Centralized Inventory: Is It Right for Your Business?
Centralized inventory can optimize operations for many businesses. Learn how this inventory system works and whether it’s right for your business.
Discover how Circuit for Teams can improve your inventory management and boost your bottom line by optimizing your deliveries.
Centralized inventory is the part of a distribution system that manages your stock under a central warehouse or database, as opposed to scattering your stock across various locations.
Picture an omnichannel eCommerce fashion retailer with an online store and a brick-and-mortar location. Instead of managing inventory separately for each of these channels, they can use a centralized inventory system to coordinate and monitor all their stock from a single warehouse.
In the world of inventory management, centralized systems aim to improve operational efficiency and inventory control.
In this post, I’ll explain how centralized inventory works, compare it to decentralized inventory, and help you decide if it's the right choice for your business.
- Centralizing inventory is all about keeping all your stock in one place, making it easy to manage and keep an eye on your products whether selling online or in physical stores.
- A centralized method is great for simple stock management, but decentralizing can suit you better if your customers are scattered all over or if your products need various storage environments.
- Centralized inventory perks include simplified inventory management, cost savings and accuracy, and unified shipping and fulfillment.
- Downsides to centralizing your inventory include longer delivery times for far-away customers, increased shipping costs, increased risks in the event of a disaster, and limited flexibility.
What is centralized inventory?
Centralized inventory is all about managing your stock in a single location instead of spread out across multiple warehouses or storage facilities.
It’s often easier for businesses to consolidate their entire stock in one place, making managing and maintaining inventory levels, fulfilling orders, and monitoring product movement simpler. It’s a particularly helpful approach for companies with multichannel sales.
Centralized inventory is like the "control center" for all your in-stock items and various sales channels.
This central hub helps make sure your business always knows what's in stock, where everything is, and how much is available for selling or restocking. And even though you’ve got everything in one central location, you can organize your inventory to keep products easy to find.
It's a tidy way to track your inventory turnover and minimize errors. It can make a massive difference in your day-to-day operations and help you stay on top of everything related to stock-keeping units (SKUs) — no more hunting through various inventories or data sheets.
How does centralized inventory work?
Suppose you run a small online store selling trendy sneakers. You've got your main website, a presence on a few eCommerce marketplaces, and even a small physical storefront.
The key to a smooth operation here is a centralized inventory system.
Here's how it unfolds: You consolidate your entire sneaker collection into one central warehouse, which stores all the items you sell across all your sales channels.
Every time a customer places an order through your website, an eCommerce marketplace, or your physical store, the inventory levels at the central warehouse update right away. These real-time updates keep a consistently accurate record of your store inventory.
A centralized inventory system helps you avoid overselling or running out of stock and redesigns your entire order fulfillment process.
For instance, if a customer orders a pair of sneakers from your website and another pair from the eCommerce marketplace, both pairs are picked, packed, and shipped from the same warehouse. This makes inventory management a whole lot easier since you don't have to juggle multiple distribution centers and shipping processes.
Centralized vs. decentralized inventory
So, we've been talking about centralized inventory, but there's another way to manage your stock: decentralized inventory (or distributed inventory).
While centralized inventory handles all the logistics (including inventory and order management) from a single hub, decentralized inventory spreads it across multiple warehouses or storage facilities.
Decentralized inventory can be great if your customers are spread far and wide because it lets you store products closer to where they live. That means quicker delivery and lower shipping costs.
But decentralized inventory can be a bit trickier when it comes to warehouse management.
When you're juggling stock between different locations, things can get a bit more complicated and lead to higher inventory costs. On the flip side, centralized inventory isn't without drawbacks either (I’ll discuss this in the next section).
Pros and cons of centralized inventory
Before deciding that centralized inventory is the right fit, you might want to have a look at the good and not-so-good possibilities that can come with it.
Pros of centralized inventory
- Simplified inventory and order management: Everything is under one roof, so you won’t need to learn how to juggle. No more countless inventory sheets or warehouse locations to manage — just a streamlined inventory process, thanks to the ability to manage it all in one location.
- Cost savings: Choosing a centralized approach can lead to inventory costs savings related to handling multiple warehouses or storage facilities. It eliminates the need for duplicate inventory or excess safety stock at multiple warehouses, optimizing your inventory holding costs.
- Improved accuracy: Having only one inventory location to monitor means fewer chances for discrepancies and errors. The result? More accurate inventory data, simplified stock audits and cycle counts, less inventory loss and shrinkage, and easier product movement tracking in the supply chain.
- Unified shipping and fulfillment: Getting all those orders out the door is super easy when all your products are in one place. Picking, packing, and shipping all happen from one location, which reduces your order processing time and enhances customer satisfaction.
- Easier analysis and forecasting: You know how important data is. With centralized inventory, managing and using it is a no-brainer. That’s because it consolidates your data for managing stock levels, identifying trends, and making accurate predictions for the future, all in one place.
Cons of centralized inventory
- Longer delivery times: With a centralized warehouse, shipments may have to travel longer distances to reach geographically dispersed customers. Those longer wait times might hurt your customer satisfaction.
- Shipping costs could go up: Your centralized setup may lead to higher shipping fees depending on customer and supplier locations, as items may need to travel greater distances to reach their final destinations.
- Single point of failure: If something goes wrong at your central warehouse, like an unexpected disaster or technical issue, disruptions in your inventory management could ripple across your entire business operation.
- Limited flexibility: Accommodating diverse product types or regional storage needs can sometimes be a challenge with a centralized inventory system, which might not work for every business.
- Potential for stockouts: You might face stockouts in certain situations with centralized inventory, as restocking can take longer due to the greater distances between suppliers and your single warehouse.
Does centralized inventory make sense for your business?
So, now you might be wondering if centralized inventory is the right inventory management system for you. It could be a perfect fit if your business has multiple sales channels (like a combination of brick-and-mortar shops and online stores).
Centralized inventory can also work great when you need an easier, more efficient way to manage your stock while helping with consistency and accuracy across all your channels.
Especially for businesses that maintain both an online presence and physical locations, centralized inventory can help you stay on top of your stock and prevent any potential issues (like overselling or running out of popular items). You can easily track product movement across all channels, making it simpler to spot trends, manage reordering, and even plan promotions or sales.
When centralized inventory likely doesn’t make sense
There are also situations where centralized inventory isn't the best choice, notably if your customers are spread far and wide. In this case, having just one warehouse could mean longer delivery times and higher shipping costs.
Instead, you might want to consider decentralized inventory with multiple warehouses to speed up delivery and save some money. Also, if you're dealing with a diverse range of products needing different storage conditions or special handling, it might be more practical to manage them regionally with a decentralized inventory.
Discover how Circuit for Teams can streamline business deliveries and driver operations
As you think over the inventory management strategies we've discussed and how they might apply to your business, consider further optimizing your delivery operations. Circuit for Teams makes that easy.
Circuit for Teams is a powerful tool that simplifies various aspects of the delivery process, from route optimization to real-time delivery and driver tracking.
Imagine having everything you need to manage your drivers and deliveries in a single, easy-to-use platform designed with both your business and the customer experience in mind. It's got everything you need to make your whole delivery process more efficient, from planning routes to giving your customers up-to-date ETAs.
It could be the perfect solution to complement your centralized inventory strategy and amp up your daily workflow. Try Circuit for Teams today, and see how it can revolutionize your business.