A delicate balance
Written by Graham Buck
As tumbleweeds blow along many of Britain’s high streets, no retailer can afford to disappoint customers. When times are tough, ensuring that you avoid empty spaces on the shelves could prove the difference between life and death. At the same time, overstocking is an expensive mistake that few can afford – although even the biggest names have
at some time found products that refuse to shift taking up expensive space in the warehouse.
As sales growth falters, savvy consumers are not only buying online in increasing numbers but are also using the internet to research products and even to return them. Fredrik Holmén, managing director of Keybroker UK, suggests that in the next five years the number of online retail buyers in Europe will increase by 30 per cent, and that 10 per cent of all retail transactions in the UK will be online in 2012. Indeed some leading brands like Argos have a particularly strong web presence, with online contributing 34 per cent to their overall sales for the first half of 2011.
The years ahead will see consumers using their smartphones to order and pay for items. So the task of controlling inventory and replenishing stock is becoming a tough challenge in a
multi-channel environment. Even more so when a retailer such as building supplies company, Travis Perkins, carries upwards of 70,000 different products, notes Colin Rickard, managing
director EMEA for DataFlux.
But even smaller businesses typically carry a wide range of different product types. The better they understand their
product portfolio, the more efficiently they can operate. So there is an increasing interest from many retailers as to what is the optimum level of stock. Fortunately, technology has developed that can be used for optimising inventory. Available solutions include vendor-managed inventory and visibility features that enable suppliers to check levels across warehouses and distribution centres. The trend in recent years has been to use fewer, but larger depots. This has enabled many retailers to extend the product range that they offer consumers.
“They have become more adept at inventory control and there has been significant investment towards achieving supply chain optimisation,” reports Simon Walker, director of product development for software vendor Stibo Systems. “However, it can still happen that information gets locked into supply chain systems and becomes unavailable.”If this information supply chain is not unlocked, there is the potential scenario for a retailer to have the product in stock yet not actually on the shelves.
“So you can have a product in the warehouse but still lose sales if your product information is not kept up to date,” adds Walker. “Grocery companies have been pushing this aspect particularly hard and standardising product information as part of their inventory management.”
A major challenge comes in organising unsynchronised data, such as information about products. So a specific item may be listed in an enterprise resource planning (ERP) system under one name, but stored under a completely different name in an inventory control system or supply chain management system. This creates confusion about a product and also undermines businesses performance.
“We’re now seeing a drive to bring greater structure to product data,” says Rickard. “The main reason for cleaning up your data is to maximise the effectiveness of your supply chain. It’s also in order to put in preventative measures that ensure no further unstructured data gets into the system.”
Good data is also vital when consumers’ buying patterns alter and change the product mix adds Cathy Humphreys, UK country manager for inventory planning and forecasting specialist INFORM. “People seek a different product or brand from the one they have boughttraditionally. At the moment, with household budgets under pressure, that often means a cheaper alternative.” She adds that in response, producers’ marketing philosophy is
to get more of their productsbefore the public. “This means
different ways of packaging, new sizes and new flavours. All
add more complexity to the supply chains attempting to
Not surprisingly, opinion varies as to what constitutes good inventory management. In many respects it is retailers having the knowledge of what they can without, says David Grosvenor, chief executive of electronic solutions supplier Wesupply, who suggests that most tend to overstock.
He cites two main reasons. Firstly they lack confidence in
supply, either because it is poor or because they are concerned that it might suddenly deteriorate. Secondly, they are not confident in demandso to maintain customer service levels they hedge by carrying more stock than is necessary.
“On the demand side, supplier involvement in the forecasting process improves accuracy. Internet-based B2B integration
and Software as a Service (SaaS) delivery models now enable genuinely shared environments for collaborative forecasting, and not just with a small number of suppliers,” says Grosvenor. “Using a simple web interface, or through direct integration
with buyer and/or supplier forecasting software, it is now possible, and practical, to integrate any number of suppliers. On the supply side, lack of confidence in supplier performance means that a retailer will be inclined to overstock to ensure that availability targets are met. Ultimately, building confidence comes down to having real-time visibility into order status and performance over time.”
As e-commerce systems become more advanced, they are overtaking ERP systems, suggests Mark Mearns, head of
multi-channel retailing at DHL. So while managing warehouse stock and accuracy have improved, stores are lagging behind in their inventory control and fail to take account of factors such as shrinkage. “Returned goods are also an issue,” he adds. “Many multi-channel retailers offer free returns to either their warehouse or to the store. The latter has advantages for retailers as it drives footfall into the store, but it also corrupts data on the store’s perceived stockpile.”
Alex MacPherson, solutions consultant manager for Manhattan Associates agrees, adding many retailers have legacy systems that struggle to cope with and manage multiple channels. Mearns cites the success of online fashion retailer ASOS, which initially sold brands and then moved into manufacturing.
“The company can turn over stock very quickly and isn’t hampered by legacy ERP systems or stock hanging around stores,” he says. Yet while evidence is largely anecdotal there is widespread agreement that Europe’s retailers are more adept at inventory control than their counterparts across the Atlantic. “The US has much more space and much more size – warehousing costs less so there is less financial pressure on retailers to work smarter,” says INFORM’s Humphreys. There isn’t the same pressure for doing things cleverly. We’re in much closer proximity, so people have to fight harder to differentiate themselves and service in the supply chain is one of the main differentiators.”
With High Street competition growing fiercer retailers are keen to offer a greater product range, yet at the same time are also seeking to keep their stock holdings to an economic level.
One solution to this, ship to store or ordering online and collecting the product in-store has become increasingly popular. Manhatten Associates’ MacPherson reports that for some
retailers it now accounts for some 30 to 40 per cent of all
business. “We’re seeing retailers use store inventory as a
replenishment point and achieving greater visibility of their inventory across the whole supply chain,” he reports.
So while an individual store is unlikely to carry every size and colour of a particular fashion line it needs to be able to offer the entire range and ensure an item matching the customer’s specific requirements reaches the store promptly. Aurora
Fashions, parent for the Warehouse, Oasis and Coast chains, recently launched a scheme in its London stores that promises delivery to customers’ homes within 90 minutes for online orders and is extending it to Birmingham, Edinburgh, Glasgow, Leeds, Liverpool and Manchester.
Iain Beveridge, vice-president, operations, GSI Commerce expects retailers to also increasingly use railway stations as collection points and cites another recently-announced initiative between Royal Mail and ByBox.
The two delivery groups are trialling a six-month pilot this autumn, under which products ordered online are delivered to a secure electronic parcel locker known as an iBox at the train
station. The shopper is notified by email or SMS upon delivery and the message advises a PIN code that he or she can use to collect their parcel. The pilot scheme will extend to 17 mainline stations in London and six other major cities.
All these developments suggest that reports on the imminent death of the high street could be premature. “Its future is
likely to be tied up with interactive showrooms. So chains such
as Hollister allows you to try on different styles and colours, then place an order online in the store,” says Mearns. “Fashion will be first to go down this road as it focuses on younger consumers, who are internet-savvy, price conscious and look for bargains.”