Effective inventory management is crucial to the logistics of every retail business, whether you sell in a single store or have a thriving global, multi-channel business.

Inventory management helps you stay on top of stock, so you can avoid disappointing customers with out-of-stocks and tying up capital with too much stock.

But if you store inventory in multiple locations (i.e. some stock in store, some products in your spare bedroom, and others in a warehouse), tracking and managing all that product can be challenging. Centralizing your inventory is one way that retailers can keep track of what’s on hand, what’s headed out the door, and what’s coming in.

To help you understand if centralizing your inventory is the right move for your business, let’s take a look at the concept, how it can benefit your business, and the steps you can take to start centralizing your own operations.

 

What Is Centralized Inventory?

Centralized inventory is when you keep stock in a single location. Businesses essentially merge all their products into one place to make inventory management simpler.

In retail, it’s when you keep your stock at a single hub and restock your store and fulfill any online or phone orders from that central hub. Your centralized inventory hub could be on-location (in your store, for example) or at an off-site warehouse.

 

Benefits of Centralized Inventory

Centralizing your inventory could reap your business and operations team a number of benefits. But the benefits that impact your business most really come down to your unique processes, operations, and needs.

 

• Operational Efficiency

One core benefit that those who move to a centralized inventory seek is operational efficiency. Centralized inventory in a distribution center can be great for operational efficiency. But it also has the potential to increase efficiency in a brick-and-mortar environment. For one, with a single location for your stock, you and your employees are all looking at the same thing. There are no discrepancies in the inventory data between different people’s views. When this is the case, everyone in your business can make decisions based on the same information.

 

A centralized inventory can streamline your inventory channel, saving you time.

Because everyone’s looking at the same data, communications are more efficient as well. You don’t need to spend as much time explaining the information or getting someone up to speed because they’ve already had the chance to do so independently. Having a centralized inventory for your business means you have a dedicated team tasked with receiving, fulfilling replenishment, and shipping orders carefully and cost-effectively. This means your internal team doesn’t have to put customer service, marketing, or on-site sales on hold to deal with products coming in or going out.

 

• Multichannel Management

Today’s consumers are shopping in a variety of ways — both online and in-store. In fact, only 7% of shoppers buy online-only, compared to 73% who use more than one sales channel throughout the purchase process. This is likely why nearly three-quarters of retailers are prioritizing efforts to sell their products across multiple channels.

When you make the move to a multichannel retail business, there are a lot more factors, workflows, and people to consider as you try to keep everything synced. It can help simplify processes when you manage all orders from a single location, reducing the risk of fulfilling an order twice or selling something in-store that’s already been purchased online.

 

• Cost Savings

Centralizing your inventory can also be a way to reduce expenses in your retail business. Because your data is more accurate and operations are more efficient, you’re able to reduce the amount of time and resources required to complete specific tasks in your business, like fulfilling orders or pulling inventory reports.

Plus, accurate data means better-informed business decisions, which can reduce costly mistakes. The opportunity to boost revenues is also hard to ignore — research shows you can also increase profits 50% with improved inventory management. 

 

Drawbacks to Centralized Inventory

While there are several benefits to centralized inventory, it really boils down to the type of business you run. Centralized inventory isn’t right for every retailer.

There are several other tools available to retailers that can help them increase efficiency, manage multiple sales channels, and save money while doing it. With solid order management software (OMS), retailers can use ship-from-store to use the field inventory to fulfill online orders. Rather than centralizing, use the OMS to give you a complete view of the inventory on hand. Good systems will give retailers a global inventory picture regardless of location.

Centralized inventory can also hinder a retailer’s ability to be nimble and meet changing demand. With stock in a single location, it can be difficult to fulfill orders when there’s been a spike in demand in a specific geographic region or weather makes fulfillment impossible from your single warehouse.

That being said, brick-and-mortar retailers who have stores in a single region may not face those types of challenges in their normal operations.

The most obvious time to look at centralized inventory is if a retailer is looking to start heavily investing in their ecommerce presence while not expanding their brick-and-mortar presence nationwide. Logistics is key here. If you have brick-and-mortar locations worldwide, centralized inventory is probably not a wise decision for your company. The last thing you want is your in-store experience to suffer because you moved your logistics hub too far away from some of your stores.

Again, it all comes down to your unique business needs to determine whether centralized inventory will work best for you.

Getting organized also means regular inventory audits. Inventory audits are always a necessary evil. Regardless of how good a company’s inventory management system is, there will always be inaccuracies due to theft, damage, shipping mistakes, etc.

So, just how often should you conduct inventory audits? Again, the answer depends on your unique business needs. Some retailers only do this annually, whereas others might even conduct audits on a weekly basis. If you’re having issues managing your inventory, you’ll likely want to increase the frequency until those issues have been identified and addressed.