For third-party logistics (3PL) providers, the definition of inventory and inventory management can seem identical. After all, items carried in a truck are considered inventory. And the act of moving them from one place to another is part of inventory management.
However, the definition of inventory and inventory management isn’t equivalent. Inventory consists of raw materials, in-progress items, and finished goods. It lies in wait for a business to direct it to the next step, whether that’s turning it into a finished product or selling it to a customer.
Inventory management is a process that oversees goods from their creation to sale. It includes ordering, storing, monitoring, and moving goods to meet business requirements. Businesses use inventory management to minimize their carrying costs while keeping enough stock on hand to meet order requirements.
In this guide, we explore the meaning and definition of inventory management versus inventory, and how they apply to 3PLs.
- What is inventory? A static asset with ownership and location
- What is inventory management? From tracking stock to managing movement
- How inventory management changes in multi-warehouse 3PL operations
- Why execution-focused systems are required to manage inventory at scale
- Redefining Inventory Management with Logiwa
- FAQs about the definition of inventory and inventory management
What is inventory? A static asset with ownership and location
Inventory consists of physical goods owned by a business and stored in a specific location. Within the framework of a 3PL, inventory consists of items stored on behalf of its clients. Third-party logistics providers may provide inventory services for multiple clients, so the warehouse may contain inventory from multiple sources.
To identify inventory, 3PL organizations use several attributes. They include:
- Quantity: Number of a particular item
- Stock-keeping unit (SKU): Scannable bar code used to identify a singular item
- Warehouse location: Place where an inventory unit is stored
- Ownership: Name of the client who owns the inventory
These qualities enable 3PL providers to identify the items in their care, organize them appropriately, and take action when a client directs them to.
For example, providers may use the attributes of inventory to segregate inventory by client, product type, and location. This supports an efficient inventory control process by housing a customer’s goods in optimized locations throughout the warehouse. It also aids in compliance requirements, making it easier to maintain accurate stock counts.
What is inventory management? From tracking stock to managing movement
Inventory management is a continuous, system-driven process of overseeing goods. Third-party logistics providers use the inventory management process to monitor the flow of a client’s goods in and out of the warehouse.
A comprehensive inventory management system in the context of 3PLs includes several steps:
- Ordering/replenishment: Notifying clients when stock reaches a reorder point
- Receiving: Capturing a product’s arrival in the warehouse
- Storing: Placing a good in its appropriate location
- Monitoring: Tracking a product’s availability
- Shipping: Sending a purchased good to its intended recipient
Modern 3PL providers offer services beyond inventory counts and shipping. With the right tools, they act as a business partner, providing clients with clear visibility into product availability and priority. This allows clients to plan their stock based on previous sales.
Another benefit of modern 3PL inventory management is real-time updates, which are a core requirement for high-volume operations. Modern 3PL companies integrate real-time stock level updates into inventory management, alerting customers automatically when it’s time to replenish a product.
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How inventory management changes in multi-warehouse 3PL operations
Third-party logistics providers with multi-warehouse operations face a different set of inventory management challenges. Instead of overseeing operations in a single location, they must balance inventory needs across multiple places. This is where inter-warehouse transfers are useful.
An inter-warehouse transfer occurs when a 3PL moves inventory from one of its warehouses to another. Transfers support shifts in regional sales demand. They also assist with balancing stock levels, optimizing available space, and enhancing shipping cost efficiency. For example, a 3PL that notes an uptick in orders from another state could transfer inventory to a warehouse in that area. As a result, the 3PL’s clients may benefit from cheaper shipping costs and faster deliveries.
Another concern for 3PLs with multiple warehouses is routing. As the number of sites grows, logistics managers must optimize routing for several variables, including shipping expense, inventory availability, and location. Understandably, this can grow unwieldy for 3PLs reliant on spreadsheets and basic tools. There are simply too many decision factors to consider, which opens the door to mistakes.
That’s where intelligent order routing helps. Such a tool selects the optimal fulfillment process based on the 3PL’s available service-level agreements, location, and inventory availability. It applies business rules to recommend routes, saving providers time and money while also enhancing customer service. Best of all, intelligent order routing is scalable — it grows with 3PLs as their client base and service areas expand.
Why execution-focused systems are required to manage inventory at scale
Unless third-party logistics providers have a massive logistics team, analyzing each day’s orders to meet specific inventory management requirements is unlikely. There are too many rules to consider. Even if the organization has a basic warehouse management system (WMS), it may run into issues.
Many older WMS platforms struggle with multi-warehouse operations. They’re not built to handle real-time inventory counts or automations. They lack the integration capabilities necessary to connect to ecommerce platforms and other workflow tools.
Fortunately, an evolution of warehouse management systems has taken place recently. Modern inventory management systems include features that support real-time inventory counts across multiple locations. They deliver comprehensive reports that support inventory planning and forecasting and offer automation tools for intelligent order routing and integrations.
With the right inventory management system, 3PLs can unify inventory data in one place. They eliminate the need for multiple, complex systems that are costly and error-prone.
Redefining Inventory Management with Logiwa
Logiwa’s market-leading, cloud-based fulfillment management system simplifies inventory management for high-volume 3PLs. It includes features that basic WMS platforms don’t offer, such as real-time inventory tracking, automated inventory alerts, and intelligent routing support. Third-party logistics providers benefit from a unified platform and integrations with online stores and marketplaces.
To explore how Logiwa extends 3PL inventory management into real-time execution, schedule a demo with our team.
FAQs about the definition of inventory and inventory management
What is the difference between inventory management and order management?
While the two terms are frequently used interchangeably in ecommerce, they serve distinct but complementary functions in the supply chain:
- Inventory management: Focuses strictly on the products. It is a process that oversees goods from their creation to sale. This includes tracking physical stock quantities, warehouse locations, and product availability to minimize carrying costs.
- Order management: Focuses on the customer transaction. It is the end-to-end orchestration of receiving, tracking, and fulfilling a customer’s purchase—from the moment the “buy” button is clicked to final delivery and potential returns.
Do modern 3PLs need both an Order Management System (OMS) and an Inventory Management System (IMS)?
High-volume fulfillment requires synchronizing the customer experience with warehouse realities. Utilizing both systems (or a modern WMS like Logiwa IO, that can integrate with both) is critical to avoiding stockouts and shipping delays:
- An OMS handles the front-end sales workflow, automatically capturing orders from multiple e-commerce channels and routing them for fulfillment based on strict service-level agreements.
- An IMS handles the back-end product tracking, capturing a product’s arrival in the warehouse and notifying clients when stock reaches a reorder point.
What are the typical steps in the order management cycle?
Once an inventory management system is actively monitoring the flow of a client’s goods in and out of the warehouse, the order management cycle executes the following fulfillment steps:
- Order placement: Seamlessly capturing the purchase data from integrated sales channels and marketplaces.
- Order routing: Applying intelligent business rules to select the optimal fulfillment process.
- Pick, pack, and ship: Directing warehouse staff to retrieve the item, package it according to client specifications, and ship a purchased good to its intended recipient.
- Post-sales support: Providing real-time tracking updates to the customer and processing any return-to-warehouse (reverse logistics) requests.
How does intelligent order routing improve multi-warehouse inventory management?
As a 3PL grows, logistics managers must optimize routing for several variables, including shipping expense, inventory availability, and location. Relying on spreadsheets and basic tools to balance inventory needs across multiple places can quickly grow unwieldy and error-prone.
Intelligent order routing acts as the bridge between order and inventory management. It automatically evaluates those variables in real-time to assign incoming orders to the most optimal warehouse location. As a result, 3PL’s clients may benefit from cheaper shipping costs and faster deliveries.
