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Guide to optimising your inventory management with a 3PL provider

In this guide, we explain how a third-party logistics (3PL) provider can help your ecommerce business effectively manage your inventory.

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6 Ways a 3PL can help you manage your inventory Benefits of having a 3PL manage your inventory Conclusion
6 min to read
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For ecommerce businesses today, inventory management is a difficult balancing act. To avoid overstocking (which ties up working capital) and stockouts (which can lead to a loss of customer trust and sales), they must be able to maintain the right amount of the right products in the right warehouse and fulfilment center locations at the right times.

Failing to effectively manage your inventory can be costly. Recent research reveals that:

  • Overstocking causes retailers globally to lose around US$362 billion annually due to high costs for storage and excess inventory.
  • Stockouts result in retailers globally missing out on nearly US$1 trillion in revenues.

The financial health of your ecommerce business depends, to a significant extent, on your ability to deploy your inventory in the most efficient manner possible.

But many online retailers discover that – as their business expands across different markets, product lines, and sales channels – inventory management becomes increasingly complex and challenging.

Many of these companies look to third-party logistics (3PL) providers to help them manage and monitor their inventory and other areas of their logistics operations (such as order fulfilment) as well.

Working with a 3PL like Amazon Multi-Channel Fulfilment (MCF) can enable you to optimise your inventory – giving you the ability to utilise your stock to consistently satisfy customer demand, while decreasing inventory holding costs along with other operating costs.

In this guide, we will explain how a 3PL can help your ecommerce business effectively manage your inventory and explore the benefits of outsourcing your inventory management to a 3PL.

Stay up to date with new Amazon Multi-Channel Fulfilment features, best practices, and more.

6 Ways a 3PL can help you manage your inventory

Engaging a 3PL can enable your ecommerce business to get the most out of your inventory, empowering you to use your stock to meet demand (while minimising the costs associated with inventory management).

How exactly can a 3PL help you optimise your inventory management? By driving improvements in six key areas:

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1. Inbound logistics
The goal of inbound inventory operations is to receive your products at warehouses or fulfilment centres and get them into a sellable or storage location in those facilities as quickly as possible – and a 3PL has the people, processes, and technologies to do this. By dramatically reducing “dock to stock” cycle times, a 3PL can help you ensure your inventory is positioned in the right locations in their facilities – so that it’s ready for your customers to place orders against it.
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2. Inventory accuracy
One of the common challenges that ecommerce businesses face is maintaining an accurate view of inventory levels across their network. Not being able to precisely track the amount of available stock you have (and reflect this on your online channels to customers) can lead to:
  • Missed sales opportunities, if you have available inventory but it’s showing that you are out-of-stock on your online channels.
  • A poor customer experience, if your customers are placing orders against inventory that you don’t actually have available for sale.

A 3PL can help you improve your inventory accuracy by:
  • Utilising state-of-the-art technologies such as scanners to document your products when they arrive at the 3PL’s facilities, warehouse management systems to give you accurate, real-time visibility over inventory levels, and integrations that seamlessly connect your 3PL’s systems with your ecommerce sales channels, order and inventory management systems, and other back-end systems you use.
  • Implementing processes such as inventory checks and cycle counts as well as rolling audits to catch and correct any errors or discrepancies.
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3. Inventory distribution
Some 3PLs can distribute your inventory across their network of facilities so that your products are as close as possible to your customer base. One of these 3PLs is MCF, which leverages Amazon’s connected global network with more than 2,000 facilities including over 200 fulfilment centres. After you send your inventory to Amazon’s Fulfilment Centres, we automatically and optimally distribute it across our network – so that your stock can be used to satisfy customer demand across all your channels and markets.
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4. Inventory consolidation
A 3PL can help you consolidate your inventory into a single pool that you can utilise to fulfil customer orders across all your channels. For example, with MCF, you can tap into the same pool of inventory that you use for your Amazon.com orders (with Fulfilment by Amazon or FBA) and use it for your orders from off-Amazon channels such as your brand website, other ecommerce marketplaces, and social media stores as well (with MCF). With this pooled inventory approach, you can improve your inventory utilisation and minimise stockouts. In fact, ecommerce businesses in the US that use both MCF and FBA are able to reduce out-of-stock rates by 13% and improve inventory turnover by 24%, on average.
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5. Inventory utilisation
Once an order has been placed on any of your online channels, it’s imperative that you’re able to quickly pick and pack the products and ship them to your customers doorsteps – and a 3PL can handle this for you with the utmost speed and efficiency. Some 3PLs, like MCF, have a team of experts and cutting-edge warehouse robotics and automation technologies that can optimise your order processing and get your goods on their way to your customers in no time.
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6. Inventory storage
To prevent stockouts and maintain high service levels for customers (especially during peak shopping periods), ecommerce businesses typically store some safety stock (which is also known as buffer inventory). A 3PL can provide long-term or short-term storage for your business, enabling you to keep your products in their warehousing facilities for as long as you need. It’s important to note that 3PLs have different pricing models for storage:

  • Some 3PLs – like MCF – charge by cubic feet for storage, while others charge you based on stock keeping unit (SKU), bin, or pallet, or a combination of metrics.
  • Some 3PLs – like MCF – offer a flexible, pay-as-you-go arrangement for storage, while other 3PLs compel you to enter into long-term contractual agreements that stipulate storage and throughput commitments.

Benefits of having a 3PL manage your inventory

As we’ve discussed above, entrusting your inventory management to a 3PL provider can have a positive impact in many operational areas, and can help you drive improvements against numerous critical key performance indicators (KPIs) including:

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Dock to stock cycle times
By optimising your inbound inventory operations, a 3PL can minimise your dock to stock cycle times. A 3PL will strive to get your products into a sellable location in their warehouses or fulfilment centres as fast as possible – so that your customers can start placing orders against that inventory and you can convert that stock from a source of costs into a source of revenue.
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Inventory accuracy rate
By implementing technologies and rigorous processes such as cycle counts and rolling audits, a 3PL can help you boost your inventory accuracy rate, which measures the difference between the amount of stock you have in your records and the actual amount of stock you have in the warehouse. Ideally, you want these two numbers to match up as closely as possible – and a 3PL can help you catch and correct any discrepancies.
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Out-of-stock rates
A 3PL can help you dramatically decrease stockouts by consolidating your inventory into a single pool that you can use across all your channels, and then distributing and positioning your products strategically across their network of warehouses and fulfilment centres.
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Inventory turnover ratio
Every ecommerce business aims to improve their inventory turnover ratio (which measures the number of times your stock is sold or used during a given time period) – and a 3PL can help you achieve this through greater inventory control and utilisation.
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Inventory holding costs
Outsourcing your inventory management to a 3PL – which will utilise your stock in the most efficient and effective manner – can help you cut inventory holding costs (which include all the costs associated with storing unsold inventory) and increase your bottom line.
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Order cycle times
With a 3PL, you can streamline your order processing and reduce your order cycle times (the average amount of time it takes for you to pick, pack, ship, and deliver customer orders). A 3PL will work to ensure your inventory gets out the warehouse door and to your customers’ doorsteps as swiftly as possible.
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Customer satisfaction
By improving order cycle times and in-stock availability across all your channels, a 3PL can help you boost service levels and consistently delight your customers with on-time deliveries.

Conclusion

Effective inventory management is a critical capability for multi-channel ecommerce businesses today. To meet demand and minimise operating costs, you must be able to attain visibility and control over your inventory and maintain the right stock levels in the right warehouse and fulfilment centre locations at the right times.

Engaging a 3PL – like Amazon Multi-Channel Fulfilment (MCF) – can empower you to optimise your inventory management and utilise your stock to drive greater customer satisfaction, cost efficiency, and competitive advantage.


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