Inventory Management

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.

In the traditional catalog arena, 
profitability analysis is pretty straightforward: Merchandising contribution margin is composed of demand, returns, net sales, cost of goods sold and advertising expense. In e-commerce, merchants have a different kind of profit analysis and planning process, due to the dynamic nature of the web.

Selecting software for order management or warehouse management systems, e-commerce solutions, or other applications is a challenging task. The process begins by documenting a set of requirements, constructing a request for proposal (RFP), identifying vendors, viewing Web demos, and conducting site visits and reference checks. But a trend is emerging to select vendors based on word-of-mouth recommendations and two-hour Web demos. The question is, is that really the right approach?

For direct merchandisers, the Internet brings opportunities for additional sales and another touchpoint to build relationships with customers. As Internet-based sales have risen to 50 percent of total sales or more for many companies, they’ve also introduced new challenges to demand forecasting and inventory management. Many traditional catalog merchants feel less in control of their inventory planning than in the past.

Instead of anticipating the doom and gloom of market conditions no one can predict, stay focused on the fundamentals to get through these tough times, and position yourself for greater profitability when up markets return. Simply put, it’s a matter of what you know, when you know it and what you do about it.