What Is a Virtual Warehouse for Inventory Management?

A virtual warehouse is a method a business can use to track all of its inventory and stock, regardless of how many physical warehouses or stores it is spread across. Such a holistic inventory view that also offers a tremendous level of detail can help a company fulfill customer orders faster and with lower costs. As customer expectations rise and the nature of their demands change faster and faster, virtual warehouses have become an important inventory tool for businesses of all sizes to increase customer satisfaction and stay competitive.

What Is a Virtual Warehouse?

The virtual warehouse is a term used to describe the ability to see a holistic view of inventory across all channels and locations in a single place. It is also referred to as multi-location inventory management. Companies creating a virtual warehouse for inventory use software that aggregates information about inventory (products ready for sale) and stock (items used to manufacture products) from across the business, including all of the physical locations where items are stored.

Like a virtual data warehouse, virtual warehouses for inventory are also most effective when paired with an enterprise resource planning (ERP) system and inventory management software.

Virtual Warehouse vs. Physical Warehouse

Virtual and physical warehouses are obviously different, but they are related. A physical warehouse is the structure where inventory is received, organized and stored, and where products can be held until they’re shipped to customers. A business may have many such physical locations. But when those items are received, put away, picked, shipped from or returned to a physical warehouse, software stores and tracks that information. It lets a business treat multiple warehouses and other locations that hold inventory such as retail store stockrooms as if they were a single large distribution and fulfillment center, providing a real-time, comprehensive view of all inventory needed for manufacturing and customer fulfillment.

A virtual warehouse helps businesses fulfill customer orders quickly and with lower operating costs by, for example, identifying which fulfillment options for certain products are the fastest or cheapest for a particular customer. It also minimizes late or incorrect shipments to customers. Because customers today are used to fast shipping times, a virtual warehouse can be a necessity to stay competitive with larger businesses such as Amazon.

With a virtual warehouse, employees can see all products currently in stock at a glance, as well as any products the company needs to make or order from other sources and, in turn, sell to customers. This means the company can keep and access a wider and deeper choice of products. Larger product inventory means businesses can satisfy customers who are looking for very specific products.

Who Uses Virtual Warehouses?

Virtual warehouses can be used by any company, large or small, that has outgrown manual inventory tracking with spreadsheets. The business may need to keep up with increased customer demand, or it may want to optimize its shipping processes and procedures to fulfill customer requests in a timelier fashion. A company might also wish to consolidate functions across multiple subsidiaries, requiring real-time information across all its businesses and locations.

Public companies need to track inventory to put together accurate financial reports that comply with Securities and Exchange Commission (SEC) rules and the Sarbanes-Oxley (SOX) Act. Precise documentation is necessary to prove that the company is complying with these rules. A virtual warehouse makes this tracking simpler and more straightforward than manual tracking.

Why Are Virtual Warehouses Important?

In today’s world of omnichannel sales and ecommerce, it’s more important than ever that businesses have excellent inventory management and order fulfillment in order to better meet customers’ rising expectations. Virtual warehouses are important for fulfilling customer orders faster and more accurately. Efficient manufacturing processes, product management and order fulfillment are vital to a company’s success, but tracking these may not always be easy. With virtual warehouses and warehouse management systems (WMS) that help them manage all these goods, companies can improve accurate, on-time delivery to their customers without increasing their total cost of operations or ownership (TCO).

Advantages of Virtual Warehouses

Overall, virtual warehouses reduce costs and increase flexibility through real-time tracking of inventory information and product movements. The specific benefits of virtual warehouses vary depending on a business’s situation, but they typically include faster customer order fulfillment, lower inventory risk and simplifying omnichannel sales. Here’s an overview of common advantages:

• Faster fulfillment: By identifying which physical fulfillment center is closest to the customer, virtual warehouses allow a company to shorten transportation times.
• Greater product diversity: By collecting information from a company’s entire supply chain, virtual warehouses allow companies to increase their breadth of offerings without needing to lease or purchase more warehouse space.
• Less “dead stock”: With a virtual warehouse, a company has real-time inventory control. This helps prevent dead stock, for example, by tracking items’ expiration dates. A business alerted to an item’s imminent expiration could promote it to sell it quickly before it expires.
• Lower inventory risk: Virtual warehouses lower inventory risk by reducing the amount of physical inventory and stock a company must carry. Since many companies have a limited amount of physical space, they can’t afford to store products that aren’t big sellers. With a virtual warehouse, a company can carry less inventory since they’re able to easily see and fulfill orders from multiple locations, rather than stocking all products in each warehouse.
• Omnichannel sales: A virtual warehouse can help a company simplify omnichannel selling. For example, it could give a retailer the ability to sell its products in places other than its own storefronts. For example, virtual inventory can support processes like buy online, pickup in-store or buy online, return in store, by keeping the inventory management system up to date and sharing that information with customer relationship management (CRM) and order management systems. Such an omnichannel system creates a simple buying experience for customers by integrating communication, distribution and customer service, enabling customers to access the company’s products through multiple sales channels.

Challenges of Virtual Warehouses

The essential challenges of virtual warehouses have to do with IT infrastructure. Developing a virtual warehouse system requires various related systems, such as ERP, inventory management and warehouse management. Issues may arise if warehouses aren’t integrated with inventory management systems — if each is operating independently, it may lead to businesses storing more inventory in each route. Similarly, using multiple vendors create the need to ensure that all systems are integrated and sharing information in real time, which requires a significant investment of time and resources.

Beyond that, some organizations have encountered inventory management problems when they establish too many virtual warehouses. For example, it’s possible to set up separate virtual warehouses for different channels, sales regions or even very large and important individual customers. But since multiple virtual warehouses are acting on the same physical inventory information, conflicts can arise. Conflicts can be managed, however that can require careful business process rules or algorithms that automate conflict avoidance.

Virtual Warehouses and Inventory Management

Managing inventory virtually allows a company to optimize order fulfillment by locating the product and the warehouse closest to the customer and choosing the best routing option to get the product to the customer quickly. It enables inventory building in various locations so that the company can deliver goods in a timely fashion.

For example, inbound and outbound warehouse flow can be simplified with a virtual inventory management process. For inventory that is on the way to the warehouse from the supplier is tracked in the inventory management system and can be allocated to open orders even before it physically arrives in the warehouse. With inbound stock and inventory, an employee registers the items by scanning a barcode and matching it to a purchase order or an inbound transfer order. For an outbound order, the employee can choose the facility closest to the customer, shipping directly to them or to another company location along with any necessary documents.

Conclusion

Virtual warehouses are essentially multilocation inventory management systems and have many advantages for helping companies improve their production, distribution and fulfillment procedures. They can enable companies to serve customers through multiple sales channels. And they can let companies store and access inventory from anywhere in the world, resulting in quicker and cheaper order fulfillment and higher customer satisfaction.

Virtual Warehouse for Inventory Management FAQ

Q: What resources does a virtual warehouse provide?

A: A virtual warehouse supplies real-time information on both incoming and outgoing products. It tracks inventory (products that are ready to ship out to customers) and stock (the raw materials and components needed to make finished products). In addition, it enables the company to see where all products are located as well as how many workers are on the floor at any given time. This allows companies to better manage their supply chain, which is one of the costliest aspects of running a business.

Q: What is a virtual inventory?

A: Virtual inventory is a complete list of a company’s products, as well as all the raw materials and components coming in, stored inventory and the finished products ready to go out. Typically maintained as part of a virtual warehouse software system, virtual inventory management allows companies to optimize order fulfillment by locating the product and the warehouse closest to the customer. It also helps track inventory turnover, an important metric that shows how often stock is sold in a period. Virtual inventory systems can help avoid unsold inventory, or dead stock.