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Why inventory needs to be local

(Source: Supplied.)

The rise of e-commerce has had a major impact on retail supply chains. Retailers are now investing significant resources into logistics, deploying the latest inventory management systems, automating warehouses and hiring hundreds of hardworking staff in an effort to pick, pack and ship online orders as quickly as possible.

But as customers’ expectations around delivery speed and cost continue to rise, and courier networks remain under pressure, sophisticated warehouses or distribution centres are no longer enough. 

“The traditional setup of regional or central distribution centres just can’t provide the speed the market demands,” McKinsey noted in a recent report. But “few companies – with the exception of one or two e-commerce giants – have enough volume to extend their own DC network, so they need to find new ways to move faster.”  

That’s where local inventory comes in.

Local inventory involves storing stock closer to where customers work and live, as opposed to the industrial zones where warehouses and DCs are typically located, and it’s becoming an increasingly important part of retail supply chains. According to Accenture, by 2023, 50 per cent of all deliveries will be local. 

One of the key ways retailers are tapping into local inventory is through their store networks. While brick-and-mortar retailers may have struggled to compete with online retailers in the past, they may finally have the upper hand, since their stock is already stored in multiple physical locations across major metropolitan and suburban areas. Using this stock to fulfil online orders is known as ship-from-store. 

But before we get into the ins and outs of the various fulfilment methods, here are three reasons why local inventory is the future of fulfilment:

1. Meet demand for faster delivery 

It’s no secret that consumers prefer fast delivery. According to a recent survey by Accenture, 66 per cent of consumers say same-day shipping is valuable, and that number jumps to 77 per cent for consumers under age 30. The survey also found that nearly half of consumers are more likely to shop online if same-day delivery is an option, and it’s a top-three factor in an online purchase decision for 72 per cent of consumers. 

By using local inventory that is close to the customer, in a nearby store, for instance, to fulfil online orders instead of inventory in a warehouse, retailers can significantly cut down the time it takes for delivery. This is critical for same-day and next-day delivery. 

2. Reduce shipping costs – for you and your customers

In addition to speed, the delivery cost is extremely important to online shoppers, but many retailers say it’s simply not viable to offer free shipping, especially in categories where there are a lot of returns, such as apparel. 

Using local inventory can help bring the cost of delivery down since couriers don’t need to travel as far between parcel pickup and dropoff locations. The CEO of Target in the US has said that fulfilling online orders from the back of stores versus a fulfilment centre reduces costs by 40 per cent. And Inditex, the owner of Zara, has reported a 7-per-cent sales increase and 47 per cent EBITDA expansion since it launched a ship-from-store program in 2018. 

These savings can be passed on to the customer. 

3. Better for the environment

According to the World Economic Forum, based on current e-commerce growth rates, the number of delivery vehicles in the 100 largest cities globally will increase by 36 per cent over the next 10 years. This will result in a 32-per-cent increase in emissions from delivery traffic and a 21-per-cent increase in congestion, equating to an additional 11 minutes in commute time for each passenger every day. 

Reducing the delivery route distances by tapping into local inventory can have a significant impact on retailers’ carbon footprint.

How can you start using local inventory?

Now that you know why you should start using local inventory, the next question is how. There are many different models, including city service centres or dark stores, but here’s a look at one of the most popular. 

Ship-from-store

With the right setup, multichannel retailers have the ability to fulfil online orders using store stock. This fulfilment method is known as ship-from-store, and it has several advantages: it is an efficient use of resources, since store staff can pick and pack online orders, and it is often faster and cheaper to deliver parcels to customers since they’re more likely to live close to a store than a warehouse or DC. 

To avoid any potential pitfalls, however, it is important for retailers to have a good inventory management system in place and properly train and roster staff. One example of a retailer that has put the right foundations in place is APG & Co, the owner of Sportscraft, Saba and Jag, which recently started working with Shippit to ramp up its ship-from-store capabilities. 

APG & Co uses data from its inventory management system to allocate orders based on stock availability and customer location. Store staff then pick and pack the orders, print shipping labels and book couriers using the Shippit platform for each store. They can also provide customer support and parcel tracking if the need arises. 

“To scale our e-commerce strategy effectively, it always came back to opening up the inventory in our stores. We noticed more and more demand for online orders, so one of the easiest ways for us to scale and increase online sales was through distributed fulfilment,” said Nhung Tran, Logistics Manager at APG & Co.

“One of the biggest benefits of a distributed fulfilment strategy is that it allows us to fulfil orders from the closest location, which saves transit time and shipping costs.”

The rollout has been so successful that APG & Co is aiming to increase the number of stores used as mini-distribution centres as well as making more inventory available from its physical locations for online orders going forward.

Where scale meets ease. See how Shippit can help you scale your e-commerce business with ship-from-store.

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