Guide to Centralized Inventory Management: Is It Right for Your Business?
Inventory management can take many forms, but the two broad categories are centralized and decentralized. Centralized inventory management offers a way for businesses to address stocking, order fulfillment and more through a simple network. A centralized inventory system can be a great fit for many business types. Learn about the characteristics of this inventory style and how you can leverage it to experience the benefits.
What Is Centralized Inventory?
Centralized inventory refers to keeping all stock in a single location, as opposed to maintaining multiple storage locations. Some retailers and other businesses will keep their inventory in various areas — a physical store, a small warehouse and maybe even your basement at home. On a larger scale, decentralized inventory can mean several warehouse locations across a state or the country.
Through a centralized inventory system, businesses can keep track of all their stock in a single hub. These hubs can be an organized warehouse or a brick-and-mortar store with storage space.
On top of all inventory living under one roof, a centralized warehouse or storage facility has one team and a single transportation system. Orders are fulfilled in the same way, and your team receives stock from vendors in the same way. These moving parts work together to create an efficient inventory management system.
While all of your stock can be found in the same location, you can still organize your inventory to keep products accessible and easy to find. The type of storage location you use depends on your needs.
Small businesses, for example, may only sell a handful of products that they can organize with shelving units in a back storage area. Larger businesses may need to section out a warehouse for different types of products. A beauty and fashion company, for instance, may have a wing of their warehouse dedicated to clothing and another dedicated to makeup.
The main goal of centralized inventory is to gain more visibility into your stock and how you manage it. While it may not be a one-size-fits-all solution, it can be an excellent approach for a range of businesses. Knowing how it works can help you understand if centralized inventory management is a wise method for your business.
How Centralized Inventory Works
The core of centralized inventory is a single location for your products, but there’s more to the model. Take a look at the three elements of a centralized inventory system and how you can use them to achieve the model.
A Unified Team
With all inventory stored under one roof, you can build a unified team to keep the warehouse running smoothly. In contrast, you would need multiples of the same roles in a decentralized inventory management model. Your centralized warehouse will have a single group of personnel with designated roles and responsibilities. Some of these roles include:
- General laborers
- Warehouse managers
- Material handlers
- Forklift operators
Since all items are in one place, product organization is vital to a centralized inventory. You need all products to be accessible and easy to find, and you need your system to be clear for all of your workers. A significant part of your organization system is training your team to understand and navigate it. Your product organization should include:
- Layout: With all of your products under one roof, you need a layout that can keep everything organized. You may have separate wings for different types of products, or you may create quadrants with shelving systems. When you first introduce a centralized inventory, your layout will be critical for efficiency.
- Storage: Using racks will keep your products off the floor in clear view. You’ll need different types of racks depending on the products you sell. Pallet systems might be ideal for you, or you may prefer standard shelves. Regardless of the storage systems you use, they’ll help you maximize the space in your warehouse and make items easy to find.
- Labels: Every product should have an individual barcode label with a SKU number to keep track of quantities. Beyond the individual labels, you should signify product groups in your storage system.
Transportation and Logistics
Your centralized location will be responsible for shipping and receiving orders to all involved locations and from every vendor. Transportation and logistics are critical to keeping your storage hub functional.
Centralized inventories typically rely on the hub and spoke model for logistics. This model means all aspects of logistics convene at a hub, including shipping and receiving. Then, you have people from that hub deliver products to your other store locations or distribution centers and receive products from your various vendors. Your transportation needs will depend on how much product you handle regularly.
Benefits of Centralized Inventory Management
The advantages of centralized inventory relate to many aspects of your business, from vendor relationships to customer satisfaction. Check out what centralized inventory can offer your company.
Improve Supplier Relationships
Keeping your stock in several locations leads to multiple purchasers with many small orders. Through a centralized inventory system, all of your inventory gets to your warehouse through a single purchaser. This arrangement means two things — your orders are bigger, and you have more influence with your suppliers.
Bulk ordering typically comes with improved prices, but the improved supplier relationship can mean even more cost benefits in the long term. Your suppliers see you as a large chunk of their businesses, so they may offer you additional deals on orders and prioritize your needs.
Reduce Safety Stock
When you operate with multiple warehouses, each location carries safety stock in case customer demand suddenly spikes. Aggregating your safety stock through centralized management allows you to address demand across regions. With centralized inventory, you can lower your safety stock because when demand spikes in one area, another area may have unexpectedly low demand that you can pull from.
Ultimately, a reduced need for safety stock will save you money on excess inventory.
Introduce Operational Efficiency
With all of your processes under one roof, it’s easier to develop a consistent workflow and keep your warehouse running smoothly. Different locations may create confusion about what products and stock are available for purchase, and it may take more time to get a product to the consumer.
Centralized warehouse management means everything comes from the same place, and all of your warehouse personnel know what’s available. This setup makes your inventory storage a well-oiled machine that stays agile even as demands change.
Eliminate Duplicate Costs
A single warehouse allows you to eliminate the duplicate fixed costs that come with multiple locations. Instead of paying for rent, utilities, personnel and equipment multiple times, centralized inventory lets you pay these costs once. While you may pay more in rent or utilities for a single larger property compared to a single small one, you’ll likely still experience cost savings in the process.
Elevate Customer Service
Strong inventory management allows you to maintain the appropriate supply according to consumer demand. Keeping your inventory centralized can clarify product quantities, so you don’t oversell and leave customers disappointed. Consistently providing products when customers buy them improves their experience with your brand and leads to more business in the long term.
While enhanced customer service can lead to increased sales, centralized inventory can also reveal the best performing products you carry. When you disperse inventory across locations, it’s more challenging to compare one product’s sales performance to another, but a centralized approach makes it easier.
When you know which products sell the most, you can target your marketing efforts more effectively and keep a higher stock of your most popular products to improve sales.
How to Determine if Centralized Inventory Is Right for You
Understanding your individual needs as a business can help you determine if centralized inventory is right for you. Consider your biggest challenges with managing inventory. Do you lack visibility? Do you often oversell your products? While every business has unique needs and may find that centralized inventory works for them, there are a few situations where it works well and where it falls short.
When It Works
Scenarios where centralized inventory tends to succeed include:
- Local brick and mortar stores: If you run one or a few physical locations in one region, a centralized inventory can be an excellent choice for your business. All of your locations are accessible through a single hub, and you have a small enough market so that demand is manageable.
- Online retailers: In the fourth quarter of 2021, e-commerce made up 12.9 percent of all sales, and that number is growing. If you’re an online-only retailer, an inventory hub can simplify the complexities of shipping to multiple locations. Staying connected to your inventory will also make it easy to manage your online listings, so customers know what’s available.
- Multichannel businesses: If you run a few local stores alongside an e-commerce site, a centralized inventory can make it possible to manage multiple channels without overselling. The hub and spoke model will also support getting products to distribution centers and retail locations, so every consumer can get what they want.
When It Doesn’t Work
If you have multiple brick-and-mortar stores that cover a large area, a centralized inventory system may not be the right choice for you — even if you’re a multichannel business that could use more simplicity in addressing in-person and online demand.
Centralized inventory becomes challenging with many physical locations because you have to address demand across regions. When you only have one storage location, it may be hard to get products to the appropriate store in a way that keeps customers happy and in-store associates efficient.
With primarily local stores, the market is generally consistent, and you can get products to your locations fairly easily. If your hub is central to every location, it’s possible to restock in a day. If your warehouse is a few states over, it’s less likely your customers will get the products they want the moment they want them.
Widely different store locations can also pose other challenges, like the weather. If a store location in Denver experiences a snowstorm when it needs a restock, it will be challenging to get products to Denver from your warehouse on the East Coast.
Using Inventory Management Software for Centralization
Did you know 43% of small businesses don’t track their inventory? Centralized inventories can simplify the tracking process, but using centralized inventory management software can make this model even more accessible.
Rather than relying on manual processes, inventory management software allows you to automate product tracking for greater visibility into your inventory. While your single hub will make it easier to understand how much product you have, your management software puts inventory data in front of you. Monitor stock from day to day and track performance over the long term to generate insights about your business.
With cloud technology and integration capabilities, these software solutions can offer comprehensive capabilities for your business. In addition to ongoing monitoring, inventory management software often supports reordering functions, so you can always stay on top of low-stock items. Some platforms even integrate with your accounting software to track funding alongside your orders.
The endless possibilities with inventory management software make it a worthy investment alongside your centralized warehouse.
Choosing Finale Inventory
Finale Inventory is a cloud platform designed for inventory management, and it offers a broad range of features to streamline your stocking processes, including:
- Cloud-based architecture: As cloud-based software, Finale Inventory is accessible on any internet-connected device. Access warehouse information from your office or on the floor to stay connected to your product stock everywhere you go.
- Inventory management: Get a broad view of product inventory across your centralized warehouse, regardless of scale.
- Order management: Integrate all marketplaces and sales channels to order products the moment you’re running low.
- Barcode label generation: Work with existing barcodes or create unique QR codes or UPC labels to keep your warehouse organized and track every product on hand.
- API integrations: Customize Finale Inventory to reflect your workflow with a wide range of API integration possibilities.
- Accounting: Finale’s accounting functions track every financial transaction involved with inventory management, so you can stick to your budget while keeping products in stock.
Get a closer look at some of Finale’s features and why it’s a helpful tool for your centralized inventory.
Handle Inventory Management With Finale
Finale Inventory software streamlines the management processes so your business can stay efficient. Our software, paired with centralized inventory management, helps you meet customer demand, maintain stock levels and keep track of your spending. Finale is a flexible solution that can address your unique needs, regardless of the products you sell or the size of your business.
With Finale Inventory, your inventory needs can grow, and the platform will scale alongside you. Make the most of your company’s assets and satisfy customer demand with Finale. Schedule a demo to see it in action or request a free trial today.