6 Inventory Management Best Practices
Like everyone involved with multichannel retailing, both as a consumer and supplier to the industry, I'm awash in the changes brought about by e-commerce. We're inundated with search engine optimization and paid search, mobile commerce, social networking, and email marketing (is that already archaic?). The explosion of internet marketing has reduced the size and number of paper catalogs, and created demands on brick-and-mortar retailers to integrate live and online customer experiences.
The internet explosion has created challenges for everyone involved with multichannel marketing. Changes will keep coming, and will likely continue to accelerate.
As I observe the trends in multichannel retailing and reflect on my 25 years experience in the industry, I think it's important to adapt to the changes, but it's equally important to retain focus on the unchanging operating fundamentals that drive success.
Direct retailing has always been about adapting new media to market from a distance. Whether the medium is door-to-door selling, newspaper and magazine advertisements, mail order fliers, 300-page catalogs, specialty catalogs, infomercials, or e-commerce, direct retailing has always been about selling products to consumers from a distance. The format of the message and the speed of communications certainly change, but the fundamental process of selling products to consumers remains.
From an inventory planning perspective, this is particularly true. Demand forecasting continues to be the same fundamental process of evaluating demand history, understanding merchandise assortment plans and establishing the best possible demand forecast using top-down and bottom-up methodologies.
In their careers, the inventory management professionals at Direct Tech have observed old-time planners using slide-rules, witnessed the proliferation of desktop calculators and seen the evolution of spreadsheet software from VisiCalc to Lotus to Excel. Production forecasting software has similarly evolved from spreadsheet solutions to client-server, and now web-based ERP solutions.
At every point of change, speed and efficiencies were introduced, yet the same fundamental process remained. Merchandisers provided a product assortment to a buying department, which then forecast demand and wrote purchase orders. Success was measured in striking a profitable balance between maximizing customer demand fulfillment and minimizing on-hand inventory.
In today's web world, there may be truly new and different fundamental processes at work, but successful retailers will continue to rely on tried-and-true inventory management fundamentals, including the following six best practices:
- Manage simple, consistent success metrics, such as fulfillment, turnover and gross margin return on investment.
- Dedicate your business to accurate data. Garbage in still results in garbage out.
- Maintain the quality of communications between marketing, merchandising and buyers.
- Apply top-down controls to align bottom-up item plans with budgets.
- Reduce time from processes wherever possible.
- Apply time against the 20 percent of your inventory problems that will deliver 80 percent of the benefit.