A Universal Problem for All Brands: Inventory Devalues and Costs Rise
Brands focus on producing and selling just the right amount of inventory—enough to meet consumer demand and boost sales, but not so much that they end up with excess. As time passes during the product lifecycle, the value of a product will decrease at an accelerating rate along with the potential for margin recovery. Warehousing and financing costs also increase during this time as products continue to sit in warehouses and lock up working capital. While some brands leverage sustainable means to recycle or donate their products, many businesses are forced to either discard or destroy any products that are unable to be sold at the end of their lifecycle.
Ultimately, for businesses this means revenue losses, increases in operating costs, and a severe blow to consumer trust on a brand’s sustainability practices.
Using Opportunity Buys to Alleviate Potential Inventory Issues
When brands inevitably end up with more inventory than expected due to factors such as forecasting errors or failed innovations, brands utilize what is called an “opportunity buy” as one tactic to offload large volumes of inventory at a discount to third party retailers. Depending on the business, this can also be referred to as “opportunistic sales,” “promotional sales,” or “period end buys (PEB’s).”
Opportunity buys occupy somewhat of a grey area between full-price and excess or slow-moving, as brands will sell at a lower discount than when selling excess inventory. Although brands prefer to avoid relying on opportunity buys altogether, the opportunity buy is a necessary evil to recover cash and reduce the amount of inventory that converts into slow-moving or excess.
Challenges with Selling Inventory through Opportunity Buys
Creating and selling opportunity buys is a very time-consuming and labor intensive process for full-price sales managers, and takes away from other tasks they could be performing related to their core business. Below are some of the most critical challenges that brands face today:
1. Data Is Incomplete and Difficult to Collect
Sales managers need to identify and gather key information around product attributes, quantities, pricing, as well as high quality images in order to curate an assortment and offer to potential buyers. However, all of this inventory data will typically live across different systems and teams. This lack of access and visibility delays sales managers from getting offers out to buyers faster, resulting in a lost revenue opportunity and a higher probability of products becoming slow-moving or excess.
Due to the urgent nature of opportunity buys, potential buyers may also turn down offers if they don’t have the right amount of information they need to make an informed decision on whether to purchase.
It’s critical for brands to gain full inventory visibility within their supply chain and achieve a single, centralized and real-time view of inventory performance and where it’s stored.
2. Manual Processes Are Not Scalable
After gathering the required data for creating an offer, the sales manager then needs to navigate an extremely complex and tedious negotiation process. This can involve manually tracking and adjusting product quantities, pricing information, attaching images, and more across spreadsheets, emails, and phone calls. Finalizing a transaction can also require multiple steps, as sales managers often need to work with Finance and other teams to secure the appropriate approvals. Not only are these processes time consuming, but the potential for human error puts brands at risk of sending inaccurate data to buyers. Brands may end up overselling inventory and harming valuable buyer trust as a result.
Another thing to note is that the process of evaluating opportunity buys is extremely labor intensive for buyers, as they do not have efficient processes in place to gather internal data and make an informed decision to buy.
Due to the time-consuming nature of creating and sending opportunity buys, some brands may only go through this process a few times a year at most. In order to improve speed-to-market and boost margin recovery, brands must look for solutions that can automate and scale these manual processes.
3. Reviewing Competing Offers Is Slow and Inefficient
Since offer creation and negotiation is manual and time-consuming, sales managers have difficulty evaluating several competing offers and determining which buyer is providing the best deal. Teams spend countless hours sifting through spreadsheets and emails just to understand how much inventory each potential buyer is willing to take and at what price point, and it’s not always immediately obvious which offers are better than others. As a result, brands are missing out on key opportunities to maximize their margin recovery or increase the volume of inventory sold.
Teams also find difficulty in locating historical transactional data that could help inform which competing offer they accept. Opportunity buys often cause logistical problems throughout the supply chain, and they can actually cause the brand to lose out on sales for the upcoming period. By selling much more inventory to a retailer than they normally would have, the retailer can then go for a longer period of time without requiring additional inventory.
4. Existing Systems Can’t Identify Products At Risk of Becoming Slow-Moving or Excess
If brands had a choice, they would avoid opportunity buys altogether. The reality is that inventory buildup is sometimes inevitable due to external factors such as market disruption, forecasting errors, changing consumer spending trends, weather fluctuations, and more. Opportunity buys are reactive measures taken to address these growing inventory issues and boost sales, but sometimes they create severe logistical and financial challenges for the teams in charge.
A more cost-effective approach would be to proactively address inventory at risk of underperforming. However, many brands still rely on outdated legacy systems that don’t provide enough insights to fuel this sort of planning. As a result, businesses are increasingly investing in solutions powered by machine learning and artificial intelligence to get a better understanding of how inventory is expected to perform earlier in the product life cycle. By achieving predictive visibility into inventory performance, teams can avoid the hassle of opportunity buys and focus their time on selling more inventory at full price.
5. Lack of Actionable Data and Insights
When you have limited visibility, depend on manual processes, and don’t have a central repository for all inventory information, very little transactional data is captured for business intelligence. Since opportunity buys are reactive in nature, brands usually attempt to offload underperforming inventory as fast as possible instead of using data to determine the best way to move the inventory.
As an example, if sellers could view sell-through by category charted against average purchase price by category for each retailer, they could make smarter offers to retailers with the healthiest sell-through and highest average purchase price. By leveraging actionable insights, sellers can move the most amount of inventory at the best possible margin.
Team leads recognize the growing need for actionable data to improve margins, reduce operating costs, and streamline their teams’ workflows. As a result, more brands are prioritizing solutions that centralize and capture rich historical data, analyze trends, and provide ML/AI-powered recommendations at each stage of the value chain.
Does your organization face similar challenges with opportunity buys? As a leader in supply chain visibility, INTURN offers solutions that empower teams to proactively predict and address inventory at risk of becoming slow-moving or excess, as well as optimize existing overstock to maximize recovery.
We’ve partnered with leading brands across industries worldwide, each with their own set of unique challenges to solve. Get in touch to learn how our solution can help you optimize your inventory.