Inventory planning: Retailers make months-out decisions in real time

Anaplan's Bob Debicki walks through the complexity of inventory, and how retailers dealt with the shocks of the last three years.

assorted-color shoe lot on white wooden shelf
Photo by Martin Adams on Unsplash

There are often two sides to retail: What the customer sees on the shelves, and the process that gets the goods to the display.

Talk to anyone in the industry, and you’ll find no doubt that the presentation to the customer matters when it comes to driving sales. But go deeper on the balance sheet to examine business health metrics like profitability and cost of goods sold, and it is evident that there's more to success than what appears on the sales floor.

When it comes to these behind the scenes functions, there are few areas of a business more important than inventory.

In order to make money selling goods, retailers need to have products that are matched to demand.

“Inventory is all about selecting the right products, and making sure the right products are in the right place at the right time,” said Bob Debicki, senior director of global CPG and retail industry solutions at business planning software company Anaplan. “Any of those dimensions can be a challenge.”

Over the last three years, repeated and often overlapping swings in the global supply chain have only added complexity, while also bringing inventory challenges faced by retailers every day into public view like never before.

Let's review:

The pandemic brought a spike in demand for goods. By mid-2021, the supply chain was flooded with goods and facing slowdowns from COVID, leading to product shortages.

The next year, a mix of supply chain easing and over-ordering by retailers led to a glut of inventory.

Balancing inventory is often the result of sound planning. So when there are problems, the cause can come down to what was expected, and what came as a surprise. On Debicki’s reading, retailers, manufacturers and supply chain professionals were successful at predicting the pandemic-era demand based on the known consumer behavior associated with lockdowns and the money that was being injected into the economy. On the other hand, supply issues ended up choking the system because they weren’t anticipated.

“We weren't expecting slowdowns in distribution. We weren't expecting supply chain outages. We weren't expecting ships sitting in harbors not unloading their goods,” Debicki said. “Historically, if the product was available, and it was en route, it would get there. But now we had all of these other obstacles that were slowing us down.”

Now, manufacturers, brands and retailers are facing elevated costs, while consumers are pulling back discretionary spending as a result of higher prices from 40-year-high inflation.

“Figuring out what the right mix is, is more important now than ever,” Debicki said.

A retailer may change their assortment based on what consumers are willing to spend. However, they don’t want to over-order, because they could be left with products that don’t sell. That eats into profitability. Adding yet another challenge is the fact that these decisions are often made months ahead so that goods can be produced, and shipped across the globe.

In a complex environment, often what’s required is the weighing of a number of disparate factors, and decisionmaking based on a variety of options – none of which may be ideal.

This is only more acute with inventory and demand planning. While the orders are being placed well ahead of time, the decisions that govern what's in those buys are being made in real time.

The results of low visibility can be costly. In 2022, retailers ordered too much inventory out of panic that they would run out of products to sell. The markdowns and close-outs of the holiday season that cut into earnings were the medicine they had to take as a result.

Given this, Debicki said it’s important to take a holistic view of inventory that connects not only economic indicators and a retailer’s historical data to the number of products onhand and those being ordered, but also where they will be allocated across stores and ecommerce. In the end, this all must connect back to the financial implications of each decision. Each of these processes have different teams associated with it, so taking a collaborative approach is also important.

With models and teams working together, retailers can ensure they make decisions that not only cut through the complexity, but ultimately improve the business as a whole.

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