Intense competition exists amongst companies in the present era, as result retailers do not leave any stone unturned in offering high quality, tailor-made services to the customer. It is the customer that can bring prosperity and success to any organisation, hence the main aim of any business organization is not just to attract customers, but to retain them as well. Smart retailers are pro-active in nature and know they should have their systems up-to-date with the latest digital innovations to conserve their customers. The in-store experience has an impact on what the customers think of the brand and has a huge effect on a key metrics – profit per customer visit. The optimal way to achieve the most profit per customer visit is to make sure that the product the customer is looking for is in stock. Growth is appreciable, but high-volume growth can either make or break a business. Hence, retailers must ensure alignment of their inventory levels according to customer requirements to avoid such pitfalls.
Risk of holding too little inventory
- Low inventory is equivalent to missed sales: Holding an optimal inventory is a must, if not a business will lose sales which in turn will have an adverse effect on its ROI and profitability.
- Loss of esteem: Frequently being unable to fulfil customer orders will damage an organization’s reputation among potential customers.
- Lack of stock breaks loyalty: In this highly competitive world, customers have many options to choose from. If they want to place an order only to find that the item they were interested in is out of stock, they would simply purchase it somewhere else.
- Affects your staff morale: Low stock levels can further affect your sales team’s morale. They might find it quite difficult to approach new markets because they’re not sure if the items they’re promoting are readily available in the warehouse. This can ruin your sales department’s ability to make smart decisions.
An instance where companies had to pay a huge price due to stock-outs
Walmart, a retail company famed for its extremely lean and technologically advanced supply chain faced stock-outs, because of which customers gradually stopped shopping due to bad service and empty shelves. It directly resulted in huge losses as the company failed to anticipate and forecast the effect that their out-of-stock inventory level would have on the customer experience.
Risk of holding excess inventory
On the other hand, having more stock than required, also leads to adversities.
- Cost: Holding too much inventory affects the cash flow of a business. The higher the inventory on hand, the greater the amount of the business’ capital gets tied up. A business will not have enough capital to carry out day-to-day operations.
- Discounts: Overstocking often causes businesses to sell the inventory at deeply discounted prices in order to clear up the space for new inventory. By selling stock at highly discounted prices, the business suffers low margins and profits.
- Storage Capacity and Fees: Holding extra inventory leads to an increase in inventory carrying costs. Also, companies spend extra by paying labor for maintaining the storage space, organizing the stock and transporting it from one place to another.
- Obsolete stock: Organizations that keep up with buying trends might find overstocking inventory to be a problem. The value and quality of the product reduce the longer it is kept on the stock. In such cases, a warehouse full of trendy products turns into one full of devalued products.
Hence, if businesses are not able to match the demand with supply, then it will lead to decreased customer satisfaction, store loyalty and increase chances of losing the customer.
Inventory Optimization opens pathways to profitability
Inventory Optimization is the process of providing the right inventory, in the right quantities at the right locations to meet the supply and demand. The aim is to lessen the carrying and maintenance costs, without neglecting the customer satisfaction level. Demand forecasting is one of the most widely used inventory optimization technique. It refers to making predictions about future customer demand using historical sets of data and other information. It gives businesses valuable information so that managers can make informed decisions.
- Advanced technological solutions now available are empowering companies to do the job faster, with more accuracy, and greater business impact. JDA and Oracle Software Suites are leading providers of innovative merchandising and supply chain solutions.Its unique solutions empower its clients to achieve more by optimizing costs, increasing revenue and reducing time to value so they can always deliver on their customer promises.
- Planning solutions will help in taking the forecast values into account while planning the key metrics like Sales, Gross Margin and Inventory. With Demand Planning, retailers can create productive and workable plans based on real-time collaborative scenarios. The software helps to make accurate projections even on slow-moving and hard-to-dispose products as well as new items in the inventory.
- The improved accuracy of demand forecasts impacts the expenses of overall supply chains. Organization goals, market trends, historical data along with right forecast will help retailers plan in a better way to achieve optimized inventory at different time periods.
- The desired output that any retailer would look for is Open to Buy (OTB). Open-to-buy (OTB) helps determine the quantity of inventory that one will need to purchase to meet customer demand while maintaining positive cash flow. The higher the value the better is the inventory optimized, which is possible by using the planning solution.
- Using the Allocation solution, this OTB will help the merchandiser raise purchase orders and generate the need for the stores and allocate to different locations/warehouses efficiently reducing the inventory costs and redundant processes.
All these different products can also be integrated to avoid any manual procedures and use them to the unparalleled business advantage over competitors.
Thus, implementing effective inventory optimization techniques and leveraging advanced software solutions represents one of the best ways for retailers to cut down costs and increase operational efficiencies.
Aspire Systems is partners with leading Planning and Allocation suites for implementation, upgrade, integration & administration. Aspire helps retailers develop reliability and responsiveness in the retail supply chain, which is a critical factor to enhance customer satisfaction.