Planning inventory for a national retail chain can be a thankless task. You will always be wrong!
If you don’t have enough inventory on shelf, the customer cannot buy what they want. If you’re lucky they might buy a substitute product in the same store. But consumers are savvy shoppers these days. They are more likely to get frustrated, leave the store and either go to a competitor, or go home and purchase online. So you not only lose that sale, but quite possibly lose that customer for good.
Conversely, if you hold too much inventory, you will have low sell through, too much working capital tied up in inventory, and the probability that you will have to promote or discount the product at some point in order to liquidate your investment. Furthermore that shelf space, rack space, and warehouse space is tied up with slow moving product when it could be utilized more efficiently for a better selling line.
Neither scenario is very palatable. Which is why a good retail planner is worth their weight in gold.
Why is it so hard to keep items in stock and on show?
There are many inter related reasons for why a customer might be faced with an empty shelf. Here are just a few:
1. Fluctuating demand: The demand for certain products can vary widely based on factors such as seasonality, trends, or changing customer preferences. Sales of many categories can be influenced by the weather even when there is no obvious correlation. Retailers must accurately forecast demand and adjust inventory levels accordingly, which can be difficult to do.
2. Supply chain disruptions: Delays in shipping, manufacturing, or supplier disruptions can impact inventory levels, leading to stockouts. This can be especially challenging during times of global disruptions, such as pandemics or natural disasters.
3. Inaccurate forecasting: If retailers do not accurately forecast demand, they may end up with too much or too little inventory. As alluded to above, too much inventory can lead to excess stock and the need for markdowns, while too little inventory can lead to stockouts.
4. Limited warehouse space: Retailers may have limited space in their warehouses, which can make it difficult to store large quantities of products.
5. Cash flow constraints: Retailers may have cash flow constraints that prevent them from purchasing sufficient inventory to meet demand.
6. Competition: In highly competitive markets, retailers may be hesitant to overstock items, as they run the risk of not being able to sell them and losing profits.
Retailers can overcome these challenges by implementing effective inventory management strategies, including improving demand forecasting, optimizing supply chain operations, and investing in inventory management systems. They also have a good incentive to collaborate with their suppliers, sharing sell through data, intel and promotional plans so that those suppliers can play their part to ensure continuity of supply in the right quantities. Successful retailers are characterized by their willingness to share data and build collaborative relationships with key suppliers.
Working together, they can ensure that they keep items in stock and maximize sales and profitability for both parties, and build loyalty with the end consumer.