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The pros and cons of 3PL distributed inventory

Mar 27, 2023





Distributed inventory is stored in a warehouse.

Strategically distributed inventory and multi-warehousing are common practices among ecommerce brands. Managing distributed inventory across multiple fulfillment centers can reduce shipping costs and get orders to customers more quickly. 

But it’s how the inventory distribution is managed—and by whom—that can make the difference between savings and losses. Many 3PLs that advertise “distributed inventory” take control over where their customers’ products are stored—so the brands themselves never know where their orders are shipping from. The selling point here is flat-rate fulfillment pricing, but for direct-to-consumer brands with any degree of complexity in their product mix or logistics preferences, this lack of control and oversight can actually make operations less efficient. 

Luckily, you have options. Read on to understand the difference between distributed inventory and multi-warehousing so you can decide which is best for you.

What is distributed inventory? 

At its most basic, distributed inventory is simply product that’s stored in multiple locations to enable more efficient order fulfillment. By fulfilling orders from the warehouse nearest their destination, ecommerce brands can reduce the number of shipping zones the packages travel through. Inventory distribution has a lot of benefits, but the primary two are lower shipping costs and faster delivery times. 

In the 3PL world, distributed inventory can take on a more loaded meaning. When fulfillment providers advertise “distributed inventory” as opposed to multi-warehousing capabilities, it often means that they are assuming control over where your inventory is stored and how it’s shipped. The 3PL will move your product from location to location as it best suits their operations, so you likely won’t know where all your inventory is or where it will ship from at any given time. 

While this is intended to make the 3PL more efficient overall, it often sacrifices cost efficiency for individual brands by increasing the likelihood of split shipments and disguising the actual per-order fulfillment cost through all-in-one pricing.

What is the difference between multi-warehousing and distributed inventory? 

The primary difference between these two fulfillment strategies is how much control the brand has over operations. 

Under most distributed inventory models, the brand sends all its inventory to a single receiving warehouse. From there, the 3PL will distribute the product across its network of fulfillment centers based on factors like storage space, available workforce, shipping volume, and order destination density. 3PLs that manage inventory this way use flat-rate or all-in-one pricing, made possible by their total control over how and from where orders are shipped. 

Multi-warehousing also aims to distribute inventory over two or more strategic locations but leaves the decision-making up to the brand. In this scenario, brands use multiple warehouses operating within the same 3PL network and under the same WMS, but choose their locations and send inventory to the warehouse it will be shipped from. This way, the company always knows where its inventory is, can see real-time inventory counts in each location, and can ensure orders are always sent from the warehouse nearest the order’s destination—as opposed to whichever warehouse happens to have the appropriate inventory at the time the order is placed.

A note on load balancing

In fulfillment, load balancing refers to the movement of inventory between warehouses to meet sales demand in certain geographic regions. Rather than waiting for a new inbound shipment from the manufacturer, an ecommerce brand may move inventory between warehouses to match sales velocity. 

3PLs that control distributed inventory will automatically load balance their customers’ stock—that’s the idea behind the provider moving inventory to whichever warehouse allows the 3PL to operate most efficiently. But it’s important to note that some 3PLs that offer multi-warehousing will also practice load balancing without your input. 

Even if your 3PL allows you to choose which warehouses you use, many will only do so once you’ve agreed that they may move your inventory at any time at their sole discretion. In this case, your inventory may not move around as frequently as with 3PLs that use distributed inventory tactics, but you’ll still be relinquishing some control to the provider—which comes with heightened risks of inventory loss or damage. 

Load balancing is a necessary element of using a multi-warehouse fulfillment strategy, but it’s best to find a provider that will only move inventory between facilities at your request.

The pros and cons of 3PL-managed inventory distribution

Pros of managed inventory distribution

Allowing your 3PL to control the placement of your inventory limits your control over certain fulfillment operations, but that means it makes managing fulfillment easier on your end. While not a great fit for every brand, there are advantages to letting your fulfillment provider oversee your inventory distribution.

  • Flat-rate pricing: Companies that offer flat-rate fulfillment pricing are able to do so by optimizing their operations across all the brands they support. That means that these companies are typically able to offer a single fulfillment and shipping rate for packages of a certain size, regardless of the distance it has to travel. This can make predicting your fulfillment costs simpler.
  • Low- or no-zone shipping: Some 3PLs that use inventory distribution, like ShipHero, advertise “no shipping zones.” Because these providers call the shots when it comes to choosing shipping carriers and inventory movement, they’re able to send truckloads of orders for various brands via freight, which carriers pick up from a local warehouse for last-mile delivery. This way, your cost of shipping does not fluctuate based on your customer’s location.
  • Single inbound warehouse: Since these 3PLs choose where to store your inventory, you’ll only ever have to send your inbound shipments from the manufacturer to a single receiving warehouse. This reduces planning complexity on your end as it pertains to lead times, reorder point formulas, and freight forwarding

Cons of managed inventory distribution

Fulfillment is extremely complex, so while it may be appealing to outsource as much of the minutiae as possible, forfeiting that control also limits your insights into your landed cost and makes it harder to optimize your brand’s logistics. 

  • Constant inventory shuffling: When you let your 3PL choose where to store your inventory, you’ll never be totally sure where your product is at any given moment. You might send product to a warehouse in Washington, just to see orders fulfilled from Missouri one week and Texas the next. The more your inventory is moved, the more likely it is to suffer damage or get lost in transit.
  • No insight into freight costs: At first, it seems like distributed inventory would lower your freight costs—after all, you’ll only be paying for moving your merchandise from the manufacturer to the receiving warehouse. But nothing is ever really free. In reality, the 3PL has baked its own freight costs associated with load balancing and no-zone shipping into your flat-rate fulfillment and storage costs. 
  • No way to optimize your costs: Paying the same rate for every order sounds simple and transparent, but all-in-one pricing that bundles order fees, pick and pack fees, and shipping costs makes it impossible to understand your true costs. If you don’t know what each order costs in terms of warehouse labor, packaging materials, and carrier costs and surcharges, you’re missing out on data that could help you identify cost-saving opportunities as your company scales and is able to take control of fulfillment’s economy of scale. 3PLs that use a la carte pricing make it easier to identify where your money is going. 
  • More split shipments: When your inventory is distributed across multiple warehouses by a 3PL that doesn’t prioritize your operations over its own, you’re more likely to see situations in which orders are shipped in multiple packages because no one warehouse has every SKU in the order. You’ll be paying the same flat rate for every package, regardless of how many shipments are needed. This both cuts into your margins and damages the customer experience.
  • Your brand comes second: The 3PL will be making decisions about load balancing, storage, and shipping based on its own bottom line, not yours. In some cases, this is a win-win—especially for smaller brands that couldn’t otherwise afford to execute such a strategy. However, other brands in the 3PL’s portfolio will have their inventory stored in and shipped by less-than-ideal circumstances because the provider is optimizing its own operations, not its individual customers’. 

Understand how your 3PL handles inventory distribution

If you’re preparing to expand your fulfillment operations into additional warehouses—or want to prepare for when your brand is ready—be sure to evaluate the level of control your 3PL is able to give you. 

Letting the 3PL manage inventory distribution provides a hands-off approach that can benefit small teams that don’t have the internal bandwidth to oversee it themselves. It can also be a useful tool for companies with very few SKUs, since they’ll be less likely to run into problems with split shipments and have more static shipping costs.

But for brands with any level of complexity in their product mix, maintaining control over inventory distribution while using multiple warehouses can reduce risk and shed light on ways to reduce fulfillment costs. You may discover that it’s cheaper to use a specific shipping carrier and method or find a means of packaging your goods that lowers a package’s dimensional weight. With deeper insights into your costs per order, you might find that you’d save money by paying for a one-time project to bundle complementary products into a single SKU, as opposed to paying for two picks per order. 

Having greater control over and visibility into your fulfillment operations is crucial to successfully scale your brand to the point that you can take advantage of fulfillment’s economy of scale.

Master your inventory distribution with Airhouse.

Through our managed warehouse network, Airhouse customers can use as many or as few warehouses as they need—and always have full control over their inventory. Learn more by talking to a fulfillment expert today.

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