Ongoing inflation and tangled supply chains mean you need to rethink your inventory strategy

Keeping shelves stocked has been anything but a simple task for retail businesses over the past couple of years.

Ongoing supply chain issues and shifting customer preferences due to the pandemic have forced many businesses to completely rethink how they stock their shelves to deal with supply shortages, changing demand and continued inflation – here are the strategies that seem to be working.

Think short term

When the pandemic started, an Austin-based cleaning products company Branch Basics saw demand skyrocket overnight. Soon, CEO Tim Murphy made the decision to hire an experienced demand planner, who is still with the company. “Once a month we do a supply chain and demand analysis, and make our best estimates of what we need to order, given that delivery times have gone crazy,” he says. With a supply chain expert on board, Murphy says the company was able to better predict potential issues, which could stem from small details; if trigger sprayers are rare, for example, it’s not just a product that will be affected, but a complete kit that Branch Basics sells as a set. By thinking about both the big picture and the little details, Branch Basics has managed to keep its entire product line in stock.

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Instead of being a demand expert, some companies might consider taking a more technological approach, suggests Padhu Raman, chief product officer of the Sandy Springs, Georgia-based warehouse management systems company. Green. Basically, it’s a unified platform that allows businesses to see and manage both their supply chain and their e-commerce transactions. The platform uses artificial intelligence to analyze this data in real time, allowing users to better predict fluctuations in demand and potential supply chain disruptions, helping businesses avoid decisions that could lead to over- or under-stocking of their stocks. “Supply chain visibility, even though a platform like ours, is key to making more proactive rather than reactive decisions,” he says.

Verte, founded in 2017, isn’t the only company designed to improve supply chain visibility. Atlanta-based Stord (#42 on the 2021 Inc. 5000) uses cloud technology to give companies end-to-end supply chain visibility that can help them manage execution in times of volatility, and a software company based in Orem, Utah Fishbowl is a cloud-based inventory management software that allows users to automatically re-order products when they reach a set threshold.

Serve the most profitable customers first

Many businesses cannot produce enough to meet demand, says Patrick Lowe, vice president of business management at the Allen, Texas-based e-commerce service provider. PSF. And until they can figure that out, they need to figure out how and where they sell their products. Increasingly, he says, that means prioritizing inventory from direct-to-consumer avenues over outside retailers. “Ideally, your direct-to-consumer business is the most profitable,” he says.

But there are benefits to offering both DTC and retail purchase options, says Michael Mayer, founder and CEO of the New York-based air conditioner brand. windmill. The brand, incorporated in 2018 and launched in the summer of 2020, sold out its initial batch of inventory 48 hours after launch and racked up a waiting list of 10,000 people. As the Chinese Windmill factory was closed for three months at the start of the pandemic, the company was unable to produce the number of air conditioners it had planned. Then there was the issue of funding more inventory, which led Mayer to abandon his direct-to-consumer-only orientation.

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“We were like, ‘Well, we have to get loans. And we can only get loans if we have purchase orders for retailers,” he says. A period of cold pitching on LinkedIn led to retail partnerships with Home Depot and PC Richard & Son in time to produce sample CAs for the 2021 peak season. Sales today are split between the website of Windmill and its retail partners, says Mayer.

Refuel smartly

It’s tempting to stockpile as much inventory as possible, especially as supply chains remain unpredictable and prices rise due to inflation. But companies need to be careful not to over-order, says Mark A. Cohen, professor of retail studies at Columbia Business School. “You bear the burden of the cost of committing to these assets, you consume money, and then you have to be responsible for maintaining and feeding these assets before they are sold,” says -he. “The costs of logistics, warehousing, layup are not negligible.” It’s wiser to run a little behind on business, he says, than to end up with a ton of excess inventory — a problem that big retailers, like Walmart and Kohls, who reported high levels of unsoldcurrently needs to tackle.

But for companies that have historically sold their products, increasing inventory can be a good idea, if done correctly. Xero Shoes, a Broomfield, Colorado-based company that recently made the Inc. 5000 Regionals list, has often seen more demand than it can meet, says President and Co-Founder Lena Phoenix. “As a start-up company, we’ve always invested everything we could into inventory for next season – the goal for us has always been to find more capital,” she says. When Covid-19 started, Xero had considerable inventory, which put it in a good position against its competitors, thanks in part to a lucky order schedule, notes Phoenix. But after taking a private equity investment in late 2020, the company was able to adopt a more aggressive buying strategy.

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But Xero didn’t just buy more – it bought smarter, introducing an enterprise resource planning system that allowed the team to better analyze customer responses and predict what they might want next. This was an upgrade to the spreadsheets that the command service previously used. “By getting better data, we’re able to do things like fix errors in the size curve,” says Phoenix. “Many shoe companies don’t make shoes above size 12, so we have quite a few consumers who wear sizes 13, 14, and 15. Every time we launched a new size, we immediately ran out- -and now we don’t run the risk of overcorrecting.”

Develop a storage strategy

Some companies face a post-production problem: they have enough inventory, but they don’t have a place to store it due to a continuous shortage of warehouse space. In these cases, adds Lowe, they might consider diversifying their execution strategy. “We’re trying to expand our physical distribution presence so we can go to the brands and say, I can’t give you 100,000 square feet. [of warehouse space] in Memphis, Tennessee, but I can give you 60,000 in Memphis and 40,000 in Las Vegas – so let us open up a dual-node fulfillment solution for you.”

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