More Inventory, Less Warehouse Space: How Virtual Inventory Works


The omni-channel environment consists of demanding, knowledgeable consumers who expect a seamless, customized shopping experience. They want to order from anywhere, at any time – these empowered shoppers have changed fulfillment and transportation in retail supply chains.

To enhance the customer’s shopping experience, retailers are building virtual inventories. Virtual inventory is an all-inclusive list of a company’s products that can be sold to a consumer; the products might be in a retail store, stock room or warehouse.

Think about it like this: When a customer places an order for new shoes, a system scans and checks the virtual inventory list to determine the product’s location in correlation to the customer. Based on this information, the employee has the shoes picked, packaged and shipped to be delivered to the requested destination.

Inventory management is a differentiator in the omni-channel retail world. Creating inventory visibility means shared data across all shopping channels.

Effective virtual inventory optimizes retail fulfillment by locating the product closest to the consumer and choosing the best routing option, determined by time and cost.

Amazon, the world’s largest online retailer, has an enormous library of virtual inventory. They operate out of more than 100 fulfillment centers and offer unrivaled options in shipping. Amazon has significantly influenced customers’ expectations in service and product options.

Now, these expectations are universal and all businesses are expected to provide the highest level of service. This strains logistics functions – especially transportation, which struggles to provide the necessary capacity for increasing freight tonnage and arriving at varying destinations on time.

Virtual inventory practices help meet high expectations. Using various stores and warehouses as sources of inventory, a retailer provides superior customer service through faster delivery at lower costs.

Even smaller companies can emulate the virtual inventory process and compete with Amazon and other mega-retailers. Virtual inventory providers assist companies to build inventory in various locations and enable them to offer their consumers fast and cheap fulfillment.

But, like other supply chain practices, a virtual inventory comes with risk:

BenefitsRisks·         Shorter transportation routes/ less OTR miles: Shipping from location with the closest proximity to consumer.·         Poor delivery performance directly affects the brand’s reputation.·         Offer customers products that aren’t in-house.·         Integration and adoption of the order processing system across all inventory locations.·         Offer more brands within product categories.·         Accommodating the increased inventory.·         Increase product offerings without buying additional warehouse space.·         Shipping strategy must meet demand.

Virtual inventory is a key component to retail’s omni-channel strategy because it permits retailers to sell store products in locations outside of their own store fronts and distribution centers. For virtual inventory to be a successful strategy, it requires technological integration and buy-in from the company, its suppliers and its distribution and store operations.

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