Shopping—as we once knew it—has changed forever. And with it, the art and science of providing the right product at the right place and time has become even more complicated for retailers everywhere.
In an ever-competitive retail landscape, customers—often impatient with chronic out-of-stocks and other supply chain disruptions—now expect shopping experiences that are more unified, personalized, and address their immediate needs. While some of these shifts in buying behavior began pre-pandemic, three years of constrained lifestyle greatly accelerated them, leaving redefined patterns that are here to stay. Retailers who may have initially considered these conditions a temporary phenomenon are now scrambling to keep pace.
The sudden but sustained increase in the adoption of omnichannel shopping, such as buying online and then picking up in-store (BOPIS) or curbside, plus same-day delivery options, has forced retailers to reimagine the tools they leverage to deliver superior service to every customer.
The inventory problem is hardly new. Retailers and consumer packaged goods (CPG) companies alike have been grappling with the challenges of having inventory imbalances, supply disruptions, empty shelves, and shrinkages forever. The methods to optimize and manage that inventory have also evolved over the past few decades and are very mature. On the face of it, solving a known problem with well-established tools should be an easy task. However, these outmoded tools are no match for today’s challenges. Where can we identify major differences?
As fundamentals have changed across so many product lines, historical baselines are all but “out the window”. In turn, how should retailers and manufacturers retool themselves to face these new challenges?
Unfortunately, there are no proven formulas or widespread “best practices” to draw from. However, we can recommend three approaches which could help companies be better prepared and adaptable to change:
Use inventory visibility for better decisions. Real-time visibility of inventory and its availability is critical. Knowing where in the distribution chain the products are will help order fulfillment systems make better decisions. However, store inventory is always difficult to ascertain. This is due to shrinkages, products in carts but not yet checked-out, and misplaced products on shelves.
Learn from customer and supplier behavior to create a new baseline. Accuracy of the inventory planning process depends upon an accurate demand forecast. And a reliable demand forecast into a foreseeable future will heavily depend upon recent demand patterns, customer behaviors, stockouts, and other events. It is more important to know which events are presently driving sales, rather than the historical demand patterns, because at the level retailers replenish, previous demand data are either non-existent or highly unreliable.
Make planning and execution systems responsive. Inventory planning systems are not real-time systems. They rely on lagged forecast and inventory positions. When you execute against a plan that is not built on the latest ground realities, it will result in improper inventory placement and costly expediting. Accurate demand or sales plans based on assortment planning are essential for medium-term inventory and capacity planning. Using them for replenishment can be risky.
In the coming few years, technology will drive synergies. The hardware technologies used in WMS and in-store operations and the AI/ML-based business applications are merging. Early adopters will win this race over competitors.