Why inventory and supply chain management will make or break you

A new era of Australian retail has arrived. If you’re not already practicing agile inventory management, you’re at risk of falling behind.

In a world where pretty much everything is available at the click of a button, consumers have come to expect a lot more from bricks and mortar retail. People are no longer willing to wait six months for the latest product releases or new fashion trends – they expect a fresh flow of products to be available on the shelves, at great prices, every day. Coupled with increased competition from major global players like Amazon, Kogan and ASOS, this empowered consumer has ushered in a new, more dynamic era in Australian retail. The larger ecommerce players and bricks and mortar retail chains are constantly evolving their supply chains to make sure they have latest products suitable stocked in each outlet / sales channel.

With stock turnover rates doubling in most sectors, they have developed sophisticated systems that can operate at very high velocity. But what about your retail operation? How do you ensure you have the right stock coverage in each store? And how do you achieve this without risking cash flow? Whilst personalised service, a unique ‘niche’ product offering, and creative in-store design might provide you with some points of difference against the bigger end of town, today’s shopper will still walk-out if you don’t stock the products they want. Now more than ever, you need to invest in agile inventory management.

Agile inventory management

According to the Australian Supply Chain Institute, successful inventory management “requires the orchestration of demand and supply data across the global supply chain.” By increasing your agility to make decisions, you can eliminate excess inventory and potential shortages, saving yourself thousands, if not millions, of dollars in lost sales. Agile inventory management is responsive and forward-looking, using data to accurately predict trends and respond to demand in real time. It involves three essential steps:

1/ Use data intelligence to forecast demand & set stock levels

The first step is to develop the systems that give you an informed view of potential demand for each of your products including:

  • Sales cycles – what are the daily, weekly, monthly and yearly sales trends you can observe / predict? How often does your inventory turnover?
  • Customer tastes – what are the latest trends and topics that your customers are engaging with that could indicate new product opportunities?
  • Location / channels – how does demand differ by store location? What about online vs. offline? What combination of channels do people use? Do they expect to be able to Click & Collect from all your store locations?

For each of the above, list out the data sources that could provide you with a historic or predictive view of your market. These don’t have to be expensive or complex systems. They can be practical ideas such as monitoring social media for customer trends and using data from your internal systems. Just be aware that you really should be basing your decisions on real-time data not information from months or years ago. Whilst looking back at recent years and months is useful for spotting longer term trends, it is risky to use this as baseline data to predict customer demand in a volatile and fast-moving market.

Having access to live data from your point of sale and other business systems is essential in today’s retail environment. Once you have a fact-based view of demand, you can then set the stock levels you need for each product in each store location. For existing product reorders, a best-of-breed POS platform can use smart algorithms to calculate the optimum inventory mix for each of your stores, based on real-time data and multiple variables, including run-rates, supplier lead times and stock statuses.

2/ Configure your supply chain

Now you have a clearer view of required stock levels in each store, it’s essential your supply chain systems are streamlined enough to keep up. Spend some time evaluating how quickly you can source different products and ship them to customers or between stores. Suppliers are an integral part of your inventory management system.

Consider introducing a compliance system setting out your expectations for service standards, product condition and quality, delivery dates, packaging, customer returns, electronic POs and much more. Then record and feedback performance to each of your suppliers. With product ordering and receiving, how formalised are your systems? Are they prone to human error? Do you have visibility of key data so you can spot potential issues early on? Who knows, perhaps even KFC could have kept its famous chicken on the menu and avoided weeks of restaurant closures, if it had been able to quickly recognise and prevent supply chain problems, before the issue reached their premises…

Lastly, your shipping and fulfilment capability should be put under the spotlight. For example, do you have adequate systems to arrange for stock to be transferred between your stores (and update your inventory levels as appropriate)? What home delivery timeframes do you offer and how do these compare to the (online and offline) competition?

3/ Measure and improve

A good measure of how well you’re managing inventory is your inventory turnover rate (ITR). This describes the number of times inventory is sold in a given timeframe e.g. a year. Here’s how to calculate your ITR:

Inventory turnover = Cost of goods sold / Average inventory (at cost).

This will give you a feel for whether you have a relatively high stock turnover rate, or whether stock is moving slowly through your business, which could indicate a lack of freshness or overstocking. To truly understand how you’re tracking, you’ll need to compare yourself to benchmarks for your industry. As a general rule, women’s apparel, pharmacy and cosmetics are at the higher end, with an ITR of 4-6. Jewellery sits at the lower end, turning over between 1-3 times a year. You can read more about calculating and using the inventory turnover rate here. In a market where consumer purchasing patterns are changing rapidly, your supply chain management must also become more responsive and predictive, to meet customer needs. By adopting an agile approach that takes advantage of the latest technology, your business will be better positioned to respond to rapid changes in customer demand.

Looking to fast track your growth with a smarter point of sale system? Contact the Retail Express team today on 1300 732 618.

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