In this article, we will cover what transit inventory is and why it's important. We will also explore ownership scenarios and share our process to manage transit inventory effectively.
Transit inventory refers to goods or materials that are in the process of being transported between locations within a supply chain. This is often in transit between suppliers, manufacturers, warehouses, distribution centers, or retail locations.
Example: A consumer electronics manufacturer, is shipping 10,000 high-end smartphone screens from Asia to Europe via cargo ship. These screens serve as in-transit inventory to restock their European distribution center before further distribution to local retailers.
Transit inventory is crucial for several reasons in supply chain and inventory management. We have listed below some of these reasons:
Transit inventory serves as a buffer to account for uncertainties in transportation times, production delays, or unexpected disruptions. It helps ensure that products are available even when there are unforeseen challenges.
It reduces the risk of stockouts (running out of products) at various points in the supply chain, which can lead to lost sales, dissatisfied customers, and missed revenue opportunities.
Maintaining transit inventory allows for more efficient transportation planning. It enables companies to use economical shipping methods (like bulk shipments) rather than relying solely on expedited, costly options.
While transit inventory incurs carrying costs, it's often more cost-effective than maintaining excessive safety stock at every stage of the supply chain. This balance helps control inventory-related expenses.
Transit inventory contributes to the overall efficiency of the supply chain by keeping products flowing smoothly from suppliers to consumers, reducing bottlenecks, and optimizing inventory turnover.
The ownership of in-transit inventory can vary depending on the specific terms of the sale and the agreed-upon delivery terms in a given transaction. Here are a few common scenarios:
In FOB Shipping Point terms, ownership of the inventory typically transfers from the seller to the buyer at the point of shipment. This means that the buyer assumes ownership and responsibility for the goods as soon as they are loaded onto the transportation vehicle at the seller's location.
Example: GlobalTech Solutions shipped 200 laptops to a retail chain with FOB Shipping Point terms. Ownership of the laptops shifted to the retail chain the moment they were loaded onto the delivery truck at GlobalTech Solutions' warehouse. Any transit damage became the retail chain's responsibility.
In FOB Destination terms, ownership of the inventory remains with the seller until the goods reach their specified destination and are accepted by the buyer. The seller retains ownership and responsibility for the goods during transit.
Example: LuxeHome Furnishings employed FOB Destination terms for a custom-made sofa delivery, maintaining ownership until acceptance by the customer at their residence. Any transit or delivery issues were LuxeHome Furnishings' responsibility.
In CIF terms, ownership and risk typically transfer from the seller to the buyer when the goods are loaded on board the vessel at the port of origin. This means the buyer assumes ownership once the goods are handed over to the carrier for shipment.
Example: NatureWoods Inc. bought exotic wood with CIF terms. Ownership and the risk associated with the wood transferred to NatureWoods Inc. when the wood was loaded onto the cargo ship at the originating port. Any damage occurring during the sea voyage became their responsibility.
In e-commerce, ownership and responsibility for in-transit inventory vary based on seller-set terms. These terms should be communicated clearly during purchase, with ownership typically transferring to the buyer upon delivery or when the carrier takes possession.
Example: When buying a collectible action figure from ToyTreasures' online store, ownership transfers to the buyer upon successful doorstep delivery. If the item is damaged during shipping, their customer support will address it according to their policies.
Effectively managing in-transit inventory is crucial for maintaining a smooth supply chain and meeting customer demands. Here are our key steps to do so:
Implement advanced tracking systems that utilize IoT sensors and GPS technology to monitor the real-time location, condition, and status of in-transit inventory, providing end-to-end visibility throughout the supply chain.
Example: ABC Electronics uses IoT sensors to track 5,000 smartphones (model Y) in transit from their manufacturing facility in Asia to distribution centers in Europe, providing real-time updates on location and temperature to ensure product quality.
Cultivate strong relationships with suppliers and carriers to facilitate open communication channels, establish clear expectations, and collaborate on contingency plans for addressing delays or issues in transit.
Example: XYZ Auto Parts maintains close partnerships with key suppliers and carriers, allowing for swift communication and problem resolution. When a shipment of 500 engine components is delayed, they work together to reroute it to avoid production disruptions.
Conduct a thorough analysis of transportation routes, considering factors like distance, cost, transit time, and mode of transportation to select routes that balance efficiency and cost-effectiveness.
Example: ABC Logistics optimizes transportation routes for their perishable goods, choosing routes that minimize transit time for 10,000 cases of fresh produce while still managing costs effectively.
Maintain strategically positioned safety stock to act as a buffer against supply chain disruptions, ensuring that safety stock levels align with historical demand patterns and are promptly replenished when used.
Example: XYZ Retail keeps safety stock of their top-selling products in transit during the holiday season to prevent stockouts due to unforeseen delays in supply. They maintain 2,000 units of their most popular toy.
Explanation: Utilize accurate demand forecasting methods and software to adjust inventory levels based on anticipated customer demand, minimizing the need for excess in-transit inventory and improving overall inventory management.
Example: Company ABC uses advanced forecasting software to predict a surge in demand for their winter coats in December. They adjust their in-transit inventory accordingly, ensuring they have an additional 1,000 coats in transit to meet customer needs without overstocking.
Implement quality control checks at key points during transit to ensure that the inventory remains in optimal condition. This may involve inspecting goods upon receipt, during transit, and before final delivery.
Example: XYZ Electronics conducts quality control checks on electronic components at three stages during transit:
Stay compliant with relevant regulations and customs requirements for the transportation of specific types of goods, especially when dealing with international shipments. This may include documentation, permits, and certifications.
Example: ABC Pharmaceuticals ensures compliance when exporting medications internationally:
Techtronics Inc. is a high-end consumer electronics manufacturer that seeks to ensure timely product deliveries, reduce operational costs, and meet customer demand efficiently. Let's explore how they manage their in-transit inventory through our process:
Techtronics Inc. tracks 2,000 units of their latest flagship smartphone model "TechX3" in transit from their manufacturing facility in Asia to distribution centers across North America. IoT sensors provide real-time updates on location, ensuring on-time deliveries and product quality.
The company partners closely with its primary electronics component supplier and a trusted carrier. When faced with a delay in receiving critical components for their "TechX3" smartphone, they work collaboratively to expedite the shipment and minimize production disruptions.
When shipping their high-value electronics, such as "TechX3" smartphones, Techtronics Inc. optimizes transportation routes to minimize transit time while ensuring cost-effectiveness. They choose routes that take advantage of air cargo for faster delivery.
To prevent stockouts of their popular "TechX3" smartphones, especially during peak shopping seasons, Techtronics Inc. keeps a safety stock of 500 units in transit, replenishing it as soon as it's utilized to maintain continuous availability.
Using accurate demand forecasting, Techtronics Inc. predicts a 30% surge in demand for "TechX3" smartphones during the holiday season. They adjust their in-transit inventory, increasing the number of units in transit to meet customer needs without overstocking.
The company conducts quality control checks on electronic components for their "TechX3" smartphones at three stages during transit:
When exporting their electronics internationally, Techtronics Inc. ensures compliance by:
We hope that you now have a better understanding of transit inventory, its significance, common ownership arrangements, and how to effectively manage it using our process.
If you enjoyed this article, you might also like our article on inventory rollback or non-inventory items.
