So far I’ve discussed drop-shipping and fulfillment centers. Now I’m going to discuss the benefits of stocking your own inventory instead of having to rely on any third parties. There are several reasons a merchant may want to stock their own inventory. It could be that is the only way to source the product the merchant wants to sell. Perhaps the merchant simply has enough capital to invest in products early on instead of having to rely on customer sales to build up their business. Stocking their own inventory comes with some benefits that they wouldn’t get by drop-shipping or using fulfillment centers.
Control of Costs
The first benefit is a finer control of costs. Buying a lot of products at once can open the door for better pricing from their vendors. The merchant also can negotiate their own terms with shippers to reduce shipping costs (which is usually dependent on shipping a certain volume of products through the chosen shipper). On the downside there is also the cost of storing the products, but that can lead to other benefits.
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A benefit of a merchant storing their own products is control over the workflow of the warehouse. It is very important to configure the layout of the warehouse and the process by which employees gather products for orders in the most efficient manner possible to waste as little time as possible walking back and forth. This requires a good knowledge of the products the merchant is selling and what their customers tend to order the most.
Control of Products
Another benefit of a merchant stocking their own products is being able to inspect the quality of the products before shipping them to customers. No customer likes to deal with returns or receiving less than quality products. Quality problems can cost merchants those customers as they will look elsewhere in the future. Third parties may not care as much about the state of the product the customer is delivered as the merchant would, so this allows a merchant to have their employees do some sort of quality check on the products (what kind of check depends on the product) to reduce the likelihood of a return.
These are some of the benefits of stocking inventory as opposed to using a third party to store and ship products. Merchants will have to weigh a variety of factors to decide if the time is right for them to start this. What other benefits have you seen of stocking your own products?
This post was originally featured on April 24, 2013.