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Inventory Management, Part 1

Last week’s blog discussed the different factors that make up the “real” cost of inventory. Everything from warehouse costs, shipping costs, and even interest fees all must be accounted for while managing inventory or else businesses could miss their margins and end up with major financial losses. And calculating the cost is only a fraction of the work retail businesses must do to keep their inventory flowing and margins increasing.

This post will discuss the responsibilities that go into managing inventory, and the importance of using historical data to better their planning.

Brands and retailers rely heavily on their backend and data systems for their inventory decisions. At the end of each season, businesses compile reports with analyses illustrating what products and strategies worked and didn’t work, highlighting the areas that need improvement and the systems that should be updated. The historical data in these reports come from the continual tracking of their customers’ behaviors and touch-points with the company.

Retail Dive recently touched on the future of retail shopping and illustrated the importance of data mining. According to them, Sarah Rasmusen, Vice President of Digital Merchandising and Analytics for Kohls, stated that the retailer is using search data to inform merchandising and product decisions.

And Kohls is not the only one doing so. Many companies are looking at data for help, knowing that it is crucial for their future success and growth by informing their decisions on inventory management and planning.

Brands and retailers use historical data to:

Determine what to order/make – It’s all well and good to order inventory with a wide range of items from different verticals, but brands have to focus on what the upcoming trends are and what consumers are going to want to buy. This helps limit the number of returns and unsold merchandise.

Determine how much of that product to make – Quantity is crucial when it comes to inventory. Too little stock for an item could lead to multiple order losses or backorders and create more work for the brand. But too much stock could turn into excess and then needs to be sold at a discount. And even though not all merchandise will be sold at full price, the more accurate the quantity level is the more satisfied their customers are and the less excess they will have to deal with.

Determine where to place it – Will it be online? In the store? Both? Looking at who is buying what and where is crucial to this decision, as online shoppers may have different preferences than those who shop in-store.

Determine shipment costs – Brands and retailers all have different shipping strategies with different incentives to entice consumers. Some have free shipping and returns, while others have free shipping on orders over $100, etc. Having an idea of these expenses (including the cost of returns) is important in knowing the inventory cost and being able to factor it in when originally pricing the merchandise.

So while historical data is crucial for inventory decisions, brands still need even enhanced visibility into their business for more accuracy in their planning. The next post will dive into a solution for brands to improve their visibility into their inventory for a quicker and easier way to do business.