5 Best Practices For Effective In-Transit Inventory Management

Diana Bugai
October 3, 2023

Inventory management is a critical aspect of any business, and this holds true whether your products are sitting on your shelves or in transit. In-transit inventory, the goods that are en route from suppliers to your warehouse or from your warehouse to customers, presents its own unique set of challenges. Managing it effectively is crucial to maintaining customer satisfaction, minimizing costs, and ensuring a smooth supply chain operation. 

In this blog post, we will explore five essential strategies to help you manage your in-transit inventory more efficiently.

What Is In-Transit Inventory

In-transit inventory refers to goods and products that are currently in the process of being transported from one location to another within the supply chain. These items are neither in storage nor in their final destination but are, instead, on the move. 

In-transit inventory can be in various forms, including raw materials, work-in-progress goods, or finished products, and it can be traveling by various modes of transportation, such as trucks, ships, airplanes, or trains.

Who Is Responsible For In-Transit Inventory

The responsibility for in-transit inventory can shift among various parties depending on the terms of sale, contractual agreements, and specific supply chain arrangements. 

It begins with the shipper or supplier, who assumes responsibility until the goods are loaded onto the transportation vehicle, often under terms like "FOB Shipping Point" or "Ex-Works." 

Carriers and transportation companies take on the role of safeguarding the inventory during transit, ensuring it reaches its destination in the condition it was received. Buyers become responsible when terms like "FOB Destination" or "Delivered Duty Paid (DDP)" are in place, meaning they assume accountability upon delivery to their premises or designated location. 

Third-party logistics providers (3PLs) may also handle in-transit inventory management under contractual agreements, and insurance providers offer coverage for potential risks. 

Legal, compliance, and risk management professionals play supporting roles, ensuring contractual obligations are met and overseeing compliance with relevant laws and regulations. 

5 Best Practices For Effective In-Transit Inventory Management

1. Real-Time Shipment Tracking and Visibility

One of the first steps to effective in-transit inventory management is gaining real-time visibility into your shipments. Thanks to advances in technology and logistics solutions, you can now track the location and status of your shipments as they move through the supply chain. 

Moreover, this practice goes beyond merely knowing where your inventory is; it encompasses the ability to monitor, analyze, and act upon crucial data throughout the supply chain. Here's an in-depth look at why real-time tracking and visibility are essential for optimizing in-transit inventory management:

  • Data-Driven Decision Making
    Real-time tracking and visibility provide a constant stream of data about your in-transit inventory. This data enables informed decision-making at every stage of the supply chain. Whether you encounter unexpected delays, changes in demand, or route optimization opportunities, real-time data empowers you to respond promptly and adapt your strategies accordingly.
  • Inventory Accuracy and Efficiency
    In-transit inventory accuracy is a critical factor in efficient supply chain management. Inaccurate tracking can lead to overstocking or stockouts, both of which have costly repercussions. Real-time visibility helps ensure that the right quantities of goods are moving through the supply chain, minimizing carrying costs and reducing the risk of lost sales.
  • Mitigating Risks and Disruptions
    Theft, damage, weather-related delays, and unexpected supply chain disruptions can all impact your inventory's journey. Real-time tracking enables you to identify and respond to these risks proactively. For example, if a shipment is delayed due to weather or climate conditions (like when the water levels in the Panama Canal were extremely low), you can reroute it to avoid extended delays.
  • Resource Optimization
    Efficient resource allocation is crucial in supply chain management. Real-time tracking allows you to allocate resources such as labor, transportation assets, and storage space precisely where they are needed. This optimization reduces waste, enhances productivity, and ultimately lowers operational costs.
  • Compliance and Regulation
    In some industries, compliance with specific regulations is essential. Real-time tracking helps ensure that your inventory complies with these regulations, which may include temperature-sensitive goods, hazardous materials, or pharmaceutical products. Failure to comply can result in hefty fines and damage to your reputation.

Overall, real-time supply chain visibility enables you to make informed decisions, address delays promptly, and optimize your overall supply chain operations.

2. Accurate Financial Projections

This practice is also related to supply chain visibility. However, it goes beyond the simple tracking of shipments - it entails leveraging data, insights, and strategic planning to create precise financial forecasts.

Accurate financial projections based on the visibility into in-transit inventory form the foundation of sound business planning and decision-making. They empower organizations in various ways, such as: 

  • Resource Allocation
    Precise financial projections enable efficient resource allocation. By understanding when and how much inventory is arriving, businesses can allocate their financial resources optimally. This prevents overcommitting capital to excessive safety stock and ensures that funds are available when needed.
  • Cost Reduction
    Overhead costs, including warehousing fees, insurance, and financing charges, can erode profitability. Accurate projections help in avoiding overstocking, which reduces carrying costs linked to storage and insurance. By maintaining the right inventory levels, companies strike a balance between meeting demand and minimizing these financial burdens.
  • Preventing Stockouts
    Inaccurate projections can lead to stockouts, resulting in lost sales and potential damage to reputation. Accurate financial projections ensure that companies have the right amount of inventory on hand, reducing the risk of stockouts and their associated financial losses.
  • Risk Mitigation
    Accurate financial projections serve as a critical tool for risk mitigation. Understanding the financial implications of potential disruptions, such as delayed shipments or unexpected increases in demand, allows companies to develop contingency plans and allocate resources to address these challenges without compromising their financial stability.

Moreover, financial projections based on the visibility into in-transit inventory can empower strategic decision-making. Whether a business is contemplating expansion, diversification, or other growth initiatives, clearly understanding the financial implications of in-transit inventory allows for informed choices aligned with overall business strategy.

Tools like Unity SCM help facilitate accurate finance projections for goods in transit and goods at the final destination to optimize cash flow and improve overall financial planning and decision-making. 

3. Demand Forecasting

Demand forecasting and inventory optimization are cornerstones of effective in-transit inventory management. 

Demand forecasting involves analyzing historical data, market trends, and customer insights to predict future demand accurately. This practice helps you align your inventory levels with expected demand, preventing overstocking or understocking and reducing the risk of carrying excess inventory costs or facing stockouts.

Inventory optimization, on the other hand, focuses on finding the right balance between cost-effective inventory levels and meeting customer needs. It involves techniques like just-in-time (JIT) inventory and economic order quantity (EOQ) analysis to minimize carrying costs while ensuring timely deliveries. 

When combined, demand forecasting and inventory optimization empower businesses to navigate the complexities of in-transit inventory management with finesse, enhancing customer satisfaction, reducing costs, and driving overall supply chain efficiency.

4. Safety Stock and Buffer Inventory

Safety stock and buffer inventory are critical components of effective in-transit inventory management. These are additional quantities of inventory held in reserve to act as a cushion against unforeseen events or fluctuations in demand. 

Safety stock ensures that you have a buffer in case of supply chain disruptions, delays in transit, or unexpected spikes in customer demand. Buffer inventory, on the other hand, is strategically placed at various points in the supply chain to ensure a smooth flow of goods. These practices help prevent stockouts, maintain customer satisfaction, and provide a margin of safety to accommodate uncertainties in the supply chain. 

However, while these additional quantities of inventory act as a safety net, preventing stockouts and maintaining customer satisfaction, it's equally crucial not to overstock. Overstocking can lead to increased carrying costs, excess capital tied up in inventory, and inefficient logistics. 

The 2nd Annual Inventory Distortion study suggested that inventory distortion produced losses totaling $818 billion globally in a year, 56% of which was attributed to out-of-stocks, and 44% to overstocks.

Moreover, according to Coresight Research, misjudged inventory decisions, such as overbuying and misallocating inventory, account for an estimated 53% of retailer unplanned markdown costs. 

Therefore, balancing safety stock and buffer inventory levels is an art - having too much can tie up capital and increase carrying costs while having too little can lead to stockouts. However, striking the right balance is essential for optimizing in-transit inventory management and ensuring your supply chain remains agile and responsive.

5. In-Transit Inventory Insurance

In-transit inventory insurance is a critical aspect of effective inventory management during its journey through the supply chain. Astonishingly, some sources claim that nearly 80% of shipments are underinsured, emphasizing the importance of this best practice. 

In particular, in-transit inventory insurance provides essential financial protection against a wide range of risks, including theft, damage, accidents, and natural disasters, ensuring the security of your inventory investment. 

However, choosing the right insurance provider and policy is paramount. It's essential to carefully evaluate your coverage needs, considering the unique nature of your inventory and potential risks. 

By investing in adequate in-transit inventory insurance, you not only protect your financial interests but also enhance business continuity. This safeguard empowers you to mitigate the impact of unforeseen disruptions, maintain customer satisfaction, and preserve your bottom line, making it an integral component of effective in-transit inventory management.

Effectively managing in-transit inventory is crucial for maintaining a competitive edge in today's fast-paced business environment. By implementing these five strategies, you can enhance your inventory management practices and reduce the risks associated with in-transit inventory. 

Remember that the key to successful in-transit inventory management lies in staying proactive, adaptable, and informed throughout the supply chain process.

Book a demo with Unity SCM today to learn how you can stay on top of your in-transit inventory.