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Why Is Supply Chain Management the Key to Inventory Control?

Image of call center employees

The shifting dynamics of today’s retail marketplace — such as the emergence of social shopping sites and online price comparison sites — place heightened emphasis on an age-old retail dilemma: How can a business have enough inventory to fulfill customer demand, but avoid the expense of excess inventory? 

Supply chain management is the key to striking the right balance. An article on the Supply Chain Digest website provides retailers with some important lessons in inventory control, outlining three ways executives can adapt their inventory management strategies. 

  1. Reshape the process: Executives should evaluate how their retail supply chain process and policies have adapted to changing consumer demands. 
  2. Revise the operations: With positive customer sentiment on the line, retailers must give the perception of “ubiquitous inventory,” meaning that the item always appears to be in stock when the customer places an order, the article says. That’s why retailers are exploring different inventory delivery methods, such as fulfilling customer orders from either the company’s or the manufacturer's distribution center, to find the best way to meet customers’ expectations. 
  3. Revamp the technology: IT applications must support inventory management, planning and operations in a multichannel world. One question companies should ask themselves is whether their current tools cover sales, inventory and operations planning (SIOP). 

Take a grocery store, for example. First, it needs to project demand. The best way for a retailer, especially a grocer, to do that is by analyzing history. A good retail ERP system will provide a detailed sales history by SKU or product. That allows the retailer to then set targets for how much of any particular product needs to be on the shelf at any time.

Of course, it’s difficult for any retailer to predict exactly how many items of a particular product it’s going to sell in a specific time frame. That’s why most stores carry what’s called safety stock. For instance, if the store expects to sell 100 jars of a particular brand of pasta sauce in September, it might order 120 jars. 

Since consumers typically purchase the same product repeatedly at the grocery store, grocers are in a good position to understand product demand. Once they have that information and know how much safety stock they want to keep, it’s just a matter of putting the numbers into a retail ERP system, which can do the math based on order histories.

Source: Supply Chain Digest, April 2013