4 Ways to Reduce Inventory Replenishment Time to Increase Sales and Profits
Over the last 30 years, there's been a consistent push to streamline business processes. After all, time is money. Nowhere is this more applicable than in supply chain processes. As retailers get more information about a sales event, the accuracy of demand forecasting improves dramatically. The more time retailers can remove from the buying/replenishment cycles, the more accurate the inventory purchase will be. With an accurate inventory purchase, retailers see increased sales through higher order fulfillment, increased gross margin through fewer markdowns and increased cash flow through better scheduling of inventory.
Much has been written on reducing replenishment time through shorter vendor lead times, which are often outside the inventory planner’s control. Instead, I want to focus on four processes that are inside the business and within the inventory planner’s control that will take time out of decision-making processes, improve accuracy and reduce overall replenishment time.
1. Start a daily process. Implement forecast variance reporting as a daily process. By definition, your initial demand forecast is a best guess. Once customers actually see products marketed and start buying, the quality of the demand forecast improves dramatically. The faster you identify the forecast variances, the faster you can adjust your future forecasts and inventory purchases. In the most dramatic instances, you can react within a few days of customer response to make better decisions.
2. Trust your forecasting system. Once you have actual results from customers, trust your forecasting system to automate future forecasts. It’s natural to want to wait for more information. However, most inventory planners have insufficient time to review the demand forecasts and inventory ownership of every item on any consistent basis.
As a whole, demand forecasts and inventory projections derived through automation will generally be better than those achieved by relying on manual review. This automation, coupled with the forecast variance process described above, significantly reduces time from the inventory planning and review processes.
3. Manage by exception. The 80/20 rule is nearly always true. The top 20 percent of your problem items will typically address 80 percent of your inventory problems. Your time is a fixed constraint. The faster you can review and address the biggest problem items, the greater impact you'll have on improving sales, gross margin and cash flow. It’s fairly simple to provide product-level exception reports ranking your highest under- and over-bought items to focus your time on the most important areas.
4. Decide before the weekend. Whenever possible, make decisions before a weekend. Suppliers and freight companies work on your weekend. Waiting to make a decision until Monday can inhibit your ability to cancel a purchase order, expedite delivery or obtain supplier acceptance of your order. What seems like waiting one day, from Friday to Monday, can translate to weeks of delivery time.
These are all fairly simple processes, but given the importance of inventory to sales and profits, their benefit to your business can be huge.
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.