Why Inventory Needs a Seat at the Table

The annual planning process for direct retailers typically focuses on three areas:

1. How can marketing drive customer demand at a lower cost?
2. How can merchandising plan better assortments to increase demand and gross margin?
3. How can operations work more efficiently?

These are all critical planning areas for a company looking to achieve its goals, but can you guess what’s wrong with this picture? There’s an empty chair at the table. The inventory planning department is missing. It's not part of the process, and thus not part of the solution.

I was thinking of this during Direct Tech’s 2011 User Conference as our keynote speaker, Bill LaPierre of Direct Media Millard, discussed the shifting balance of catalog and web channels for direct retailers and its impact on their bottom lines. I wholeheartedly agree with LaPierre’s main message that direct retailers need to become web-centric and adapt their marketing and merchandising processes to become expert cross-channel planners.

LaPierre's secondary message, however, detailed the importance of inventory planning in a cross-channel world. His advice to the group: Inventory is a key factor in direct retail success. So much so that inventory planners need to have “a seat at the table” in order to maximize a company's success.

An October 2009 MarketLive study illustrated LaPierre’s point in dramatic real-world terms: “While shoppers indicated a desire to remain loyal to their favorite retailer, 70 percent indicated that they're likely to shop competitors’ websites or retail stores when they encounter out-of-stock products.”

Sobering, isn’t it? When you consider inventory’s direct impact on sales and profits, it’s clear that inventory planners really do need a seat at the table.

The financial impact of inventory planning goes further and deeper than many companies realize. Direct Tech has developed financial return on investment analysis to precisely measure inventory’s impact on sales and profits. The numbers are striking. Here are a few examples from a typical $25 million-per-year direct retailer: