In Time
Just in time inventory management technique is mostly used in manufacturing companies. Companies just keep the limited stock that is required and nothing more than that. This requires a lot of research and evaluation to arrive at the level which is simply enough. Just in time in e-commerce have same functioning generally. These operators maintain only such amount of inventory which is enough according to the demand. This strategy is more feasible if there are more than one supplier which reduces the risk of failure of supply chain.
Advantages
- It reduces the cost of company as no extra stock is kept by the company.
- Establishes a strong communication network among various departments internally.
- It optimizes management of inventories with least wastage.
- Companies make little investments in stores.
Disadvantages
- This strategy cannot be easily implemented due to lot of evaluation.
- High chances of supply chain failure.
- Keeping stock to a limit may lead to a problem of stockout.
Cross Docking
Cross docking is a logistic technique as well as inventory management technique in a way. Here, goods are not stored in the warehouse. Instead, goods are received from different suppliers and unloaded from the incoming conveyance and directly loaded into out going conveyance after sorting these properly as per the order requirement. Cross docking is not much popular while we talk about e-commerce but it can be proved very significant strategy.
Assume that Mr. X, manager of Online Shoppers receives 2 orders to deliver. The first order contains 400 T-shirts, 150 denim jackets and 210 pair of shoes and the second order is of 100 T-shirts, 240 denim jackets and 70 pair of shoes. Mr. X ask supplier of T-shirt, denim jacket and shoes to supply 500 T-shirts, 390 denim jackets and 280 pair of shoes. On receiving the order, he sort it as per the order details and load them to supply further.
Types
Types of cross docking are listed below:
- Manufacturing cross docking
- Distributor cross docking
- Transportation cross docking
- Retail cross docking
- Opportunistic cross docking
Advantages
- It helps in delivering orders quickly as no storing of goods takes place between unloading and loading of goods.
- This strategy has less risk.
- It saves lots of time and money as goods are loaded directly along with unloading.
Disadvantages
- All the details of goods to be received and to send back further are required to maintained with a computerized system which becomes a tricky task.
- The whole system is dependent on transportation facility. Therefore, it calls for proper planning and co-ordination of system.
- Also, the suppliers should be trusted one that provide on time delivery of goods.
Pop-Up Fulfilment Centres
Pop-up fulfilment centres are getting very trendy these days. With an increase in choice of people shopping online or getting stuff delivered at doorsteps, the requirement of pop-up fulfilment centres has also increased. When the e-commerce operator estimates that demand is going to increase, it establishes a pop-up centre and supply inventory to it as per estimated demand. And any item left at the end are returned back to the main centres. This is not a permanent structure. These centres are established only when there is a major increase in the demand.