How Well Are You Managing Your Inventory?
Inventory is most likely the largest balance sheet asset in your company. How well you plan, purchase, and manage your inventory largely determines your level of customer service and profits.But selling goods in multiple channels means dealing with channel-specific planning and inventory needs.
Based on our consulting work with clients and observations from conducting the F. Curtis Barry & Company’s Forecasting & Inventory Management ShareGroups, we’ve come up with some strategies to consider with multichannel inventory management.
Planning and inventory systems
In most companies, the systems for merchandise planning and inventory control remain highly fragmented by channel.
For promotional planning, many multichannel companies need to be more diligent and use a single promotional calendar rather than channel-specific schedules on which merchandise planning is based. These should include in-store promotions, catalogs, and e-mail campaigns.
Detailed channel-level inventory systems cater more to individual channel planning and inventory needs. In retail, assortment planning is performed by merchandise division, department, class, and product/SKU, with another view by region, store level, and product/SKU plans. Large retailers also have store replenishment systems to recommend restocking orders for retail locations.
For most direct companies, assortment planning differs from retail; it’s by catalog season, drop, department, class, and product/SKU. The data elements — though similar to retail — have some major differences, using demand, cancellations, returns, space used by category (pages, square inches, depictions), and other direct metrics. Most direct companies have not invested in formalized systems and are using internally developed systems or, more likely, spreadsheets.
Emerging direct businesses with stores don’t have comprehensive retail planning systems. Often they can’t justify the investment and use spreadsheets or other elementary systems more effectively. But there is a huge potential for sales and profit improvement through better planning.
To get results to flow through corporate planning, inventory and accounting systems, large retail companies identify top level plans, sales and inventory results and display as a store: “catalog store,†“Internet store,†or maybe the direct business combined as a store.
Many companies have tried to use channel-oriented planning and inventory systems (i.e., retail designed or direct designed) for other channels. But these have been less than successful due to the differences in views of the data (e.g., region and store) and the types of detailed data mentioned above.
Internet inventory management philosophies are slowly evolving in most companies. Traditional catalogers now average more than 50% of sales from the Internet, although much of that business is generated by receipt of the catalog.
Products may be active and available longer if there is stock. What sells online is heavily influenced by placement on landing pages and organization and ranking within category product searches.
The online product assortment can be more extensive than that in a single catalog. Internet may have a total chain assortment different from any one store or region. The Website may have a clearance or liquidation aspect. These principles of planning and managing inventory are not industry established best practices, but are being hammered out in the trenches every day.
From a purchasing perspective, companies are rolling multiple channel plans and forecasts together into a single purchase order management system to write Pos.
The eventual multichannel inventory system that evolves will be a new animal. It will need to be a blend of channel-specific function (such as store replenishment logic for reorderable product) and direct (such as promotional and time-based elements more like catalog).
It will also have a single inventory system that can be displayed by product/SKU and allow you to see the plan by channel and promotion, vendor on-order and on-hand by store, and warehouse location. The planning modules will remain channel specific.
When will there be true integrated systems for planning and inventory systems? For most companies, not any time soon. Retail and direct channels have different data needs and processes. It will probably be a few years before commercial software companies that cater to retail and direct have the most basic of systems in place. MICROS Retail, Direct Tech, and Manhattan Associates all have development projects to bring channels together in terms of planning and inventory systems.
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