August 13, 2025 
In omnichannel retail, supply chain decisions are rarely perfect. Even though they are tradeoffs to contend with, one can make informed decisions on how much to procure, how much to stock and where, where to fulfill from and the method of shipping. McKinsey estimates that supply chain leaders who proactively manage trade-offs can improve margins by 3–6%, even in volatile markets
In this article, we will cover the common dilemmas shown in Figure 1 (order lot size vs inventory holding cost, inventory holding cost vs transportation cost, delivery time vs transportation cost, product variety vs inventory efficiency) that pose a challenge to supply chain leaders and how they navigate them.
Lot Size vs. Inventory Holding
The Dilemma:
Ordering in bulk reduces per-unit costs, minimizes setup time but takes a longer time to get the items in stock. It also increases inventory holding costs, risks obsolescence, and ties up working capital.
Real-World Example:
A fashion brand launched a seasonal collection by ordering a large lot to capitalize on supplier discounts. The assortment in terms of colors, size and fit was such that it overstocks in some regions and stockouts in others—hurting both sales and customer experience. By combining demand forecasting with dynamic replenishment algorithms (e.g., min-max and quantity orders adjustments based on real-time sales data and past sales history), they cut overstocks by 15% and improved regional availability by 12%.
Strategic Tip:
Use demand forecasting and regional sales data to fine-tune lot sizes and assortment. Dynamic replenishment models and centralized view of inventory can help balance cost and agility.
Inventory vs. Transportation Cost
The Dilemma:
Holding inventory in a single location reduces storage costs but increases last-mile delivery expenses. Distributed inventory across warehouses improves delivery speed but requires more complex coordination and higher overhead to operate multiple warehouses.
Real-World Example:
A beauty brand wanted to offer 2-day delivery in Tier 2 cities but couldn’t afford air freight from a single warehouse. By having a centralized view of inventory and demand across regions, and fulfilling online orders from nearby retail outlets, they reduced last-mile cost per order by 18% while cutting average delivery time from 4 days to 2 days.
Strategic Tip:
Leverage ship-from-store and fulfillment strategies from multiple storage locations. Intelligent order routing based on location, availability, and cost can optimize both speed and expenditure.
Delivery Time vs. Transportation Cost
The Dilemma:
Fast shipping methods improve customer satisfaction but increases logistics costs. Slower modes are cheaper but require a clear idea of demand across regions and buffer stock to avoid stockouts.
Real-World Example:
During a festive surge, a leading retail brand promised 2-day delivery. Their central warehouse was overwhelmed. Orders were rerouted to franchise stores with available stock—meeting delivery promises without increasing the overall costs and saved $200k.
Strategic Tip:
Build flexibility into your fulfillment network. Use seasonal trend analysis to anticipate demand spikes and ensure inventory availability where needed.
Product Variety vs. Inventory Complexity
The Dilemma:
Expanding your catalog boosts customer choice but it complicates inventory management and increases the risk of stockouts or overstock.
Real-World Example:
A lifestyle brand scaled to 5,000+ SKUs across marketplaces. Inconsistent product data led to listing errors, fulfillment delays, and customer complaints. Cleaning up their catalog reduced errors by 80% and increased order accuracy by 12%.
Strategic Tip:
Invest in a robust Product Information Management (PIM) system. Clean, enriched, and consistent product data across channels is essential for accurate listings and efficient inventory control.
The Bigger Picture: Trade-offs as Strategic Levers
Trade-offs are inevitable in a supply chain. They force retailers to clarify priorities, align operations with customer expectations, and make smarter decisions.
The key is visibility, flexibility, and coordination across systems. Whether you’re managing 10 SKUs or 10,000, the ability to see, decide, and act in real time is what separates reactive operations from resilient ones.
Final Thoughts
Mastering supply chain trade-offs isn’t about choosing the cheapest or fastest option. It’s about choosing the right option—based on context, data, and strategic goals. Leaders are increasingly turning to AI-driven scenario planning and micro fulfillment to stay ahead.
