Inventory Management

The sharp increase in November and December sales makes inventory planning and scheduling an extreme challenge for cross-channel retailers. The combination of increased sales, long vendor lead times, inherent forecasting challenges and limited cash availability create a “perfect storm” of inventory management opportunities.

Just as recession battered consumers are trickling back to malls, clothes makers in the U.S. face a tough choice. Squeezed by ballooning raw material, labor and freight costs, manufacturers are fretting they might have to raise prices in fragile markets to maintain margins.

Import cargo volume at the nation’s major retail container ports is expected to total 14.5 million containers for 2010, a 15 percent increase over last year’s unusually low numbers as the economy continues its cautious recovery, according to the monthly Global Port Tracker report released today by the National Retail Federation and Hackett Associates.

From an inventory management perspective, the fourth quarter holiday season creates a perfect storm of challenges: extremely high demand, a short selling season coupled with long vendor lead times, limited cash available to support increased inventory requirements, a bloated freight system, and inventory handling dependent upon over-stretched distribution center staff.

Fighting for freight, retailers are outbidding each other to score scarce cargo space on ships, paying two to three times last year’s freight rates — in some cases, the highest rates in five years. And still, many are getting merchandise weeks late.

Tension is rising in the apparel industry, as retailers push garment makers for faster turnaround on smaller orders ahead of the key Christmas holiday season. The old model — where retailers placed orders six months to nine months in advance and suppliers ramped up factories to produce high volumes cheaply — has been thrown out the window after a recession that left stores swamped with unsold clothes and idled factories.

Clothing maker Perry Ellis International sees a 10 percent rise in industrywide apparel prices over the next two years amid rising commodity prices and higher labor costs in China. "Prices have to go up at some point. The American consumer will have to pay higher prices... It's only apparel and electronics, the items that keep coming down, everything else in life has come up," Chief Executive George Feldenkreis told the Reuters Consumer and Retail Summit in New York.

In 2002, we were in financial trouble. Our company - Annalee Dolls, Inc. (ADI), a manufacturer of collectible dolls based in Meredith, N.H. - had three active and independently operating channels of distribution: independent stores, department stores and direct to consumer (catalog, store and website). However, we needed to do something to get ourselves back on track. Examining our options, in 2005 we decided to add the off-price channel to our mix. The channel would expand our 70-year-old brand to a much broader marketplace while offering the chance to manage our inventory more efficiently.

With a most challenging holiday shopping season looming, one of the trickiest tightropes this year will be inventory planning and management. That's an ongoing catch-22 in good times or bad. But this year will be more challenging than most in recent memory. How much inventory will be enough? How much will be too much, leading to potential overstocks? How tight can you get without frustrating online or catalog shoppers 
with back orders, or store shoppers due to slim pickings on the racks?

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.