Common Inventory Processes for Retailers of All Sizes
Every retail company I talk with seems to feel that its inventory challenges are unique. Large cross-channel retailers contend with the variability of demand planning by channel and the complexity of communicating assortment plans between merchandise and inventory planners. Small internet retailers often run out of best-selling products because they don’t have the staff resources to stay on top of their buying needs. Catalogers are forced to plan and analyze product-level demand by offer. B-to-B retailers struggle to have the right amount of inventory by SKU for that unexpected large order. The list goes on, with each company believing that its problems are different.
While there are certainly differences in staff size, job roles, marketing complexity, sales volume and the target consumer, I believe these companies various inventory challenges exhibit more similarities than disparities.
To start, all retailers share the same basic goals:
- to have the right inventory in the right location at the right time; and
- to fulfill all (or at least most) customer demand at the lowest possible cost to the company.
Direct Tech, a multichannel merchandising solutions provider, sees a number of basic inventory processes that are common to all retailers. These include the need to:
- Establish a merchandise assortment plan within a marketing framework by channel, offer, division, brand, etc.
- Forecast weekly demand by product. This requires understanding the merchandise assortment plan, marketing needs and total expected weekly demand.
- Reconcile bottom-up product forecasts with top-down demand plans, sometimes referred to as open-to-buy planning.
- Understand each SKU’s purchase parameters. Who's the vendor? What's the unit cost? What are the purchase lead times? Are there any minimum or case pack requirements?
- Align each SKU’s weekly demand with its purchase parameters to help accurately place purchase orders.
- Monitor purchase orders until they arrive in the specified warehouse.
These same few processes occur in every retail organization — regardless of its size or channel complexity. Small companies are often constrained by resources, so they perform these processes in spreadsheets. As companies grow, even those with as little as $5 million in annual sales, they're able to invest in inventory planning systems and adjust their internal processes to gain a compelling return on investment. Large companies have the resources, but often overhaul their systems and processes to manage for changing complexity.
The point is that while situations differ, the same underlying inventory processes are always in place. The companies that best understand these fundamentals will be strongly positioned to maximize sales and profit from their inventory investment. Perform an annual review of these processes to ensure they remain in close step with normal changes in your business size and complexity.
Joe is Vice President of Product Solutions at Software Paradigms International (SPI), an award-winning provider of technology solutions, including merchandise planning applications, mobile applications, eCommerce development and hosting and integration services, to retailers for more than 20 years.
Joe is a 34-year veteran of the retail industry with hands-on experience in marketing, merchandising, inventory management and business development at multichannel retail companies including Lands’ End, LifeSketch.com, Nordstrom.com and Duluth Trading Company. At SPI, Joe uses his experience to help customers and prospects understand how to improve sales and profits through applying industry best practices in merchandise planning and inventory management systems and processes.