How to Be an Inventory Planning ‘Leader’ Company

As I took a break from the Direct Tech booth and walked the supplier aisles at the Internet Retailer Conference & Exhibition in Chicago last month, I was encouraged by the increased emphasis on maintaining accurate inventory levels to support web sales. It's overstating the obvious of course, but you can't make a sale if you don't know what inventory you have on hand.

It brought to mind a March study from the Aberdeen Group on supply chains. That study noted that "retailers are increasingly under pressure to capture every sale — lost sales are potentially deadly to retailers. In fact, 49 percent of respondents said lost sales opportunities were their top business pressure.

To that end, "leader" companies — those who embrace supply chain technology and best practices — were able to achieve on-time order fulfillment at a rate of 98.6 percent, compared to only 83.8 percent for "follower" companies (i.e., all the rest). Furthermore, leader companies were able to reduce their lost sales opportunity costs by 20.4 percent compared to an increase of roughly 1 percent for follower companies."

Retailers are being asked to move more products, through more channels, in more countries than ever before. Under this new paradigm, the retailers who espouse supply chain technology are simply far better positioned for positive growth.

While this study focused on large multichannel retailers, the message rings true for smaller, single-channel online retailers as well: You get one chance to make a sale when a consumer is shopping. If you don't have the inventory, the consumer will shop elsewhere. I've observed this firsthand for more than 20 years, as it's a common theme with most new Direct Tech customers.

For cash-constrained businesses, this points to a pressing problem. A $10 million internet retailer will typically have $1 million to $2 million of inventory in its warehouse at any given time. Yet that retailer is probably missing out on 10 percent to 30 percent of potential sales simply because it doesn't have the right amount of inventory in specific products.

Leader companies, by contrast, don't have this problem because they're able to reduce the total amount of inventory in their warehouse while still fulfilling nearly 100 percent of their potential sales.

All isn't lost for followers, however. Per the example above, we see that many online retailers actually have an opportunity to grow their sales by that same 10 percent to 30 percent with no additional marketing expense. How? Through better inventory planning, which will greatly enhance both efficiency (in terms of the total inventory on hand) and accuracy (by having the right inventory available to support sales).

To use the Aberdeen Group's words, this explains why leader companies embrace supply chain technology for positive growth. Where does your company stand?