Inventory positioning is a series of strategic decisions about the amount of particular materials and products you need at particular locations. By implementing an effective inventory positioning strategy, you can help your company reduce expenses and prevent shortages. Inventory accounting is an important part of the logistics strategy of your business. By keeping the ideal amount of product on your shelves and the ideal inventory level in your warehouses, your company can save on shipping costs while meeting customer demand for your products.
What Is Inventory Positioning?
Inventory positioning is when you use demand forecasts to optimize your order fulfillment process and enhance your customer experience. It requires you to predict not only the popularity of your products and the timetable for replenishment, but also where the sales will originate. You would not want a huge stockpile of winter coats in your Miami warehouse, but winter clothes are your stock-in-trade in the areas of the country that experience a cold winter.
Inventory Position Explained
Continuing the above example about the winter coats, inventory positioning requires you to stock a lot of winter coats in retail stores in the fall in parts of the country where temperatures stay cold for several months of the year. You would also want to warehouse racks in your warehouses in Buffalo and Cedar Rapids with winter clothes, to avoid stockouts as your retail stores frequently replace the stock levels in their stockrooms. The warehouse level of winter coats in your Miami warehouse should be lower. People in the Sun Belt might need to order winter coats in preparation for travel, but they will probably order them online for delivery.
Why Is Inventory Positioning Important?
Inventory positioning is important because it accounts for many factors that influence supply, demand, and order fulfillment. It allows for timely delivery when you keep the correct item or items from each product line in the correct field warehouses. This speeds up order fulfillment, improving the quality of the customer experience. Inventory positioning also enables you to take advantage of surges in demand and protect your company from financial losses arising from chance events. No matter the size of your company or the price point of the average article you sell, inventory positioning makes your company run more efficiently. With a bit of research and effort, you can develop an effective inventory positioning strategy.
If your company operates multiple warehouses, then not every warehouse should have an identical cache of stock. Not every larder of every warehouse should have the same number of units of the same things. The goal is the ease of provision of the SKUs that you need to access to fulfill customer orders. There is also the question of the location of customers, so you should think about the channels by which these products can reach the customer.
Fulfillment speed is the sum of all the legs of a product’s journey between the time the customer orders the goods and when the finished product reaches the customer. If there are stockouts, fulfillment speed will experience delays as the warehouse waits for a new shipment of supplies. Fulfillment speed is lower with everyday consumer goods because the items have long since gone into production by the time the customer orders them.
Inventory positioning enables you to achieve a more predictable inventory flow. With an effective inventory positioning strategy, you do not have to shift your expectations constantly with every fluctuation of supply and demand. You can take your sales data from previous seasons as examples on which to base your projections on supply and demand for the remainder of the current season.
Perhaps the clearest advantage of inventory positioning is that it enables your company to save on costs. By keeping the correct products in the correct places, you can reduce travel costs. You can also reduce the instances where you must sell products at a loss just to make more room in your warehouse.
How to Position Your Inventory?
Inventory positioning requires you to decide how many units of which items to keep in which warehouse. It also involves deciding on the position of certain SKUs within a given warehouse, to allow for speed of picking and order fulfillment.
How to Optimize & Improve Inventory Position
The best way to develop and implement a successful inventory positioning strategy is with warehouse management software. If your company handles a large volume of goods across multiple warehouses and various points in the supply chain, then successful inventory positioning requires a more complex analysis of a higher volume of data than human beings puzzling over a spreadsheet can achieve.
Use an Inventory Management System
Your company’s efficiency and customer satisfaction will increase if you invest in an inventory management system that is capable of inventory positioning. Most warehouse management software has demand forecasting features. You may need to upgrade your inventory management software in order to manage all aspects of your inventory positioning strategy and its implementation.
Position Inventory Based on Volume
Sales volume is a primary concern in inventory positioning decisions. You want to keep some safety stock on hand, but you should consider seasonal fluctuation in demand for certain items. You do not need nearly as many pool noodles in your Cedar Rapids warehouse in February as you do in May. If you keep too many of them there in the winter, you will be paying to store them, when you could have used that storage space for more in-demand items.
Consider Weights, Dimensions, and Movability of Inventory
When items are easy to move, then storing them in a less-than-ideal location in the warehouse is not a big problem. It is easy enough to move them to a different larder. With heavy or bulky merchandise, though, you must consider your inventory positioning decisions more carefully.
Outsource Your Fulfillment to a 3PL
If you outsource your order fulfillment processes to a 3PL, then you are no longer responsible for the hassle of inventory positioning decisions. In some ways, an inventory positioning strategy is easier when you have numerous warehouses, full of goods that belong to many different companies. With more warehouses, the nearest warehouse is nearer to any given customer, reducing the time and cost of fulfillment.
Inventory positioning strategy is an important aspect of warehouse management. By investing in inventory positioning software, you can find workarounds for common problems like stockouts and fulfillment delays. You can also save on costs, enabling you to provide your products to customers at an affordable and competitive price.
Inventory Position FAQs
These are some common questions that warehouse managers ask about inventory position and inventory positioning strategy.
What Is Inventory Position Formula?
Inventory position formula is a mathematical equation that enables you to know how much of a given product you have on hand and how much you will likely need in the near future. It is useful for informing your decisions about reordering and replenishment of stock.
What Is Inventory Position in Supply Chain?
In supply chain logistics, inventory position refers to the locations of consumer-ready products at the company’s various warehouses. Warehouses that deal with raw materials and products in progress tend to use the term supply chain positioning as a concept analogous to inventory positioning for retail warehouses.
What Is Inventory Management Position?
An inventory management position is when warehouse managers make strategic decisions about how many units of each product to keep on hand at any given time in each of the company’s warehouses. It requires complex feats of demand forecasting and fulfillment strategy. Therefore, inventory management software is a must for a successful inventory positioning strategy. At ShipHero, we also call inventory positioning load balancing.