Taking stock – How retailers can optimise inventory availability to redefine performance in 2022

optimise inventory availability

If retailers had a more accurate view of their availability, they would be in line for a significant sales uplift during both business as usual and peak demand periods. Key to success, says Umesh Cooduvalli, VP of Sales for America at Detego, is finding time away from the almost continuous demands of operations to create a cross-functional team, equipped with tried and tested technologies.

The call to retailers to create a single view of the truth of product availability and status is an old one, but it has acquired real urgency in a market faced with so many disruptions to business as usual, many of them well known, but the sheer scale of them is worth repeating. Research by Alix Partners shows that 43% of senior retail executives say the shift towards e-commerce has had a major impact on their organisation. That dynamic has been in train for some years and to it must now be added a changing competitive landscape caused by the growth of online pure-plays, the current disruptions in the supply chain caused by both Covid and Brexit, and an ever more demanding consumer.

Most retailers have done what they can to keep trading at full tilt and give their customers exactly what they demand, which has seen much innovation but in many cases this shift has eaten into profitability. In fashion, the figures vary, but that industry must not only contend with the costs of online fulfilment, but the often devastating cost of returns; returns technology specialist Optoro put the figure of returned merchandise from the past Christmas season at $120 billion.

There is no shortage of investment in trying to ride these disruptions. In the Alix Partners research, 53% of retail organisations are investing in new technology to combat ongoing and future disruption. In terms of availability, the key technologies are those that monitor the status of products wherever they are, specifically RFID and then the tools to analyse the data generated to determine best actions on replenishment and relocation.

RFID helps retailers illuminate out-of-stocks, allowing them to optimise replenishment so inventory is on the shelf at the right time when the customer is looking to buy it, minimising lost sales opportunities.  It also instantly removes the problem of what is called phantom or ghost stock, where the stock file indicates that 10 items are in stock, but it turns out that they are not available for a variety of reasons – theft, allocation or counting errors, mislabelling or the wrong location. The size of the phantom stock problem is acknowledged but cannot be measured because it varies so dramatically from item to item. However, the impact during peak trading periods is dramatic given that retailers can rely on these periods for 50% or more of their annual profits.

And with peak periods, it is not simply about the volume of stock; most retailers do not complain about not having enough stock, it is a question of having the stock that will sell. RFID tags have a more or less infinite capacity to store data that goes way beyond location to enabling replenishment alerts, asset protection against theft, and making self-checkout easy and fast.

As a result, McKinsey is now talking about how a new era is reviving a familiar technology, where the urgent need has combined with a continued fall in the price of the labels, and innovation in data analytics, not least artificial intelligence. AI is able to process data from multiple sources, both internal and external – think sales data combined with demand data drawn from reading social media streams combined with supply chain data – to enable a much quicker response to both stock outs and demand.

The goal is a more predictive forecast that does not rely on historical demand, particular as it has become so unreliable in the current crises. Hitachi is in no doubt as to the benefits and has suggested that retailers who employ AI have seen a collective $40 billion worth of additional revenue over a three-year period. And Accenture follows in its report ‘A New Era for RFID in Retail’ by showing that 46% of companies having already implemented RFID as a reaction to the pandemic. The statistic is strengthened by findings in the same research to show that 25% were already thinking about RFID before Covid and 24% said it was under consideration.

The initial goal in implementing RFID is to acquire a more accurate view of total stock, helping reduce shelf-gaps, meeting cross-channel demand from a single stock pool, and identifying what is phantom stock and then resetting the stock file by that amount, which equals less stock but all of which is available and ideally located for sale.

Longer-term, again using AI, the goal is to take advantage of the sheer breadth and depth of data available in a world where so much transacting is digital. McKinsey provides the figures; globally, 58% of business interactions with customers are now digital, an acceleration of three years compared with the average year-on-year increase, all brought on by Covid.

With products, transactions and buying behaviour all digitized, the proximity of products to customers becomes of less importance, a phenomenon that has given rise to the stockless store that exists solely as an experience hub to show off new products, but which can be fulfilled online. Proof of the return on investment in this and other hybrid formats comes from the Harvard Business Review which found that omnichannel customers are more valuable for businesses, spending on average 4% more on every shopping occasion in-store and 10% more online than the average single-channel customer.