In our series of blog articles on 3rd party and 4th party logistics, we have looked at the different facets of outsourcing logistics services to external service providers. If you are not yet familiar with the terms 3PL and 4PL, we recommend that you first take a look at our illustrative basic articles.
3PL inventory management is a very specific service within the supply chain. In 3PL warehouses, a modern inventory management system ensures optimal warehousing and helps to automate processes and manage inventory efficiently. The functionality and performance of the 3PL inventory management system can be an important factor when it comes to choosing the right 3PL provider.
Basics of a 3PL Inventory Management System
Today’s logistics processes are extremely fast-moving and at the same time require the highest precision and coordination. Digital management solutions are indispensable to meet the high demands of warehouse management within a supply chain. A special inventory management system manages the stocks of a warehouse and helps to optimise material and goods flows. Depending on the industry or type of goods stored, inventory management strategies can vary widely. Typically, 3PL inventory management is interwoven into a higher-level warehouse management system (WMS).
Recently, there has been an increasing number of supply chain disruptions. The resulting uncertainties have led to the widespread rebuilding of larger inventories. This also increased the need to manage them effectively.
Functions and Benefits of Inventory Management
To better understand the benefits that a 3PL warehouse with a corresponding inventory management system can offer, we outline some of the capabilities and functions of modern inventory management solutions:
- Real-time inventory tracking: Constant overview of current inventory to control inventory in real time and avoid stock shortages or overstocking. The information includes the number, location and value of the storage units or SKUs.
- Automatic reorders: When a certain threshold is reached in the inventory, a warning message is issued or an automated reorder is placed directly. This prevents production stops or delivery difficulties.
- Production planning/component availability: Ensuring that all necessary components for the manufacture of a specific product are always available, including information on how many products can be produced based on the available individual parts.
- Optimisation of warehousing: Analysis and improvement of inventory strategies to reduce storage costs and manage inventory efficiently. Historical evaluations help to determine optimal stocks.
- Integration with other systems: Seamless integration with ERP, CRM or WMS systems for a complete overview of warehouse and business processes.
- Support for multi-channel sales (multi-channel inventory management): Synchronisation of wholesale, retail, online shop B2B and B2C, which often use different systems and have different requirements for packaging etc, but access the same stocks. This prevents overselling and bottlenecks in inventory.
- Analysis and reports: Generation of reports on inventory turnover rate, product dwell time and trends to support strategic decisions.
- Barcode and RFID tracking: Use of barcodes, RFID technology or automatic inventory such as drones to accurately track inventory, update it automatically and minimise errors.
If your 3PL warehouse uses a powerful inventory management system, you will benefit directly and in the long term from the functionalities mentioned. Depending on the nature of your business, different priorities may of course be relevant. The central point is direct access to inventory data and seamless integration into supply chain processes. A powerful 3PL inventory management system ensures accurate, error-free inventory data. This ensures that your goods are available at all times, while minimising overstocking.
Different Variants of 3PL Inventory Management
Humble Beginnings - It all starts with a simple list
Many companies start as manageable start-ups. A small company, for example an online shop for self-produced goods, may still work with Excel lists or Google spreadsheets in which inventories are entered and updated manually. However, such a system obviously quickly reaches its limits, it is slow and prone to errors. With an increasing number of articles and processes, but also with several users (simultaneously), such a system becomes unwieldy. At the same time, analyses are only possible with a high degree of expertise, and evaluations have to be set up on your own instead of simply being triggered by a mouse click.
Inventory Management as part of another software
Some business applications, such as CRM, accounting and financial accounting, also offer a module for warehouse management. The digital link with other business areas is advantageous, and at the same time you benefit in the best case from clean, user-friendly programming and regular updates. If it is a cloud solution, the updates even happen automatically. Such a solution is an advance on the “Excel list” model, but is usually still limited in scope. From a certain size and complexity of the business, this approach also reaches its limits.
Warehouse Management System Versus Inventory Management
As already mentioned, the terms warehouse management system (WMS) and inventory management are not identical, even if the transitions can be fluid. A WMS has the big picture in mind and includes all processes within a warehouse, inventory management focuses on the management and optimisation of inventories. The aim of inventory management is to always have sufficient products or components and raw materials for production in stock. At the same time, overcapacities must be avoided, as these are always associated with costs.
In many modern warehouse solutions, inventory management is an integrated part of the WMS. This means that the WMS not only controls the warehouse processes, but also enables comprehensive inventory monitoring. In some cases, however, separate inventory management software may be useful, for example if there are special requirements or if several locations are to be managed centrally. In these scenarios, it is common to link the WMS to a specialised inventory management system via appropriate interfaces to ensure that inventory data is always up-to-date and that the systems communicate smoothly with each other.
Self-programmed, local software solutions
An individually programmed solution that runs on local computers has its appeal. After all, the inventory software is developed specifically for the requirements and typical processes of a business. It is a perfect fit and offers exactly the desired range of functions. Additional costs for functions or modules that are not needed are eliminated. Offline functionality protects against problems that can occur due to Internet failures or even hacker attacks.
The disadvantage of such a solution for inventory management is that it is expensive as a customised solution. At the same time, you tend to be dependent on a particular programmer or software company that created the program. This means a certain dependency and can make switching more difficult. Not every software code is readily comprehensible to a new programmer. Maintenance, regular updates, expansion of functionality - all this is complex with a stand-alone software solution.
Dedicated Inventory Management System
These systems are specifically designed to manage inventory and can offer a range of appropriate functions, as we described at the beginning - from real-time inventory data to reports and automatic reordering to the integration of barcode and RFID tracking technologies. The optimal programme offers all the necessary functions including scalability for business growth. Since such a system naturally also has its price, it is important to weigh up whether and to what extent the investment pays off. Smaller companies in particular may have to pay attention to the cost-benefit ratio here. If the software solution is cloud-based, you also have to deal with the problem of Internet outages and network problems, which could result in temporary restrictions on warehouse operations.
Final Thoughts on the Right Inventory Management
A powerful inventory management system is at the heart of an efficient 3PL warehouse. Depending on the size and nature of your business, you can benefit from it to maximise the efficiency of your logistics and reduce costs. Choosing a 3PL warehouse provider with a powerful IMS can make all the difference. You manage your inventories optimally, avoid bottlenecks and unnecessary costs due to overstocking. Use the expertise of an experienced 3PL provider like Röhlig to strengthen the competitiveness of your supply chain.
