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Cutting the cost of inventory

Tuesday 7 May 2019 Data Insight & Analytics

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By Nader Koder

There is now an affordable, accessible way for retailers to model and manage optimal retail stockholding

Most retailers maintain a product database that records stock levels in the warehouse and in their outlets. It’s common sense to review demand regularly and adjust orders so that you have the right amount of stock to fulfil direct orders and maintain in-store availability.

Overstocking is expensive in cash terms and clogs your storage facilities. Understocking hurts revenue and customer loyalty. Finding the sweet spot where you always have just enough of the right stock is the key to optimal profitability and sales growth. It sounds simple, but there are many variables to factor in to deliver this consistently.

Getting it right across all your SKUs demands continuous and sophisticated analysis of high volumes of detailed data. In the past, that’s been out of reach of all but the biggest retailers and supply chain businesses with deep pockets and extensive IT resources. But that’s not the case any more. Technology development has levelled the playing field: now everyone can afford to get on board.

Demand forecasting

If you’ve got several years or seasons of historical data, you can use time series analysis to predict future demand and maintain the right level of inventory. You can identify changing customer preferences or impacts from weather, seasonal events, promotional campaigns or competitor activity. You can then take action to modify your ordering and stock levels. In a predictive model, artificial intelligence can apply this historic learning to future scenarios and continually refine and adapt to changing circumstances.

Inventory optimisation

To meet the predicted demand, you need to be able to store or fulfil the products your customers want. Even when you know accurately what you need to have available and when, you’re still constrained by finite space and supplier lead times.

Digital solutions can help you manage stockholding within your warehouse footprint and supply chain. You can factor in known constraints and choose the best supply route or call on flexible extra storage options when you need them. Accurate demand forecasting will help free up space by reducing overstocks, so you can be sure you’re using available warehousing most effectively.

Digital evolution means that sophisticated analytics capability is now accessible to smaller organisations. Solutions come off the shelf, with user-friendly dashboards, so you don’t need an analyst team to extract the insights you need to help you grow your business profitably. There’s no reason why your retail business or consultancy can’t exploit data science for competitive edge and optimal operational efficiency.

 

There is now an affordable, accessible way for retailers to model and manage optimal retail stockholding

Cutting the cost of inventory