Inventory Position: What is it & How to Improve It

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You picked your products. You put in the purchase order. You received your inventory.

Now the question is: where do you put it?

Inventory positioning is just as important as inventory order quantity — after all, there’s no use in having plenty of inventory if you are unable to access it when you need it.

With the right inventory positioning strategy, ecommerce businesses can know where to store their inventory so that customers receive orders on time and error-free, and can improve warehousing efficiency and fulfillment speed.

In this article, we will discuss what inventory position is, why it’s important for ecommerce retailers, and we’ll share some tips to help ecommerce companies get started with it. We’ll also talk about how 3PLs like ShipBob can help improve inventory positioning efforts through outsourced logistics.

What does inventory position mean?

Inventory positioning refers to where a business’s inventory is held — both its physical position in storage space, and its position in the overall supply chain.

In other words, the term “inventory position” is used to describe where and how inventory is stored on warehouse racks, as well as what part of the supply chain inventory units are stored (such as stores, warehouses, or production lines).

When optimized, inventory positioning ensures that order fulfillment SLAs are met and simultaneously keeps logistics and inventory costs low.

Within the context of inventory accounting, inventory position can also serve as a measure of the total amount of inventory owned by the retailer. The formula for calculating inventory position is:

Inventory position = (on-order inventory + on-hand inventory) – backorders

Why is inventory positioning important?

Where and how you position your inventory — both in storage and in your supply chain — hugley impacts your operational efficiency, operating costs, and your ability to satisfy customers.

On the warehouse level, physically positioning your inventory to be easy to find and highly accessible makes picking easier, which improves overall fulfillment speed.

It also lowers the likelihood of current inventory getting lost or forgotten about, which minimizes waste and reduces average inventory holding costs.

On the supply chain level, storing inventory in a supply chain stage that minimizes lead times enables you to better meet customer demand. When your inventory is available in the locations and channels you need it to be, you avoid stockouts that annoy customers and drive them away.

In addition, positioning inventory close to popular order destinations shortens shipping time while also cutting down shipping costs.

“ShipBob provides the storage conditions we need to ensure our highest-quality food products are stored and delivered to our customers in a safe and effective manner.

Some of the reports that ShipBob provides show their dedication to transparency — things like actual transit times and whether they’re hitting their service-level agreements. They are really committed to their customers and keeping themselves accountable.”

Pablo Gabatto, Business Operations Manager at Ample Foods

How to position your inventory?

Knowing how to physically position your inventory, the best locations, and supply chain stages can seem overwhelming. Here are some tips for positioning your inventory in warehouses, across locations, and in your supply chain.

Ensure high-volume products are easily accessible

When designing your warehouse setup, be mindful of which SKUs have the highest turnover rate. Store these items in easy-to-reach locations that enable faster replenishment. This saves pickers time, and speeds up the order fulfillment process as a whole.

Make sure that high demand products are also kept in stock at fulfillment centers that are physically closest to popular order destination points (like major metropolises), as this significantly shortens delivery times.

If a SKU is popular, you can afford to hold it much farther along your supply chain. When you reliably forecast high demand for a product, you can order stock ahead of time and place units as close to customers as possible to minimize lead time.

For less popular items, it’s better to postpone placing a purchase order with your supplier until a customer places an order for that item (to avoid higher holding costs).

Forecast demand to plan for future surges

Accurate demand forecasting enables ecommerce businesses to position enough inventory in the right locations and channels to fulfill all customer orders.

Even if safety stock levels are healthy, poor demand forecasting can cause shortages and backorders — both of which leave customers unhappy. Retroactively re-allocating inventory also increases holding and transportation costs, which could have been avoided with better forecasting.

While it’s tempting to forecast demand once, position inventory accordingly, and forget about it, ecommerce businesses should treat demand forecasting as an iterative, never-ending process.

Seasonal trends and regional developments affect demand, and usually require a shift in inventory position.

Some 3PLs like ShipBob offer track important data and metrics to improve your inventory forecasting. Partnering with such a 3PL can make it easier to know when and how to change your stock levels.

“Another ShipBob integration I love is Inventory Planner. It saves me hours every week in Excel spreadsheets, and I can raise a PO in minutes when it used to take me hours. For every order I placed for years, I was ordering too much or not enough.

Between inventory forecasting tools and the ability to auto-create WROs, we don’t have stockouts much anymore. I sleep better at night.”

Wes Brown, Head of Operations at Black Claw LLC

Keep heavy or bulky SKUs lower on your racks

For obvious reasons, it doesn’t make much sense to have your heaviest or least-movable SKUs at the top or back of your warehouse racks.

Instead, store them as close to ground-level as is practical so that accessing them does not pose a safety hazard or require extreme effort.

At the same time, adjust slotting for bulky SKUs according to the SKU’s popularity. If they turn over quickly, make sure to store them in an accessible location. If they are rarely ordered, consider storing smaller, lighter, or more frequently ordered items ahead of them.

Leave the inventory positioning to the experts

Inventory positioning is complex, but mastering it is absolutely critical to delivering a good customer experience.

Instead of struggling with it for months on end, thousands of small to midsize ecommerce businesses have chosen to outsource inventory positioning to ShipBob.

ShipBob takes your inventory off your hands, and stores it close to your customers in one of our dozens of fulfillment centers. An expert team of warehouse workers compactly and cost-effectively slots your inventory, so that the picking and packing process is as efficient as possible.

ShipBob’s dashboard is also equipped with the data and tools to make inventory management and positioning easy, including:

Together with ShipBob, you can free up time by handing off storage, order fulfillment, warehouse management, and shipping to the experts, improve your customers’ experience, and strategize your supply chain for success.

“We are very impressed by ShipBob’s transparency, simplicity, and intuitive dashboard. So many 3PLs have either bad or no front-facing software, making it impossible to keep track of what’s leaving or entering the warehouse.

On the supply chain side, I just throw in what we placed at the factory into a WRO in the ShipBob dashboard, and I can see how many units we have on-hand, what’s incoming, what’s at docks, and so on. I can see all of those numbers in a few seconds, and it makes life so much easier.”

Harley Abrams, Operations Manager of SuperSpeed Golf, LLC

How do I determine the position of my inventory?

To determine the best physical positioning for your inventory, consider inventory turnover and days in sales inventory rates, how heavy or bulky each SKU is, and in which locations demand for each SKU is highest.

For accounting purposes, you can calculate the position of your inventory by adding the amount of raw materials, work in process inventory, and finished goods you have, and subtracting any backordered units.

Why is inventory position so important?

Where and how you position your inventory — both in storage and in your supply chain — hugley impacts your operational efficiency, inventory costs, and your ability to satisfy customers.

A good inventory positioning strategy helps allocate inventory optimally across warehouse racks, geographies, locations, and channels to improve stock availability, reduce total costs, minimize lead times, and delight customers.

How does ShipBob help improve inventory positioning?

ShipBob’s dashboard provides inventory information, metrics, and analytics to improve inventory management and positioning.

ShipBob also automates much of the inventory positioning process, and provides a broad network of fulfillment center locations to help ecommerce businesses place inventory closer to customer locations.

Written By:

Rachel is a Content Marketing Specialist at ShipBob, where she writes blog articles, eGuides, and other resources to help small business owners master their logistics.

Read all posts written by Rachel Hand