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.

4. Compare the top sales items by channel (internet, catalog, stores, wholesale, mobile). Note the differences between channels, and try to identify the reasons behind those variances. Some items will be much stronger in one channel, which should be a factor for future marketing. Often, however, glaring differences are due to channel-specific marketing decisions that were made. This is worth considering as you point your retail demand forecasting software toward future purchase planning.

5. Honestly assess cross-departmental communications among marketing, merchandising, inventory and operations. Pinpoint specific barriers or breakdowns that impacted sales, customer service or productivity, then develop specific corrections that could be put in place to improve future communications.

As you conduct your inventory post-mortem, recognize that many factors affect the omnichannel supply chain. Don't focus exclusively on inventory metrics; look at all areas that could impact your customers, sales and profits — marketing, merchandising, operations, vendors, etc. Furthermore, do keep the 80/20 rule in mind when analyzing products, as just a few of your top "problem" items will probably account for most of your overstocks and stock-outs.

Finally, a year-end post-mortem doesn't have to be a headache. It pays to capture the data you'll need as you go. If your order processing system can't provide it, Direct Tech recommends that you set up some kind of manual tracking process to capture the necessary information. With all that's at stake during the holiday blitz, you'll be glad you did.