Retail Safety Stock – Do You Even Need It?

“Determining appropriate inventory levels is one of the most important and most challenging tasks faced by operations managers. If you carry too much inventory, you tie up money in working capital; if you don’t carry enough inventory, you face stockouts.”Crack the Code: Understanding Safety Stock and Mastering Its Equations, MIT

Overstocks and out-of-stocks. A double-edged sword.

If your store runs out of product when unexpected demand hits the fence, it’s a missed opportunity. On the other hand, a store stocked with too much product almost always leads to markdowns and profit loss—another missed opportunity.

This is how the typical song and dance between planning for inventory safety stocks goes. Traditionally, retailers try to anticipate fluctuations in future demand, yet, most of the time, fail to do so accurately.

Given the recent pressures across the industry to improve performance as margins shrink and store foot traffic falls—retailers are scrambling to improve sell-through rates, decrease markdowns, and increase profit. Which is challenging when you’re constantly making the wrong bets in the wrong places.

The art of finding this balance between making sure you have the right inventory on hand is HARD.

In fact, it’s one of the biggest challenges retailers face today, and, in the most simplistic terms—it’s having the right product, at the right place, at the right time.

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Topics: e-commerce, order delivery, safety stock, inventory optimization, fulfillment optimization

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