Collaboration is the Secret to Getting a Grip on Inventory Woes

Whipsawed by supply chain volatility and the massive overordering that resulted when retailers placed bigger bets on stock, the retail ecosystem has absorbed some harsh inventory blows over the past two years. Heading into the 2022 holiday season, an estimated $66 billion in unwanted surplus inventory sat on retailers’ shelves.

But there’s hope. As retailers scramble to figure out the holding costs of all that excess inventory and what they can do from a pricing, packaging and promotion standpoint going forward, better and smarter collaboration between retailers, packaged goods companies and their suppliers can help all sides get ahead of choppy waters in the coming year. Cooperative planning and joint forecasting will increasingly be key assortment and inventory planning tools that span the whole ecosystem as the industry works to meet the changing needs of consumers in a softer economy.

How? As retailers become more selective about what they buy, CPG companies will become more selective about what they produce, which will lead them to seek ways to enlist their own suppliers in their efforts to fine-tune their mix of goods. This trend is still emerging, but look for a big shift to occur when markdowns and other inventory issues prompt retailers to flex their muscle to say they're either not buying something or are returning goods.

Following are three lessons companies across the retail ecosystem should be heeding as they work toward a future where they can tackle inventory planning with confidence:

Lesson No. 1: You can’t rely on historical data alone to predict future demand.

The inventory bullwhip reminded us of that. For 2023, we expect to see retailers focusing on becoming much more sophisticated and adept at avoiding dead stock, delayed shipments, and cancellations. Key to that is their ability to predict what inventory they need to reach their end goal. They will become focused on allocating products accurately — and on predicting earlier which items they should phase out. In a tough segment with short product lifecycles, for example, Carter's has embraced that mindset using the Anaplan platform to get a connected view into cost and assortment planning, which has helped the company trim excess and obsolete inventory from its supply chain. Citing its history of weathering market disruptions and emerging stronger, Carter’s is focused on mitigation through inventory management and improved pricing and expense control.

Lesson No. 2: Consumer buying patterns are shifting.

On the spectrum of low-end to high-end goods, products that fall in the middle will be increasingly squeezed in a softer economy with inflationary pressure. As consumers make decisions about daily, weekly and monthly spending, they’re likely to reserve their buying power for "splurgy" items both large and small — from their daily coffee habit to a trendy pair of shoes or handbag. In this environment, optimal product assortment is critical. Retailers will have to get very smart about the intersection of consumer shopping behaviors and what they offer them. Manufacturers will have to do the same when making decisions about what they're going to produce. Producers of low-margin grocery goods, for example, are hypersensitive to inflation and often sandwiched between their suppliers and the retailers they sell to. For them, every cent counts. Using a connected planning tool can give them real-time insights that enable them to share the impact of price fluctuations with their partners.

Lesson No. 3: Real-time insights and information-sharing help the entire ecosystem.

To truly get a better grip on inventory issues based on the learnings from the first two lessons above, an agile, connected merchandising strategy and the ability to execute are more critical than ever. Consumer goods makers and retailers also must work smarter together to decide on the right assortment of finished goods. Through Anaplan’s partnership with Google, for instance, consumer products companies can share their forecasts with procurement vendors. Doing so enables them to take the guesswork out of whether vendors will have the right materials or ingredients on hand to fulfill orders.

Companies within the retail industry have made strides in inventory planning inside their own four walls. The next step is creating a more holistic planning strategy.

Bob Debicki is the senior director of global CPG and retail industry solutions, Anaplan, a cloud-native, enterprise SaaS company, transforming how enterprises across industries see, plan and drive business performance.