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Improving your inventory management processes and systems are often the “poor cousins” when it comes to time and resources spent on ensuring that your products deliver a return on investment. However, managing inventory correctly is the one of the few areas that will return benefits in both increasing sales and reducing costs.

There are three key areas to consider when evaluating whether your current inventory management system is helping or hindering your results:

  1. Is it fit for purpose?
  2. Is it nimble?
  3. What do the numbers really say?

Being Fit for Purpose

This is often the biggest hurdle when it comes to inventory management systems.
Being fit for purpose encompasses two areas. Firstly, the hygiene factors: does your system handle nuances in the way consumers purchase your products? Secondly, the business process factors: does your system work efficiently within the planning and collaboration processes required at all stages of getting stock to store within your specific category.

When it comes to hygiene factors, a good inventory management system will contain the following laundry list of features – does yours?

  • Cleansing inbound data before it is used
  • Forecasting at a daily level and taking into account the most important days of the week for sales
  • Adjusting forecasts for promotion lift and then normalising sales post promotion
  • Substituting demand for days when an item is out of stock
  • Rolling up long horizon forecasts from a store level, through hubs, DCs and up to manufacturing
  • Ability to manage parameters at Category, Item and Store Level
  • Taking into account a product’s lifecycle by adjusting algorithms based on a product’s age and propensity to decay or grow in demand
  • Ordering future allocations to store/item/day forecasts by using similar item or promotional models

Inventory management systems also have to deal with demand within vastly different product categories from baked beans to big screen televisions. Unfortunately, many systems have a one size fits all solution and you may find yourself having to manually manage nuances such as:

  • Manufacturing/importing stock flow
  • Regulatory requirements
  • New line sales decay
  • Long-horizon forecasting
  • Collaboration

Any process that works outside of the system will invariably add cost both in terms of human resource and the risk associated with the variability in results from person to person.

A final word on being fit for purpose; is your system capable of being able to quickly adapt to the ever changing marketplace? With the rise of technologies such as cloud platforms changing the way we do business with our partners, and new entrants into the traditional retail space such as Amazon; a flexible and adaptable inventory management platform is now, more than ever, a necessity.

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Okay, so your inventory system has all the bells and whistles of a Le Mans winning Porsche 919. But who’s driving?

As I’ve mentioned above, inventory management is often the “poor cousin”. While we invest heavily in sales, marketing and store level operations teams, the inventory management team is often under resourced or shared amongst other teams. This leads to a lack of focus when it comes to steering the inventory management ship, and means missed opportunities at store level.

Being Nimble

Having a dedicated inventory management specialist controlling these operations means that your company will have:

  • A coordinated inventory approach across all departments
  • Better inventory planning and action on forecasts
  • The ability to react to opportunity in the marketplace
  • A “Heads up” on inventory challenges
  • Better on shelf availability for customers
  • Reduced redundant stock in trade

Many retailers especially, stumble on this, either having resources controlling both replenishment stock and internal planning as a shared task, or having small centralised teams managing inventory across all categories. Given the internal pressures placed on these staff, it’s often the case that managing replenishment and stock flow takes a back seat. In addition, the centralised model means that the inventory management specialist is disconnected from the Buying Team. This can lead to missed opportunities where the centralised team is not strategically aligned to the category and the Buyer does not have the ability to execute tactical opportunities in timely manner. A better approach is to have an inventory management specialist within a Buying category who is accountable to both the Buyer and the Planner. This ensures nimbleness and accountability.

Additionally, for vendors, having an inventory specialist within a category ensures that collaboration can occur in a framework that still fulfils all the internal processes of how stock and orders should flow. What do the numbers really say?

Much like reading into a company’s annual report, there is much devil in the detail when it comes to interpreting inventory KPIs. 

The reality is, that looking at KPIs at a chain or total level can mask a variety of issues.

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What Do The Numbers Really Say?

The two most common KPIs listed below are only the start of where you should look to see if your inventory management system is performing.

  1. Weeks’ Cover / Stock Turn
  2. In Stock Position, or On Shelf Availability

These two KPIs, in conjunction with a total inventory value, are often quoted at a management meetings, but are meaningless to the experience the consumer has with your products. The experience of the consumer is tied to:

What am I seeing in-stock at the store?

  • This is where stock turn / weeks’ cover and in stock position need to be viewed at an item level. Are the top selling items – either promotional, new lines, or current trends – at healthy stock levels in store?
  • Are we overstocked in ex-promotional, recently new and less popular lines
  • Breaking down the range into these key areas then measuring KPIs will provide clarity and calls to action that are missing when viewing top level numbers

Does your range reflect my expectation of your brand?

  • If the consumer is shopping at a specialist they may have an expectation that the range has breadth while at a general merchant the expectation may be depth of market leading lines.
  • This is where range planning must be connected to the inventory management system and the flow of the right stock into the right stores is paramount.
  • Furthermore, one of the most important measures of inventory value is the cost of redundant or deleted stock as a percentage of the entire stock holding. Reducing redundant stock is a key lever in improving overall stock turn and ensuring that consumers see your product offering as attractive.

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