Tuesday, January 29, 2013

Meeting Customer Demand through Retail Inventory Management

Inventory management is a major concern for those in the retail and apparel business.  In today's retail market is imperative to get the right item at the right place at the right time.  Complications inherent within retail sales make this even more difficult. Stores with online capabilities basically must manage two separate supply chains as Rod Sides, the Retail and Distribution Practice Leader with Deloitte Consulting LLP notes, "Companies may have inventory problems because they operate these [two] channels as distinct business units, each with its own infrastructure and inventory. They are not using store inventory to fill online orders, and online inventory to fill merchandise gaps in their stores.” This practice of separate inventory management leads to separate forecasting models for online and physical stores.  Therefore, the observed demand and other input variables that determine projections will differ, making production, marketing, and finance decisions very difficult.  

Although most retailers have the software and the capabilities to maintain a more efficient and streamlined inventory management system, they often mismanage and fail to optimize inventory forecasts.  However, even with sound inventory practices and sophisticated supply chain management models, retailers still face the 80/20 dilemma. 80% of sales come from only 20% of products.  

And just because a retailer decides to implement new advanced analytics to help with inventory forecasting efficiency, it does not mean its the right tool for their organization.  Rod Sides recommends "If you want to be a price leader, you will look for technologies with strong analytic and pricing capabilities. If you are looking to provide a deeper assortment of merchandise, you would look for strong planning and optimization capabilities.” Its not just important to collect data but retailers must collect meaningful data that will ultimately allow them to make more informed inventory forecasts.  




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