Inventory Planning Hurdles Reveal Unseen Struggles of Retail
Apr. 6 2024, Published 1:28 p.m. ET
In today's fast-paced retail environment, the ability to seamlessly integrate inventory across all channels is not just a nice advantage, it's an absolute necessity — do or die, if you will.
In the retail sectors of Australia and New Zealand (ANZ), for example, a significant divide currently exists between the goal of seamless online and offline shopping experiences and the actual operational efficiency of retailers. According to a study by Manhattan Associates, retailers on average only manage to maintain accurate inventory records 68% of the time- a stark contrast to the 4% who report perfect inventory accuracy.
Riikka Soderlung, CMO at Katanamrp.com aptly puts it, 'In an era where consumer patience is thinner than ever, the difference between retaining a customer or losing them to a competitor can hinge on the accuracy and accessibility of your inventory data; it's about turning challenges into opportunities and ensuring that every product is exactly where it needs to be, when it needs to be there.’
Economic Factors Affecting Retail
The critical economic factor of inflation has been on a deceleration path, affecting the growth of value sales and revealing the underlying low or declining rates of volumetric consumption. This trend signals a cautious consumer base, with the average price increase of CPG/FMCG showing a slowdown from +13.6% in January 2023 to +6.1% in November 2023 (NIQ); the effect of these economic pressures is evident in the shifting consumer sentiment towards spending, with a more pronounced search for value blending quality and affordability. Retailers are responding by diversifying their product assortments to meet these evolving consumer expectations (NIQ).
Impact of Global Supply Chain Issues
Global supply chain challenges continue to impact inventory planning and availability, compounding the pressures faced by the retail industry. Cost fatigue - a significant headwind for the US economy - remains of concern, with the cost of goods, services, inventories, and labor staying much higher than pre-pandemic levels. Slowing job growth and eroding spending power (due to elevated interest rates) is further exacerbating this situation by adding layers of complexity to retail operations; the retail and consumer goods sectors are navigating these economic uncertainties by leveraging first-party data and technological innovations, such as Customer Data Platforms (CDP), to enhance customer engagement and operational efficiency.
The Importance of Omnichannel Strategies in 2024
With the economic climate pushing consumers to be more judicious with their spending, the push for refined omnichannel strategies has never been more critical. As Raghav Sibal, Managing Director of ANZ at Manhattan Associates, recently pointed out, a smooth shopping experience is key to converting potential customers into actual buyers, especially when faced with stock shortages.
The Role of RFID Technology in Inventory Accuracy
RFID technology has emerged as a vital tool for enhancing inventory accuracy and operational efficiency; still, despite its adoption by 43% of retailers, only a fraction utilize it for real-time stock level accuracy, pointing towards a significant area for improvement.
Knowledgeable Assistants as a Valuable Asset
Studies also underscore the value of knowledgeable sales assistants, with a majority of consumers placing a premium on product expertise; without accurate inventory information, sales assistants' effectiveness is compromised, affecting the overall shopping experience.
Overcoming Implementation Complexities
The challenge for ANZ retailers is not the lack of desire to implement omnichannel strategies, but the complexity involved in their execution. Seamless integration of online and offline shopping experiences is no longer a luxury but a necessity in meeting modern consumer expectations.
Adapting to Modern Consumer Demands
Retailers are urged to rethink their operational and technological strategies to offer seamless shopping experiences; the modern consumer demands consistency, value, quality, and service across all channels! Expectations that necessitate a technology infrastructure that can connect all digital aspects of the shopping experience masterfully.
Best Practices in Inventory Management
Effective inventory management is crucial for retailers aiming to streamline operations, minimize costs, and enhance customer satisfaction. Adopting strategic approaches to inventory management can lead to improved efficiency and profitability; here are some effective inventory management strategies that retailers can implement:
Lean Inventory
Lean inventory management focuses on reducing waste within the inventory process without sacrificing customer satisfaction; an approach that advocates for maintaining just enough inventory to meet demand, while minimizing excess stock and storage costs. By closely monitoring sales data and trends, retailers can identify which products are in high demand and adjust their inventory levels accordingly; this method not only reduces carrying costs, but also ensures that capital is not tied up in unsold inventory, making it available for investment in other areas of the business.
Dropshipping
Dropshipping is a fulfillment method in which a store doesn't keep the products it sells in stock. Instead, when a store sells a product using the dropshipping model, it purchases the item from a third party and has it shipped directly to the customer - in other words, the retailer doesn't have to handle the product directly at any stage. Dropshipping can significantly reduce the risks and costs associated with maintaining a large inventory, as retailers only purchase a product after their customer has made a purchase; it also allows retailers to offer up a wider variety of products without increasing their inventory holding costs.
Demand Forecasting Techniques
Demand forecasting involves using historical sales data to predict future demand for products; it's an essential technique for effective inventory management, as it helps retailers make informed decisions about stock levels, anticipate demand for new products, and identify potential supply chain disruptions before they occur. Furthermore, advanced forecasting methods, such as using AI and machine learning algorithms, can analyze incomprehensible amounts of data to predict trends ever more accurately, helping retailers to optimize their inventory levels and reduce the risk of stockouts or overstock situations.
Implementing Technology Solutions
Utilizing inventory management software can automate many aspects of inventory control, from ordering and tracking stock levels to forecasting demand; these systems can provide real-time insights into inventory levels across multiple locations, streamline reorder processes, and improve the accuracy of demand forecasts. Integrating these systems with point-of-sale and e-commerce platforms can also further enhance inventory accuracy and operational efficiency.
Continuous Improvement and Training
Retailers should foster a culture of continuous improvement and invest in training for their staff on inventory management best practices. Regularly reviewing and adjusting inventory strategies based on sales trends, customer feedback, and supply chain changes can help businesses stay agile and responsive to market demands. Providing training and resources for employees also helps to ensure that the entire team understands the importance of inventory management - and, is well-equipped to implement best practices effectively.
Collaborating with Suppliers
Building strong relationships with suppliers can lead to more flexible and responsive inventory management. Collaborative planning, forecasting, and replenishment (CPFR) practices allow retailers and suppliers to share information and coordinate their efforts to optimize inventory levels, reduce costs, and improve service levels; partnerships that can be particularly helpful in adjusting to sudden changes in demand or supply chain disruptions more efficiently.
Agility and Responsiveness is Key
As the retail sector moves through 2024, the landscape is shaped by both enduring challenges and emerging strategies aimed at resilience and growth. Economic factors - particularly inflation and consumer spending behavior - alongside the lingering effects of global supply chain disruptions, require retailers to remain agile and responsive to the changing environment; thus, the strategic use of technology and data analytics emerges as a critical component in navigating these complexities, offering up pathways to better understand and meet consumer needs while optimizing supply chain operations and inventory management.