Improving Holiday  Inventory Management

By Craig Harding

The Perfect Inventory Storm

The sharp increase in November and December sales is the key factor making inventory management an extreme challenge for multichannel retailers. The related factors that create a “perfect storm” of challenges include the following:

● sharply increased sales;

● a short, fixed sales period with an abrupt mid-December end;

● long vendor lead times and correspondingly early purchase commitments;

● inherent forecast errors resulting in inventory imbalances; and

● a short-term need for cash to fund increased inventory.

This combination of factors requires buyers to make the majority of buying commitments before September and be positioned to quickly make inventory adjustments in response to accelerating demand by early October.

For many multichannel retailers, the fourth quarter holiday season is the single most important sales period of the year. Nearly 40 percent of multichannel catalog and e-commerce retailers' sales occur in the fourth quarter, and the majority of these sales occur in a six-week period from November 1 through December 15.

From an inventory management perspective, this creates a perfect storm of challenges: extremely high demand, a short selling season coupled with long vendor lead times, limited cash available to support increased inventory requirements, a bloated freight system, and inventory handling dependent upon over-stretched distribution center staff.

After months of preparing and executing marketing, merchandising and operations plans, it's painful when there's not enough inventory to service the demand generated by those activities. The quality and timeliness of inventory management decisions in the fourth quarter can mean the difference between financial success and failure for the year.

The following four best practices are good any time of the year, but are especially important for holiday inventory management success.

1. Accurate information. Accurate information enables more precise demand planning, creates confidence in exception reports and allows buyers to react to their changing inventory needs with better, faster buying decisions.

Inaccurate sales and inventory information leads to inappropriate buying decisions. It also causes staff inefficiencies as time is spent remedying information and buying errors. This is magnified in the fourth quarter when precious time is spent gathering and double-checking data, rather than making buying decisions that will improve sales and profits.

Yet, with the importance of timely and accurate information, and the availability of systems and expertise to provide accurate information, it's always surprising to hear multichannel retail executives say, "We don't do a very good job managing information." A high priority for every multichannel retailer must be to build discipline to capture accurate sales information by source, maintain accurate purchase order information and inventory levels, and actively manage merchandise assortment plans and  marketing plans.

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Companies:
Direct Tech Inc.

Craig Harding Author's page Craig Harding is the president and founder of Direct Tech, Inc., provider of demand planning, inventory optimization, merchandise planning and analysis software. Direct Tech is the industry leader, helping catalog and e-commerce merchants drive profitability, increase demand and optimize inventory investment by providing best-in-class applications and services for more than 20 years. Prior to founding Direct Tech in 1989, Craig was a consultant in the direct marketing industry and performed strategic planning, system development and system implementation services for direct marketing companies. He previously held leadership positions in finance and information systems at ConAgra and QVC.

Inventory Management: 4 Keys to Improving Holiday Inventory Management