For ecommerce businesses today, inventory management is a difficult balancing act. To avoid overstocking (which ties up working capital) and stockouts (which can lead to a loss of customer trust and sales), they must be able to maintain the right amount of the right products in the right warehouse and fulfillment center locations at the right times.
Failing to effectively manage your inventory can be costly. Recent research reveals that:
- Overstocking causes retailers globally to lose around US$362 billion annually due to high costs for storage and excess inventory.
- Stockouts result in retailers globally missing out on nearly $1 trillion in revenues.
The financial health of your ecommerce business depends, to a significant extent, on your ability to deploy your inventory in the most efficient manner possible.
But many online retailers discover that – as their business expands across different markets, product lines, and sales channels – inventory management becomes increasingly complex and challenging.
Many of these companies look to third-party logistics (3PL) providers to help them manage and monitor their inventory and other areas of their logistics operations (such as order fulfillment) as well.
Working with a 3PL like Amazon Multi-Channel Fulfillment (MCF) can enable you to optimize your inventory – giving you the ability to utilize your stock to consistently satisfy customer demand, while decreasing inventory holding costs along with other operating costs.
In this guide, we will explain how a 3PL can help your ecommerce business effectively manage your inventory and explore the benefits of outsourcing your inventory management to a 3PL.
Engaging a 3PL can enable your ecommerce business to get the most out of your inventory, empowering you to use your stock to meet demand (while minimizing the costs associated with inventory management).
How exactly can a 3PL help you optimize your inventory management? By driving improvements in six key areas:
- Missed sales opportunities, if you have available inventory but it’s showing that you are out-of-stock on your online channels.
- A poor customer experience, if your customers are placing orders against inventory that you don’t actually have available for sale.
A 3PL can help you improve your inventory accuracy by:
- Utilizing state-of-the-art technologies such as scanners to document your products when they arrive at the 3PL’s facilities, warehouse management systems to give you accurate, real-time visibility over inventory levels, and integrations that seamlessly connect your 3PL’s systems with your ecommerce sales channels, order and inventory management systems, and other back-end systems you use.
- Implementing processes such as inventory checks and cycle counts as well as rolling audits to catch and correct any errors or discrepancies.
- Some 3PLs – like MCF – charge by cubic feet for storage, while others charge you based on stock keeping unit (SKU), bin, or pallet, or a combination of metrics.
- Some 3PLs – like MCF – offer a flexible, pay-as-you-go arrangement for storage, while other 3PLs compel you to enter into long-term contractual agreements that stipulate storage and throughput commitments.
As we’ve discussed above, entrusting your inventory management to a 3PL provider can have a positive impact in many operational areas, and can help you drive improvements against numerous critical key performance indicators (KPIs) including:
Effective inventory management is a critical capability for multi-channel ecommerce businesses today. To meet demand and minimize operating costs, you must be able to attain visibility and control over your inventory and maintain the right stock levels in the right warehouse and fulfillment center locations at the right times.
Engaging a 3PL – like Amazon Multi-Channel Fulfillment (MCF) – can empower you to optimize your inventory management and utilize your stock to drive greater customer satisfaction, cost efficiency, and competitive advantage.