Meeting consumer expectations in today’s omnichannel sales environment is complicated, to say the least. To capture demand, brands have to be selling where their customers are shopping – which is essentially everywhere, all the time. To win customer loyalty, they have to offer the delivery options their shoppers have come to expect.
And there are a number of market pressures that make meeting the demands challenging for most fast-growing brands. The first is cost – both time and resources. While we’ve seen some stabilization in the freight and warehousing markets, many businesses are still reeling from the supply chain volatility of the past three years. A recent survey revealed that in 2022, 79% of merchants experienced increased warehousing costs, and 39% found labor management in the supply chain was more time-consuming.
The second is changing consumer expectations. Most brands found it challenging enough to meet the fast shipping standards normalized by Amazon, but consumer shopping habits have evolved. Survey data reveals that 90% of consumers actually value having options for delivery more than they value delivery speed.
With this growing complexity and market pressure, brands are seeking warehousing and fulfillment solutions that strike a balance between prioritizing customer experience and preserving profit margins. Fulfillment networks must be diverse and flexible, but with the right technology and partnerships in place, they don’t have to be complex.
The Right Place at the Right Time
Warehouse placement and inventory distribution have never been more critical to a successful fulfillment strategy. Having the right inventory in the right place at the right time is key to capturing sales and meeting consumers where they want to be met by:
● Lowering time in transit (TNT) to enable faster, more affordable delivery
● Decreasing reliance on air shipments to improve margins
● Enabling geographic targeting based on customer location and inventory availability
The most strategic brands master inventory placement all the way down to the SKU level. It’s not helpful to be flush with inventory on your red trekking poles on the East Coast when you know you only move blue on the East Coast and you’re out of stock on the West Coast.
At the end of the day, the primary challenge of inventory distribution for most brands is the nuts and bolts of exactly where they need to be staging inventory. Historically, an analysis to recommend warehouse placement was prohibitively expensive for any brands outside of enterprise retailers.
Fortunately, new developments in machine learning and AI have enabled self-service fulfillment technology that can quickly ingest historical data to map multiple scenarios that show the percentage of one- to two-day ground coverage that can be achieved with one, two, or three additional fulfillment nodes. However, that’s not the only piece of the puzzle.
The True Balancing Act
Securing space in the most favorable markets can be complicated due to the volatile state of the warehousing market. While warehouse capacity continues to improve, vacancy rates remain low, and labor continues to be challenging. A general network analysis, while a great starting point, won’t take all of these factors into account.
To overcome these obstacles, it is essential to identify emerging warehouse hotspots with comparable ground shipping coverage to legacy markets. Business intelligence can play a crucial role in this process.
Several factors should be taken into consideration when determining the right warehousing markets:
● Proximity to customers: to not only improve delivery speed, but decrease cost by lowering TNT and decreasing reliance on air shipments
● Proximity to ports or manufacturers: optimizing time in transit (TNT) on inbound shipments to offset freight costs
● Space availability: A warehouse’s or 3PL’s willingness to negotiate rates and contract terms depends on capacity
● Storage and labor rates: which significantly impact operating costs and margins on a per-shipment basis
The Role of Inventory Management
Beyond simply being in the right place at the right time, effective inventory management is equally important to balancing performance and cost. Management tools for successful inventory distribution include:
● Balancing inventory carry costs against performance: striking the right balance of speed and cost by stocking warehouses based on demand
● Analyzing at the SKU level: tailoring inventory distribution according to product demand in different regions
● Demand forecasting: using past sales data, industry trends, and promotional schedules for more effective labor planning
● Fast inventory replenishment: utilizing a hub-and-spoke network to replenish fulfillment centers quickly in response to changes in demand
● Order orchestration: leveraging advanced fulfillment technology that considers not only proximity to the customer and inventory availability but channel prioritization, weather events, labor capacity, and more
The Future of Distributed Warehousing
In the current economic climate, brands may be hesitant to take on the additional costs associated with inventory distribution. While it is true that additional nodes do lead to additional overhead, emerging co-warehousing solutions allow multiple brands to share storage and labor rates.
A recent survey revealed that 74% of merchants believe that the future of fulfillment lies in shared, co-warehousing models. Merchants acknowledge several benefits of co-warehousing, including:
● Cost savings: by sharing warehousing resources, merchants can reduce operational costs
● Optimized inventory distribution: co-warehousing allows for strategic placement of inventory to cater to diverse markets effectively
● Scalability: merchants can easily scale their fulfillment operations to meet growing or contracting demand
As brands enhance their fulfillment strategies, balancing consumer expectations with margin preservation becomes paramount to staying competitive in the market. The right technology to analyze trends paired with the right partnerships that implement end-to-end business intelligence will enable a flexible and sustainable approach to inventory distribution that lends a competitive edge in this competitive omnichannel environment.
Kelton Kosik is the head of supply chain at Ware2Go.