Managing inventory across multiple warehouses is complex work. With thousands of stock keeping units (SKUs) to manage and dozens of clients with unique requirements, operators need the right strategies to stay accurate and efficient.
Methods of inventory management like FIFO (First In, First Out), LIFO (Last In, First Out), Just-in-Time, ABC Analysis, and Economic Order Quantity can all be helpful. But no single approach covers every scenario employees face.
Understanding how these methods work and where they fall short is key to keeping pace in a competitive 3PL industry. This inventory management guide breaks down the most common methods and explores how to supplement them to differentiate your business.
- Common inventory management methods used by 3PLs
- Where traditional inventory methods break down in multi-warehouse operations
- Why modern 3PLs need systems that support multiple inventory methods at once
- Key features to look for in 3PL warehouse management software
- Operationalizing multiple inventory methods with Logiwa
- FAQs on the different methods of inventory management
Common inventory management methods used by 3PLs
Most 3PLs use different methods of inventory management to match each client’s needs. Factors like product type and velocity impact strategy. Here’s a quick look at each major approach.
- FIFO (First In, First Out) is widely used for perishable goods, seasonal products, and other items with expiration dates. Stock that arrives first is picked and shipped first, reducing the risk of spoilage.
- LIFO (Last In, First Out) does the opposite of FIFO, moving the most recently received inventory first. It can be useful in niche scenarios, where older stock is less accessible.
- FEFO (First Expired, First Out) is a variation of FIFO. Instead of sequencing by arrival date, this strategy uses expiration dates. So, items that expire earliest get shipped out first — even if they were received later.
- Just-in-Time (JIT) is a strategy for minimizing on-hand inventory. It aims to align replenishment cycles as closely to demand as possible. This can reduce holding costs and save warehouse space for other items, but requires tight supplier coordination and excellent demand forecasting.
- Economic Order Quantity (EOQ) is a formula for calculating the ideal reorder quantity at any given time. It uses factors like demand, ordering costs, and holding costs to predict an optimal ordering strategy. It can be effective when working with predictable SKUs, but it isn’t a strong fit across multiple clients and warehouses.
Where traditional inventory methods break down in multi-warehouse operations
Individual inventory management processes can be effective in isolation. But they often struggle as 3PLs attempt to scale them across large, distributed fulfillment networks without the right infrastructure in place.
For example, FIFO is a straightforward process in one warehouse. But managers need real-time inventory sync across locations to use it effectively across multiple warehouses. Without it, managers can’t reliably confirm which units were received first, where they sit, and whether they’ve already been allocated to orders elsewhere.
Zone-based strategies face similar pressures. Slotting decisions that make sense at 60% capacity often stop working as demand spikes and new clients join. Static assignments don’t adapt, and reconfiguring them manually across multiple sites introduces lag time and errors that can compound quickly.
Many 3PLs still rely on a combination of spreadsheets and warehouse management systems (WMS) to manage exceptions and client rules. This causes issues at scale, as a single miscounted SKU or missed reorder point can cascade into mispicks and fulfillment delays.
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Why modern 3PLs need systems that support multiple inventory methods at once
For today’s 3PLs, it’s rare for a single inventory method to cover the full scope of their business. Clients have different requirements, SKUs move at different velocities, and unique flows demand unique rules. The system holding it all together needs to be flexible enough to account for these differences.
That starts with getting real-time, network-wide inventory visibility. Warehouse managers need to have an accurate view of stock levels across locations, moment by moment. Otherwise, decisions around replenishment and allocation are based on incomplete information, which leaves the door open for errors.
Teams also need client-specific real-time information. Each company’s inventory needs to be tracked, managed, and reported on independently, so client-specific rules don’t interfere with one another.
The key takeaway is that, whatever strategy is used, warehouse managers need to be able to enforce it. That’s difficult across locations and clients without the right technological backing. It’s why most 3PLs today benefit from using modern warehouse management software.
Key features to look for in 3PL warehouse management software
Inventory management for 3PLs is easier with the right software. But not all platforms offer equal benefits, regardless of your methods of managing inventory. The right option should support multiple inventory strategies across clients, SKUs, and locations without requiring heavy customization every time managers need to change something.
Intelligent order routing is a key capability. The system should direct orders to the right warehouse based on rules managers set around inventory method, stock availability, and other requirements. This should happen automatically.
Flexible rules engines are also important. Warehouse managers often need to configure unique rules for each client and adjust them quickly as business needs evolve. If leaders need IT support to change these things, it’ll likely cause a bottleneck in your operations eventually.
Next, look for automation capability and robotics readiness. High-volume 3PLs increasingly rely on these systems to hit their throughput targets — and should continue doing so as the tech improves and gets cheaper. The WMS that managers use should support their future tech needs instead of requiring extensive workarounds. Features like true multi-tenant fulfillment found in Logiwa IO are one way today’s 3PLs can handle a variety of clients efficiently.
Finally, fast implementation is essential. Most 3PLs can’t afford to wait months between signing a new contract and onboarding the client to their warehouse network. So, look for platforms that are easy to configure out of the box, with an API-first architecture that can easily connect to your existing systems.
Operationalizing multiple inventory methods with Logiwa
Logiwa is a cloud-native fulfillment management system built to handle the complexity that today’s 3PLs face daily. It supports multiple methods simultaneously to support unique workflows across clients and locations, with features like:
- AI-powered optimization built to analyze historical data and dynamically optimize work
- Unparalleled time to value, providing the ability to create your own algorithms, workflows, and printouts
- A microservice architecture allowing vertical and horizontal scaling with load-balanced traffic management
- A headless platform letting partners and customers integrate their own solutions
Logiwa helps 3PLs move beyond static inventory rules and outdated systems to build smarter, more responsive fulfillment networks. That can differentiate your business from competitors to help with both marketing and long-term client retention.
Explore Logiwa’s digital warehouse management software today to see how it can support your multi-warehouse inventory strategy at scale.
FAQs on the different methods of inventory management
What are the primary methods of managing inventory?
There are several established approaches used to control stock levels and fulfillment flow. Common methods of inventory management include FIFO (First In, First Out), LIFO (Last In, First Out), FEFO (First Expired, First Out), Just-in-Time (JIT), and Economic Order Quantity (EOQ). Many modern operations also rely on ABC Analysis (categorizing stock by its financial value and sales frequency) and Perpetual Inventory Tracking to maintain continuous, real-time data.
How do I choose the right inventory management strategy for my business?
Choosing the right framework depends heavily on your product type, sales volume, and demand patterns. For example, businesses dealing with perishables generally require FIFO or FEFO to prevent spoilage, while companies with highly predictable, stable demand might lean into EOQ or JIT. For multi-warehouse 3PLs, the “right” strategy is usually a combination of several methods, as client requirements and SKU velocities vary significantly.
Can a 3PL use multiple methods of inventory management at the same time?
Yes, and they often must. It is rare for a single inventory method to cover the full scope of a modern 3PL’s business. Because clients have unique workflows and rules, a warehouse might simultaneously use FIFO for a food and beverage client’s seasonal products while applying a standard EOQ approach for another client’s hard goods. Successfully orchestrating this requires a flexible rules engine and real-time, network-wide inventory visibility.
What is the difference between periodic and perpetual inventory management?
- Periodic Inventory: Relies on physical counts at specific intervals (e.g., monthly or annually) to update stock records. It is generally only suitable for very small businesses with low sales volume.
- Perpetual Inventory: Tracks stock movements in real-time as items are continuously received, picked, and shipped. For 3PLs managing multiple facilities, a perpetual system is essential to avoid the mispicks and fulfillment delays caused by outdated information.
Why is relying on spreadsheets risky for multi-warehouse inventory?
Spreadsheets are inherently static and require manual updating, which introduces lag time and heightens the risk of human error. When managing large, distributed fulfillment networks, a single miscounted SKU tracked in a spreadsheet can easily cascade into compounding fulfillment delays. Scaling effectively requires moving past spreadsheets and adopting a cloud-native fulfillment management system.
