When I meet with a new client, I try to take a quick look at their current data structures in their legacy systems. Over the years, I found out that the raw data can tell a better story of what is wrong with the business rather than the client. One of the areas I love checking out is the warehouse table. It has a simple structure yet can tell a lot of about the client’s supply chain. I am mostly amazed how creative business people can be with such a core data entity and use it for so many different purposes.
One of the most common tricks business people deploy is to create virtual (or sometimes referred as logical) warehouses to segment the inventory. If a company is serving multiple regions with multiple channels and customer tiers, you can easily see dozens virtual warehouses laying around. Don’t get me wrong. Business has a good justification for them. Most likely, a certain region or a channel or a customer made some early commitment – which the business really appreciated – and when the time comes to serve them, business wants to make sure the inventory is there to fulfill their demand. It is a noble cause, right? It sounds like a good business practice.
Well, let’s take few steps ahead and see what happens next. As these virtual warehouses start multiplying with the growing business, the company starts to have “virtual” inventory overages and shortages. This is inevitable. Nobody can forecast the future. Even if the total demand stays same across time (a big if by the way), the demand distribution among regions, channels and customers surely vary. Well, if we segmented the inventory virtually to match our demand slices, we just caused ourselves bunch of virtual inventory problems. The more granular the segmentation, the worse the problem gets. I have personally seen cases where I walked through warehouses that had a single physical location for a product, yet three or four virtual locations in the system causing all kinds of fulfillment issues.
Now, let’s take this one step forward. When the business realizes that these virtual inventory issues are getting out of hand, they come up with yet another brilliant solution – virtual transfers. They start moving inventory virtually across these virtual warehouses to solve their virtual inventory problems. Well, it does not stop there. There are so many issues to resolve that the business simply gives up and asks IT department to write algorithms to automate the virtual transfers. It is quite sad but this practice is likely going on today across a lot of the brands you know. We can stop this madness. We can vastly improve this multi-channel inventory management process by deploying a good soft allocation system – where segmentation of inventory is being replaced by an intelligent, configurable, rules driven pegging between the prioritized demand and supply from a single (and real) inventory point.