As retailers prepare for the holiday shopping season, new inventory strategies and real-time data will be key to coping with the turbulent market forces of 2019.
By Ben Ames
Consumers may see June and July as lazy days for swimming pools and backyard barbecues, but for retailers, it's another story altogether. In the retail supply chain world, the summer months are the critical period when retailers ramp up for the peak holiday shopping season ahead.
In decades past, these preparations consumed the better part of a year. To stock their shelves by Thanksgiving, merchants placed orders with manufacturers many months beforehand, amassing large quantities of stock to ensure they wouldn't be caught empty-handed when shoppers came flooding into their stores.
Over the past decade or so, however, retailers have been moving away from the traditional practice and pushing their ordering out until later and later in the year. Although that might sound risky, it's actually smart business. By ordering later, they can be more responsive to real-time demand and reduce their risk of getting stuck with overstocks that eventually have to be sold off at a discount, explains Dan Gilmore, chief marketing officer at supply chain technology provider Softeon.
But now the pendulum may be swinging back again. Many are questioning whether the delayed-ordering approach will still be sound strategy in 2019, a year that has been roiled by market forces such as hot e-commerce growth, tight trucking capacity, a slowing economy, and tariff threats and trade wars. "There are more uncertainties than you would normally find, and that is causing some problems around how to manage peak-season inventory flow," Gilmore says.
DEALING WITH THE DELUGE
All this presents enormous challenges for retail supply chain professionals. Even in the best of times, retail logistics leaders often struggle to find space to house all the inventory their companies requisition in advance of peak season, says Norm Saenz, managing director at the supply chain consulting firm St. Onge Co. "Now, the tariffs are scaring everybody, and that is having major retailers thinking about scrambling to get their inventory in sooner than usual"—a move that is only exacerbating the space problem, he says.
In the face of these capacity constraints, retail distribution leaders are rethinking some of their traditional inventory practices. For instance, they might be making more frequent replenishment shipments to stores than they once did in a bid to clear space in their warehouses and DCs for the new arrivals. Or they might be cross-docking more of their freight to eliminate the need to bring it into their warehouses and DCs altogether.
Likewise, they appear to be relying more heavily on outside partners than they might have in the past. Saenz says he's seen a rise in the use of third-party logistics service providers (3PLs) by companies facing a shortage of warehouse space.
Saenz also reports that he's seeing greater use of "inventory-shifting" techniques like drop shipping and vendor-direct shipments that allow retailers to fulfill customers' orders without holding the inventory in their own stores and warehouses. All of these strategies can help retailers reduce their total-network inventory, or the total amount of goods in their supply chain at any one time.
BETTER DATA FOR BETTER PERFORMANCE
Retailers and consumer packaged-goods (CPG) companies are feeling pressure in the run-up to the 2019 holiday season, agrees Ram Krishnan, chief marketing officer at artificial intelligence provider Aera Technologies. "People are freaking out a little bit and saying, 'Let's go with the time-tested technique and front-load,'" he says.
In order to handle that flow of extra goods earlier in the season, companies are striving to be more agile by analyzing feedback from real-time data and making decisions at the "point of impact"—fulfillment centers and retail shops—instead of at a distant corporate office. "Many companies' supply chains are designed on models and assumptions created 30 years ago about capacity, supply and demand, and productivity," Krishnan says. "Supply chains were built at scale for serving the masses. But those assumptions are being challenged."
Real-time data is a key ingredient for retailers trying to adjust to that new reality and predict how economic trends will affect consumer sales, says Jim Hull, senior director for global value delivery at supply chain technology firm JDA Software Group Inc. "Companies need the ability to sense and respond in order to be flexible and resilient," he says, adding that machine learning and big data can play a role in this regard.
"The best of all worlds is to position inventory [in front of customers] early and to sell it at full price and clear out that inventory at full margin," Hull says. "But it will get harder and harder for any retailer to hit those targets because of the growth of online sales [which require retailers to maintain a vast array of stock-keeping units] and the lengthening peak season," he says, noting that what was once a four- or five-week holiday shopping season has stretched to eight, nine, or 10 weeks.
Better data is also key to optimizing internal warehouse and logistics operations, according to St. Onge's Saenz. Although that might seem obvious, he says, many companies lack the basic data necessary to make good decisions.
Building a database for inventory management doesn't always require sophisticated inputs, just basic statistics like the items' weight and dimensions, Saenz says. Armed with those specs, users can make quick decisions on such questions as whether to store inventory by units or by pallet, what type of storage rack and material handling equipment is required, and how many loads they can fit in a trailer.
"It seems really basic, and maybe the big companies can do it, but most companies don't seem to have that information, so they end up oversizing or undersizing [their inventory]," Saenz says.
And in a turbulent year like 2019, committing these kinds of business blunders could prove fatal to retailers struggling to survive in a competitive marketplace.
"The motto of the day used to be 'Stack it high and let it fly,' but as they get better at supply chain management, companies are looking for ways to [adapt to] the world of e-commerce and cope with the pressure of tariffs," Softeon's Gilmore says. "We've seen store closings and bankruptcies in recent years. If you don't get the inventory game right, it's not just a hit to your profit; your very survival is at stake."
About the Author
Ben Ames has spent 20 years as a journalist since starting out as a daily newspaper reporter in Pennsylvania in 1995. From 1999 forward, he has focused on business and technology reporting for a number of trade journals, beginning when he joined Design News and Modern Materials Handling magazines. Ames is author of the trail guide "Hiking Massachusetts" and is a graduate of the Columbia School of Journalism.
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