4 Multichannel Inventory Planning Best Practices

It seems every retailer I've spoken with recently is scrambling to gain control of their inventory planning, regardless of channel. It's not just the cross-channel marketers fighting it; even pure-play internet retailers are struggling to support their "minichannels" — search engine optimization, search engine marketing, email marketing, Amazon stores and more. In the last few weeks I've heard pleas for help from:

• an online apparel retailer;
• a management company overseeing 30-plus e-commerce businesses with wide product ranges, seasonal peaks, high volumes and significant promotional activities;
• a multichannel hardgoods retailer with equally strong catalog and e-commerce channels;
• a catalog retailer marketing 12 unique brands; and
• a large multichannel wholesaler/retailer.

While each of these companies may feel their situation is unique, the fact is that they're more alike than different. They sell products to consumers over time. They manage assortment plans; forecast future daily, weekly and monthly demand; and try to align their inventory purchases to support their plans. They strive to have the right inventory on hand in the right location at the right time to fulfill customer demand with the least amount of inventory investment.

At Direct Tech, we subscribe to the adage "simplify to clarify." Here are four simple inventory planning rules for you to follow to help regain clear control of your business:

1. Commit to data integrity. Accurate data breeds accurate plans. Know where your sales are coming from. Insist on good data from your vendors. Be consistent in setting up your products. Compare sales with finance and marketing information. When you can trust your data, you're able to plan more effectively and use your time more efficiently.

2. Analyze and plan for profit. Just as golfers "drive for show, putt for dough," savvy merchandisers know that "demand is for show, profits equal dough." Even products with high demand can lose money due to excessive advertising costs, low margins, high returns or unique expenses. Put proper reporting, analysis and planning protocols in place and you'll know which items are truly profitable.

3. Apply relevant top-down controls. You get what you ask for. Improve your results by first establishing your sales or inventory plan and then communicating it to your staff. Set monthly targets for budgets or open-to-buy plans, then monitor results closely to ensure your goals are being met.

4. Plan and react. Every experienced inventory planner knows demand forecasting is guesswork. Product-level forecast error is typically 30 percent to 40 percent, and of course you buy inventory to match your forecast. Successful inventory ownership requires adherence to two key business processes:

• Make the best possible initial forecast. Even small improvements in accuracy deliver important gains in quality and timeliness. Apply necessary staff, process and system resources to deliver improvements. For a $20 million business, a 1 percent uptick in fulfillment adds $200,000 in sales with no incremental cost. Imagine improving accuracy by 5 percent or more. Better planning is the key.
• Be prepared to react quickly to changing events. Marketing promotions can have a dramatic impact on demand. You should revise your forecasts within hours or days of a promotion, then alter your inventory purchase and marketing decisions accordingly.

Regardless of marketing channel, sticking to these simple principles will help you regain control of your inventory planning. Doing that can only lead to higher sales and profits.