The U.S. distribution landscape has changed dramatically in the past several years, with e-commerce growing almost 18 percent each year, according to McKinsey & Co. Industries have made gradual adaptations to keep pace, but having the ability to emanage inventory effectively and meet customer demand is critical for growth.
Being out-of-stock can snowball into a customer service nightmare and permanent revenue loss. In the new era of online shopping, inventory planning is about much more than simple fulfillment, and inventory flow directly affects profits. Therefore, it’s essential to adopt a process to analyze SKU profitability relative to inventory ownership.
A common metric for this is gross margin return on investment, which is calculated by taking the aggregate gross margin achieved for a SKU and dividing it by its average inventory cost.
To leverage inventory and increase sales and profits, online retailers should take a strategic approach:
- Calculate weekly SKU demand;
- Make the most of inventory deliveries by aligning inventory flow with demand;
- Find and eliminate problem inventory as quickly as possible;
- Measure SKU productivity relative to inventory ownership.
By establishing a clearer picture of stock, retailers can sell more products with less effort.
An inventory management system must enable employees and customers to see what products are immediately available. If retailers can’t promptly deliver a featured product – or at least accurately predict how long delivery will take on back order – they should expect not only profit loss, but a thinning customer base. The solution is real-time inventory visibility.
Knowing in real time where a retailer’s inventory exists – whether it’s in distribution centers, stores, outsourced fulfillment centers or at drop-shippers – is crucial for enabling a merchant to fulfill orders quickly and efficiently and replenish inventory, keep customers satisfied and build sales.
What are some of the advantages of real-time updates of available stock? When a certain product is building inventory, it is possible to move that merchandise through targeted marketing campaigns designed with information on past sales transactions and customer data. They also can constantly adjust promotional deals, further lowering prices or offering free shipping if a product is selling quickly. In addition, retailers can use real-time inventory visibility to market available products better and match customer demand, as noted by the retailer’s analytics on shopping behavior. This approach makes product marketing more relevant and produces a better overall customer experience.
Real-time inventory visibility makes it possible to keep inventory at optimal levels and process purchase orders placed with suppliers, providing immediate electronic updates on what has arrived and what’s still on order. Furthermore, retailers are able to see what inventory is being delivered from suppliers so that their website, store employees and customer service reps can tell customers when they can expect to receive currently out-of-stock items.
Savvy distributors making the shift from catalog to digital sales – while managing the challenges of a large centralized distribution facility – know that to maintain customers and attract new ones, inventory is critical. This demands constant adaptation to keep pace with ever-improving technologies and growing customer expectation. Effective inventory management that shows the “what and where” of available inventory gives retailers a competitive advantage when selling products and serving customers, rather than simply letting products sit in warehouses while customers go elsewhere for the products they want right now.