Inventory’s Role in Contingency Planning
One of my favorite moments from NEMOA's Fall 2011 directXchange Conference was when Country Curtain’s President Phil McAvoy said the following during his keynote speech: “Don’t be a hero at budget times.” His point is that you should already have contingency plans in place so you can respond to the inevitable challenges that arise during the year. Be a hero when it counts — at the end of the year when you meet or exceed your budget.
Contingency planning was a recurring theme at the conference and inventory planning played a central role in every instance. Glenda Lehman Ervin, vice president of marketing at Lehman’s, described one experience as “Ragdollgate.” Lehman's had tremendous customer demand for a rag doll it was offering, but was woefully short of inventory. This turned out to be a significant learning moment for the cross-channel retailer. All of its major promotions since have incorporated extra inventory planning, said Ervin.
Martha Eyman, director of merchandise planning at Garnet Hill, echoed Ervin's thoughts. She described the significant planning Garnet Hill does in order to align product plans and inventory with its multichannel marketing plans. These comments reinforced the contingency best practices I've gleaned from working with Direct Tech's customers. Consider the following:
1. Start your contingency planning six months to 12 months before an event. For retailers with highly seasonal sales periods, planning for next year’s peak season should begin immediately following the current year’s peak season. Hold a wrap-up meeting specifically to evaluate which plans worked and which didn’t. This can help you begin preparing to keep or expand the good and fix or scrap the bad for next time.
2. Adhere to a disciplined contingency planning calendar encompassing marketing, merchandising, purchasing, operations and suppliers. Make buying decisions when you must, but not before, as every additional week provides you with more confidence in sales and inventory forecasts.
3. Keep and maintain a markdown calendar. Know when you must take markdowns to sell through overstocks. Have reporting systems in place to provide you with up-to-date visibility of overstocks and shortages by product to support buying and markdown decisions.
4. Profile your most and least important products, then buy them differently. For high-impact products, buy extra inventory that can be used for opportunity marketing to drive additional sales but will also remain viable for the post-peak (if you must carry the inventory for extra weeks or months). Similarly, identify your least important products — i.e., the ones you can accept running out of early in the season. If you buy less than 100 percent of forecast, be prepared to direct consumers to alternative products once out of stock.
Be ready when marketing needs to drive last-minute customer traffic. Have inventory reporting already in place so you can instantly support marketing efforts by identifying products with the best sales potential and adequate inventory.
By creating timely, workable contingency plans supported by reliable inventory planning systems and reporting, you really can be the hero when it matters — at the end of the year.
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.