In simple words, inventory positioning involves smart decisions about physical location and the quantity of certain items needed at specific locations. It’s a crucial part of your business’s logistics strategy. An effective inventory positioning strategy cuts expenses and prevents shortages.
What does Inventory Positioning mean?
Inventory positioning is using demand forecasts to move excess inventory and better your business models at supply chain level, order fulfillment process and customer experience. It calls for predicting the popularity of your products, the replenishment timeline, and the sales’ origin. For instance, storing winter coats in a Miami warehouse is unnecessary, but they are crucial in colder regions.
The True Essence of Inventory Position
Inventory position is not just about numbers. It’s about balancing sufficient stock to always meet customer demand demands without locking too much capital in surplus stock. A sound understanding of your inventory position and optimal strategy lays a solid base for successful business operations.
What is the role of Inventory positioning strategy in warehousing business?
The way we store and deliver our stocks impacts our high volume products and how efficient we are at our operations and costs. Investing in inventory is critical to improving stock availability in warehouses and delivering products, which can be done in warehouse inventory management, warehouse operations, and distribution systems.
Inventory position holds high significance for businesses aiming to streamline their operations and increase profits. It involves defining KPIs, tracking your inventory levels, understanding customer needs, and efficiently managing your supply chain. It gives you control and visibility over what’s in storage space, your bins, on your production lines, on retail shelves, and in transit by your suppliers.
Why Your Inventory Position Matters
Understanding your inventory position helps avoid problems like stock outs and overstocking, impacting customer satisfaction and cash flow. It also identifies fast-moving and slow-moving products to optimize your inventory turnover ratio. Moreover, it allows for better business operations planning inventory forecasting through proper planning and execution, leading to less operating costs and increased profitability.
Inventory positioning helps firms find exactly what the clients need at the right time and place units in at the right places. Managing how inventory flows through the supplier supply chain is important for a company to respond quickly and efficiently and improve business productivity.
How Do You Determine Your Inventory Position?
Determining your inventory position needs several steps and a mix of technical skills and technology. Assess your inventory levels, your average inventory and your inventory position formula, set up buffer stock levels, establish your reorder point, and always remember the SLAs with your suppliers.
For the best physical positioning of your inventory and lead time, consider the inventory turnover and day sales inventories if any. To calculate your inventory, add raw materials, work in process inventory or finished goods and subtract any backorder units.
Positioning Your Inventory
Inventory positioning makes you decide how many units of which items to keep storing inventory, in which warehouse and even the position and accessible location of certain SKUs within a warehouse for quick picking and order fulfillment speed.
Imagine a company collecting newspaper from a newspaper agency then sending the papers back to its customers. This is one instance that shows the position at the time when the papers are temporarily held and the supplier collects them in the order they’re delivered. Located here, the service is designed to complete fast-moving orders. Note that in this example only newspapers are considered stock, but vehicles are deemed assets.
Enhancing Inventory Position
A robust inventory positioning strategy needs warehouse positioning inventory management software, especially for companies handling large volumes of goods across multiple points in the supply chain. Upgrade your warehouse level inventory management system, position inventory on warehouse racks based on volume, consider weights and dimensions of inventory, and even outsource your fulfillment to a 3PL.
3PLs in Inventory Position Management
Third-Party Logistics providers, or 3PLs, have a critical role in the storage costs and managing inventory position ecommerce companies. They offer comprehensive services, from manufacturing to delivery, and valuable insights into your inventory cycle and business costs. 3PLs can improve your supply chain management, reducing inventory costs and better controlling your inventory position.
Your Suppliers Matter in Inventory Positioning
How you work with your suppliers can make a big difference in overall supply chain, economic efficiency and inventory positioning. You should ideally have an inventory report that guides your monthly decisions to save up on resources.
Here’s how a good Supplier Relationship Management (SRM) can help:
- Clear Communication: If you talk effectively with suppliers, you’ll both know what to expect about demand and delivery. This can help avoid having too little or too much stock.
- Faster Responses: Good relationships often mean faster responses from suppliers. This reduces lead times, helping you position your inventory better.
- Problem Solving: If something goes wrong, strong relationships mean quicker solutions. This helps to keep your inventory levels stable.
- Negotiation Chances: A good relationship with suppliers can help you negotiate better deals. This can help reduce your inventory costs.
How Global Events Affect Inventory Positioning
Big global events can really shake up inventory positioning. Things like natural disasters, politics, or pandemics can change demand and the supply chains in big ways.
- Demand Changes: Big events can change what customers want. During the COVID-19 pandemic, people suddenly needed more personal protective equipment and home office supplies. Companies had to adjust their inventory positioning fast to meet these demands.
- Supply Changes: Events can also affect supply. If your supplier is in an area hit by a natural disaster, they might not be able to deliver. This could lead to stock shortages and need for urgent adjustments in your inventory strategy.
- Risk Planning: These big disruptions show why businesses need to plan for risks in inventory management. It’s smart to have different suppliers, keep some safety stock, and review demand forecasts often.
These topics show how understanding inventory positioning, demand variability and customer demand can help businesses meet customer expectations and needs, even when unexpected things happen.
Learn from Successful Inventory Positioning Examples
Let’s explore how Amazon and Zara mastered inventory positioning.
Amazon’s inventory game is strong. It uses sharp demand forecasts, good inventory positioning for high demand items and smart inventory positioning for high demand and quick, efficient deliveries.
- Amazon uses different types of warehouses for different jobs, like storing, sorting, and shipping. This network helps in fast deliveries.
- It uses smart algorithms to understand what people buy, when, and where. This helps Amazon store products close to customers, cutting down delivery times and costs.
Zara, the famous fashion brand, credits much of its success in retail stores to smart inventory management and right inventory positioning strategy.
- Zara makes small batches of new designs. This way, they don’t risk having too many unsold items, and it also keeps customers coming back for new stuff.
- Zara keeps its production facilities close to key markets. This allows them to restock stores quickly based on demand.
- With smart inventory positioning, Zara can bring out new designs every few weeks, which keeps customers excited and sales high.
Concluding Thoughts about Inventory Positioning
Understanding your current inventory position is crucial. By incorporating the steps outlined here when calculating inventory position, businesses can master their inventory levels, boost their operations, and improve profitability. Keep these points in mind as you aim to improve inventory positioning for better inventory control and business success.