Bypassing the Warehouse Keeps Inventory Moving…Even Globally
Inventory is cash on pallets for companies, and if the inventory is not in motion, it is doing the company no good. In a perfect world, inventory is non-existent. If supply and demand are in sync, there is no reason to inventory any product. Alas, that is only in a perfect world. In the real world, companies are looking for quicker ways to get their product from their manufacturing plant to the end customer, essentially minimizing inventory. One way of doing this, particularly on a global scale, is to bypass the distribution center completely, whereby product goes directly into the supply chain channel and on to its final destination.
Distribution center (DC) bypass is a way for companies to reduce their days-on-hand inventory by putting the product directly into the supply chain and on to its final destination. This results in cost savings that go directly to the bottom line and is embodied in earnings per share.
“It is not sitting in a distribution center,” says George Post, marketing director, global marketing, UPS Supply Chain Solutions. “Customers can remove unnecessary steps in their international supply chain by utilizing an outsource strategy, allowing firms like ours to serve as their “virtual” warehouse. In many cases, customers don’t need a brick-and-mortar warehouse.”
A supply chain strategy, such as DC bypass, must be the enabler to a business strategy. DC bypass is simply a means to execute on a broader business strategy, such as Just-in-Time (JIT), reduction of capital tied up in DC facilities or inventory, or increasing inventory velocity while improving service to customers.
One e-tail B-to-C company, manufacturing its product in Asia and transporting it to the United States, Canada, South America, Europe, India and the Middle East, reduced its days-on-hand inventory from 26 to 12 days, thanks to DC bypass. Instead of the inventory being in the warehouse, it was available for customers to purchase that much quicker.
The faster cash turn cycle, which was the deciding factor for this e-tailer, plus getting the latest product out to market faster than its counterparts has not only the financial benefits of order-to-cash, but also getting your branded product on the shelves that much faster improves brand recognition and credibility. This also enabled them to gauge how strong the take rate would be on this new product line.
While this particular company was an e-tailer, eliminating days on hand applies to any/all segments – e-tail, retail, manufacturing, hi tech, apparel – any vertical that is B-to-C can benefit. In addition to better inventory management, other benefits of DC bypass include simpler logistics management, potential transportation cost reductions, and risk of loss or product damage minimization.
DC bypass is not just for import. Global e-commerce expansion is one of the driving forces. The allure of global markets has companies drooling over potential sales opportunities, yet many obstacles exist, including those associated with local warehousing. Those companies unfamiliar with specific countries’ labor and tax laws, rules and regulations find it near impossible to open a distribution center in a foreign location. On top of that, it may not be economically feasible for a company to open a warehouse internationally. Enter the DC bypass option.
Whether you’re importing product or looking to expand internationally, you should investigate DC bypass opportunities as a means of improving your supply chain and distribution network, in general, and more specifically, better cash turn cycles, response times, and inventory turns. So where do you start? Partnering with a logistics or supply chain solutions provider with practical experience in DC bypass procedures can help you realize the benefits of DC bypass.
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