Wednesday, March 14, 2012

The importance of inventory management is evident as retail sales and inventory increase

US retail sales increased 1.1% in February while inventory levels increased 0.7% in January. Continued optimism for the improving US economy appears to be helping this increase. Still, retailers need to manage inventory levels effectively or run the risk of either too much or too little inventory on hand.

US retail sales increased 1.1% in February after increasing only 0.4% in January.  Sales of automobiles and parts as well as gasoline helped push retail sales to its largest gain since September 2011.
The increase in retail sales was preceded by an increase in inventories for the month of January. The growing confidence in an improving economy resulted in an inventory increase of 0.7% and a 1.1% increase among retailers. This was the biggest increase since June 2010. Automobiles and parts accounted for much of the increase, climbing 2.6%. Excluding the automotive sector, retail inventories were up 0.4%. At the current sales pace, businesses have enough goods on hand to last 1.27 months, the same as in December. The last time the ratio was lower was in March 2011.

According to the “State of the Retail Supply Chain” by Auburn University, Retail Industry Leaders Association (RILA) and sponsored by Accenture, balancing inventory and demand has long been a perennial challenge for retailers. The increase in ecommerce has added an additional challenge to inventory management as many retailers seek to integrate inventory management of both physical stores and ecommerce operations. A survey conducted by Aberdeen Group indicated that half of respondents did not have access to real-time inventory order data which made these retailers vulnerable to shifts in demands. In fact, this was evident during the holiday season when Best Buy told customers it was unable to fill some orders due to running out of some products.
For other retailers such as Staples and Walmart the integration of inventory management systems of ecommerce and physical stores has appeared to be successful. Real-time inventory of items is indicated on Staples’ website for consumers to view. Walmart’s Pick up Today service allows consumers to buy online at and pick up orders at a nearby store in about 4 hours.

“The State of the Retail Supply Chain” also notes the growing use of business analytics tools to analyze and forecast such supply chain headaches as demand, order management as well as inventory optimization. Expect increasing use of such tools in not only the retail industry but in other industries as well.
Not only is such IT solutions as inventory management and business analytics  important, but the need to work with supply chain partners is important in any industry including the retail industry. Retailers have made improvements in managing inventory thanks, in part, to improved collaboration among supply chain partners. According to the CFO of Stanley Black & Decker, a global provider of power tools, “Your vendors, your manufacturing locations and your customers and the forecasts that go back and forth between those different entities are in sync and quickly respond to changes in the environment and as a result, you don’t have large inventory levels or too little of inventory because they are very automated and they are in sync.”