SOLUTIONS : Virtual Inventory

Virtual inventory refers to a scenario where a company does not hold any physical inventory but appears to do so to its customers. A business aggregates one or more of its vendors' inventory and presents them as its own inventory on its website, using the vendor's warehouse as its own. Many pure play internet-based retailers have adopted this business model. The key benefits of virtual inventory are:

• No cash tied up in inventory
• No potential write down of inventory value
• No other expenses associated with having physical inventory
• Shorter order fulfillment time resulting from direct vendor drop ship

Virtual inventory model works best for companies whose vendors do not sell directly to their customers. For example, in the computer industry, major distributors like Ingram Micro, Tech Data sell only through value added resellers(VAR). Therefore, by leveraging these distributors' inventory, a computer dealer may set up an internet-based computer store with hundreds of thousands of products.

There are two approaches to setting up a virtual inventory business:

• Broker Model: In this case, a company simply uses its vendors' product catalog and inventory information to set up its own online product catalog. It will not, however, send customer orders to its vendors for fulfillment.
• Full Service Model: In this case, a company takes orders from its customers and turn around place purchase orders for the same items with its vendors at lower price. It collects payment from customers and let vendors perform the order fulfillment. Even packing list is generated on behalf of the company by vendors. This is sometimes referred to as blind drop ship.