In a typical year, August is prime time for retailers to stock up on inventory for back-to-school sales, Black Friday, and the holiday peak shopping season. But 2021 has been far from typical: E-commerce sales are soaring, import cargo is backed up at ports, warehouse space is tight, and trucking capacity is hard to find.
And this time around, they don’t even have safety stock to fall back on. The national inventory-to-sales ratio had fallen to a 10-year low at press time, according to data from the Federal Reserve Bank of St. Louis. In response, companies are training their spotlights on inventory management practices. Their goal is the same as it has been in past years—to meet consumer demand while simultaneously holding down storage costs through “just in time” delivery—but the challenges are harder this summer.
Retail inventory levels in June were 15% below the norm, according to the transportation, brokerage, and third-party logistics service (3PL) provider C.H. Robinson. That’s because of global supply chain disruptions that hit at the same time that consumers started spending their economic stimulus checks during the recovery from the pandemic recession, the company said.
Caught in that vise, retailers can’t replenish as fast as they’re selling, much less stock up for holiday demand. Many are ordering replacement goods weeks before they normally would, creating a historically early peak season in the retail supply chain and triggering a flood of imports into already crowded ports. Even worse, a tight market for warehouse space means that when retailers do get inventory, they’re struggling to find a place to store it, C.H. Robinson said. Some have started using shipping containers as makeshift storage, but that approach ties up equipment, exacerbating the global container shortage and intensifying the inventory crunch.
“Shippers, you should be making not just one plan but many contingency plans for inventory, including considering technology that can connect demand planning to transportation,” C.H. Robinson Vice President Noah Hoffman said in a statement circulated to members of the trade press. “Shoppers, I wouldn’t wait till Christmas Eve to hit the mall, and I’d get my online orders in by early November, because they could take four to six weeks to arrive.”
REPLACING INVENTORY WITH INFORMATION
The situation may sound dire, but experts say there’s a solution—one that lies not in novel tools and technology but in something much simpler. What retailers must do to solve the inventory puzzle, they say, is to accelerate the industry’s march toward a longstanding goal—real-time supply chain visibility.
In fact, some top retailers already have pretty good visibility over their inventory and are using the associated data to make day-to-day improvements in their e-commerce and omnichannel fulfillment operations, like cutting warehouse costs, optimizing labor use, or providing next-day shipping. The difference in this turbulent, post-Covid world is that they must now set their sights on a different goal—to batten down the hatches and survive the storm.
“It’s that age-old phrase, replacing inventory with information,” says Dan Gilmore, chief marketing officer for Softeon, a Reston, Virginia-based supply chain software developer. “If you’ve got a real-time [warehouse management system], having 95%-plus inventory accuracy is a critical foundation, whether the WMS is running in an e-commerce warehouse or a standard warehouse. But a lot of companies still use manual paper-based systems, and that leaves DCs off the grid, as it were, in terms of inventory visibility.”
The time is past when companies can afford to operate warehouses without a continuous flow of information on all of the items inside, agrees warehouse management system (WMS) vendor Snapfulfil. “Smarter warehouses recognize that inventory management is continuous, rather than a process that ends the minute a shipment is received and put away. Human error and manual/paper processes can both lead to inventory mishaps at multiple points, from goods-in to packing and shipping,” Snapfulfil’s chief product and delivery officer, Smitha Raphael, said in a white paper.
In the white paper, Snapfulfil argues that DCs can avoid such mishaps by investing in a powerful WMS, cloud software, and handheld devices for DC employees—which, combined, can provide instant visibility of inventory, wherever it’s located. “As buying trends shift, the ability to alter inventory locations on the fly is critical for productivity too. Inventory management is the root of efficiency throughout your operation, and by prioritizing it across processes, you’ll find that errors will drop while productivity and revenue begin to rise,” Snapfulfil said in the white paper.
LOOK OUTSIDE THE FOUR WALLS
The path to better visibility actually extends beyond the physical warehouse and encompasses a company’s entire distribution network, including each distribution center, retail store, and supplier, according to Softeon’s Gilmore. That might sound complex, but with tools like advance shipping notices (ASNs), electronic data interchange (EDI), and distributed order management (DOM) platforms, most users can easily obtain the data they need, he says.
“Then you can allocate in-transit inventories or inventory that’s been ordered but not yet shipped [to fill orders], and then you don’t need as much inventory overall,” Gilmore says. “You can also order and ship from multiple nodes instead of fixed-point sourcing, and use the vendor drop-ship process, so you can fulfill customer orders without holding any inventory.” That’s a particular plus for space-starved retailers that have resorted to storing goods in trailers or doing store replenishment directly, without using an intermediate point, he adds.
That need to manage inventory throughout the entire network—not just in DCs—becomes particularly acute in an age when fulfillment can happen from almost anywhere, according to a report from market research firm Incisiv, commissioned by supply chain software developer Manhattan Associates Inc. “The e-commerce uptick of the last 12 months has necessitated a realignment of how retailers approach leveraging store associates, locations, and inventory,” Kevin Swanwick, Manhattan’s vice president for store solutions, said in a release announcing the findings of the report, The New Store Shopper in High-Touch Retail. “Associates became pickers and shippers; stores turned into mini-fulfillment centers; and in-store inventory was increasingly made available online.”
The transformation is not yet complete—many retailers still need to improve their in-store inventory management practices in order to reach warehouse-like levels of accuracy. To get there, retailers will have to find a way to manage in-store stock across all processes down to SKU (stock-keeping unit)- or item-level granularity, the research firm Gartner said in a 2021 report, Market Guide for Retail Store Inventory Management Applications.
“With the lines between store inventory and ‘upstream’ inventory blurring, retailers should evaluate their [store inventory management] deployment strategy holistically in conjunction with upstream demand forecasting, inventory allocation, and replenishment processes,” Gartner said in the report.
That may be a tall order for retailers still reeling from a string of supply chain disruptions, “black swan” events, and a deadly pandemic—and who now face potential delays during the critical holiday peak season.
But if the experts are right, companies could save the day by tightening up their inventory management practices. The challenge is intense, but those that are already leveraging tracking data to streamline their e-commerce operations may find they’ve been marching in the right direction all along.
