BrainTrust Query: What does it imply for manufacturers when retailers initiate programs to reduce their store-level inventory?
By Bill Bishop, President, Willard Bishop
Wal-Mart's "Inventory Deload" and "Remix" initiatives are by far the most high-profile examples of what we expect will be the focus of a growing number of successful retailers, i.e., decreasing inventory investment.
For those not familiar, the two Wal-Mart programs address inventory efficiencies from different vantage points:
- Deload is a broad-based effort to reduce inventory levels at both distribution center and store.
- Project Remix focuses on the sales velocity of individual SKUs, with dual goals: a) rationalizing assortment, and; b) reducing distribution costs and improving service levels.
The initiatives have heightened awareness of the ongoing tension between manufacturers and retailers regarding the amount of inventory that a retailer keeps on hand for each
SKU.
- Retailers typically use a measure like days of supply to control store-level inventory but are frustrated when case pack quantities require that they keep 30-to-40 days of supply when the store gets three-to-five deliveries a week.
- Manufacturers are concerned about sales lost because of out-of-stocks, and while this is caused by a lot more than inadequate inventory on hand, they have a legitimate concern when planograms don't provide for adequate inventory on the shelf.
This issue is particularly timely as online retailers begin to explore their advantage in selling slower-moving products that are part of "The Long Tail," a concept developed by Chris Anderson (see his book of the same name).
Discussion Question: What are the implications for manufacturers if/when retailers focus on reducing their investment in inventory, and what are some outside-the-box responses?
Further, while these inventory reduction initiatives make sense from the retailer's operational/financial perspective, how will they affect the shopping
experience? Specifically, what will the impact be on the:
- Perceived variety offered?
- Level of out-of-stocks experienced?