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Finding the Way Out of Inventory Dilemmas

Imagine your irritation when you try to place an order online and are greeted by the message: “We apologize for the inconvenience, but this item is out of stock.”

However, even if the item is in stock, your mood is likely to sour if delivery will take more than a few days – and even worse, you also have to pay for shipping. If you're anything like me, you will quickly find an equivalent product that's available immediately and ready to be shipped that same day.

It's in the light of this hyper competitive environment that the current inventory crisis should be seen. To sum it up from the perspective of warehouse owners: these are good times. Warehouse rents are hitting new highs as vacancy rates sit below five percent in many major cities.

From the viewpoint of retailers, on the other hand, it's a significant challenge. Excess inventory is building even as consumer demand remains relatively high. Well aware of the consequences of not meeting ever-rising consumer expectations, retailers have felt compelled to stock up to – at all costs – avoid that irritating “out-of-stock” disclaimer. On the other hand, a chock-full warehouse is not necessarily good for business or speedy fulfillment.

This is when the importance of having a modern, flexible supply chain really comes into play:

  • How quickly can the supply chain adjust to changes in demand?
  • What's the visibility up and down the supply chain?
  • How aware is each link of what others are doing?
  • How fast can inventory be refocused?

Some companies like Nordstrom have invested in cloud-based supply chain services. In Nordstrom's case, the acquisition of a minority stake in DS Co., a supply chain software firm, which links inventory management between retailers and suppliers, was designed to facilitate direct shipments from vendors to customers, thereby circumventing the need for more inventory space. When suppliers and retailers track the inventory of one another the risk of out-of-stock disappointments is reduced and risk is shifted up the supply chain.

Put to practice, it means that an order placed on the luxury retailer's website is routed to the manufacturer, which then ships the item directly from its warehouse to the buyer. The Wall Street Journal noted Nordstrom's investment comes “as retailers are racing to compete with e-commerce companies such as Amazon.com Inc. to provide convenience and speedy delivery to customers while keeping costs down.”

J.C. Penney is also shifting gears to avoid inventory gluts. The new business model essentially turns part of the store into a showroom for one of its suppliers, Ashley Furniture. Instead of keeping inventory in store or in distribution centers, all orders will be shipped straight to the consumer from Ashley Furniture.

Drones are not surprisingly part of solving the inventory dilemma. Wal-Mart, for example, is testing the use of drones to catalog inventory, finishing in one day what it takes employees a whole month to get done. The intent is partly to make the giant retailer's supply chain more efficient.

Clearly, traditional retailers are exploring new territory to meet consumer demand.

What do you think is key to solving the inventory crisis?

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