Earlier this week I had the pleasure of attending the Supply Chain Council: Inventory Optimization event hosted by Coresight Research in New York City. I was joined by a combination of retailers, consultants, and other retail industry professionals to discuss the pressing problems in retail around optimizing inventory.
Retailers make hundreds of thousands of inventory decisions everyday around what to buy, where to place, and where to fulfill merchandise from− and these decisions are becoming much more difficult to get right as consumer expectations change. As such, retailers are urged to rethink how they make inventory decisions today — prompting the main topic of this event.
Here are three of the biggest takeaways that really resonated with me based on the discussion:
1. Rely on Leading, Not Lagging Indicators
All council participants agreed that it takes a combination of merchant intuition and data science to make well informed inventory decisions. Retail is changing fast, and those in the industry cannot continue predicting the future solely based on what has happened in the past. Decision-making at the summary level is no longer enough as important nuances at the granular level must now be considered. The data science behind inventory needs to incorporate predictive leading factors – such as preferences, early reads on what customers will buy, or industry trends - instead of just lagging factors. Digital retailers (e.g. online and home shopping networks) have always relied on data to make their decisions - and it’s time for the rest of retail to catch-up.
2. A Combination of Speed and Intelligent Decision-Making is Key to an Optimal Supply Chain
The turnaround times in supply chain are changing. The escalating trade war between the U.S. and China is causing companies caught in the crossfire to accelerate their plans to shift portions of their supply chains out of the mainland. Consequently, many of these adjustments promise significantly shorter turnaround times. Due to the innovation of AI and the quickening of supply chain turnaround times, retailers can now enable a culture of testing and learning through early reads. For example, instead of making a single inventory decision at the beginning of a season, retailers can place products online or distribute a small amount of inventory in stores to gain an early understanding of how a product will sell and trend. By utilizing AI, retailers can rapidly pick up on trends and leverage these insights to make smarter decisions on where to place merchandise in order to maximize full price sell through. Some retailers are even able to re-order fashion items within two to three weeks, allowing them to quickly act on current trends and thus, secure them a competitive advantage.
3. Plan for the Change in Skills Required
For as long as commerce and trade has existed, merchants were expected to negotiate, select, develop products, and profitably manage a business. With that said, it is no myth that retail is changing, and as a result, merchants need to add a new set of skills to their repertoire, along with a new set of tools to help them. Merchants now must integrate data insights – such as shopping behavior, pop culture trends, or the impact of macroeconomic conditions on consumption habits - with their own customer and product experience in order to make the most impactful business decisions. However, simultaneously incorporating multiple ranges of insight is no simple task. It is one that requires anticipation of constant volatility in retail, along with the complementing ability to instantly react.