Organisations facing fluctuating supply and demand levels should consider inventory pooling as a strategic approach. This method involves sharing inventory across multiple locations or product lines to enhance customer service while reducing overall inventory costs.
It is widely adopted in supply chain management, particularly for products with variable demand, high value, or slow turnover rates. Implementations can be centralised, decentralised, or networked, each offering distinct advantages in ensuring product availability and minimising stockouts or excess inventory, thereby boosting customer satisfaction and operational efficiency.
Let’s see what is inventory pooling or “stock pooling” in detail.
Key Facets of Inventory Pooling
The concept of pooling inventory depends on key components. Let’s see them:
Visibility: This refers to monitoring inventory levels across all locations in real time. It ensures that management has accurate data and demand forecasting. With advanced inventory management systems, companies can have an overall view of inventory. This gives them the power to identify trends and make data-driven decisions.
Collaboration: When you foster strong partnerships with suppliers, customers and other stakeholders, you can streamline your inventory process. Such collaboration allows all the right products to be available at the right time and in the right units.
Technology: Technology is a crucial part of supply chains and inventory management. Now, with advanced tracking systems, companies can accurately track inventory movement within the shared pool. Also, technology allows companies to analyse demand patterns, identify seasonality and optimise inventory levels accordingly.
How Does Inventory Pooling Operate
The stock pooling process starts with inventory consolidation from multiple locations into a central hub or warehouse. This central warehouse is like the single point of inventory management and control.
Upon receiving the customer orders, the system swiftly identifies the nearest inventory location with available stock and promptly initiates shipment from there. This streamlined process cuts down lead times and lowers transportation expenses, enhancing overall customer satisfaction.
Additionally, pooling allows companies to implement basic dynamic safety stock strategies. Such strategies demonstrate the safety stock levels that multiple locations share based on demand patterns and lead times.
Such pooling of inventory helps companies reduce the overall amount of safety stock while still amping up their services and enhancing customer satisfaction.
Let’s see the types.
3 Types of Inventory Pooling
Here are the various types you need to know for a sustainable and efficient supply chain:
- Centralised Pooling
Also known as risk pooling in inventory management, this pooling type requires you to store all inventory in one single location, for example, a central warehouse. This is a good practice for businesses with high inventory volume or those who need to ensure that their customers have access to all products.
However, such an investment is also quite expensive owing to the cost of storing and transporting inventory to and from central warehouses.
- Decentralised Pooling
This pooling type includes storing inventory in more than one location like different warehouses or stores. This is a good idea for businesses that have a wider geographical footprint and need to minimise their shipping costs. However, such an inventory requires complex management compared to centralised pooling. This is because you need to track the inventory labels and shipments across multiple locations.
- Networked Pooling
As the name suggests, this inventory pooling uses a network of warehouses and stores to distribute the inventory. This a good strategy for businesses with a complex supply chain network. They can easily and quickly respond to any sudden demands. But remember the more complex the system, the more expensive it’s too. S
So, which type of pooling is the best?
That depends on individual business needs and requirements, as well as budget. You must consider niche, product type and size geographical distribution and customer base before choosing one.
Let’s see the advantages of such an inventory strategy.
3 Benefits of Inventory Pooling
Implementing the pooling strategies brings a wealth of benefits for businesses of all scales. From costs to consolidating inventory, the advantages of this inventory management strategy are worth the shot.
It allows you to adopt a streamlined approach to inventory management. In this way, your company can contribute to the environment and promote eco-friendly practices in the supply chain.
Such advantages give companies a competitive edge in the market. So, let’s see some more benefits:
- Savings and Cost-Efficiency
Instead of keeping inventory in many places, businesses can pool it together in fewer warehouses. This saves space and cuts down on storage costs. Sharing inventory also helps avoid having too much of something (overstock) and ensures there’s enough to meet changing customer demands.
- Pooling inventory also means less money spent on things like rent, insurance, and outdated products. Plus, companies can put warehouses closer to customers, which means faster deliveries and lower transportation costs.
- An additional benefit is that businesses can work together more easily when they pool inventory. By sharing resources and planning together, they can build stronger relationships with suppliers and distributors. This makes the entire supply chain more flexible and able to handle unexpected changes.
Working together like this not only keeps inventory levels just right but also allows companies to share ideas and improve their operations. This can lead to better overall results for everyone involved.
- Better Supply Chain Management
Inventory management pooling improves overall supply chain efficiency as it enables better coordination between distributors suppliers and customers. It results in faster order fulfilment, reducing stockpots and also minimises the lost sales risk.
With a shared pool of inventory, businesses can also better allocate their resources enabling the company to leverage the economies of scale. They can negotiate suitable pricing with suppliers and optimise production and distribution plans.
- Increased Customer Satisfaction
With this pooling strategy brands can maintain better inventory availability to satisfy customer demand. Even if there’s a location or channel that experiences higher demands than others, you don’t have to bother about going out of stock. This is because all the units are coming from the same supply. You can keep fulfilling the orders as long as you have enough inventory in storage.
Just like any other inventory strategy, there are some drawbacks of pooling as well. Let’s see the challenges so you can resolve them to ensure a smooth-functioning and efficient inventory.
3 Challenges of Inventory Pooling
Like other inventory strategies, this too comes with some backlogs, so understand them before you choose:
- Initial Setup Costs: Having a shared inventory means you need a large pool of stock to send items to all channels. This makes your initial inventory investment quite a pricy one. Not to mention it’ll also have added costs associated with maintenance and storage.
- Increased Complex Management: Multichannel inventory management invites complexity. You must ensure that inventory levels have balance and are updated in real-time to ensure accuracy across channels reducing overstocking and understocking.
- Demand Forecasting Requirements: With accurate demand forecasting to can check and have accurate inventory on hand, meeting the demands of your consumer across locations just from a single source.
To ensure accurate forecasts, carefully monitor the sales history and market trends across all distribution centres and make guesses about the inventory amount you would need.
How to Pool Inventory
Here are the simple steps for pooling your inventory:
- Review your inventory management: Look for ways to improve how you handle stock.
- Find partners: Team up with suppliers and other businesses open to pooling.
- Get a smart system: Use software that tracks stock and forecasts demand in real time.
- Test it out first: Start small with a pilot program to see if pooling works for you.
- Keep an eye on it: Track how pooling is doing and make adjustments as needed.
These steps will get you started with inventory pooling. Remember, there are also best practices to consider for long-term success.
FAQs: How Does Inventory Pooling Make eCommerce Operations Efficient
What are some best practices for inventory pooling?
Some of the best steps you can take for your inventory are to establish clear performance metrics, implement robust technology solutions, and continuously update and adjust pooling strategies based on market demand and supply chain dynamics. Also, make the process flexible and ensure the right balance between supply and demand.
How RFID is helping inventory consolidation?
RFID aids inventory consolidation by providing real-time tracking and accurate data on stock levels, enabling efficient management, reduced overstocking, and streamlined distribution across multiple locations.
What is one example of pooling risk?
Risk pooling affects inventory control decisions, like choosing between decentralised warehouses for local areas and a centralised one for all areas, by optimising stock levels and reducing variability.
Conclusion
Boost your eCommerce with inventory pooling! It cuts costs, improves service, and handles demand fluctuations. Real-time data, strong partnerships, and advanced tech unlock supply chain efficiency.
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