The strongest supply chains have inherent weaknesses that can cause lost revenue or excessive markdowns.
“The only constant in life is change.” —Heraclitus
The quote above is credited to a Greek philosopher named Heraclitus who lived around 500 BCE. It is an extremely wise quote, considering we are still using it centuries later. The quote holds true in life and in business. As soon as we get comfortable with anything, situations, circumstances, or some other factor always bring change. This is true for every phase of your supply chain. Change is inevitable.
Case in point: your customers’ buying habits were fairly predictable before 2020. If someone told you at the end of 2019 that there was going to be a paper towel and toilet paper shortage in a few months, you might have laughed at them.
Placing an order for paper towels was no different from many other products in that your buyers had multiple vendors to source from and never really experienced an interruption to the supply chain. The point is, any unforeseen event (like a pandemic) can bring massive change seemingly overnight. Not just to paper towels, but to numerous products and industries all at once around the world. At the same time, there was an unfortunate drop in many other items, such as luxury items and formal clothing. Retailers and businesses were left with inventory they couldn’t sell fast enough.
While this is an extreme outlier, change is an inevitable part of both life and business. Keeping your inventory strategy up to date is a crucial way to overcome challenges brought about by wide-scale changes.
Inventory is Complex
Crafting a winning inventory strategy is no small feat. Further, an effective inventory strategy must be continually refined, from the initial buy and replenishment to assortment, and all the way through to the final markdown. Companies have been refining inventory management for years, and there are countless solutions and software options available to help with various aspects of inventory strategy. Of course, the core of any business is its inventory, and it touches many areas of your operations. At an extremely high level, your inventory strategy covers:
- What products to offer
- What pricing strategy to use for each product
- Distribution, shipping, and warehousing
- Sales data and other reporting
Understanding these various facets is one thing—solving the challenges they bring is another, especially when the future is puzzling and unclear. That said, there are things businesses can do to help refine their inventory strategies. If executed properly, your inventory strategy can help you decrease costs and improve profit margins, minimize out-of-stocks, and reduce spoilage.
Decrease Costs, Improve Margins, & Minimize Out-of-Stocks
If executed properly, your inventory strategy can help you decrease costs. This starts with having a clear picture of your inventory levels. When you have real-time inventory and sales data, you can leverage this information to reduce overhead costs. It’s possible to find savings from shipping, warehousing, and other areas as well. Knowing when to reorder is critical. By keeping the right level of inventory on hand, you can free up cash for other purposes.
Finding this information starts with having a strong demand planning solution in place. Demand planning is the underlying foundation for many supply chain solutions. It offers much deeper insight into actual demand. Businesses today need to sell products across a variety of channels. Finding demand for every channel is imperative to ensure the right inventory is on hand and at each fulfillment center, whether in-store, BOPIS, BOPAC, or delivery to home. The only way to know actual demand is by utilizing a demand planning solution that connects your entire supply chain together with strong, accurate data.
Businesses can also harness their inventory to improve profit margins. While there are a number of factors to this, it all starts with having the right amount of inventory on-hand again. Accurate levels of inventory lead to optimized sales. If you’re out-of-stock on high-demand items, you miss out on sales. While demand planning is at the core, a replenishment solution powered by AI and machine learning is essential. Replenishment solutions can inform you when to reorder products, so they arrive on time and in the optimal quantities.
Reduce Spoilage, Shrinkage, & Obsolescence
Regardless of how well you buy, at some point, you may want to markdown items. This can be due to unforeseen circumstances like changes in weather, or the overall economic health of the nation. Markdowns may sound reactionary on the surface, but successful businesses use markdown strategies as part of their overall supply chain plan.
Determining which products to markdown, the timing of that markdown, and the amount can help your business meet certain goals and needs. Markdowns help stimulate demand by increasing sales, but they can also help maximize revenue based on current inventory levels, upcoming forecast data, and end of life or end-of-season dates. By lowering prices, you can move inventory more quickly, thereby reducing spoilage or shrinkage for products that have shorter shelf lives. You can also sell off existing inventory that may become outdated or obsolete in the near future.
Refine Your Inventory Strategy and Reap the Rewards
While inventory is a complex puzzle, you can know which plans and goals will have the best outcomes for your business based on your specific challenges and needs. 4R Systems doesn’t just understand inventory strategy—we’ve built our company and solutions around solving them. For over 20 years we have used science, machine learning, and AI to build highly customizable and scalable solutions for retailers, CPG, eCommerce, and brands.
Together, we can help you refine your inventory strategy. 4R’s solutions can position you to win by building a solid inventory strategy based on best practices, technology, and AI. Contact us today at email@example.com to learn more.