See the Future, Then Stock the Future

It’s a problem as fundamental as supply and demand: When supply fails to meet demand, you have to back-order. When supply exceeds demand, you have overstock. When it all works according to plan, pinch yourself; you may be dreaming.

Or, you may be one of the smart multichannel marketers who bucks business as usual to adopt a more realistic approach to the planning and purchasing of product. An approach called “continuous inventory” yields several benefits:
• more predictable demand streams;
• more accurate inventory levels;
• special vendor pricing;
• optimized shipping; and
• improved customer experiences.

The best part about continuous inventory is the resulting benefits are compounded by the number of channels within your organization — catalog, Internet, retail, a B-to-B division or any combination of the four. On the other hand, the costs that result from not implementing continuous inventory are also increased. You wind up with greater warehouse and shipping costs while losing sales and customers.

Sloppy Planning’s Price Tag
he key to continuous inventory is knowing what you need and when you need it, then ordering ahead of time so the products are in your warehouse when the orders come in. It requires you to forecast the demand stream for each channel while accounting for their uniquenesses.

But it’s more than determining what you need. You also must know when you’ll need the product to meet forecasted demand. If your timing is off, inventory is received at the wrong time, which leads to overstocks and back orders. In fact, estimates show that 30 percent to 40 percent of back orders aren't caused by bad forecasts, but by bad timing.

This is where the strength of your vendor relationships comes into play. It also illustrates the benefits of consolidated purchasing and shipping in the multichannel environment. Consolidating your purchasing across all channels allows you to take advantage of special vendor pricing and internal efficiencies, such as generating fewer purchase orders and centralized inventory control.

Help Vendors Help You
Continuous inventory is advantageous to your vendors as well, because you commit to buying a certain amount during any given season or period. In return, vendors will often provide discounted pricing. Your vendor should also agree to ship your product throughout that period to meet your forecasted demands. This is where you really see the savings of continuous inventory in reduced warehousing costs and decreased back orders. It’s also easier for your vendor to manage inventories rather than provide all the product to you up front.

Best of all, continuous inventory allows you to compare actual demand vs. forecasted demand to keep purchases at the level necessary for optimum buy quantities and minimized shipping costs. Create “hot” lists to know what to buy and when to receive it to meet projected sales. You can also use hot lists to identify products you’ll be long or short on. Then respond accordingly by acquiring additional product to meet increased demand, creating specials and promotions that reduce anticipated excess inventory, or using alternative channels.

Best Perpetual Products
Products with short to moderate lead and reorder times, as well as those that are offered multiple times throughout the season, bene-fit most from continuous inventory. Especially staple products.

All products are candidates for the continuous inventory model, but some bring a lesser benefit. One-time buys and products with long initial lead times can be tracked using the continuous inventory method. But their benefits may not be as dramatic. Still, many products with long initial lead times offer shorter reorder times, increasing the benefit of managing them with this method.

No matter what, where or how you sell, making money boils down to how well you fulfill customer needs profitably. That means knowing what to carry, when to have it on hand and how to get it to customers at the right price.

Ray Goodman is senior vice president of Direct Tech Inc., a provider of marketing and merchandising systems for multichannel commerce companies. You can reach him at (402) 895-2100 or rgoodman@direct-tech.com.