Inventory Strategy — Evergreen Guide

Where Should Ecommerce Inventory Be Located?

Ecommerce inventory should be positioned according to where individual products are likely to be purchased — not simply where warehouse space happens to be available. Effective inventory placement combines SKU-level demand, customer geography, velocity, seasonality, delivery requirements, and transportation economics.

For many ecommerce companies, inventory placement barely qualifies as a decision. “We use a warehouse in Pennsylvania.” That’s a location. It isn’t necessarily an inventory strategy.

Start With Demand, Not Warehouse Capacity

The fundamental question is: Where are customers buying this SKU? Not where customers buy from the brand overall — where they buy this product. A company’s national sales distribution can conceal significant differences between individual products.

A sunscreen product may have one geographic demand pattern. A winter skin-care product may have another. A nationally popular item may sell everywhere. A niche SKU may generate almost all of its volume from two markets. Those products should not necessarily be allocated identically.

The Davinci Inventory Proximity Test

Where is demand?Plot historical orders geographically. Look beyond state-level data when volume supports deeper analysis.

How fast does the SKU move?Regional demand needs sufficient velocity to justify forward inventory.

What does distance currently cost?Examine where the SKU ships from today and the transportation cost associated with serving different regions.

What inventory would have to move?Reducing shipping distance provides little value if the change requires excessive additional inventory.

Does the economic benefit justify the complexity?Compare expected transportation and service benefits with incremental inventory, receiving, replenishment, and operational requirements.

Only then determine placement.

Why Doesn’t Every SKU Belong Everywhere?

Because inventory is capital. Suppose a brand has 2,000 SKUs and access to six fulfillment locations. Putting every product in all six facilities does not create additional customer demand. It creates as many as 12,000 SKU-location combinations that now have to be planned, replenished, and managed.

Instead, an optimized network uses differentiated assortments:

A ProductsHigh velocity — broader placement may make sense

B ProductsSelective regional placement

C ProductsSlower-moving inventory may remain more centralized

The actual breakpoints should come from the brand’s data, not arbitrary percentages.

Geographic Placement Should Change

Another mistake is treating network design as permanent. Consumer demand changes. Promotions change it. Channels change it. Seasonality changes it. New-product launches change it.

The question therefore isn’t simply where inventory should be located. Where should inventory be located now, and what signals should cause us to change that allocation?

Inventory Placement Connects Merchandising With Logistics

This is one reason Davinci combines merchandising, inventory optimization, and fulfillment. Merchandising generates demand. Inventory planning anticipates it. Fulfillment responds to it.

Treating those activities independently creates predictable problems:

✗Marketing drives demand into a region where product is unavailable

✗A retailer promotion changes SKU velocity but inventory remains allocated according to old demand

✗A product launch succeeds and the fulfillment network spends weeks compensating through long-distance shipping

The better system connects the decisions.

The Objective

Put the right amount of the right inventory close enough to the right customer to meet the service promise at an economically rational cost. That is inventory placement. Everything else is warehouse allocation.