Despite valiant efforts by retailers to build and execute bulletproof pre-season merchandise plans, the market is variable and volatile and consumers are fickle. Exception management, supported by a variety of business intelligence tools and reporting mechanisms, enables retailers to better navigate and react to variances in the plan. Although not a new concept, it is becoming highly sophisticated as retailers gain greater access to modern planning technologies and ever-more granular information about their customers’ lifestyles, buying behaviors and product preferences at the location level.
Below are six strategies retailers can leverage in-season to address exceptions in the plan, and thus avoid the costly pitfalls associated with having too much or too little stock on hand:
- Holding inventory back: Retailers can circumvent variances in the plan by holding back a percentage of inventory in the DC while pushing the rest out to their stores and online channels. As the season progresses and actual data paints a picture of where sales are strongest or weakest, retailers can leverage allocation to optimize the distribution of remaining inventory, addressing stock-out and overstock issues as they arise.
- Prepack optimization: For fashion retailers, store-level forecasts have an important role to play when optimizing prepack purchases. Of equal importance is determining the correct balance of prepacked and “loose” units in each planned receipt. Combining loose items with prepacks gives retailers greater flexibility to fill in missing sizes, colors, etc. as needed – especially as the season progresses and actual sales data becomes available.
- Regular replenishment maintenance: In scenarios where stock outages are likely or even unavoidable, retailers can limit replenishment to protect stores with the greatest selling potential using weekly monitoring to optimally manage inventory position. In general, establishing a rotating cadence to replenishment reviews works best. Whether to stagger replenishment review by product areas, store clusters or more flexible attribute-driven groups depends on organizational structure and the nature of the business.
- Store-to-store transfers: While incurring shipping costs multiple times through the life of an item is not ideal, store-to-store transfers can be a very effective means of rebalancing inventory to meet shifting trends for items with sufficient profit margin. The key to this approach is balancing the proximity of the stores with need, weighing the risk of incurring additional freight costs against the potential to sell more product at the highest possible price.
- Product footprint: If sales for a specific product are not meeting expectations at the stores it was originally allocated to, retailers should consider expanding the item’s footprint into locations that initially seemed to have less selling potential. To do this effectively, even the most thorough review of sales data may not be enough: Customer feedback, social media feeds and store managers who interact directly with shoppers are all good resources to help retailers determine where inventory will be best-positioned to maximize sales and profits.
- Leverage vendor push/pull tactics: Retailers that realize a particular item is not selling fast enough may be able to partner with vendors to hold subsequent deliveries at their facilities or even cancel them, versus shipping as originally planned. Conversely, if demand for a particular item is higher than anticipated, retailers that identify this issue early on may want to consider changing the method of shipment to speed up delivery, or request an earlier ship date for orders already in progress. Often, vendors pad the amount of time they need to complete an order to account for potential issues, making it possible to finish production sooner than originally planned.
The strategies above work best when retailers make exception management a critical aspect of their end-to-end planning and execution process. Understanding why an item is selling above or below expectation enables them to make faster, more informed decisions about changing course mid-season. Technology is the underpinning to an advanced workflow that alerts retailers as soon as possible to exceptions in their merchandise plan. The more advanced the technology is, the more agility it offers to help retailers make sound, data-based exception management decisions throughout the season.
Nick Bourland is a Product Manager at JustEnough Software, a leading worldwide provider of omni-channel retail planning solutions.