Retail Safety stocks – How important it is for brands

Retail Safety stocks – How important it is for brands

Retail Safety stocks – How important it is for brands

Overstocks and understocks are the two words retailers are grappling to have a control on. If your stock points run out of the product when there is unexpected demand, it’s a missed opportunity. On the other hand, a stock point stocked up with too much product almost always leads to mark down and profit loss – again a missed opportunity. This is how planning for inventory safety stock becomes a tipsy turvy curve for most retailers. Traditionally, retailers invariably fail to accurately anticipate fluctuation in future demand.

Given the recent pressure across industries in terms of improving performance as margins shrink and store footfall reduces – retailers are struggling to improve sell-through rates, decrease markdowns and increase profit. This becomes doubly challenging when the brand is constantly making the wrong bets in the wrong places.

The art of finding the balance in terms of ensuring that you have the right inventory on hand is extremely difficult.

In fact, it’s one of the biggest challenge retailers face today in determining the right product, at the right place at the right time.

While this concern is quite obvious to anyone in the retail industry, solving the issue is a different ball game altogether. It really boils down how a brand manages its inventory efficiently at all time.

It’s easier said than done. There have been many instances of retailers losing billions of dollars annually due to inventory management decision. Given the current competitive environment, these challenges hurt even more. On the other hand, more and more retailers are finally making adjustments necessary to improve these losses. There is an immense opportunity for retailers to improve inventory decisions across stock points – be it at the store or warehouse and completely feasible given the technology and data available. This is more so relevant for retailers who are looking to build and consolidate presence in multiple sales channels – offline or online.

So, the question is this: Do brands really need a safety stock?

Retailers know the answer is complicated. Traditionally, gut instinct and past sales were the factors considered to determine the safety stock. Moreover, as new challenges in order fulfilment emerged, retailers heavily depended on the ‘rule’ based approach of traditional order management system to make the “best” use of extra safety stock across various stock points.

The fact of the matter is this: leveraging historical sales is not always the accurate indicator of future demand.

At this point in time, there is no dearth of data that retailers can handle – which makes the task of optimization extremely overwhelming and prone to error. The situation is aggravated by the fact that all the data is siloed across outdated legacy system, coupled with unproductive rule-based analyses.

The repercussions amplify when brick and mortar retailers depend on a traditional Order management system to execute newer digital fulfilment models such as ship from store, click and collect, reserve and buy, etc. – which is critical to success given the dominance of pureplay e-tailers.

The concept of “one size fits all” doesn’t work here considering the number of SKUs and store locations retailers deal with. As a result, although the retailer might get the right amount of inventory for some items, they will fail to balance it out most of the time.

The good news?

The amount of data on hand and innovative technology available makes it possible for retailers to combat this challenge. Artificial Intelligence can play a critical role here by helping retailers overcome the unreliable insights and analysis routinely used – all while increasing speed, accuracy and revenue. It’s all about having the ‘right stock’ than having the ‘safety stock’.

This means making sure that the inventory assortment is optimal, making sure it is allocated to the right stock point, and also making sure that the right inventory is fulfilled from the best location.

As customers are becoming more and more omnichannel, with the lines between digital and physical continuing to become blur, leveraging the inventory on hand is imperative. More importantly, it’s also necessary to deliver consistency in having the right product available when a purchase moment arises.

By utilizing smart technology platform to effectively make better investments, retailers can ensure they make optimal use of inventory and confidently increase the right bets in right areas.

Looking for a platform that can help you manage your safety stocks?Learn more.

Karishma Kiran
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