Rethinking Allocation and Replenishment to Drive Better Inventory Outcomes
Many of Parker Avery’s clients are laser-focused on shoring up their inventory management capabilities while investigating and implementing advanced forecasting and demand-planning technologies to drive more collaborative, effective supply chains.
Allocation for seasonal and fashion items and replenishment for basic and core items have long been considered core retail capabilities. However, in today’s hyper-competitive market, coupled with an increasingly fickle and empowered consumer, formulating correct inventory decisions is much more critical than in the past.
According to a recent IHL Group study, the global cost of retail missed sales due to out-of-stocks is US$984B. Further, inflation, looming recessionary threats, supply chain uncertainty, and other external factors have brought retailers and brands to a day of reckoning. Retailers must drive better inventory outcomes or face the negative impacts of slow-moving inventory deployed in the wrong locations.
Let’s look at some of the key drivers of this intense focus on rethinking retail allocation and replenishment and how leading brands are enabling stronger supply chain capabilities.
Strategic Need for Effective Collaboration
Independent teams, processes, and systems have been the traditional means of addressing allocation and replenishment needs. And while these were effective in the past, the pace of change in the retail supply chain, coupled with the need to support a comprehensive and integrated omnichannel customer journey, has made these disparate approaches increasingly obsolete.
Omnichannel maturity and dramatically changed customer expectations have forced retail and consumer brand organizations to view and organize their inventory movement and distribution processes much more strategically. Leading retailers and CPG companies look at the entire end-to-end supply chain, including their allocation and replenishment processes and their external supplier network. This collaborative approach includes integrating allocation and replenishment processes into a comprehensive order fulfillment and inventory management strategy. This also requires careful consideration of merging of roles or organizational elements, with appropriate change management, career path definition, and training. Without the right processes and prepared resources (meaning your people), even the best systems will not provide optimal results.
Expanded Inventory Pool
Understanding suppliers’ pools of inventory in a retailer’s DC network is also essential to enable vendor to DC replenishment and potentially vendor drop-ship fulfillment. These decisions have traditionally been addressed in isolation with disparate processes and systems, resulting in suboptimal outcomes. Today’s leaders seek to analyze these variables holistically and comprehensively, considering a retailer’s entire supply chain landscape at a much more detailed level, which leads to the next driving factor.
Increased Complexity and Granularity of Inventory Decisions and Variables
What was once a question of having the right product in the right quantities has been transformed into a multi-faceted array of variables required to make much more specific inventory management decisions across both stores and distribution centers (DCs). Brands must not only ascertain whether inventory should be deployed to a store, a regional micro-fulfillment center, or a distribution center—but in today’s environment, nailing inventory deployment decisions down to the color and size levels is critical.
Further, in a traditional model, products were typically categorized as either fashion or basic, and therefore allocation or replenishment. More recently, several retailers have taken the view that styles move along their natural lifecycle and can move from fashion to basic, and sometimes back again. This morphed approach created the need to easily switch fulfillment models simply based on expected demand patterns. Much of this can be supported with today’s modern toolsets (when configured correctly).
Also importantly, this more adaptable approach to allocation and replenishment must be considered in the assortment plan as the merchant defines the styles or placeholders and their characteristics in the line by season.
Several retailers have taken the view that styles move along their natural lifecycle and can move from fashion to basic, and sometimes back again.
Predictive Demand-Based Allocation and Replenishment
Many factors contribute to better inventory productivity, but modern, predictive demand-based replenishment and allocation technologies and strategies are at the forefront. Particularly when compared with advanced, AI-driven demand planning tools, humans alone cannot effectively analyze and optimize the myriad of inventory decisions across channels, geographies, and the lifecycle of basic/core and seasonal/fashion items—and certainly not at the level of granularity needed today.
As I write this and ponder the vast challenges retailers and brands must tackle, I am encouraged and humbled by the knowledge that progressive leading practices, concentrated focus on collaboration, and best-in-class analytic solutions are unlocking these previously unattainable end-to-end retail supply chain capabilities.
I invite you to book a discovery call with us to begin achieving operational excellence across allocation, replenishment, and supply chain management.
Contributor
The Parker Avery Group is a leading retail and consumer goods consulting firm that transforms organizations and optimizes operational execution through development of competitive strategies, business process design, deep analytics expertise, change management leadership, and implementation of solutions that enable key capabilities.
