INDUSTRY TIPS: Achieving INSIGHT-DRIVEN Inventory Management - RetailWire

RetailWire offers some more insight into the benefits of inventory management. For more on inventory management, and an opportunity to share your best practices in managing inventory, check out the most recent issue of ihr.

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Achieving INSIGHT-DRIVEN Inventory Management

Holiday sales grew modestly in 2009, and most saw that as an encouraging sign. But, for many analysts, the jump in retail profits was the more meaningful indicator. With inventory trimmed and supply chains revved up for better responsiveness, many leading retailers pulled the maximum yield from what sales they had.

Clearly, the benefits of inventory management on the bottom line are not lost on retailers. According to an NRF/Retail Horizons study, inventory management is the number-one supply chain initiative, current and planned. As many as 97 percent of retailers will have inventory management strategies implemented by mid-2010, an increase of 12 percent over the previous year.

It's not that inventory management is a new science, but the practice has evolved considerably. Yesterday's inventory planning processes occurred in "siloed" environments. Inventory decisions made at the store level were not shared with stakeholders upstream in the supply chain. Management strategy was a one-dimensional affair -- using past performance to predict future sales. Retailers are demanding a more comprehensive enterprise solution. Today's more advanced systems:

* Break the barriers across the supply chain to tap into more information resources and spread the benefits;
* Incorporate consumer insights to better predict demand;
* Determine the right allocations by region, by store and by size, color and SKU;
* Weigh stock reduction versus customer service and predict the best mix for long-term success.

Letting the data tell the story; then planning how to act on it.
With new generation inventory management, retailers and suppliers are working together to create a merchandise mix that will minimize stock-outs, reduce last-minute orders and ultimately result in increased sales. Of particular concern are the dynamics of changing assortments by adding or discontinuing items. Understanding the impact of these changes in assortments on inventory positions and ability to optimally balance consumer demand with inventory costs is critical.

When a new product is introduced into an assortment, retailers will ramp-up the item's inventory based on a similar item's history. However, as a new item moves through its lifecycle it begins to generate its own sales history. How this item is replenished needs to be verified and a different replenishment target may be necessary to ensure that the desired trade-off between customer service level and inventory position are met.

Initially, optimization is based on historical data of like items, but after observing actual sales patterns, the systems can begin to predict how and when to change the replenishment methods to achieve optimal results.

SOURCE: RetailWire