As a retailer I recently spoke to said, “we employ special manual processes to hand feed our stores that achieve high sales, but are lacking in space to properly house the usual inventory levels associated with the high sales. These manual processes are time consuming and error prone and the mistakes result in havoc.” 
Retailers on High Street, or that have High Street-like locations (and tiny footprints), face a real problem. How do you ensure you have the merchandise your customers want in store when they want it? There simply isn’t stockroom space in the back to maintain enough inventory for more than a day or two.
Leveraging what we call a virtual warehouse can be an optimal answer, making small store locations behave and perform more like large footprint stores. In essence, virtual warehousing requires the ability to reserve, or “cordon off” specific inventory at the distribution center to be treated as an extended stock room for smaller retail locations. Through scheduled automated replenishment processes, movement from the virtual warehouse to the selling store reacts to store/item level demand signals. These “High Street” locations benefit from the automated frequent flow of inventory to meet their individual customers’ needs.
The key to success is to adopt a system that reserves inventory at the warehouse location for each space-constrained store for a defined period of time. The system must guarantee that during a specified period the inventory will not to be sent to other stores, thus protecting it during the reservation timespan as surely as onsite storage would. The shipping regime for these stores is normally based on automated daily replenishment runs, making the flow of finished goods highly responsive to conditions at the retail location and actual demand as signaled by your POS data. After the reservation period, the retail replenishment system releases the stock back into the DC’s pool and makes it available for shipment to other locations including direct-to-consumer.
At the very least, virtual warehousing puts space-constrained stores on a more equal footing with larger stores in their group, making the overall management and allocation picture a lot easier to grasp and, giving every store the ability to achieve its financial plan.
This same concept of a virtual warehouse can be used for other than brick and mortar Channels. Retailers might consider establishing a virtual warehouse for each Channel such as Ecommerce, Wholesale or Catalog. All inventory for all Channels is in one physical location and, from there, can be moved from one Channel’s virtual warehouse to another as needed to satisfy demand across your omni-channel strategy.
