How Retailers Can Overcome the $1.7 Trillion Inventory Distortion Problem
Inventory distortion is a critical problem for retailers and, if left unaddressed, it will only worsen. The term refers to the total business costs resulting from both overstocking and stockouts. Just last year, the cost of inventory distortion in retail amounted to $1.7 trillion worldwide.
Inventory distortion can significantly impact retailers’ profitability. Excess inventory leads to added costs resulting from markdowns and disposal of unsold and expired goods, all of which decrease profit margins. On the other hand, low inventory causes retailers to lose sales, damage brand reputation, and harm customer loyalty and relationships. Annually, out-of-stock items cost U.S. retailers $82 billion in lost sales.
Main Causes of Inventory Distortion
Several factors contribute to this issue, but overall, retailers are overlooking the importance of improving their processes for capturing and digitizing information across the supply chain. Not only do some frontline workers still use manual methods of data collection for inventory, but they're also forced to use outdated, clunky devices. These often fail to provide real-time, actionable insights, while data remains siloed in separate systems, preventing a unified view. As a result, retailers’ inventory data is inaccurate, incomplete or outdated, hindering key business decisions such as stock forecasting and ordering.
Ways Retailers Can Overcome the Issue
To eliminate human error and minimize inaccuracy, retailers must turn to innovation. For example, smart data capture or computer vision technologies such as text recognition, object recognition, and advanced barcode scanning give associates the ability to capture data intelligently from multiple sources. When smart devices are equipped with smart data capture capabilities, they become powerful tools for automating tedious, time-consuming tasks like receiving, counting, and fulfillment. These three operational workflows also happen to be the ones that can make or break inventory visibility:
- Receiving: Many inaccuracies occur when items are received, as floods come through the door each day. Leaning on automation and innovations such as batch scanning instead of having store associates count each item individually can significantly reduce time, energy and human error. Additionally, using smart data capture and augmented reality overlays can help pinpoint unexpected items and enable quick, easy handling.
- Cycle Counting: This is an essential workflow to reconcile inventory. Yet if done manually or rarely, retailers also fall prey to time wastage and inaccuracy. By automating this process, retailers can perform checks more frequently, address distortions promptly, and reorder as needed.
- Omnichannel Fulfillment: Inventory distortion is also a costly problem for the e-commerce industry, which accounts for nearly 20 percent of total retail sales worldwide. An accurate view of inventory is crucial to successfully fulfill online orders with in-store stock and avoid canceling orders due to insufficient inventory. The same applies to more robust omnichannel operations that make use of endless aisle strategies.
These workflows pose an even bigger revenue leakage threat to grocers, which have to deal with thousands of SKUs on average and are facing the tightest margins in retail. For grocers, shelf management is the other side of the equation. Once again, technological innovation can lend a helping hand: shelf monitoring and intelligence solutions alleviate gap scanning tasks by automating shelf capture using smart devices, fixed cameras, or even robots, generating accurate and real-time shelf visibility. They enable store associates to identify items that are out-of-stock or misplaced, helping retailers optimize on-shelf availability, lock in sales, and drive up revenue by up to 2.5 percent.
Combatting Inventory Distortion With Automation
To tackle the widespread inventory distortion issue, retailers must first gain real-time visibility into their inventory. Innovations like smart data capture can not only do just that but also free up associates’ time. Once equipped with an accurate inventory picture, retailers can better forecast demand, minimizing the chance of stockouts and overstocking, reducing lost sales and, ultimately, leading to happier customers.
Jessica Grisolia is the industry solutions director at Scandit, a smart data capture solution.
Jessica is the industry solutions director at Scandit responsible for the retail go to market strategy globally. Working with some of the world’s biggest retailers, Jessica explores trends and technologies that bring new ways for employees and customers to interact with the store and take advantage of omnichannel services through digital transformation and automation. Prior to Scandit, Jessica was in product management at Avery Dennison Graphics Solutions in Amsterdam where she focused on portfolio management, innovation of self-adhesive media, and change management.
