Partner guest blog by Inventory Planner by Sage
From rising operational and marketing costs to unpredictable consumer demand (made worse by the cost-of-living crisis), there’s economic volatility at every turn for retail merchants right now.
It means, more than ever, cash is king.
Yet even for the most established and successful brands, cash flow is being hampered by poorly planned inventory.
Inventory and cash flow go hand-in-hand: overstock means your cash is tied up when it could be used for better things, stockouts mean missing out on sales.
Research has shown the excess stock counts for a mammoth $48,000 for the average US merchant, and a whopping £66,000 for UK retailers.
In 2022, half (52%) of US brands and 46% of brands in the UK experienced stockouts resulting in a significant loss of sales.
As Danielle Malconian, CEO of US plus-size fashion brand Vikki Vi, told us: “Cash flow is everything. If dollars are caught up in inventory that you’re not able to sell, you can either go out and find more money somehow – or you’re in a situation where you have to discount to survive. But the more you discount, the more customers expect discounts. They aren’t going to buy at full price when you’ve previously given them 40% off.”
It’s clear that to succeed in the current volatile market, avoiding overstock and stockouts is essential.
Here are six ways to do it…
1. Reveal your true excess stock
You may have a vague notion of how much overhang is in your inventory, but before you can tackle the problem, you need to reveal exactly how much excess stock you’re holding onto. Inventory Planner tells you the retail and cost value of overstocked units so you’ll know exactly where your inventory-slimming efforts should be focused – this is especially helpful if you have a general sense that there’s too much cash tied up in your inventory, but you don’t know exactly how bad the issue is.
2. Get specific with forecasting
Accurate, reliable demand forecasting is a game-changer for e-commerce retailers, and the more specific and custom you can go with it, the more beneficial it will be to your bottom line. Inventory Planner offers forecasts and buying recommendations based on the multiple variants of each item (including size and color) so you can be super specific with your purchasing, only buying what you can quickly sell.
3. Introduce flexible stock cover
It’s important to be flexible with your stock cover days and lead times, especially when supply is tricky as it has been in recent years. Merchants often end up going out-of-stock when stock cover days aren’t increased in tandem with increasing lead times. Inventory Planner makes it easy to adjust this, offering customizable, time-based replenishment recommendations – so you can order to cover a certain and specific amount of time.
4. Connectivity is key
Integrated systems result in powerful accuracy and always up-to-date insights – so invest in technology to have your inventory planning process connected to other information-based apps. Inventory Planner integrates with a huge range of leading tools and platforms, such as Google Analytics; which can help merchants work out why excess stock is happening (if an item is getting traffic but not conversions, a merchant may need to change the price, images or description, for example).
5. Stop buying ‘safety stock’
When your forecasting method is super reliable and data-backed, keeping safety stock (an excess of items stored in the warehouse for unexpected peaks in demand) becomes a false economy. Inventory Planner’s forecasting function eliminates the need for this old-fashioned tactic by offering time-based planning along with built-in buffers for supply chain issues. So rather than ordering a set number of units as ‘safety stock’, you can send a customized order for 21 or 30 or 45 days at a time so that the perfect amount of stock is always en route.
6. Detect overstock before it happens
If gone unmonitored, unsold items can grow in number with each new purchase order, and before long, become an overstock problem. To tackle this, Inventory Planner flags up items that will be overstocked at the end of your planning period.
For example, if you have a five day lead time and want to order for 10 days at a time, then Inventory Planner’s overstock feature will look ahead at your forecasted demand, current stock levels and any units on an open purchase order to predict what the stock level will be on the 16th day. It will show you a forecast of the number of units along with the retail and cost price of the overstock, so you can adjust your ordering accordingly.
About Inventory Planner
Inventory Planner is a powerful app that reveals which inventory to order, how much to order, and the perfect moment to order it, based on an accurate calculation of how much you will sell that factors in supplier timescales, seasonality and promotions alongside historical sales data. Find out more with a bespoke demo.