Consolidating several inventory locations into one is referred to as inventory pooling. A company’s capacity to serve several markets, each with variable demand, from a single inventory of goods, is referred to as inventory pooling. The method of inventory pooling is frequently employed to manage supply chain unpredictability.
Inventory pooling is widely discussed as an operational strategy that can be used to mitigate demand uncertainty. By combining inventory in this way, the company can decrease demand variability, cut operational costs, and boost profits, especially if the component market demands are negatively correlated.
There are different types of pooling –
- Location pooling
- Product pooling
Location pooling –
Location pooling, often known as mixing inventories from retailers in two different physical locations, is the process of merging requests from distinct geographic markets. Location pooling solutions have evolved into the operational norm as broad geographic regions are increasingly served by (either physically or virtually) centralised inventories during the past ten years as information systems have advanced and e-commerce has grown in prominence.
Product pooling –
Product pooling is the process of addressing the demand for a variety of unique items with a single, “universal” product that can match the requirements of every consumer. The component markets in this case could be divided by customer preferences for features, durability, performance, or aesthetics rather than having to be geographically distinct.
Benefits of inventory pooling –
Within the same service level, centralising inventory control lowers average inventory levels and safety stocks.
It makes sense that items in the warehouses that were initially allocated for one market might be reallocated to the other whenever demand from one market area is higher than normal. Demand in another market area is lower than usual in a centralised distribution system. In a decentralised system, this reallocation process is not feasible.