Wednesday, September 17, 2014

Inventory management in retail industry : Store Clustering ?

Inventory Management in Retail Industry.

Walmart article tells us how companies measures success in terms of inventory management. Walmart focused more on reducing the operating costs instead of continuing to deliver high service to the customers.

Walmart has one of the most efficient and sophisticated supply chain management system. It has high level of automation for managing inventory orders. The article tells us that no matter how sophisticated the automated system is, there is no replacement to the limit of manual labor involved in stocking the shelves from basement/ back stores.
Analyst says that Walmart might lose $1.29 billion to $2.58 billion if they do not increase the staff. Walmart is banking on the hope that they can catch a break with stocking the shelves at night time when sales are comparatively low. It is interesting that Walmart thinks that saving  around $740 million in operating expenses is a better trade off than foregoing $1-2 billion sales.

Every company has its won inventory management system. But I believe that in the retail industry, companies who deal with Fashion genre are the ones who have to constantly alter their inventory management strategy. Since, the market demands can be erratic for fashion stores. For example, how many different varieties of sweaters do you keep in the stores? And how many of each of these products do you keep in the stores? How do you manage inventory for such products with fluctuating demands?   

Consider a company called “The Limited”. The company deals with women fashion apparel. It has 242 stores all over US. All theses 242 stores fall under Brick and Mortar category of operations. Inventory management for this company depends on how they cluster their stores. I believe “Store Clustering” is another vital element that affects inventory management strategy. Common questions for such company which deals in multiple stores is how do they segment their products among these stores. Should they focus on volume based clustering?  As of now their business is run on a volume based clustering or grouping stores based upon store sales by department.  While this approach can help sales and margin by eliminating slow selling product from lower volume stores and added elevated assortments in high volume stores it may be missing potential of product and location attributes that are below the department level. 

To avoid this problem should they focus on another way to cluster their stores? Should they try key attributes like demographics and locations to cluster their stores? 


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