Some logistics services providers try to wow you with a map featuring dozens of small distribution points, but the hidden truth about inventory management is that each new spot significantly increases the complexity and cost of your operations.
For some operations, that might make sense. In most cases, however, there’s a smaller magic number of locations that help you control expenses while keeping customers happy. It’s important to know that this isn’t set in stone and will likely change as your business grows. We’ve found that just a few strategic locations make the most sense for Red Stag Fulfillment and our partners. So, let’s talk about that now and the truth about inventory management that your 3PL should be willing to share.
How many locations do you need?
The core of this discussion is a simple question: how many distribution locations do you need to be effective?
It’s a tricky question that every company needs to answer for itself. If you’re working with Red Stag Fulfillment or another 3PL, it’s a question you should ask us, too. The job of your logistics partner is to help you determine the answer and select those locations. For the partners we specialize in helping, one or two locations have proved to be the optimal solution so far. If that increases, we may too.
So, how do you judge the number of locations you need? We suggest you start by looking at current sales and order data to determine a few things:
- How many SKUs do you have, and how much stock do you keep on hand to fill orders?
- What’s that impact on your financials? Could you afford to carry more stock (if it needed to be split across multiple locations), or are you hoping to reduce inventory costs?
- Do your goods ever crisscross the U.S., including during inbound?
- What major locations or metro areas make up your order?
- Do you need a comprehensive national fulfillment plan, or is an east coast or west coast location closest to the vast majority of your needs?
- What’s your average shipping zone? What percentage of your orders are above zone 3?
- Are you comfortable outsourcing all your fulfillment?
Framing the truth about inventory management
The questions above are designed to get you started thinking about your current customers and inventory. They give you a framework for operations and the locations you may need. Hopefully, they highlight the complex truth about inventory management.
Generally, the greater the number of SKUs you have, the more difficult and expensive adding each new location is. If you need additional product services, such as returns management or kitting, costs can also rise. Spreading your inventory out across multiple locations may require you to invest in more overall inventory, especially if your 3PL runs the inventory management.
At the same time, significantly high shipping costs — both inbound and last-mile — can decide to expand a smarter one, financially speaking. Most companies that import their products start with a location close to the port of entry. That can minimize inbound costs but may not help if your audience is on the opposite coast. Or, you could end up saving a lot by driving goods a little further inland, such as moving from the top-tier costs of Los Angeles to a more affordable Salt Lake City or Las Vegas.
High last-mile costs can be neutralized by moving to facilities closer to your main consumer hubs. Adding more warehouse locations could reduce the zones you ship and generate substantial savings on each order as you shift the longer transit times to freight instead of parcel-level.
Focus on your total costs for fulfillment, from inbound and last-mile shipping to processing, inventory requirements, and even storage space rentals. Addressing one high cost could make the decision to add locations easier, while spreading yourself thinner could pose a more significant risk.
Why do some focus on adding so many more?
Many logistics service providers will highlight a broad number of their and partner locations to fill up a map. This compelling visual makes it easy to understand how much of the U.S. you can reach in one, two, or three days.
We do something similar, and we want to point out that maps like this aren’t inherently good or bad. There just want part of showing the trust about inventory management.
The crucial information here is how well the 3PL helps you understand if and when each dot on the map increases or reduces your expenses. That is where you need specific questions and should get precise answers. You don’t want more dots on a map to become shorthand for success when it’s unclear what they mean for your business.
Adding new locations smooths out last-mile deliveries and can be used to promise savings on these shipments, but that’s not a guarantee of an overall reduction in cost or time. Some 3PLs will present full maps this way, designed to hook you on distributed inventory before discussing increased service costs, inbound costs, and inventory spending.
If you’re looking for a 3PL or already have one, always ask them to make a specific value-based judgment for each location to add or remove from your inventory management and fulfillment plans.
Don’t trade locations for expertise
The truth about inventory management is that you don’t always need more locations, but you do always need fulfillment experts. Your products, customers, and business all need someone that understands every need and demand. Three locations won’t be better than one if those three centers struggle to adequately store, pick, pack, and ship your SKUs.
Your business deserves to always be in the hand of someone able to protect and properly manage inventory while getting orders out quickly, accurately, and successfully. While you’re thinking about moving beyond a single location, verify that all the guarantees still apply and that SLAs don’t change as you expand. Each expansion should come with concrete benefits.
Ready to hear the truth about inventory management
Determining the benefits of new locations on cost control, inventory management, and other mission-critical operational elements is tricky. You need a tailored plan and a 3PL willing to be honest with you. Sometimes, it makes sense to add another location. In others, new locations create complexity and cost increases that could harm your business.
It’s time to get the truth about inventory management across multiple locations. Red Stag’s experts are ready to discuss your fulfillment and the right mix of locations based on your products, customers, and more.