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Splitting inventory — a strategic business decision

Vallabh Daga
September 24, 2020
7
mins read

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Distribution of inventory across multiple Fulfilment Centres (FCs) to keep it closer to your customers is known as inventory splitting. It helps you to reduce the order transit time and save on the shipping costs.

Advantage of splitting inventory

Using multiple fulfilment centres you can:

1. Minimise risk in case of emergencies

It's better to be safe than sorry for delaying your orders! In case of a catastrophic event such as a natural calamity, splitting inventory allows you to minimise losses, restricting it to the affected fulfilment centre. So even if some of your merchandise is compromised, you will always have multiple back-up's available.

2. Drive down shipping costs and deliver orders faster

It's quite often that customers exist across multiple zones, and you may receive orders from any of these zones. Let's have a look at how shipping fees varies with distance:

Weight handling fees
Variation of weight handling fees based on distance

Shipping to customers in multiple cities from one location will attract zonal and national level shipping fees. However, with the help of distributed inventory, you will get a reliable infrastructure across your supply chain. Shipping from the facility near to your customers reduces transit time. Reduced shipping distances will attract local or zonal level shipping fees and will ultimately be the most cost-effective option.

3. Tap into newer markets

Using multiple fulfilment centres across various regions in India, you get the opportunity to tap into newer markets. Let's say; your inventory is available in Delhi, it is highly likely that you would have an established customer base in the north. Now, when you store your products in Bangalore, you can start building brand awareness in the south. It will help you target potential customers who are based in different regions of the country.

4. Win Amazon buy box by enabling next-day delivery

The buy box refers to the white box that appears on the right side on the product detail page of Amazon, where customers can add items to their cart they want to purchase.

All sellers are not eligible to win the Buy Box, due to the stiff competition and Amazon's customer-obsessed approach! Only businesses with exceptional seller metrics stand a chance to win the Buy Box.

Win amazon buy box
Buy now button enabled by winning the Amazon Buy Box

To understand how important prioritising the Buy Box is, consider this:

82% of Amazon sales go through the Buy Box, and the percentage is even higher for mobile purchases.

To increase your chances of winning the Buy Box and striking the competition, you need to understand how Amazon's algorithm functions.

One of the potential metrics to win a buy box is next day delivery, and this can be achieved by intelligently splitting your inventory across multiple zones.

5. Rank higher in search results of marketplaces

When a buyer searches for an item, the marketplace displays the product results as per highest to lowest ranking. This ranking algorithm decides the position in which your product will appear. One of the heaviest weighted parameters for product ranking is the speed of order delivery to the customer. So, when you distribute your inventory in multiple FCs, you increase your product visibility and consequently your overall sales.

6. Earn Gold status for your Flipkart account with Regional Utilization

Regional utilization of Flipkart
Flipkart's Regional Utilization concept

Are(R) you(U) close to your customers to deliver products faster? Regional Utilization(RU) is a percentage of local and zonal shipments out of your overall shipments.

To understand how important RU is to become a gold seller, consider the official statement of Flipkart:

RU will be a new performance parameter added to existing parameters. To become a Gold seller, your RU % must be 20% or above.

Using multiple fulfilment centres to store your inventories will increase your RU score and qualify you to be a contender for the gold status!

7. Ship high volume of orders

When you’re serving fewer customers, one warehouse will serve your purpose. However, as you grow and start receiving a high number of orders, you will realise that your shipping cost exceeds the cost of an additional warehouse. At that point, it would be sensible to distribute your inventory across multiple fulfilment centres.

When should you avoid splitting inventory?

Distributed inventory has lots of advantages. However, it may not be a good option for you if you just have one region to serve.

While distributed inventory provides access to customers, it is important to analyse your customer base. So if you plan to sell fashion accessories in Mumbai, it wouldn’t make sense to invest in multiple locations when your customers are located in a specific area in Maharashtra.

With a fulfilment centre near your customers, you don't need to expand outward. By analysing your past order history, you will able to identify high sales zones. Typically, your product to orders will have a 20:80 ratio, this means that 20% of your products will contribute to 80% of your orders. If that's the case, you can continue serving high-sale zones using a single fulfilment centre.

How to plan?

Effectively distributing your inventory is tricky, and various factors need to be considered. Now, let's have a look at the methods to strategically plan and distribute your inventory.

Analyse the most demanding zone

With the help of your past order history, analyse the region where orders are maximum. It helps you plan your inventory distribution according to high sales zones.

Identify heavy-weight products

Look for the products having more weight and distribute them to different fulfilment centres.

Identify high-selling SKUs

Identify products that have a high sell-through rate.If you are starting fresh and don't have sales data to identify top performers, then distribute inventory of your flagship products.

Deep dive into seller panels

Marketplaces like Amazon and Flipkart have seller panels which can provide you with performance reports. You can analyse these reports to identify the most prominent zones to store your inventory.

Leverage Eshopbox to split inventory and optimise costs

Get actionable dashboard and data-driven analytics

Eshopbox's technology platform allows you to plan your ideal inventory distribution. Using your historical order data, you can:

  • View which fulfilment centres shipped your orders for a specified time period and the total shipping costs you incurred.
  • Visualise your customers' delivery locations for a better interpretation of distributing your inventory across Eshopbox's fulfilment centres.

Strong tie-up with national carriers, with reasonable shipping rates

Eshopbox handles high order volumes and has strong tie-ups with domestic couriers. Working with Eshopbox lets you avail services with national carriers at substantially discounted shipping rates.

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