A Turn for the Better

Inventory ranks right behind real estate as retailers' largest asset, but it also is among their greatest sources of challenge. On the one hand, merchants must keep goods moving out the door to reduce wastage and markdowns. On the other, they need to ensure high levels of customer satisfaction - and boost sales - by having the right quantities of the right products available at the right time.

Performing this balancing act has traditionally entailed relying on simple forecasting, planning or allocation systems to improve inventory turns. However, such tools have not been entirely effective. Maximizing inventory turns has come to mean combining a variety of sophisticated technologies whose reach extends from the warehouse to stores, or implementing a potent mix of planning and allocation tools. In either case, deployment occurs via one of two approaches: bolting merchandise planning, allocation, replenishment and supply chain solutions onto ERP systems or integrating modules from a single vendor into ERP configurations.

No matter what, the results can be impressive. "With the right blend of technology, it isn't unusual to see inventory turns increase several times over and for margins to trend upward without bringing in additional merchandise," observes Alan Barnett, president of A. Barnett Consulting, a Stamford, Connecticut-based retail consulting firm. Barnett formerly served as CIO and senior vice president, merchandise planning for apparel merchant Barney's New York.

Crossing the Channel

Solutions that reflect inventory availability in the warehouse as well as chain-wide bolster turns by eliminating the need to order additional product to satisfy customer demand. Jerome's Furniture Warehouse, a five-unit furniture chain based in San Diego, California, ranks among retailers benefiting from such technology. The company has increased inventory turns and reduced stock levels by 10 percent to 15 percent through the use of Escalate Retail's Warehouse Management, Retail Merchandising, Inventory, POS and Financials software modules, notes Lee Goodman, COO.

"With our old system, inventory was hand-allocated to orders, but we never knew how much we had in safety stock, so we often would re-buy when it wasn't necessary," Goodman explains.

The new technology permits Jerome's to obtain real-time store and warehouse inventory information from any POS station, making allocation quicker and more accurate. The faster merchandise turn, coupled with stock level reductions, has contributed to an annual savings of about $1 million.

Sophisticated forecasting engines offer similar benefits if used on the warehouse and store sides alike. "Having too much inventory and slow turns in the warehouse has as negative an impact on the bottom line as excessive stock in stores, so a more (comprehensive) suite of tools is essential," asserts Axel Hopp, head of corporate information management for Metro AG, Dusseldorf, Germany. The company operates more than 2,100 stores.

Metro AG utilizes SAF AG's SuperStore and SuperWarehouse in its Metro Cash & Carry stores in Germany. Via microforecasting tools, the former reviews individual item histories for each day at every store, creating forecasts that take into account factors like promotions, price changes and advertising campaigns. An integrated reporting system alerts store managers to the presence of excess inventory, as well as to unusual sales slumps and imminent out of stocks, so that these may be addressed proactively.

The Power of Planning

A marriage of planning and allocation tools impacts inventory turns by ensuring that the right merchandise is available in stores at the correct time. "Planning and allocation must work hand-in-hand; even if we buy the right items, without technology we can't be entirely sure we're allocating properly, and vice versa," says Steven Richards, CIO of Los Angeles, California-based Eurostar, which has about 50 athletic shoe stores operating under the Warehouse Shoe Sale name.

Richards credits Escalate Retail's PLANalyst merchandise solution and optional allocation module with allowing the company to "buy and allocate smarter." Purchasing has become 25 percent to 30 percent more accurate than in the past, enabling inventory to turn 15 percent to 20 percent faster than before.

The PLANalyst component analyzes historical sales information at the SKU level, then automatically transforms data to predict future requirements.