Solving Today's Retail Inventory Challenges with Strategy and Process

Despite increasing acceptance by retailers of newer technologies like artificial intelligence, machine learning, and virtual reality, most of the challenges remain around supply chain and retail inventory—the lifeblood and backbone of the industry. Recent news stories about major retailers falling far short of earnings expectations and the subsequent stock market’s reactions, along with increasing inflation pressures put more urgency on addressing these key retail issues.

At Retail Cross Talk this year, I was on a panel about retail inventory strategies, and we addressed many of the underlying competencies. Along with Alexandra Pinto, Practice Head Oracle Retail, Wipro and Greg Flinn, Director, Oracle Retail, we explored questions like:

How has the change in consumer shopping habits impacted retail inventory strategies and your assortment plans moving forward?
How is inventory balanced with supply chain challenges across channels (new stores, new markets, online vs. in-store)?
Do you have the right level of inventory visibility? Where is it? When to expect it? Where should it be?

Notice that these topics are not solution-focused, but more about retail inventory strategy and business process. While technology undeniably plays a key supporting role, it is important to lead with what the business must do to combat current challenges, react to impending issues, and attain new capabilities that drive resiliency and flexibility to weather future storms.

Identify Efficiencies

Despite some major overhauls during COVID-19, particularly in omnichannel order management, there are fundamental breaking points that need to be addressed, such as taking a deep, honest look at existing inventory management processes. The traditional mindset of relying on perpetual inventory to drive in-store restocking activities, as well as allocation and replenishment, must be replaced by more efficient ways of handling retail inventory within, to, and from the store. Indeed, this is a change in basic assumptions that many retailers will be reluctant to embrace. However, recent technologies, combined with strategically designed business processes, can result in significant labor and retail inventory efficiencies.

In the back of the house, retailers need to closely examine their business, beginning with core merchandising and moving through the supply chain to identify ways to improve efficiencies, promote visibility, and enhance collaboration. Easier said than done, to be sure, but we have seen a lot of recent activity with our clients that have realized the importance of a good foundation as they tried to stand up more advanced capabilities during the pandemic. Inventory visibility across the enterprise became increasingly important to maximize inventory positioning. Retailers must do more with less, so understanding where the inventory is in a timely manner to satisfy customer demand, but doing it profitably is the key to success. This is still a work in progress for many retailers because it is not a light lift, but it is a clear enabler to more advanced capabilities.

Optimize Assortments

Another great recent topic of discussion is a renewed focus on reducing assortment complexity. Many of our clients today have had to make hard choices to balance inventory availability and overall customer offerings. The luxury of being able to have it all has been offset by the need to pick and choose and prioritize shipments. More focus on assortment optimization and increased focus on the customer first have been brought to the forefront. As an example, in the company’s March earnings release, Nordstrom referenced a fine-tuned optimized assortment as one of the keys to their Q1 success. Enhancing assortment planning expertise and capabilities is likely a key theme you will hear more and more throughout this year as retailers work to understand consumer demand in the current economic environment.

We would love to discuss how we can help your company address retail inventory challenges or any other initiatives you are undertaking.