One of the issues of paramount concern for retailers is the supply chain. Right now, retailers are working overtime to ensure the right products are available at the right time. Savvy consumers know that when items they want are out of stock, they can easily find the same or similar items elsewhere.
To mitigate risk and serve their customers, retailers must work to stock the inventory they need, but they must also ensure that they can accurately manage the inventory they have.
Why Inventory Management Matters
Modern retail is about building strong customer relationships. The most successful retailers incentivize their customers to return again and again, transforming their biggest fans into brand evangelists.
Trust is a key part of any relationship, consumer or otherwise. A retailer’s representation of their inventory is one small but important indicator of their trustworthiness. If inventory isn’t accurate, then a customer may feel misinformed and misled when they try to order products that are no longer in stock, eroding the currency of the retailer’s brand.
Challenges with Inventory Management
Many factors make inventory management challenging for retailers, including:
- Customer demand. It’s challenging to predict customer demand for specific items. While better data can improve a retailer’s predictive abilities and help them make better purchasing decisions, there is always risk and uncertainty in the buying process.
- Supply chain issues. Delays in supply chains have gotten so long that products may be backordered for months. For the fashion industry, that could mean an entire collection arrives already out of season.
- Allocation decisions. Retailers need to decide how to allocate their products—not only across brick-and-mortar locations but also between online and in-store distribution channels.
- Visibility issues. Brick-and-mortar retailers can’t know the state of their products minute-to-minute. Inventory management systems can’t determine when an item has been placed in a customer’s cart or moved to the wrong shelf. Damaged and returned items are notoriously hard to track. And whenever an item is placed anywhere other than exactly where it’s supposed to be in the store, retailers may have poor visibility into their inventory.
Mitigating Risk With Better Inventory Management
Despite the obstacles, retailers must strive for real-time accuracy in inventory management. Customers are demanding it. The more precise and transparent that retailers can be about product availability, the better the relationship between retailer and customers.
Inventory management is inherently challenging. But there are ways to reduce risk by improving inventory management strategies and systems. Here are a few helpful starting points:
- 1. Build a retail strategy with a better backup plan and customer experience management.
Many retailers depend on their backup inventory (i.e., “safety stock”) for items they expect to be in high demand. It’s important not to carry too much surplus product, but with proper forecasting and previous sales data, retailers can build their safety stock without hurting the bottom line.
In addition to having more products “in the back,” retailers can also be strategic when presenting consumers with information around availability.
If a retailer knows that a product won’t be available for several months, they can decide not to show the item to consumers, or they can leverage scarcity tactics and advertise the product as a back-ordered item. The key here is to delight customers with either the product itself or the promise of it. Proactive communication can help keep customers happy even if they have a substantial wait for the item they’ve ordered.
- 2. Ensure inventory systems start strong and improve as the company grows.
Better systems can help get retailers closer to real-time accuracy. Many retailers upload POS data every day, but in an era when consumers shop around the clock, there’s a good chance that the POS data is outdated before it’s even been updated.
These Solutions Can Help Retailers Improve Inventory Management:
- Demand planning systems. The first step is accurately planning for demand. AI-powered solutions can better determine optimal inventory levels based on a multitude of factors beyond human capabilities.
- Allocation systems. The problem of getting the product to the right location has only become a little easier due to online shopping. In-store shopping still requires planning and customer expectations have increased.
- Radio-Frequency Identification Technology (RFID). Pallet-level RFID tracking helps ensure accurate visibility throughout the supply chain. Item-level RFID can be a valuable and worthwhile investment for some higher-priced goods.
- Store fulfillment. Order management solutions are gaining sophistication to better optimize inventory positions. Shipping from stores for online and in-store orders allows retailers to clear the last few items more profitably than through clearance sales.
Between online, in-store, and BOPIS commerce options, retailers have many paths to get their products into the hands of consumers. This ongoing access comes with significant inventory challenges, but retailers can mitigate risk and set themselves up for success with the right retail strategy and systems.
If you’re curious about inventory management solutions that could help your business, get in touch with us, and a Sophelle Practice Leader will reach out to you within one business day.
Be sure to check out last month’s blog post here.
Read more about retail strategy here.
