Categories: B2B Payments

Inventory Strategy Drives The Rise Of ‘Micro-Warehousing’

Supply chain volatility has thrown a wrench in many organizations’ procurement strategies as buyers and suppliers struggle to connect and move goods where and when they’re needed.

While eProcurement and vendor management technologies can help ease the friction, B2B trade doesn’t begin with the purchase order.

Rather, knowing what needs to be purchased begins with understanding what’s already in stock, making inventory management a growing priority both for buy-side organizations, and the vendors that supply them.

In recent years, inventory management has embraced a digitization revolution, with businesses facing growing market pressures as a result of Amazon-fueled elevations in commerce and logistics demands. The coronavirus pandemic has accelerated much of this innovation, according to WithoutWire owner Travis Smith and newly-appointed CEO Jim Peterson.

In a recent conversation with PYMNTS, Smith and Peterson explored the biggest shifts in the B2B trade ecosystem’s inventory management strategies over the years — and how the global pandemic will likely introduce additional, dramatic changes in inventory strategy for the years ahead.

Beyond The Warehouse

According to Smith, one of the most drastic changes in organizations’ inventory management strategies is the movement beyond straightforward warehouse management technologies, driven by the fact that inventory is no longer consolidated within the warehouse.

“The Warehouse Management System [WMS] has really focused on inventory of the four walls of a facility,” he said, adding that today, WMS is only a subset of the broader inventory management ecosystem. “Businesses are thinking more broadly about not what’s just in their four walls, but also, what’s on vehicles and trucks, what’s out for delivery, what’s in their manufacturing partner sites.”

The demand for a real-time, holistic view into inventory across locations is largely driven by disruption from Amazon, he noted. That trend has highlighted the role of inventory management in processes across an organization, from meeting end-customers’ growing demands for faster delivery and product availability, to B2B commerce’s drive toward faster, digital procurement.

With inventory management impacting customer experience, buyer-supplier relationships, procurement strategies and revenue, organizations are also finding opportunity in embracing digitization and a cloud-fueled ecosystem. Smith noted that this shift has emerged as more businesses seek data analytics and business intelligence capabilities within their inventory management operations.

“Business intelligence is growing quickly in this space,” he said. “Things like artificial intelligence, being able to leverage reams of data being produced by warehouse operations, offers the ability to, for example, build efficiencies, meet demands for growing volumes, figure out where the bottlenecks are in the process — and that really does help companies to flourish with a more modern approach.”

The Rise Of Micro-Inventory

Digitization and data analytics are all well-and-good, but physical inventory can only move so far, so quickly. In today’s period of disruption, organizations are increasingly facing the need to make emergency purchases on inventory to keep pace with demand.

An electronic inventory management ecosystem can certainly support the ability for buyers and suppliers to more efficiently connect, but when an organization stores inventory in a centralized warehouse, a buyer won’t be able to obtain goods as quickly as it needs.

Both Smith and Peterson highlighted the rise of “micro-fulfillment” and “micro-inventory,” a trend they said is growing rapidly.

“This micro-warehousing concept will see more people open their eyes to, ‘I don’t have to manufacture everything. I can have my supply chain be much more diverse than the four walls of my warehouse,'” said Peterson.

“What we’re seeing more of now is businesses storing products at their customer sites,” added Smith. “They set up contracts with their customers to store any additional inventory, and they can send a request for fulfillment and send it out.”

It’s an emerging business model that can enable vendors to become more agile in not only managing their inventory, but also disbursing it to organizations that need it quickly. And according to Smith, this practice will likely stick around after the market emerges from the pandemic.

He offered the timely example of coronavirus tests. Managing a network of disbursed inventory locations that can easily be created or dismantled offers an agility in fulfillment that simply isn’t possible when goods remain in a single warehouse.

Driving Efficiency

While the physical proliferation of inventory can support accelerated B2B trade, the strategy comes with its own set of challenges, including the management of goods across multiple locations. As a result, tools and trends that emerged in inventory management well before the coronavirus crisis will become even more critical to enabling efficiency.

Smith highlighted the role of electronic data interchange (EDI) as one key technology that will be crucial to enabling buyers and suppliers to seamlessly connect and exchange information about product requests, inventory level assessments, purchase orders and more. Outsourcing to third-party logistics (3PL) providers is another trend likely to accelerate, he said, as organizations seek outside expertise to help consolidate inventory management operations.

There will also be opportunities for technology providers to introduce industry-specific functionality into their offerings, with different sectors like healthcare and food and beverage in need of inventory management platforms that support everything from product temperature management to quality compliance.

Overall, while the coronavirus has placed a mountain of pressure on B2B supply chains, Peterson said organizations are taking this time to act on long-standing desires to optimize inventory strategy.

“People are not just reacting in fear,” he said. “I see people looking for systems to help improve operations not just for today, but for after we come out of this.”

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The pressure on banks to modernize their payments capabilities to support initiatives such as ISO 20022 and instant/real time payments has been exacerbated by the emergence of COVID-19 and the compelling need to quickly scale operations due to the rapid growth of contactless payments, and subsequent increase in digitization. Given this new normal, the need for agility and optimization across the payments processing value chain is imperative.

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