Legacy brands face a huge challenge when they decide to sell directly to customers online. Legacy distribution was built for pallets and truckloads. D2C fulfillment is built for single parcels moving at Prime speed. Customers expect products to arrive in two days or less, no matter where they shop. For D2C brands, meeting that expectation comes down to one thing: distribution inventory management. The brands that master distribution inventory management lower shipping costs, shorten delivery times, and build repeat buyers. Those that don’t watch their margins vanish in high shipping costs.
What is Distribution Inventory Management?
Distribution inventory management – often also called Distributed Inventory Management or DIM – is the practice of tracking, storing, and moving products across multiple stocking locations to fulfill customer orders efficiently.
For legacy brands, inventory management used to be simple. You made products, then shipped them on pallets or in truckloads to distributor warehouses or retailer distribution centers. The distributor or retailer worried about breaking down the pallets and getting the product on retail shelves and eventually to customers. You just shipped large quantities, repeatedly, to known customers and destinations.
For ecommerce, that model still somewhat holds if you are fulfilling products through 3PLs or 3PL-like services such as Amazon FBA or Walmart WFS.
But even then, the model doesn’t work for many products. FBA, 3PLs and other fulfillment services can be complex; expensive; tough to manage; and not suitable for products that are slow moving, bulky or require special handling such as secure storage. Plus, studies show consumers often prefer to shop directly with brands they know and trust.
D2C changes this completely. Now you are shipping single parcels, often in 1-2 day delivery timeframes, to individual consumers. Suddenly, very efficient LTL and truckload shipping to warehouses and DCs in replaced by very expensive carrier shipments to individual ecommerce shoppers who expect 1-2 day delivery on their orders. Shipping cost soar – sometimes to as high as 70% of total delivered product cost.
The answer? Stock product in multiple locations, closer to consumers. That cuts delivery distance, time and expense. So you're managing inventory across multiple, distributed locations while fulfilling individual orders with the goal of fulfilling each order from the location with the lowest delivered cost.
That’s Distribution Inventory Management.
Distribution Inventory Management vs Distributed Order Management
These two concepts work together but handle different parts of the process. Distribution inventory management (DIM) focuses on the products themselves – tracking quantities, predicting demand, and deciding where to store items. Distributed order management (DOM) focuses on the orders – routing each customer request to the best fulfillment location and coordinating the entire process from click to delivery.
Here's how they differ in practice. When a customer in Miami orders a blue jacket, distribution inventory management tells you that you have 12 blue jackets in Orlando, eight in Atlanta, and three in Dallas. Distributed order management takes that information and decides the Orlando facility should fulfill the order because it's closest to the customer – resulting in the lowest delivered product cost that still meets customer and sale channel delivery expectations.
Distribution inventory management is about the "what and where" of your products. Distributed order management is about the "how and when" of getting those products to customers. Legacy brands need both systems working together to compete in D2C markets.
The Benefits of Distribution Inventory Management for D2C Brands
Distribution inventory management transforms how D2C brands compete in the market. The benefits go far beyond just tracking products at multiple locations.
Faster Delivery Times
Fast shipping has become table stakes in ecommerce. Amazon Prime trained consumers to expect two-day delivery as standard, and customers expect that service level when ordering from brands.
Instead of shipping everything from one central warehouse, you can fulfill orders from the location closest to each customer. Studies by major carriers have shown that shipping from three or four locations can deliver to most customers within one or two days instead of the four to five days required from a single location.
Lower Shipping Costs
Shorter distances mean lower shipping costs. Sending a package 200 miles costs significantly less than shipping it 2,000 miles. When you multiply this across thousands of orders, the savings add up quickly. How quickly? Try our ecommerce fulfillment cost savings calculator here.
Smart distribution also lets you optimize package sizes and shipping methods. Regional facilities can stock popular items together, reducing the need for multiple shipments to the same customer. This is especially valuable for brands that sell complementary products that customers often buy together.
Improved Customer Satisfaction
Fast, affordable shipping directly improves customer satisfaction scores. But distribution inventory management helps in other ways too. Better inventory visibility means fewer stockouts and backorders. Customers can trust that items shown as available actually are in stock and ready to ship.
Regional fulfillment also reduces shipping damage. Shorter transit times and fewer handoffs between carriers mean products arrive in better condition. This translates to fewer returns, less customer service work, and higher customer lifetime value.
Better Market Responsiveness
Multiple distribution points let you respond to local demand patterns more effectively. If customers in the Pacific Northwest buy more outdoor gear during certain seasons, you can adjust inventory levels at your West Coast facility accordingly.
Support for Dropship Vendor Programs
While D2C often assumes fulfilling orders taken on the brand’s website or other online sales channels, the same infrastructure can be used to support retail dropship programs. Many retailers lack the space or inclination to stock bulky or heavy products – but they will stock a floor model. Then they have the brand ship the product directly to the consumer. Your DIM capabilities make this model much more affordable.
Increased Sustainability
Placing product in multiple locations cuts shipping distance – which also reduces your carbon footprint and improves the sustainability of your ecommerce operations. In fact, one study of an Etail Solutions customer using a DIM strategy showed a 35% reduction in their carbon footprint – along with $5.7 in cost savings resulting from ideal inventory placement.
Competitive Advantage
Many legacy brands still ship everything from central locations. Implementing proper distribution inventory management gives you a significant edge over competitors who haven't made the transition. You can offer faster delivery at lower costs while maintaining better inventory availability and ROI. That means better margins – which can be dropped to the bottom line or used to fund higher levels of customer acquisition or product development.
The Challenges of Distribution Inventory Management for D2C Brands
Distribution inventory management isn't easy to implement or maintain. Legacy brands face several significant challenges when making the transition.
Increased Complexity
Managing ecommerce inventory across multiple locations is exponentially more complex than handling everything from one warehouse. You need to track stock levels at each facility, coordinate transfers between locations, and ensure you have the right products in the right places at the right times.
This complexity multiplies when you add multiple sales channels. Your inventory system needs to sync stock levels across your website, Amazon, other marketplaces, and wholesale partners. A stockout at one location can cascade across your entire operation if not managed properly.
Things get even more complex when you add product bundles to the mix. Bundles such as multi-packs or combining complementary products into a pre-packaged SKU are a powerful merchandising strategy – they can boost profitability by 30%. But the need to account for a given product as standalone SKU, part of a multi-pack, or a component in a promotional SKU gets complicated very quickly – especially across multiple stocking locations.
Deciding how much inventory to keep at each location is both art and science. Stock too little at a facility, and you'll face frequent stockouts or expensive expedited shipping to fulfill orders. Stock too much, and you'll tie up working capital in slow-moving inventory.
A successful distribution inventory management strategy depends on a powerful ecommerce inventory management platform built especially for the demands of distributed inventory management and distributed order management.
Higher Upfront Costs
Setting up distributed inventory can require significant initial investment. You need inventory management software, relationships with multiple fulfillment providers, and often larger overall inventory levels to maintain adequate stock at each location. You'll also need staff training and possibly new hires to manage the increased complexity.
One solution for brands using wholesale distribution is The Distribution Network (TDN). TDN lets brands fulfill D2C and dropship orders using the stock already held by their regional distributors. Set-up cost and time are minimal, brands leverage stock already in the field, and they cement relationships with distributors they know and trust – avoiding channel conflict as the brand moves into D2C ecommerce.
Technology Integration Difficulties
Legacy brands often struggle with ecommerce technology integration when implementing distribution inventory management. Their existing systems weren't designed for multi-location D2C operations and connecting everything properly can be a nightmare.
ERP systems that work fine for wholesale distribution often can't handle the real-time inventory updates that D2C requires. And often other business functions depend on ERP, CRM and other systems of record that can’t be bypassed or easily replaced. Integrating with ecommerce platforms, marketplaces, and fulfillment providers also requires technical expertise that many legacy brands lack internally.
While some brands turn to ecommerce IPaaS providers, these vendors often lack experience in multi-location, multi-vendor ecommerce. You’ll want to choose a DIM/DOM platform built around a powerful integration engine.
Quality Control Across Multiple Locations
Maintaining consistent quality standards becomes harder when you're working with multiple fulfillment locations. Each facility might have different processes, staff training levels, and quality control measures. Customer experience can vary significantly between locations if not managed carefully.
Returns Processing Complications
Returns become much more complicated with distributed inventory. A customer in California might return an item that was originally shipped from Texas but now needs processing at a facility in Nevada.
You need clear processes for where returned items should go, how they get inspected, and when they can be returned to sellable inventory. Without proper coordination, returned products can get lost in the system or processed incorrectly.
When and Why to Implement Distribution Inventory Management
Not every D2C brand needs a complex distribution inventory management strategy from day one. The decision depends on your current situation, growth trajectory, and customer expectations. Here's how to know when it's time to make the investment.
Volume Thresholds That Matter
It’s tough to say what volume level makes sense to start implementing a distribution inventory management strategy. That depends on your products, your shipping costs, customer expectations for 1-2 day delivery, your competition’s capabilities, and any unique handling requirements you may have.
But back-of-envelope, adopting a DIM strategy often cuts shipping costs by 20-45%. So multiple your total shipping costs by that. Now you’ll have a rough estimate of the costs savings that might make distributed inventory management something worth considering. Or use our online fulfillment savings calculator to estimate your savings from a distribution inventory management strategy.
Geographic Customer Distribution Patterns
Look at where your customers actually live, not where you think they should be. If 80% of orders come from within 500 miles of your current warehouse, distributed inventory might not be worth the complexity yet. But if customers are scattered nationwide, you're probably losing sales and margin due to shipping constraints.
The clearest signal is when you see significant customer concentration in areas far from your fulfillment center. A brand shipping from Ohio that gets 25% of orders from California should seriously consider West Coast inventory. Those California customers are paying high shipping costs (or you’re eating them in your margin) and waiting longer for delivery than necessary.
Product Characteristics That Drive Need
Heavy or bulky products benefit most from distributed inventory. Shipping a 40-pound exercise bike from New York to Los Angeles costs significantly more than shipping it from a facility in Nevada. The savings on shipping costs can pay for distributed inventory management within months.
Fast-moving consumer goods also drive the need for geographic distribution. Products with short shelf lives, seasonal demand spikes, or trending popularity require inventory positioned close to customers. Fashion brands, food products, and electronics often can't compete effectively with centralized fulfillment.
High-value products present a different calculation. Premium brands can sometimes absorb higher shipping costs because customers expect to pay more. But even luxury brands lose sales when delivery takes too long.
Competitive Pressure Indicators
Monitor how your competitors fulfill orders. If most direct competitors offer faster shipping at similar prices, you're at a disadvantage. Customers increasingly choose brands based on delivery speed and reliability, especially for repeat purchases.
Amazon's influence can't be ignored. In product categories where customers commonly buy from Amazon, they expect similar delivery speeds from other brands. If Amazon Prime delivers competing products in two days, you offering only four-day shipping puts you at a serious disadvantage.
Customer service complaints provide another clear signal. If you're regularly hearing about slow shipping, high shipping costs, or delivery delays, distribution inventory management might solve multiple problems at once.
Signs You're Ready to Scale
The strongest indicator is when shipping costs start significantly impacting your margins. If shipping expenses exceed 15-20% of average order value, distribution inventory management can probably reduce that percentage while improving delivery speed.
Customer lifetime value calculations also matter. If faster shipping would increase repeat purchase rates enough to justify the additional complexity and costs, it's time to implement distributed fulfillment.
Finally, look at your team's operational capacity. Distribution inventory management requires more sophisticated planning and execution. Make sure you have the staff expertise or are willing to hire the necessary talent before making the transition.
The Four Pillars of D2C Distribution Inventory Management
Smart brands rebuild their distribution around four core principles that work for D2C selling and fulfillment.
Real-Time Inventory Visibility
Customers won’t forgive oversells or delays. Modern platforms sync inventory across all channels every few minutes, showing exactly what’s available. Advanced systems also forecast when items will run out based on current sales velocity.
Strategic Warehouse Placement
Distance kills profit. Centralized warehouses work for wholesale but not for ecommerce. Smaller facilities closer to customers cut both costs and delivery times. Brands often start with 3PLs or networks like The Distribution Network (TDN), which taps into inventory already sitting in regional distributor warehouses to fulfill D2C orders.
Third-party logistics providers make this easier than building your own facilities. Companies like Fulfillment by Amazon, Walmart Fulfillment Services, and large 3PLs offer networks of warehouses where you can store inventory.
The Distribution Network takes a different approach by partnering with regional distributors who already have established facilities and are stocking your products. This creates a nationwide fulfillment network while preventing channel conflict with the distributors you still depend on for retail store sales.
Demand Forecasting for Multiple Channels
Unlike wholesale, where retailers order months in advance, D2C demand shifts with weather, social trends, or viral posts. Forecasting must combine data from your site, Amazon, marketplaces, and promotions to position inventory correctly.
Modern forecasting systems analyze data from all sales channels to predict what customers will want next week, next month, and next quarter. The best systems also account for lead times. If your manufacturer needs 90 days to produce new inventory, the system ensures you place orders before stockouts happen. This prevents the feast-or-famine cycle where you're either drowning in inventory or unable to fulfill orders.
Distributed Order Management
Distributed order management (DOM) is the system that decides which location should fulfill each order in real time. While distribution inventory management tells you what stock is available and where it sits, DOM applies rules to route each order to the best node—balancing cost, speed, and service commitments.
For D2C brands, DOM is essential. Customers don’t care where inventory sits – they care that the product ships fast, arrives on time, and costs less. DOM makes that possible by:
- Checking inventory availability across all nodes instantly.
- Matching orders with the location that can deliver fastest at the lowest cost.
- Factoring in carrier rates, delivery promises, and cutoff times.
- Avoiding split shipments when possible to reduce costs.
- Protecting inventory pools for specific channels (like Amazon or your own site).
Think of it this way: DIM is about visibility, DOM is about execution. Together, they ensure that your inventory isn’t just in the right place, but also ships from the right place every time.
Building Your D2C Fulfillment Network
Legacy brands need a step-by-step approach to transform their distribution for direct selling.
Start with Data Analysis
Before changing anything, analyze your current customer data. Where do online orders come from? Which products sell best through which channels? How fast do customers expect delivery?
Most brands discover that online customers behave differently than their wholesale partners predicted. A kitchen appliance company might find that online customers buy individual items for specific recipes, while retail stores order complete product lines.
Use this data to identify the biggest opportunities. If 40% of online revenue comes from three states, focus your distribution improvements there first. If certain products have much higher return rates when shipped from distant warehouses, prioritize moving those items closer to customers.
Choose Your Fulfillment Strategy
Legacy brands typically choose between three approaches: self-fulfillment, third-party logistics or other fulfillment partners, or hybrid models.
Self-fulfillment gives you complete control but requires significant investment. You'll need warehouse space, staff, technology systems, and shipping relationships. This works best for brands with predictable demand and products that require special handling.
Third-party logistics providers – 3PLs or marketplace fulfilment options like Amazon FBA or Walmart WFS – handle everything for a per-order fee. They receive your products, store them, pick and pack orders, and arrange shipping. This option scales quickly but offers less control over the customer experience. 3PLs also can get very expensive, very fast and might entail long, costly ramps depending on the number of sales channels you need to integrate to and the number of SKUs you are offering.
Some brands are finding success with alternatives to 3PLs such as The Distribution Network, which connects brands with regional distributors across the country. These regional distributors already understand local markets, are already stocking inventory, and have established facilities, creating a middle ground between self-fulfillment and large-scale third-party logistics.
Hybrid models combine both approaches. For example, you might fulfill large, high-value, or fragile items from your own facility or your regional distributors while using FBA for small, fast-moving products.
Implement Inventory Management Technology
Legacy systems that work for wholesale distribution usually can't handle D2C complexity. You need software that integrates with ecommerce platforms, marketplaces, and fulfillment providers.
Look for systems that offer real-time inventory sync across all sales channels. If someone buys your last red jacket on Amazon, your website should immediately show it as sold out. The system should also handle partial shipments, backorders, and returns without manual intervention.
Test and Optimize Continuously
D2C distribution isn't something you set up once and forget. Customer expectations change, new competitors emerge, and your product mix evolves. The most successful brands continuously test and optimize their distribution strategies.
Start by measuring key metrics like delivery speed, shipping costs, and stockout rates. Set up dashboards that show these numbers in real-time so you can spot problems quickly.
Test different approaches systematically. Try storing certain products in different locations to see how it affects delivery times and costs. Experiment with different reorder points to find the sweet spot between stockouts and excess inventory. Data-driven ecommerce fulfillment is a hidden competitive advantage that many brands overlook.
Making the Transition Work
Distribution inventory management for D2C isn't just about moving boxes more efficiently. It's about fundamentally rethinking how your products reach customers in a world where speed, accuracy, and convenience determine success.
Legacy brands have built-in advantages like established supplier relationships, quality products, and brand recognition. But they also carry baggage from distribution systems designed for a different era.
The brands that thrive in D2C markets are those that embrace the complexity of direct distribution while leveraging their existing strengths. They invest in modern technology, rethink their fulfillment strategies, and continuously optimize based on real customer data.
Your distribution inventory management system will make the difference between D2C success and expensive failure. Build it right from the start, and you'll deliver the fast, reliable experience that turns first-time buyers into loyal customers.
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Additional resources:
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