Using Technology Planning to Reduce Supply Chain Challenges
Everyone in retail is aware of how the supply chain challenges have affected their stores. Not only have many store shelves been empty, online shoppers which have drop-ship options have been out of luck, too. Between November 1 and November 29, the height of the 2021 shopping season, out-of-stock messages in online stores rose by 258% according to the Adobe Digital Economy Index.
A survey from the National Federation of Independent Businesses, a small-business lobbying group, reported 39% of retail businesses said supply chain challenges severely impacted them. And a new survey of consumers says 45% of consumers don’t see shopping returning to normal because of supply chain shortages.
Although little can be done about the supply chain challenges, there are some simple ways to reduce your number of “outs” by tightening your inventory management.
Tech Tools to Tighten Your Inventory
Intelligent inventory management tools are essential today. Retail systems that link point of sale to inventory management to back-office operations are a requirement for businesses to stay on top of supply chain challenges.
Market Driven Inventory Management™ is the heart of Paladin and it automatically tailors seasonal stocking levels to meet customer demand. That means you no longer have to manually calculate or use your best guesstimate to adjust order quantities to meet seasonal demands. Paladin handles that chore using advanced analytics.
Two components of the system – Suggested Order™ and Order Analyst™ – save stores time and money when placing orders. Suggested Order™ provides reports from your sales history per supplier and suggests reorder quantities to maintain proper stocking levels. Order Analyst™ helps stores find the lowest costs for products from their EDI suppliers.
The system also has a tool called Remote Stock Check that allows stores from selected suppliers to see what items are in stock in their regional warehouses or distribution centers. This tool helps prevent out-of-stock events and saves a lot of time in placing EDI orders.
Paladin has a client in Ohio who says Order Analyst™ and Remote Stock Check saves him eight hours on every order because he can see what his regional distribution center has in stock.
Systems that offer multiple EDI connections make it easier to order from many different suppliers, which is a must considering today’s supply chain challenges.
Another tool, the PaladinNsight™ dashboard, monitors inventory and instantly shows stock outages and other problems that can lead to lost sales.
All these tools help stores make ordering and inventory control much more efficient.
Formula to Maximize Your Inventory Investment
While there are many ideas about what makes a store profitable, a single measurement just doesn’t provide enough information. However, evaluating inventory investments by gross margin return-on-investment (GMROI) considers all factors.
An item could move quickly off your shelves but be a poor investment, while another item could have a poor margin or anemic sales but still be a great investment. GMROI accounts for these factors to provide a true picture of an inventory item’s investment performance.
“One of the most devastating factors against GMROI is overstock. Overstock kills a store’s gross margin return on investment,” says Dan Nesmith, president of Paladin Data Corporation. “GMROI on overstock is zero. Stock depth should be enough to meet expected demand for two to four order cycles and nothing more.”
Purchase cost contributes directly to margin, but it’s not the most important factor in GMROI. Order cycle and minimum order quantity are critical to a healthy GMROI. The more frequently products can be ordered, the lower their warehousing costs. Higher investments due to high order minimums lower GMROI and steal dollars from other inventory investments.
“Careful evaluation of high minimum order products and consideration of alternate sources may be your ticket to increasing your GMROI and, ultimately, your bottom line,” Nesmith explains.
The concept of measuring an inventory item’s performance using GMROI and increasing a store’s bottom line through tight inventory control should be fundamental to its point-of-sale software package. At an absolute minimum it should:
Identify underperforming items that might benefit from looking at suppliers with lower order minimums.
Identify inventory items that are frequently overstocked due to high order minimums.
Technology tools such as these along with this purchasing approach will help stores lessen their supply chain challenges, make the most of their investment dollars, and increase profits.