Industry Roundtable: How to Optimize Inventory Management

Pretend you’re a customer wanting to buy something from one of your favorite e-commerce stores. You find the item, put it in the cart, and get to check out only to find out that it’s out of stock. You’re disappointed, and the frustration of this bad customer experience may make you think twice before shopping with this brand again.

How can you make sure this isn’t happening to your customers? Inventory management is the process of tracking the amount of product you have (whether in your warehouse, in-store or with other retailers and distributors). Doing this effectively enables you to always have the right number of units in the right place, at the right time and for the right price.

Having insight into your entire supply chain is especially important as your business scales. About 70% of industry professionals think that supply chain management gives them a competitive edge. To learn more, we recently talked to a few of our industry-leading partners to find out their best advice on optimizing inventory management. Here’s what they had to say…

How can retailers handle the complexity of inventory management as they add more sales channels?

“Manage individual channels separately. This means that you need to allocate stock to the individual channels to track performance accurately and not from one location.

Buy for the individual channels separately in regards to sizing, categories and pricing because not all channels will sell the same products across the same categories and prices.” – Charlotte Mackenzie, Merchandise Buying & Planning Consultant at Style Arcade

“I still hear horror stories of brands managing inventory and supply through spreadsheets. The cost of procuring and introducing an Inventory Management System (IMS) IMS or Enterprise Resource Planning (ERP) will far outweigh the cost of human error and a poor customer experience for your brand.” – Steven Krueger, CEO & Founder at Jibe

How can retailers utilize data to manage inventory efficiently?

“One of the most exciting aspects for me is when we use real-time data to improve the accuracy of inventory management. We’re currently working with one of our clients on real-time tracking of container ships across the world to improve the accuracy of the PO delivery dates. We’ll be able to aggregate data from carriers, freight forwarders, 3PLs and Brightpearl to build any live ETA changes and real-time container arrivals into the process chain. This is a very exciting trend within retailer system architecture.” – Anthony Herve, Managing Director and Founder of b.solutions

“First, I would recommend looking at aggregated data, and by that, I mean data broken down by category, brand or vendor. That will be a good way to get some level of detail, but not too much granularity that you can’t see the overall trends. By looking at a report by category, for example, I can see which ones are driving profitability and which ones might be trending upwards or downwards.

From there, I can pick out good and bad trends and drill into them more specificity. Then, I would triage what is really driving profitability. If you’re looking at what inventory to spend on, really hone in on what is driving your profitability. Typically we have limited cash flow, so we’re thinking about what’s the best investment, and if you use the 80-20 rule, you can focus your cash on those things that are generating money you can spend elsewhere in your business.” – Jill Liliedahl, Vice President of Revenue and Inventory Planner

What are your top tips for managing inventory during peak seasons or unexpected spikes?

“The real damage here for a brand is selling out, causing goods to be listed as ‘out-of-stock.’ This can cause a retailer to lose favor on reseller sites. Retailers can reduce this issue significantly by selling ‘future stock’.

Using pre-order functionality, a merchant can sell stock they have ordered from their suppliers ahead of its arrival on multiple sites and channels, mitigating any damage to sales from unexpected spikes. It’s functionality we have in place for many of our clients with incredible results.” – Anthony Herve, Managing Director and Founder of b.solutions

“As we’ve seen over 2020 and 2021, with massive disruption in supply chain issues and extreme surges in demand, it’s important to manage a healthy level of safety stock while keeping close tabs on lead times for stock or material replenishment. Brands that managed healthy cash levels throughout 2020 were able to secure early dibs on raw materials and inventory, resulting in greater overstock leading into 2021. While the competition couldn’t meet demand, these same brands were able to win the sale.” – Steven Krueger, CEO & Founder at Jibe

What do you see as the most common challenge retailers face when it comes to managing their inventory? What advice do you have for solving that challenge?

“Retailers are faced with high demand and an urgent need for their incoming inventory to meet that demand. This can be solved by exchanging proper EDI documents with real-time inventory updates. Core EDI documents, including the Purchase Order/EDI 850 and Invoice/EDI 810, are common. Don’t forget about getting the vendors’ Inventory Advice/EDI 846 (showing what they have available now and in the future), the PO Acknowledgement/EDI 855 (can they ship on time and in full or is a PO change needed?), and the ASN/EDI 856 (GS1 shipment label to help in receiving and to help inform on arrival times). These are key to understanding what is coming and can provide the retailer with valuable insights much earlier in the process to help avoid disruption.” – Nate Offerdahl, Sr. Customer Strategist at SPS Commerce

“The most common challenge is keeping your inventory fresh. Inventory ages quickly, so it’s important to closely monitor your inventory’s age as having too much old inventory directly impacts conversion. Adopt a CAYG (Clear As You Go) strategy and review slow-performing products every two weeks and start discounting them by 20-30% to increase sell-through. Increase this discount by 10-20% every week until the products sell out. This strategy will release cash flow for new products and increase profit because you’re not waiting until it’s too old to start discounting” – Charlotte Mackenzie, Merchandise Buying & Planning Consultant at Style Arcade

Good inventory management is the foundation of your business

As you scale your business, and add more products and channels, inventory management software becomes more complex and it’s difficult to keep track of inventory and other factors. This is why automation is so important. With the right processes in place, you’ll be able to automate repetitive inventory counts and warehouse management tasks, so that you know what stock is where. Your system should also be able to manage the reordering process and updates to all of your accounting data to cover what has been sold and what you may owe to suppliers.

Find out more about how Brightpearl takes the frustration out of inventory management here.