Looking for information on “virtual warehouses and how they impact retail businesses and inventory management?”  Want to learn how it differs from the similar term “data storage?” 

Keep reading to learn why virtual warehousing is so important, its benefits and challenges, and why retailers and business owners need to find a virtual warehousing software solution that works for their needs and integrates with their other software platforms.

What Is a Virtual Warehouse?

According to the Science Direct, a virtual warehouse is “a state of real-time global visibility for logistics assets such as inventory and vehicles.” Simply put, it is software that provides a comprehensive view of assets and materials for logistics and fulfillment purposes. This allows inventory to be stored anywhere in the world, so it can be distributed on an as-needed basis. Virtual warehouse solutions are also often used to “reserve” units of inventory for a particular purpose.

Why Do Virtual Warehouses Matter?

Virtual warehousing has become increasingly important for retailers in all niches and industries for a number of reasons. 

The warehouses are used by many businesses to fulfill and ship customer orders more quickly. With the rise of fast shipping, especially from globally popular businesses like Amazon, virtual warehouses are all but a necessity to stay competitive, particularly for e-commerce businesses.

When used to “reserve” units, the virtual warehouse is customized to achieve certain goals. For example: A virtual warehouse is customized to identify which stock to reserve and which stock to keep flowing through the system.

When customized correctly, a virtual warehouse can reserve, store, and allocate inventory for more than one channel at a time, making it a valuable tool that can refine efficiency throughout your entire supply-chain network. This refined efficiency increases profit margins by using business data to set up less expensive ways to meet customer demands. 

When paired with an enterprise resource planning solution, omnichannel planning makes it simple to automate back office functions. For companies in the apparel industry, this allows them to leverage integrated applications, including warehousing and electronic data interchange, for multiple purposes. 

The right virtual warehousing solution can help a company use its historical point-of-sale data along with robust forecasting to minimize stock-outs and achieve greater demand optimization. You can even use tools that work together to activate cluster planning. Also of value is that you can conduct this planning on a style-to-style basis, or you can do it all the way to the SKU level. 

Benefits of Virtual Warehousing

Three of the most notable benefits of virtual warehousing include:

• Faster fulfillment of customer orders
• Reserve and/or store inventory in a more cost-efficient manner
• Share real-time data about inventory with other users

Challenges of Virtual Warehousing

To take advantage of virtual warehousing that augments business growth, you need hardware and software that allows you to collect, analyze, and communicate data in real-time. The algorithm level used in the virtual warehouse will build on its functional-level. When combined with its real-time algorithmic process, this allows the virtual warehouse to filter and process data in ways that help business owners achieve optimal operational decision-making capabilities.

The efficiency increase you can reach by using a virtual warehouse is very comparable to what you can achieve in an actual local warehouse facility. ScienceDirect goes on to say that virtual warehousing can reduce the volume of returns by more than 20%.

When building a virtual warehouse, it’s important to first perform an assessment on the enabling technologies you have in your existing asset list as well as those that you need to invest in. 

Furthermore, you must go through the multiple developmental phases when creating a conceptual framework. Take for example that your company has a massive amount of data it wants to store in a virtual warehouse. In knowing this, you can design the conceptual framework of the virtual warehouse so that it contains and supports data marts. 

A data mart prevents the virtual warehouse from becoming overburdened with data and impossible to navigate. The data marts are kind of like categories because they divide the whole warehouse into smaller subtopics of information, making it simple to navigate to what a user is looking for instead of having to sift through tons of information and data.

Other challenges that you will likely face when choosing, integrating and using virtual warehousing may include:

• Pinpoint decision-support modules
• Choosing the right inventory configurations
• Finding the best storage locations for your inventory
• Dealing with the sudden costs of transferring inventory between locations for order fulfillment

Virtual Warehousing Software

The benefits of virtual warehousing are, no doubt, large in number. But virtual warehousing software cannot fix or avoid inventory management problems on its own. Finding the right virtual warehousing software for your needs is crucial to achieving the full potential of the software. Also, keep in mind that virtual warehousing software won’t solve any existing inventory management or distribution issues in and of itself; you have to ensure it works with your existing software solutions — especially your ERP and inventory management software solutions — to enjoy all that it has to offer.

The virtual warehousing software you choose should fully integrate with many other types of software that you use, including:

• Enterprise resource planning software 
• Inventory management software
• Order fulfillment software

When virtual warehousing software integrates with the software listed above, you gain enhanced and clear visibility across all of your entire operations. This clearer visibility facilitates the ability to make informed decisions based on hard data. 

Final Thoughts

Ultimately, the right virtual warehouse for your company will rely on information technologies combined with numerous real-time decision algorithms. With this combination of processes, the virtual warehouse can achieve global visibility, easily allowing it to operate with an efficiency that is reached in world-class warehouses around the world. The warehouse will also have the ability to serve multiple roles within your company, such as reservation and storage of “inventory units.”

Now that technology is closely integrated into many aspects of business, successful retailers rely on accurate and advanced inventory management systems that offer real-time updates. Although these cutting edge inventory management systems provide business owners with useful solutions to inventory management problems, these problems still persist for many global businesses. Keep a close eye on these four problems that are common in inventory management so you can avoid them and ensure your business continues to run smoothly.

1. Stockouts

A stockout occurs when you don’t have enough product in stock to meet the demands of your customers. Not only does this negatively affect your business’s potential profit, but it also can lead to backorders, which can make it even harder for you to catch up when you do get your inventory back in the green.

Customers may even cancel their orders due to frustration with the delay. In most cases, these customers associate this frustration with your brand and won’t make another purchase from you again. Some annoyed customers may even tell friends and family about their negative experiences attempting to buy from your business, which can affect your sales and brand reputation.

Keeping Adequate Stock

Research conducted by the Institute of Management Technology included in-store interviews with customers who experienced stock-outs. The study indicated that 32% of customers switched brands, 41% purchased a different size or variety, and 14% planned to go to another store. Customer loyalty is greatly affected when your business experiences a stock out.

To ensure you always have adequate stock, carefully track the needs of consumers and customers so you can pinpoint the threshold that signals you need to reorder your inventory. Even if you’re running a small business, this is almost impossible to do on your own. However, inventory software can help you identify the sweet spot that indicates its time to reorder. Most software sends you alerts when you meet a certain threshold, so you’ll never see your stock completely run out.

2. Overproduction

Excess inventory can also cause some serious problems for your business. While your customers may not be affected by an overproduction of goods, having too much inventory can cost your business a ton of potential profit. You’re negatively affected by overproduction with increased inventory management costs, space issues, and higher storage costs.

Depending on your product, you may also lose profit on waste if it becomes obsolete. This can happen with food production or if you’re selling a seasonal or trending product, such as holiday decorations or technology accessories.

Eliminating Excess Inventory

There are many ways to effectively get rid of excess inventory, but some of the most common and efficient methods include:

• Selling to customers: If you sell your products to consumers, consider selling off excess stock at a discounted price. You won’t make as much profit, but it’s better than dealing with waste and making no profit at all.
• Trading with competitors: Your competitors may be low on the stock you have and may have a product sitting in storage that you need. Forming a trading partnership can allow both of you to profit.
• Using the goods in new products: The excess goods you have may be redesigned as new products that are more likely to sell quickly. You could also bundle a few products together and sell them as a unit so they look like fresh, new products.
• Liquidating excess stock: You can sell your excess stock at a discounted price all at once in a liquidation sale. Order management software integrated with inventory and retail systems can help ensure you minimize losses while liquidating by keeping your inventory organized and providing crucial data on sales, minute by minute.

3. Inadequate Inventory Forecasting

Both stockouts and overproduction of inventory can be blamed on inadequate inventory forecasting. It’s hard to predict the future, but having a solid grasp on customer needs can help you to avoid these issues. Whether your industry hasn’t changed for 100 years or you’re in a business that’s susceptible to constant changes and dynamic customer desires, it’s important to keep abreast of market trends. Be ready to change your products and the way you do business as you forecast the changes in your industry.

The Basics of Inventory Forecasting

To successfully forecast your inventory needs, you must keep a few important calculations in mind. First, know your production company’s lead time, which is how long it takes to replenish your inventory. Have enough in stock to make it through until your next shipment.

You must also be familiar with the exact point at which you need to reorder stock, called your reorder point. To order the proper amount of stock, you must accurately calculate your reorder amount, or how much you order when you get to your reorder point. These calculations don’t need to be made manually. They can easily be streamlined through a technologically advanced inventory management system.

4. Management Issues

Poor inventory management can usually be blamed on employee errors and/or the lack of a streamlined system. Employees who have been insufficiently trained or who don’t have access to important data can easily order too much or not enough inventory.

Dated inventory management software or no software in place at all can also lead to inventory snafus that can cost your business money. By implementing a solid inventory management system that provides adequate data and by showing employees how to use it, you can avoid these management issues completely.

Preventing Employee Errors

All employees must have access to an inventory management system that provides reliable and accurate data. Employees from every department should be adequately trained on this software to ensure they can see the calculations and data they need to leverage the system’s benefits and keep inventory on track.

Avoiding Inventory Management Issues

Although inventory management is more affordable and easier to implement than ever, 46% of small businesses still don’t have an automated tracking system or don’t track inventory at all. A reliable inventory management platform can save you money, customers, space, and headaches. ApparelMagic inventory management systems offer accurate stock control, raw material management, and other cutting edge features to ensure you stay on top of your inventory.

With inventory management software, you’re not left guessing when and how much to reorder. Seeing a snapshot of your inventory through this easy-to-use system can help you stay in control of your business and keep your customers happy.