Forward Deployed Inventory (FDI) is the deployment of inventory from a main warehouse or hub to smaller hubs before the products are shipped to customers. These smaller warehouses are located in different regions or areas, and are run and managed individually based on the business and sales needs of their specific areas. It does make inventory management a little bit easier, but there are disadvantages that come with the advantages of FDI.
1. Local Management
One of the key advantages to using FDI is that management of inventory is done locally, which means business decisions can be made based on local factors that may influence sales. Having individual management at each hub also helps with managing inventory better, notably with getting orders in or out, and providing customer support.
2. Local Factors
Local factors are anything that happen locally within the area or region of a hub that may contribute to an incline or decline in sales, such as events, promotions, festivities, or customer trends. Having inventory and sales managed from a single main hub to many parts of the world may not be ideal in using such factors to your advantage. With a local hub present, there is a better level of connectivity between the retailer and consumers.
3. Delivery Lead Time
When inventory is already available locally, delivery lead time is cut down significantly. One of the most important components of achieving customer satisfaction is having good delivery lead time. Monitoring delivery also becomes easier because the order goes out from a local warehouse, allowing management to select the most suitable and safe delivery options.
1. Compliance Issues
Although local management of inventory is great, it does have its setbacks. There is a risk of local control lacking in management and operational skills, and it will not be easy to ensure that each hub is running based on the provided operating procedures and using the correct tools. This is of course subjective and not completely a lost cause, but it is definitely more complicated than operating from a centralized warehouse.
2. Lack of Experience
Lack of inventory management experience could lead to a tendency to overestimate sales during local festivities and events, or due to any other local factor. Unsold inventory is never a good thing, because having to ship the goods back to the main warehouse will be extra cost incurred to the retailer.
3. Communication Between Hubs
For many FDIs, hubs are located either within the same country, or in neighbouring countries. It is important for hubs to be aware of inventory that is already available in the pipeline, so they can decide whether to offload or bring in inventory from other hubs. Absence of communication and awareness may result in certain hubs submitting reorders while other hubs have excess inventory, consequently incurring cost to the retailer to return the excess products to the main warehouse.
There is a lot of discussion and debate on whether to use FDI or to having products shipped directly to consumers. With proper training and discipline, FDI works great especially for high volume retailers.
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