Inventory Management: 10 Steps to a Better Holiday Season

It's no secret that up to 40 percent of most merchants' annual sales occur in the critical fourth quarter holiday period, according to industry estimates — most in the six weeks prior to Christmas. With this, seasonal customer demand is an opportunity to increase sales, reduce back orders and cut down end-of-year overstocks with well-managed forecasting and inventory planning.

The challenge is to deliver the right inventory at the right time during the most time-constrained period of the year. Higher sales volumes require more purchase orders to place, more inbound freight to monitor, more back orders to address, more questions to field from distribution centers and typically more SKUs than other times of the year to forecast and manage.

The pressure is especially intense this holiday season, when companies must deliver enough sales to compensate for their lackluster year-to-date results due to the economic downturn.

Proven seasonal management techniques can improve fourth quarter results and increase staff efficiency during your most critical period. Although the quarter's upon us, there's ample time to exercise these 10 timely tips:

1. Prepare an inventory budget, and review it weekly. Know your cash limitations related to placing purchase orders, and live within those limits. If you have surprise hot sellers that you need to reorder, this budget review helps determine whether you have cash available to place the orders or if you need to free up cash by adjusting other orders.

2. Adhere to an inventory management calendar. Know key marketing dates to anticipate when you'll have better demand-forecasting information. Every day between now and Christmas is an opportunity to forecast, place reorders and adjust existing purchase orders. Use this tool as a road map to each date you must reforecast, to follow with the dates to review your inventory ownership against the new forecasts, and to improve the timing and quantity of purchase orders.

3. Publish a web marketing promotions calendar. Identify all high-impact web events, when they occur and the planned feature products. Ensure inventory is available to support each promotion by doing the following: As control buyer, you and your web marketer should agree on what products will be featured, when they'll be featured and the expected impact on sales.

An effective alternative approach is to identify a limited list of high-potential items. Also, order budgeted excess inventory of each, and provide it to the web marketer to feature at his or her discretion.

4. Clean up vendor and product information. Review and update all your vendor lead times and product costs. Your reorder cycle depends on accurate lead time information. Incorrect product costs can equal lost days you can't afford. Review your data now so you don't lose days later.

5. Qualify your credit with vendors. Ensure that all new vendors are credit-qualified with your accounting department. Don't lose time in the buying process waiting for credit approval.

6. Establish a weekly inbound purchase order tracking process. Domestic vendors sometimes misplace purchase orders. Without tracking, you may not be aware until the order doesn't arrive. This can snowball into six weeks of lost time on a domestic order, resulting in many back orders.

Import tracking is even more critical as these purchase orders tend to be larger and the customer implications of late delivery are greater. The visibility you have with tracking also gives you control over expediting partial quantities when needed.

7. Forecast demand for drop-ship SKUs. It's easy to assume your suppliers have inventory on hand. But they share your inventory challenges during the holidays. If they run out, your customers are still disappointed and you still lose the sales. Help your suppliers stay in stock by providing them with routine forecasts of your expected future sales.

8. Provide forecasts of weekly SKU demand to your distribution center. Share your best estimates of weekly SKU demand to assist your fulfillment center colleagues with bin profiling. Knowing sales volume and timing by SKU is key to their ability to adjust bin size and location at the appropriate times.

9. Identify all products that require special handling. Provide your distribution center with advance notice of products requiring inspection, repackaging and/or kit assembly. Build the handling time into your lead times. If your distribution center requires two weeks to assemble kits, make sure the component inventory arrives two weeks before you need the inventory. Understand when your distribution center is staffed for special handling projects.

10. Keep purchase order dates accurate in your enterprise resource planning system. Provide accurate weekly reporting of incoming back orders so there are no surprises to the distribution center or customers regarding back orders. Try scheduling 30-minute weekly meetings with operations and control buyers to discuss critical incoming orders.

Make these 10 tips part of your annual business practices to manage the season more efficiently and deliver better sales, profits and inventory metrics. Once they're established, you'll have a baseline from which to build year-after-year improvements.

Ray Goodman is senior vice president of multichannel systems provider Direct Tech (rgoodman@direct-tech.com). Joe Palzkill of Direct Tech also contributed to this article.