What Is Virtual Warehousing?

What is virtual warehousing

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:

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.”

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