Year-End Inventory Post-Mortem Tips

With the importance of holiday sales for retailers, it's crucial that inventory management departments closely analyze the season just completed. Doing so will help you understand what did and didn't work — hard-won knowledge you can factor into your planning for next year. Here are five holiday post-mortem best practices used by Direct Tech customers that you can adopt to improve future performance:

1. Identify the top out-of-stock and back-ordered items through the peak season. The number of items will vary depending on business size and problem severity, so use the 80/20 rule. Focus on the 10 percent to 20 percent of items that created 80 percent of the pain. Analyze units rather than cost or revenue, as units better reflect the number of customers affected and your operating expense for processing and shipping.

Research each item to identify the cause of the stock-out — e.g., forecast error, poor communication between marketing and inventory, vendor delivery delays, product quality error, etc. Then identify which of those stock-outs could reasonably have been prevented with process changes and/or different/earlier decisions?

2. In like manner, single out the top overstocked items. This list should focus on the inventory cost value of overstocks, as that significantly impacts turnover, gross margin and profit.

Item by item, seek out the root cause of the overstock — e.g., reasonable forecast error, late change in marketing plans, poor communication, vendor overshipment, etc. Identify when the overstocks were first known and consider what actions, if any, could have been taken to minimize the problem.

3. Examine your vendors with respect to inventory planning and replenishment. Analyze purchases in relation to delivery and quality performance. If possible, also report sales and profits by vendor. This will help you determine which vendors merit additional business and which need corrective action.