You choose your own products. You submitted the purchase order. You have your inventory.
Now comes the question of where to put it.
Inventory positioning is just as important as inventory order quantity; after all, having a lot of inventory is useless if you can’t get to it when you need it.
With a good inventory positioning strategy, your e-commerce business knows where to store your inventory, allowing your customers to receive orders on time, error-free, and improve inventory efficiency and fulfillment speed.
Inventory Position Definition
Inventory positioning refers to where a company’s inventory is kept — both physically and in relation to the overall supply chain.
In other words, “inventory position” refers to where and how inventory is stored on warehouse racks, as well as where inventory units are stored in the supply chain (such as stores, warehouses, or production lines).
Inventory positioning, when optimized, ensures that order fulfillment SLAs are met while also keeping logistics and inventory costs low.
Inventory position can also be used to calculate the total amount of inventory owned by a retailer in the context of inventory accounting. The inventory position formula is as follows:
Backorders – (on-order inventory + on-hand inventory) = Inventory Position
Importance of Inventory Positioning
The location and orientation of your inventory — both in storage and throughout your supply chain — has a significant impact on operational efficiency, operating costs, and customer satisfaction.
Physically positioning your inventory to be easy to find and highly accessible in the warehouse makes picking easier, which improves overall fulfillment speed.
It also reduces the likelihood of current inventory being misplaced or forgotten about, reducing waste and average inventory holding costs.
On a supply chain level, storing inventory in a stage of the supply chain that minimizes lead times allows you to better meet customer demand. When your inventory is available in the locations and channels where it is required, you avoid stockouts, which irritate and drive away customers.
Furthermore, locating inventory near popular order destinations reduces shipping time while also lowering shipping costs.
What is the best way to position your inventory?
It can be difficult to understand how to physically position your inventory, as well as the best locations and supply chain stages. Here are some pointers for positioning your inventory in warehouses, across locations, and throughout your supply chain.
- Make sure that high-volume products are readily available.
Keep in mind which SKUs have the highest turnover rate when designing your warehouse layout. Keep these items in easily accessible locations to allow for faster replenishment. This saves pickers time and accelerates the overall order fulfillment process.
Ensure that high-demand items are also kept in stock at fulfillment centers that are physically close to popular order destination points (such as major metropolises), as this significantly reduces delivery times.
If an SKU is in high demand, you can afford to keep it much further down your supply chain. When you can predict that a product will be in high demand, you can order stock ahead of time and place units as close to customers as possible to reduce lead time.
It is preferable to delay placing a purchase order with your supplier for less popular items until a customer place an order for that item (to avoid higher holding costs).
- Plan for future surges by forecasting demand.
Accurate demand forecasting allows e-commerce businesses to position sufficient inventory in the appropriate locations and channels to fulfill all customer orders.
While safety stock levels are adequate, poor demand forecasting can result in shortages and backorders, both of which are unsatisfactory to customers. Subsequent inventory redistribution also increases storage and shipping costs that could have been avoided with better forecasts.
While it may be tempting to forecast demand once and then position inventory accordingly, e-commerce businesses should view demand forecasting as an iterative, never-ending process.
Seasonal and regional trends influence demand, necessitating a change in inventory position.
- Heavy or bulky SKUs should be kept at the bottom of your racks.
It makes no sense to place your heaviest or least-movable SKUs at the top or bottom of your warehouse racks for obvious reasons.
Instead, keep them as close to ground level as possible so that accessing them does not pose a safety risk or require excessive effort.
Simultaneously, adjust slotting for bulky SKUs based on popularity. Keep them in a convenient location if they tend to flip over frequently. Smaller, lighter, or more frequently ordered items should be placed ahead of them if they are rarely ordered.
- Let the professionals handle inventory positioning.
Inventory positioning is complicated, but mastering it is critical to providing a positive customer experience.
Rather than struggling with inventory positioning for months on end, thousands of small to midsize ecommerce businesses have chosen to outsource it to Chicago Shipper.