The Art and Science of Efficient Inventory Management in Logistics

By
Productiv

Retail inventory management — from the perspective of brands and manufacturers who supply them — is certainly one of the most critical aspects of this partnership. Inaccuracies in inventory quickly create a domino effect that ripples through purchasing, shipping, stock levels in stores, warehouses, fulfillment centers, and the balance sheet. This makes efficient inventory management a baseline requirement for brand and retailer success.

Depending on a number of factors (the size of the retailer network, stores vs. online channels, the number and variety of SKUs, demand, and velocity, etc.), retail inventory management involves a complex interplay of logistics and forecasting. It requires tight coordination among functional team leads and service providers.

Greater inventory management efficiency, while nearly impossible to achieve at a five-nines level (99.999%), can be gained through a combination of process improvement, technology, and the right partnerships. As a result, customer satisfaction improves and business relationships expand.

The Basics of Inventory Management

While technology and innovation have certainly led to gains, the basics of inventory management have not changed dramatically. Here are the key elements of any successful strategy focused on different aspects of retailer/brand collaboration:

Demand Forecasting

Both parties work closely to develop demand plans and forecasts based on historical sales data, market trends, and planned promotional activities. Accurate forecasting helps determine optimal inventory levels across channels and informs replenishment strategy.

Inventory Planning

In a similar fashion, inventory planning aligns with sales targets, seasonal trends, and marketing initiatives. This includes determining the appropriate mix of quantities and SKU assortments to meet expected demand.

Ordering and Replenishment

The retailer places orders with the brand based on agreed-upon lead times, quantities, and delivery schedules. Timely, accurate replenishment is critical for meeting demand while avoiding excessive stock-outs (disappointing customers) or overstocks (leading to markdowns and liquidating stock with discount chains).

Allocation and Distribution

This is another collaborative effort based on factors such as store locations, size, and customer demographics. Each location needs to have the right product mix and quantity to maximize profitable full-price sales.

Performance Monitoring and Analysis

Inventory performance metrics (sell-through rates, inventory turn, stock-to-sales ratios, etc.) are tracked and analyzed to assess how well inventory management is performing against the plan. Based on this, it can be refined to optimize replenishment processes.

Communication and Collaboration

This is an essential component of inventory management success. Regular meetings, data sharing, and feedback loops enable retailers and brands to address issues, make adjustments, and capitalize on opportunities as they arise.

The Art

Retail veterans rely on industry knowledge to interpret data effectively. They understand how to prioritize KPIs while also using analytics to gain insights into demand patterns, sales trends, and inventory performance.

They also lean on their experience to curate product assortments that will resonate with customers. Their understanding of preferences, market trends, and competitor strategies inform decisions on product selection, pricing, and inventory levels.

Market savvy gives them the agility to adapt quickly to changing market conditions and consumer preferences. This can factor into decisions on adjusting reorder quantities, reallocating inventory geographically or across channels, or liquidating slow-moving stock.

The Science

Data science and data scientists have become a hot commodity in retail in recent years. They leverage AI and advanced algorithms to optimize the connective tissue between inventory management, fulfillment, and logistics. The best of both worlds: an experienced inventory planner who is digitally savvy enough to augment their know-how with today’s analytical tools.

Data science can take inputs on lead times, supplier performance, and demand variability to develop models aligning production with the logistics of fulfillment and distribution.

Predictive analytics trigger automatic reorder points, adjust replenishment frequencies, and optimize order quantities to sync with demand patterns. Retailers and brands collaborate closely to match these outputs to order and delivery schedules.

Major ERP providers offer pre-built inventory management modules, often powered by AI, that can easily integrate with WMS, CRM, and OMS software. Many standalone systems are designed to handle inventory management functions geared toward the midmarket and SMBs.

Aligning Inventory Management With Logistics

Brand suppliers and retailers need to collaborate closely to align production schedules, lead times, and delivery schedules with demand forecasts. Sharing real-time data between both parties, as well as with logistics suppliers like 3PLs and carriers, helps ensure timely, accurate replenishment.

In omnichannel, retailers and brands can coordinate on things like consolidating shipment of retail and ecommerce orders. Freight optimization and the use of multi-modal transportation options help minimize transportation costs and shorten lead times.

An experienced 3PL partner can provide brand suppliers with highly efficient picking, packing, and shipping processes, as well as warehouse automation technologies, to ensure retail orders hit SLA targets. They are adept at prioritizing orders and shipments based on the retailer’s strict requirements, minimizing cycle times, and improving order accuracy.

Retail Inventory Management and Operations Need to Play Nice

Technology is changing the game in retail inventory management, but the basics remain the same: close collaboration between retailer and brand on demand forecasting, inventory planning, and replenishment. New tools are making it possible to share all of this information more easily in real time with operations teams and logistics partners, ensuring delivery schedules are met.

Productiv, a leading 3PL, specializes in retail and omnichannel distribution. With a strong industry track record, Productiv works closely with brand inventory managers to optimize order fulfillment, logistics, and transportation. We have an in-depth knowledge of routing guides and requirements at 60+ major retailers, ensuring strict compliance and providing peace of mind that all your commitments are being kept. To learn more, talk to an expert today.

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