Tariffs and Inflation: A Good Time to Forward-Buy Inventory? (Part 2)
In part one of this series, I looked at how retailers can and should prepare to forward-buy inventory, the pros and cons of the practice, and the factors (i.e., inflation, tariffs) that led the industry to this point.
The Tariff Effect
Technology is the only way to effectively gauge demand volatility, react and re-plan for elusive macro economy conditions such as tariffs. Technology should automate the constantly changing math inputs and provide daily recommendations, which humans can use to make better purchasing decisions faster.
Supply chain planning solutions do the heavy lifting — e.g., optimizing every SKU/location nightly — which would be impossible, even for a massive team of forecasting, planning and replenishment professionals, without technology.
How Supply Chain Planning Solutions Work
A purpose-built supply chain planning solution taps into all the demand factors (price changes, promotions, etc.) to optimize purchasing decisions — not once, but constantly. Much like the Waze app, which delivers dynamic route recommendations to drivers based on real-time data (traffic, law enforcement), a purpose-built supply chain planning solution constantly monitors demand signals and current supply chain conditions, then maps out recommendations at exactly the right time. Then it’s up to the user to decide: buy or don’t buy.
The platform gets a nightly feed of data from automated systems and re-plans a 365-day forecast every day based on reasonable certainty that you will sell products vs. purchasing overstock. In addition to normal replenishment orders, you can use the platform to evaluate special order considerations such as forward buying in cases where you want to:
- buy ahead of price increases to hedge against inflation;
- get special deals or volume discounts;
- leverage a promotion; or
- hit supplier growth program targets.
The system calculates whether additional quantities will increase gross profit after you’ve built orders to serve normal customer demand. Recommendations come in advance of the purchase, so you can meet your customers’ needs first, then separately evaluate the economics of any other considerations.
How to Get Started
So it’s settled then. Forward-buying can be a great strategy against tariff-related inflation, if you have the technology to crack the supply chain code. The benefits of forward-buying can be huge, but don’t waste resources on a supply chain planning solution unless it offers all four of these criteria:
Is the platform designed specifically for commerce or is it an ERP system retrofitted for the masses? The system should be able to analyze each customer transaction individually and automatically generate actionable recommendations daily. Many other solutions force users to integrate data from multiple modules and navigate across these modules, resulting in duplicated efforts, inefficiencies and security risk. A purpose-built supply chain planning application is unified in a single, secure cloud suite.
Is the solution cloud-native (really)? There’s a lot of “me too” marketing going on with “hybrid” or “cloud + on-premise” solutions. No one can be both. Legacy solutions are often migrated to the “cloud,” rather than architected from the cloud up. Therefore, they fail to leverage the massive data processing power, storage capability and scalability of a multiserver, cloud-native architecture.
Some are simply older cloud or on-premise solutions, only now available hosted in the provider’s data center or somewhere else. More than likely, the provider is still amortizing a huge investment it made in technology long ago. The UX looks circa 1985 — perhaps with a little lipstick — but the workflow process is old and clunky. Be especially wary of the “hybrid” cloud, a term that means the provider hasn't made a commitment to solution architecture, either on-premise or in the cloud. These faux-cloud solution providers are opportunists just checking the box on “Cloud.”
Rather than owning a huge server and database suite that will only get used a tiny slice of the day, a cloud-native solution offers the freedom to spin up/down server capacity as needed. The barrier of entry is much lower, time to implement is much faster, and costs are nil (comparatively).
The supply chain is no longer a linear, “sell one, buy one” process. It's a complex multi-echelon ecosystem. Each store, distribution center and supplier has their own distinct demand forecast. It would be too time- and cost-prohibitive to produce precise order projections for every SKU and location, optimize those across echelons, and communicate a 365-day demand plan to everyone. Is there a feature that supports multi-echelon collaboration, both up and down stream?
Finally, no supply chain planning provider should make more money off consulting than the software itself. After all, it’s about software and making customers profitable. Yet, many drag out the engagement forever, charging extra consulting hours for continuous improvement services that should be inherent.
With a cloud-native solution, the system can constantly access customers’ databases and scan their environments to make unsolicited recommendations for improving profitability and service levels. It’s a baked-in value add.
You should expect to receive real-time alerts about problems and opportunities, including quarterly executive briefings, ongoing KPI assessments, seasonal forecast assistance, period-ending fine-tuning, and category management analyses. If a provider tells you these are additional on-site engagements, you’re leaving money on the table.
Rod Daugherty is the vice president of product strategy for Blue Ridge, a supply chain solution.
Rod Daugherty is the Vice President of Product Strategy for Blue Ridge, where he oversees product direction. For the last 21 years, Rod has been a consultant, designer, and product executive for multiple supply chain software companies including E3, JDA, Evant, Manhattan Associates, and Blue Ridge. He can be reached at email@example.com.