By John Manners-Bell
June 3rd 2019
In order to compete against Amazon, many retailers are adopting an ‘inventory availability at all costs approach’.
Retailers are tearing up the inventory management rule book, a podcast by John Manners-Bell, Ti’s CEO.
For many decades, the importance of inventory and supply chain management to the retail sector has been well understood, not least due to the often-fast moving nature of the goods sold and thousands of different product lines involved.
Retailers require a high inventory turnover to prevent stock becoming obsolete as foods perish or clothes go out of fashion when the seasons change. Even if stock is not wholly redundant, it is often sold at a reduced price, further squeezing margins. Generations of supply chain managers have been tasked with driving down inventory levels to the bare minimum, whilst balancing the need for stock to be available to purchase by consumers.
This was difficult enough even using traditional retail distribution channels, not least due to inaccurate forecasts and silo mentality of retailers, wholesalers and manufacturers which led to adversarial supply chain relationships. However, the aggressive expansion models of the major e-retailers have transformed customer expectation and behaviour leading to a route and branch transformation of the inventory strategies of the traditional retailers.
To some degree, the low inventory mantra is being challenged in favour of an inventory availability or costs approach. Of course, Amazon has been a driving force behind this change of strategy. Its Amazon Prime offering which in the Us and elsewhere offers free next day shipping is knocking chunks out of its competitors.
How should the retail industry respond to this need for near on demand product availability? Some, like Walmart, have used their massive resources to hold more inventory closer to their customers whilst adopting strategies which seek to mitigate the inevitable inventory increases by using smart algorithms and technology.
For others, such as Sears, competing on cost and availability is not an option, and the retailer has disappeared into inevitable bankruptcy, following a host of others. Some retailers are leveraging their bricks and mortar retail network to compete. Inditex, for example, is using technology to provide a complete visibility of stock, both in stores and warehousing. This means in store can become a fulfilment centre, leading to greater inventory velocity. The outlook for tradition retailers is far from clear, inventory strategies are being driven by the large e-retailers, Amazon in the US and Alibaba in much of the rest of the world. In response, the largest retailers with the deepest pockets may be able to cut prices and increase product availability whilst investing in the technology required to mitigate inventory increases. Others will fall by the wayside, unable to meet customers’ expectations of immediate availability at low prices. Although the supply chain playbook doesn’t need to be completely rewritten just yet, many fundamental aspects of inventory management are being questioned as the retail industry undergoes a systemic transformation. What is clear is that increasing inventory on its own is still not an attractive option. This would only result in the inefficient use of hard to come by capital and all the negative consequences of owning too much stock.
If you’d like more information on inventory management strategies of key retailers and manufacturers and thousands of inventory benchmarking data for the retail, automotive, pharmaceutical, chemical, fashion, high tech, consumer electronics sectors then subscribe to Ti’s Global Supply Chain Intelligence portal. For more information, contact Michael Clover at [email protected].
Inventory Benchmarking Vertical Sector Trends is available to download today. To find out more click here.
The report, a critical benchmark for inventory management, compares many of the world’s leading manufacturers and retailers against key financial supply chain metrics.
In particular it:
The report also includes exclusive access to an online data pack with interactive charts, tables and downloadable data.