Keeping with the times
The retail industry is, now more than ever, transforming into a multi-channel environment. However, there is a snag; procurement and purchasing processes haven’t yet completely adapted to the times.
The current era of retail management is all about accessing more customers and offering products to the digital world. The digital revolution is, simply put, changing all aspects of doing business, especially for retailers. Inventory management is now a key performance indicator, helping to measure the impact of sales, purchasing, procurement, and more.
When demand falls, inventory can easily pile up and put pressure on the financial performance of the business. When demand rises, inventory can disappear in the blink of an eye, risking sales. Procurement and sourcing constantly work to correct this balance, but as retailers begin to sell on multiple channels, it can get difficult to keep up.
There are five steps every retail procurement professional should take to help balance the status of their inventory with customer service to help prevent shortfalls. When managed well, these actions can help improve profitability and bring all aspects of retail management into the digital age.
1. Start Dropshipping
Online retail and consumer expectations are driving the vendors to find new, more efficient ways to sell their inventory. One of these methods is dropshipping. Dropshipping is an easier way for online retailers to source inventory. With dropshipping, online retailers do not actually physically receive the product; instead, they facilitate the shipping process and continuously sell inventory at the same time. Dropshippers have vendors keep the inventory for them in their own warehouses, fulfill their consumer orders, and ship products directly to their customers. By outsourcing this process, retailers eliminate warehousing costs and gain flexibility against inventory demand fluctuations. This can be especially valuable during the holiday season, when demand fluctuations are at their peak.
One issue with dropshipping is that the size of your business may affect whether vendors will allow you to dropship. If you are too small, for example, dropshipping might not be a viable option for you. Procurement specialists should therefore look for opportunities and vendors that offer dropshipping options when doing their research.
2. Understand Demand Characteristics in All Channels
We know that every retailer has a different sales strategy and different customer segments. Regardless of how unique the store or product is, however, every retailer needs to understand demand trends in the market and how they can affect their inventory. One product might even have various characteristics across different sales channels. Therefore, it is essential to have a good understanding of the demand for each listing or product in every sales channel to avoid miscommunication. This way, retailers can source the right quantity of a product and place them in the best high-performing channel for their inventory.
3. Monitor Available-to-Promise In Real Time
Available-to-promise is a term that is inherited from production planning theory and means the amount of inventory can be committed to customers for delivery. Available-to-promise is a two-dimensional concept because it contains both quantities and due dates over time. Available-to-promise can be basically calculated as:
When procurement professionals monitor available-to-promise in real-time, they will have a good understanding of what inventory they need and when. Most importantly, they will know when to open purchase orders to add more inventory to their warehouse. This is essential data especially for multi-channel retail, because the ATP is calculated using data from the sales figures of all sales channels. That way, know you have an accurate figure that can apply to every channel.
4. Manage Lead Times Closely
Lead times are not only important in multi-channel retail, but also in all types of businesses that involve procurement. This is something to be especially wary about when handling multiple channels, because every channel can dip into your stock reserve at the same time. It is essential to monitor lead times so that no sales channels run out of stock before new products arrive. Since one cache of stock is being bought and sold through multiple venues, monitoring their buy/sell rate and therefore lead times can help you stay on track. That way, you are never blindsided by unexpected stock shortages.
5. Maintain a Good Balance
Excluding the fact that vendors might also have minimum order quantities, procurement professionals should have a good understanding of the balance between order quantities, lead times and shipment costs. Sourcing small quantities of products may seem to involve less risk from a financial perspective, but it actually puts the business at risk. Smaller quantities require us to do more frequent purchases increasing our shipment costs, but it also jeopardizes our sales against bottlenecks in our sourcing processes. Purchasing in larger quantities also has other risks, such as tying up resources due to inventory pile-up. Therefore, it is best to figure out the right balance of your inventory, and maintain it across demand fluctuations throughout the year.
About the Author:
Erhan Musaoglu is the CEO and co-founder of Logiwa Corp, a supply chain management systems company. Erhan has over 20 years of experience in the warehouse management industry, and has used his experience in industrial engineering and consulting to create multiple companies, including Unitec and IFS. In order to share his knowledge with larger crowds, he has lectured at various universities on e-commerce supply chains and warehousing. His expertise and leadership in navigating the enterprise and B2B industry has lead Logiwa to grow exponentially. He can be followed on Twitter at @ErhanMusaoglu or on LinkedIn.