A Year of Living Not So Profitably - Supply Chain 2020
2020 was heavily disruptive for inventory management across commerce supply chains. Often, retailers struggled with product being in the wrong place, limiting options for distribution or selling to the end consumer. Product availability grew scarce, with unpredictable gaps between shipments. Companies needed to leverage different vendor relationships and diversify their supply chain, but lacked the critical tools and processes for managing inventory to this new need. The consumer mindset changed as stores locked down and online channels grew. As a result, 2020 acted as a catalyst for change in supply chain models across many different categories of retail.
Is Inventory all that it's cracked up to be?
The hot topic in recent industry publications is a categorization of inventory as a liability rather than an asset. For retailers, inventory has been the largest single “asset” category on the balance sheet, attributed with the potential to add future value for a company. The concept of inventory as liability points to the recent risks associated with procuring inventory, only to have it reside in the wrong location to get to the consumer in a time frame equal to expectation. Can you ship from another location to get there in time? How much does that erode your profit, both in shipping expenses and additional labor costs? What’s the opportunity cost of having those dollars invested in that specific product vs. other items that turn faster or drive more profit per item? Can your cash flow model cover the cost of getting the inventory placement wrong?
Historically merchandising teams have seen inventory as a liability if it was aged or turning slowly. Increasingly, consumers see it as a frustration if it is not available. Driven by heightened anxiety during the pandemic, shopping has become 'intentional' not 'casual', inextricably bound to the expectation that product will be available for pickup or shipment immediately.
The World is moving Direct to Consumer
Along with curbside pick up and ship from store, direct from vendor drop ship is becoming a reality. According to one major vendor, Adidas, DTC is expected to represent 50% of its revenue by 2025. Retailers will need better mechanisms to tie into these fulfillment streams, accurately predicting and aggregating demand. Systems and processes will need to embrace an alternate inventory model that factors in direct to consumer 'competition' from the manufacturer. Technology and integration capabilities can facilitate retail and manufacturing capabilities to shorten lead times and get product to the consumer faster.
The Wisdom of the Crowd, Social Responsibility, and Socialization
2020 brought new heights of social experimentation and influence. Applications like Facebook, Instagram, Twitter, TikTok, and Google became 'sources of truth' for many shoppers. Influencers and personalized consumer messages haloed specific brands, and began to influence life patterns and decisions around activities and shopping habits.
Sustainability cemented as a focal word. The concepts of quality without environmental compromise, lower lifetime costs due to longer lifetime value, and reusability and recyclability became cultural truisms that resonated with the end consumer.
As customers physically begin to return to stores, they expect a different more personalized experience that makes them, for their efforts, the focus of the retail model. While retailers rethink their store footprints, inventory models, and fulfillment streams, it will be the individual personalized experience that will determine if that customer remains loyal to the brand.
Artificial intelligence (analytics combined with machine learning) that could more quickly predict the characteristics and extent of rapidly evolving changes in the demand stream (by channel or fulfillment method) became ascendant in technology, tools, and business conversation. Planning systems began to leverage alternate algorithms and forecast elements. Order management solutions brought cross channel capabilities for fulfillment, a salve to those organizations that had siloed e-commerce inventories from those reserved for bricks.
Personalization of consumer preferences for recommendations on product and discounts became prevalent on phones, mobile devices, and personal equipment, building new baseline expectations as to how a brand serves its customers.
Seriously, the Future is Ready
It’s March 2021, and we see the first signs of Spring and the quarantine’s eventual end. The barriers that kept us from our customers and each other are on borrowed time … provided that we fully understand what we need to do first:
You can do this, and we can help. Reach out to Ascent when you are ready to take a partner on your journey to better.