Effectiveness of Localizing Inventory


The first blog in our series on delivering a successful holiday selling season emphasized logistics factors in preparing for the holiday season. The second article focused on the ability to measure supply chain performance and feed those insights back into both the executional loop as well as the decision-making process for future investments. This blog will discuss how organizations can benefit from localized inventory.

Localized inventory can refer to both regional and metropolitan boundaries, with the purpose of increasing the speed at which retailers service consumer demand and replenish store inventories. However, the level of complexity and the operational capability required both increase the closer the inventory is positioned to the planned demand centers. This occurs because once inventory is positioned, in any location, there is a cost and time premium to move that inventory beyond its local borders. That said, Improvements to both fulfillment and reverse logistics operations across speed, cost and service, can be realized through purposeful deployment, maintenance and usage of local inventory.

Local inventory can be effective in fulfilling both pure digital demand as well as Online to Offline (O2O) demand. For reverse logistics, the seasonal clean-up period can often span the entire next season, slowing inventory turns, tying up working capital and preventing revenue recognition. With localized returns retailers can increase consumer satisfaction by enabling local drop-off locations and supporting same-day fulfillment through an increase in local inventory supply.

Demand Fulfillment

Speed. Local inventory moves faster, requires fewer touchpoints and has a lower carbon footprint than air freight, an often used shipment mode when ground transportation is not fast enough. Speed increases the probability of fulfilling consumer demand as well as increasing consumer satisfaction.

Cost. Inventory kept locally does not incur unnecessary transportation and handling costs back-and-forth to a central distribution center and likewise lessens the need for air freight to service demand. Forward-deploying inventory also creates the opportunity for add-on sales via pick-up-in-store.

Service. Consumers can and often do switch preference between brands for service-related issues. Similarly, demand can be increased through enhanced fulfillment options: pick-up, same day delivery, etc.

Reverse Logistics

Speed: Time is money, and unproductive inventory has less value. Organizations can increase inventory turns, reduce working capital and capture margin by quickly moving inventory from full-price locations to off-price locations. Similarly, receiving and maintaining consumer returns through local infrastructure increases the velocity to turn that return into a profitable, full-price sale.

Cost: Inbound transportation costs can be reduced or eliminated by allowing local drop-off of consumer digital returns. Likewise, store to store transfers of off-season merchandise to local value stores can be a more cost-effective option than sending back to a central distribution center (which in turn are repacked and sent back out into the marketplace).

Service: Organizations can increase customer satisfaction by allowing in-store returns and dedicated drop-off locations, compared to consumers being responsible for mailing returns to a central DC. And by having the inventory stay locally, this increases the inventory pool available to fulfill same-day and next-day orders through local pick-up and local delivery.

Localizing inventory has the potential to expand demand fulfillment options, increase return velocity, decrease overall logistics costs and improve the consumer experience. And localizing inventory does not increase a retailer’s total inventory position or inventory storage capabilities. A retailer is simply moving the inventory closer to the demand point to increase velocity and decentralize the inventory pool. But to realize such gains, organizations need to engage in pre-work activities such as forward-deploying inventory, invest in O2O capabilities and leverage enterprise data and analytics capabilities. The reward, for such investments, can be enhanced operational performance in the current season and reduced friction for post-season activities and product redeployment.