How To Use Virtual Warehousing To Manage Your Inventory

Virtual warehousing lets ecommerce businesses manage inventory across multiple locations from a single cloud-based dashboard. Instead of logging into separate systems for each warehouse, distribution center, or retail location, merchants get real-time visibility into stock levels everywhere—all in one place.

Without this centralized view, selling across multiple channels often leads to overselling, stockouts, and delayed shipments. Virtual warehousing solves these problems by automatically tracking inventory movement and routing orders to the best fulfillment location.

Here’s how to set up a virtual warehouse system, connect your existing locations, and start routing orders smarter.

What is virtual warehousing?

Virtual warehousing is an inventory management approach where a company maintains a centralized, up-to-date view of stock stored across multiple locations through online tools. Virtual warehouse systems can encompass a storage network that includes multiple physical warehouses, distribution centers, third-party logistics (3PL) facilities, and retail stores. What defines this approach is the use of software to manage inventory across multiple locations. 

When customer orders come in, the warehouse management system sorts through multiple physical locations and automatically determines the best fulfillment location. To do so, it weighs factors like proximity, inventory availability, shipping costs, or delivery speed. This optimizes order fulfillment and quickly gets merchandise into the hands of customers.

Use cases for virtual warehousing include:

• Ecommerce brands scaling across multiple fulfillment centers or sales channels

• Retailers managing ship-from-store or store-to-store transfers

• Dropshippers and marketplace sellers

• Companies using third-party logistics (3PL) networks or distributed fulfillment models

• Businesses needing to minimize stockouts without expanding physical warehouse space

Advantages of virtual warehousing

• Centralized inventory visibility
• Reduced storage and operational costs
• Faster fulfillment
• Improved inventory placement
• Enhanced compatibility
• Ease in scaling up

Virtual warehousing offers significant benefits as you track and manage your entire supply chain and all your inventory.

Centralized inventory visibility

Virtual warehousing leverages technology that lets you control your entire inventory from one central hub. Need to track inventory across multiple warehouses? Not a problem. Seeking a holistic inventory view across multiple sales channels? You’ve got it at your fingertips 24/7.

Your software can also adjust if different storage facilities and channels have their own unique inventory distribution requirements. If, for example, selling on Amazon requires you to maintain higher stock levels than you’d keep for other channels, your virtual warehousing software can facilitate a custom rule that specifically applies to Amazon.

Reduced storage and operational costs

Because virtual warehouse work spreads inventory distribution across existing facilities, it can reduce your need for new physical space. This can directly reduce storage costs while promoting operational efficiency. Instead of over-investing in traditional warehousing, you can optimize storage and allocate funds to other things, like improving the customer experience on your website and retail stores.

Faster fulfillment

Virtual warehouse management systems automatically select the best fulfillment point, meaning orders can ship from the closest or best-stocked warehouse location. Clients receive their merchandise faster, which bolsters customer satisfaction.

Improved inventory placement

You can balance inventory levels across multiple virtual warehouses by leveraging advanced technology within your virtual warehousing software. Armed with data insights about things like inventory movement throughout your warehouse network, you can strategically allocate stock to places where it’s needed most.

For instance, if you notice low physical inventory levels at a specific warehouse, you can transfer stock from other warehouse locations. This is especially helpful if your demand forecasting indicates that certain products experience faster inventory turnover in certain regions (e.g., snowboards selling faster in Colorado than in South Carolina).

Enhanced compatibility 

Most virtual warehousing solutions connect with other digital software tools like supply chain management systems and inventory management systems. This includes Shopify, which offers a smart order routing tool that can automatically route orders from the best fulfillment location, whether that’s a warehouse, a retail store, or a 3PL. Unifying your systems means less time spent manually syncing inventory and fewer errors when you add new sales channels.

Ease in scaling up

In a traditional model, it would be nearly impossible to add or remove physical warehouse locations without disrupting your entire inventory model. Virtual warehouse management makes this far simpler. While you’ll still need staff or a third-party vendor to manage physical locations, you can still exert centralized control as you grow or contract. This unlocks your ability to react to market changes and adjust your inventory storage capacity accordingly.

How to implement virtual warehousing

1. Evaluate your current needs
2. Select the right solution
3. Centralize all inventory data
4. Integrate order management and fulfillment
5. Align your warehouse partners and internal teams
6. Monitor performance
7. Continuously optimize

Implementing virtual warehousing for your ecommerce business requires you to choose a technology partner and select a network of warehouses and fulfillment centers. Follow these steps to get started:

1. Evaluate your current needs

Start by assessing how your business currently handles managing inventory, order fulfillment, warehouse operations, and customer demand. Identify where physical space constraints, slow fulfillment, or visibility gaps may be holding you back. 

2. Select the right solution

Choose an integrated platform that offers real-time tracking, centralized control, and the ability to automatically track key metrics across multiple locations. The ideal system will help you balance inventory levels, streamline operations, and connect to sales channels and third-party logistics providers. 

Shopify is a strong choice for this thanks to the Shopify Fulfillment Network, along with its smart order routing features. Other options include Zoho Inventory and Brightpearl by Sage.

3. Centralize all inventory data

Once you pick a software platform, you’ll want to set up your virtual warehouse so all your inventory is visible within one centralized dashboard. You’ll need to import SKUs, confirm stock levels, and ensure initial data accuracy so that your system has the correct baseline to work from.

4. Integrate order management and fulfillment 

Connect your order management system (OMS) to your virtual warehousing solution, and configure rules that optimize how orders are routed. This includes directing orders to the closest warehouse, assigning priority locations, and leveraging demand forecasting to position stock where it’s needed most.

5. Align your warehouse partners and internal teams

If you use 3PLs, verify that their warehousing operations, processing speeds, and data syncs match your virtual warehouse requirements. Establish clear communication workflows to get all stakeholders on the same page. Train internal teams on your new processes so everyone understands how inventory will be tracked, updated, and fulfilled going forward.

6. Monitor performance

Your virtual warehousing software should come with virtual dashboards and reports. Use these to track inventory movement, fulfillment times, stockouts, and labor efficiency, among other key performance indicators (KPIs). Take advantage of your system’s real-time alerts and automated audits. These help you maintain inventory health and ensure your virtual warehouse operates as intended.

7. Continuously optimize 

Study your warehouse data, looking for performance trends that might help you adjust inventory placement, warehouse assignments, reorder points, and routing logic. Successful businesses view optimization as an ongoing process. You’ll always need to make adjustments large and small to meet customer expectations, improve efficiency, maintain service quality, and adapt to changes in your overall industry.