Effective inventory management is a prerequisite for success in omnichannel retail. Driven by relentless consumer demand, today’s leading retailers leverage real-time visibility, collaborative reporting and other tools to create first-rate shopping and fulfillment experiences.
Yet despite the important role inventory management plays in the marketplace, some brands are still relying on last generation inventory management practices and are suffering from a competitive disadvantage as a result. In many cases, these retailers are finding that their inability to quickly scale inventory management to marketplace realities is the primary obstacle preventing them from achieving targeted growth benchmarks.
Improving inventory management should be a priority for any omnichannel retailer. Here are three simple strategies to make your brand more competitive and improve the effectiveness of inventory management across your operation.
1. ABC analysis and cycle counting: Cycle counting (i.e., the periodic counting of just some of your inventory) is a more accurate substitute for the costly and time-consuming process of complete inventory counting. Rather than experiencing regular business interruptions for full inventory counts, cycle counting allows you to limit counts to the items dictated by a pre-defined count calendar.
Using ABC logic, the fastest-moving inventory is counted more frequently than the slowest-moving inventory. For example, you might count A inventory (your fastest movers) monthly, B inventory quarterly and C inventory (your slowest-moving inventory) only once or twice a year. This means that while all goods are counted at least once a year, more valuable SKUs are counted as much as four times in a 12-month cycle.
The benefit of a cycle counting approach is that it dramatically improves accuracy, visibility and the ability to quickly identify trends or locate misplaced inventory. Cycle counting software streamlines the process even further and can create inventory accuracy levels of 99.5 percent or greater.
2. SKU management: SKU management is a key element in inventory management because it facilitates accurate collaboration between retailers and suppliers on an item-level basis and enables greater control of a large number of SKUs across a brand’s website. By addressing and automating processes that were previously performed manually, SKU management can reduce costs while improving the accuracy of the data that drives your brand’s inventory management and replenishment routines.
Leveraging barcoding and other tools, SKU management creates electronic collaboration opportunities across the supply chain. Electronic data interchange makes it possible for retailers to communicate purchase orders to third-party logistics providers and receive confirmation back from providers when inventory is received. Properly implemented, the system can be configured to distribute products to virtual locations based on business needs. When items are shipped, they’re automatically removed from virtual inventories.
SKU management also helps retailers leverage the benefits of velocity reporting. With the right technology, retailers can translate SKU management insights into “just one left” promotions, deep loyalty discounts, grab-bag items and other sophisticated strategies designed to serve up remainders based on customer demographics. Robust analytics round out the SKU management process and equip retailers and logistics providers with key insights that can be used to create more efficient replenishment and fulfillment processes.
3. Velocity analytics: Velocity reporting and analytics take inventory management to the next level by aligning inventory with customer demand. When omnichannel consumers shop their favorite retailers, they expect popular products to be in stock and available for immediate delivery. Velocity reporting meets this expectation by ensuring that a brand’s inventory mix is matched to actual demand at any given point in time.
On the back end, velocity reporting highlights slow-moving inventory. This allows retailers to maximize return on existing inventories by providing the information needed to avoid discount wholesaling and liquidate stock through the company’s own channels — e.g., special promotions, outlet locations, etc. By identifying slow-moving inventory, velocity analytics can also play a role in reducing holding costs, thereby improving a retailer’s bottom line by minimizing the storage costs of sluggish SKUs.
The push for enhanced omnichannel experiences is intensifying and forcing retailers to re-evaluate nearly every aspect of their operations. By implementing a handful of simple inventory management strategies, brands can improve their ability to serve their customers today and lay the groundwork for even more sophisticated customer experiences in the months and years ahead.