Right Stock Level

Andre Weigandt, CEO and founder of Weigandt Consulting is speaker on the largest industry summit in Russia "Retail Business Russia 2013" with the topic "Right Stock Level"

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Achieving the right stock levels has a simple objective. This process is to ensure the right products are in the right place, at the right time, to profitably service customer demand at the point of service.

However, it is clear that traditional approaches to inventory management are becoming obsolete. With the dependence in so many sectors on global sourcing, contract manufacturing, more dynamic product life cycles and multi channel distribution that retailers must embrace new inventory management techniques.

As inventory tends to be one of the major financial outlays of a retailer, having the ability to flexibly optimise inventory can increase revenues, increase profitability, and equally important provide the level of customer service demanded by consumers as their right and as part of their customer experience in our “anytime, anywhere” multi channel world.

So what is inventory optimisation? In essence, it is the balancing of demand and supply, but taking into account the ROI (return on investment) of business and financial objectives, consumer demand, and supply chain constraints (e.g. lead times, distribution capacity, store space, inventory availability, pack sizes, etc.). However, risk is a key component. Factored into the demand and supply equation comes the uncertainty of forecasting consumer demand and with suppliers achieving lead times.

Leaders in inventory management, manage inventory movements of the whole supply chain including suppliers, warehouses, stores, and on to the customer across a multi channel basis.

Having achieved inventory optimisation, it is necessary to continually monitor inventory through a single view of inventory across the entire supply chain so that customer service can be fully met in the most cost-efficient ways, whilst minimising inventory spend. Best in class retailers adopt business processes such as SIOP (Sales, Inventory and Operations Planning) to keep inventory optimised and flexibly aligned to be responsive to business needs and demand.

Supporting such key business processes, the retailer needs the application of more robust scientific and optimisation techniques in their IT systems so that inventory can be optimised automatically to meet business and financial goals, supply chain constraints, demand and related uncertainties, with minimum operational intervention.

Driving the inventory optimisation, is the integrated use of demand forecasting – helping retailers better manage demand by item, by location, and by channel on a time-phased basis. The Demand forecasting will adjust for seasonality, key factors (e.g. public holidays, weather), as well as promotional events such as price changes, visual merchandising, marketing campaigns, new product launches, market intelligence, etc. so that the best representation of demand can be easily made on a time-phased basis for a future time planning horizon.

Fast and accurate decisions based on corporate data and demand forecasts generated by automated planning solutions

Important factors

The customer demand forecast can drive replenishment of warehouses and stores/channels on a time-phased basis whether this be for seasonal products, new product launches, promotions or for continuity products – organising sourcing, supply and replenishment across the entire supply chain from suppliers to warehouses and warehouses to stores, and stores to customers in the most cost efficient manner to meet customer service demand. So which factors must new systems embrace:

  • Sourcing - managing a wide range of products, availability, pack configurations, ordering terms and costs can from many suppliers be daunting for the retailer.
  • Lead time and transportation - coordination of source availability, shipping schedules, loading constraints, warehouse constraints, travel time and costs.
  • Local market complexities - demand patterns and influences of seasonality and promotional effectiveness by channel and by store/store cluster.
  • Financial and physical constraints - budgets, storage limitations and desired inventory turns to achieve business objectives.
  • Selling locations inventory pressure - financial impact of overstocks and markdowns, pressure to maintain high customer service level and availability to prevent lost sales and harm to customer loyalty.
  • Service levels, stock targets, replenishment goals.

Thus, new systems must include a range of optimising algorithms that enable future plans and also scenarios to be established covering:

  • Constraint based optimisation to meet customer demand and best profitability covering products, vendors, replenishment orders, inventory, demand, freight, labour and space.
  • Can plan current and future purchase and replenishment needs, plus transfers.
  • Plans for uplifts (and cannibalization) for promotions, price changes and key events, including building promotional presentation stock.
  • Calculates store and channel inventory, managing waste and obsolescence of product with clear shelf life on a time-phased according to demand and supply.
  • Allocate product in short supply.
  • Shows the impact on the overall supply chain for projected resource, space and freight needs of current and future pack sizes, minimum/maximum stock levels, as well as shelf capacity by store.

By doing so, it is possible to reduce inventories and markdowns of obsolete stock whilst dramatically improving inventory availability where it counts – at the point of service – thereby improving sales revenues, profitability and customer loyalty and satisfaction.

At Weigandt Consulting, we can deliver these solutions – based on Oracle Retail solutions - and the best practice business processes and performance analytics – such as Sales, Inventory and Operations Planning – to deliver world class benefits to support required revenue growth, service improvements and margin increases.