Inventory Management Is Key in Retailing
Warehouses and distribution centers can play an important
role for retailers, helping them juggle the demands of multi-channel
fulfillment. But you must convince them of the value you bring, that you can be
more than a “middle man.”
by
Leslie Langnau, senior technical editor
About
the only retailers who are making money through online channels these days are
those with established catalog businesses, according to a survey done by the
Boston Consulting Group and Shop.org. For those less profitable, a major
problem is still the disconnect between the online storefront and back-end
fulfillment systems.
But
lack of integration is not the only issue. Like the mythical multi-headed
Hydra, retailers have a number of challenges and problems. They have had to
establish multiple channels so quickly, they weren’t always able to do so
efficiently or cost effectively. Thus, there’s still room for cost
reduction. For example, rather than ship product out of one facility, many retailers
use separate warehouses or distribution centers (DCs) for each of their
channels.
Logically,
use of a global inventory is the ideal solution. But it won’t be easy to
realize. For one thing, managers aren’t paid to share their inventory.
Retailers have set up bonus and compensation packages that reward managers on
turns of inventory, the ability to sell a certain amount at full price, and so
on. “Why would they take any portion of inventory that they plan to sell
at first price and move it to another division and not get the same
margin?” asked Bob McKee, fashion industry application director,
Intentia.
“Retailers’
upper management must make changes in the way things are measured,” said
McKee. “That’s really the bottom line for a lot of problems that
exist throughout the industry relative to the movement of merchandise. Whether
it’s vendor managed inventory or collaboration, planning, forecasting and
replenishment, the way in which things are measured has a lot to do with the
decisions that are made.”
“Behaviors
need to change,” agreed Jim Byrnes, president, Ability. “It comes
down to who controls the inventory. And some aren’t willing to give that
up to DCs. But cost will drive retailers in that direction.”
Tracking inventory
Inventory
management, aside from who controls it, is a major issue. Retailers have
concerns about loss or theft as well as stock-outs. Reconciling what’s on
hand with what’s in the system is often a problem. “They know they
had a specific amount in inventory,” said McKee, “but where is it
now? They often don’t know if it’s the numbers not matching up or
if it’s shoplifting or just out of stock.”
Then,
there’s obsolescence. “Especially as retailers move into finished
goods, which often have short life cycles,” noted Byrnes. “If a
retailer is late getting product to a certain location on time, they eat the
inventory.”
To
better control inventory and product delivery through multiple channels, the
big boys in retailing are using several solutions; some are more coercive than
cooperative. In several cases, the solution is partnerships with established
players in a channel. Wal-Mart, for example, partners with Fingerhut Business
Services for its on-line store, Wal-Mart.com. For in-store stock, though,
it’s thrusting inventory management and replenishment back onto
suppliers. And it basically works like this: suppliers don’t get paid
until the merchandise passes through the cash register. Thus, the manufacturer
is carrying the inventory cost, making it important to manage production and
inventory even better.
Not all
manufacturers or suppliers are ready for this, especially as they are shipping
smaller quantities to the retailer more often. Frequently, suppliers find their
operation “is doing two very different functions in the same facility:
trying to consolidate piece and case as well as pallet tasks,” noted John
Davies, vice president, product strategy, Optum Inc. “And they are doing
this with equipment set up for pallet operations, so it’s been difficult
for them to figure out how to break that down.”
This is
where the “middle man” can contribute. Vendor-managed inventory is
a good way for warehouses and DCs to provide a value-added service.
“Everyone
is always trying to get around the distributor, but DCs do have unique skills
that manufacturers don’t have,” said Byrnes. “For one, they
reduce the number of contacts a vendor must deal with. This many-to-one
arrangement lets each do what each does best, leaving inventory management to
the professionals. Distributors are experts at matching and moving inventory,
and this is where they can increase their value within the supply chain. They
connect the manufacturer to the retailer.”
Plus,
DCs have many of the tools needed to manage the risks of obsolescence and
stock-outs. With inventory optimization tools, they can gather data residing at
the retail location and use it to predict future demand for replenishment.
Collaborative
planning, forecasting and replenishment (CPFR) tools, for example, enable such
data gathering. However, retailers and suppliers are not that convinced this
technology will add value to their operations. According to a study from AMR,
80 percent of retailers and suppliers do not believe that CPFR is critical to
their strategies. But about 45 percent of retailers and 47 percent of
manufacturers expect to be capable of real-time collaborative data flows within
two years, ranking replenishment management as a top priority.
Before
this future arrives, though, retailers, manufacturers and others must decide
how to handle retail exchanges. There are four major exchanges in this
industry, none more that a year and a half old. Already, more than $250 million
has been spent developing them, with little progress made. Gerry Storch, vice
chairman at Target Corp., called for a consolidation of these exchanges, at the
recent Retail Systems 2001 conference, because of the lack of progress. But
reducing these exchanges to one will be difficult. Incompatible systems and
business approaches are only two of the problems. Government scrutiny against
price collusion could be another. It may take more than two years for true
real-time collaborative data flows.
And more
Management
of inventory in retail increasingly involves promoting and growing the brand.
But these tasks are being done by the product suppliers and the manufacturers,
not the retailers. Retailers are redefining their core business as that of
providing the space for a product and an exciting shopping experience for the
consumer. This is another area where warehouses and DCs can add value to their
relationships with retailers and product suppliers. MHM
Inventory Management Software
Here
are a few of the suppliers of inventory management programs:
•
Catalyst International: WMS Release 8.1. www.catalystwms.com
•
HighJump Software: Warehouse Advantage. www.highjumpsoftware.com
•
Industri-Matematik International Corp.: Vivaldi Store Replenishment. www.im.se
•
Intentia: Movex. www.intentia.com
•
Logility: Voyager Collaborate. www.logility.com
•
Retek: Retek Distribution Management. www.retek.com
