What happens if people running the warehouse do not have enough knowledge? Everything you need to know about key challenges and roles in the inventory management of a retail store.
Retail inventory management is often imposed on different employees, from logistics specialists to back officers.
Aside from their main job which is delivery handling, logistics managers in small and medium companies are often forced to run warehouses and make orders. Quality suffers.
Inventory is the main source of revenue for retailers. If the warehouse is mismanaged, poor inventory control can badly affect this valuable asset.
Retail category managers are responsible for product line pricing, as well as negotiations with suppliers.
Let’s imagine a situation when a category manager also takes care of warehouse orders. Proactive suppliers can often tempt category managers to order more of a particular product. Suppliers can offer various discounts, compensations or benefits, both for the manager personally and for the retailer. In both cases, the company ends up having a mismatch in inventory levels, imbalanced goods turnover and lost sales.
Sometimes inventory is managed by the back office (operations team) people. Put simpler, these people work in local retail outlets, sales points, and shops. This inventory management model is often being called “decentralized warehousing”, and it has proven its very low level of effectiveness.
Let’s imagine a large retailer with 50 stores across various locations. Each store employs at least 5 people, who deal with product categories, make orders and track sales. All in all, 250 people are responsible for warehousing and inventory! All these people are different, they adhere to their strategies, they even think differently. One can be an optimist and order less, while the other always tends to store an emergency “buffer” on his warehouse shelves. This can happen even if a retailer uses an automated reorder system! Needless to say, the consequences of this mismatch are very costly.
Decentralized warehousing is a nightmare for retailers, and here is why.
Inventory management techniques within one chain may differ
I have a story to illustrate. Meet Tes, a product manager of home-care goods. Tes has a bad-work-day today. She is frustrated and not in the mood for work. She decides to reorder goods tomorrow. She hopes that the grocery will not run out goods, at least today.
In your opinion, will the grocery experience the out-of-stock situation or Tes’s behaviour will not bring unhappy customers?
As I have mentioned earlier, salesmen can directly influence your warehousing.
Let’s give a try to another sad story.
Brad is a salesman. He is a lazy salesman, an employee who is killing your business. He is not motivated, he does not see his incentive, he is not willing to stretch his performance.
“Thank you, I have got my today’s task”, says Brad to his supervisor and groans. “Again, the same task, the same routine, my work is neither controlled or praised”, complains Brad wincing at the thought of going to the office. Picking up the phone to call his clients, Brad recalls, that he has to make a reorder, so he calls the supplier. “Hi, I want to place my standard order – 5 items, as usual, and 15 those cheap items, – I have forgotten their names! Yes, thank you”.
Labor costs and salaries becoming more and more costly
Let’s have a more detailed look at the decentralized inventory management model. Imagine a retail chain with 20 stores and 20000 stock keeping units (SKUs). One must admit, it is a medium-sized business with a modest product range. If the inventory of the chain is managed locally, then we need at least 20, and 40 people as a maximum, to take care of the SKUs. The average salary of a procurement specialist is 4 000 USD per month. Let’s perform the simple calculations:
4 000 USD x 20 employees = 80 000 USD
This is the cost of procurement staffing per month.
Let’s analyze the same situation working under a centralized inventory management model. We take the same retail chain, the same SKUs. We need an instrument, an inventory management tool, to make centralized system work. And in this case we need 5 people as a maximum, who will take care not only of SKUs and inventory but also compile the analytics, manage product range, control promotions and seasonal offers. Market salary for this type of specialist is usually higher, let’s look up to 8 000 USD per month.
8 000 USD x 5 = 40 000 USD
The benefits are evident, a twofold economy. Centralized inventory saves you 40 000 USD per month, 480 000 USD per year.
Undertrained inventory staff
Frequent staff rotation usually brings multiple problems for an employer.
People come and leave, and each time you have to spend time and money on rehiring and training. Turnover is expensive. Teaching even the most basic Excel sum or percentage formula to an entry-level warehouse trainee can be tiresome. You have no chance to develop a finely tuned staff training program.
Inability to see the ‘big picture’
Local inventory managers are very often focused on their tasks, they do not see the big picture, they do not understand the company’s goals. Neither do they monitor or analyze the overall company’s performance.
All retailers can suffer from an inventory imbalance even within one chain. Overstock in location A ties money, empty shelves on location B lead to lost sales.
The decentralized model of inventory management does not allow to move the surplus within one chain, and what is even worse – nobody is aware about this problem. The company loses money, sales and profits.
Hire an inventory manager
Inventory managers who can work with the whole chain and focus on the big picture instead of local KPIs can save your business.
Dedicated inventory managers put all their time and efforts into warehousing, keeping the inventory balanced, supply chain working and goals achieved.
However, even the most experienced inventory manager can not perform well without methodology, tools and instruments. To avoid bad maths and human errors managers often rely on unverified statistics and their intuition. What are the risks?
- People make mistakes, and the likelihood of error is high.
- Trying to be on the safe side managers often decrease order frequency and order an excessive number of goods.
- Manual reordering can be very time-consuming, people simply do not have time to analyze demand and track sales.
- Managers are becoming almost irreplaceable.
- Routine manual reordering does not give a possibility to concentrate on strategic visionary tasks.
A successful company of the future starts today. Here are two practical steps: first, company owners must thoroughly analyze their current business processes, and second, compare their general and local development strategies.
High performing retail industry top-managers agree that data is a game-changer. Managing information and data, analyzing and reading it are the superpowers of business world.
Its high time for retailers to be on top of data and information management, otherwise they will face the following problems:
- lack of pain points understanding, inability to analyze and remove them;
- poor employee performance assessment;
- poor suppliers performance and reliability monitoring;
- discrepancies in sales metrics and KPIs of same-chain stores;
- inability to track real-time analytics which does not allow to react proactively and quickly take managerial decisions.
I often sadly witness that my clients’ managers do not understand the factual amount of inventory, and warehouse reporting becomes a nightmare, a lengthy and troublesome task. Reports are generated almost randomly, turning inventory management into a blindspot.
Remember, that you can’t manage what you can’t measure. Unless you measure your business, you cannot manage it.
Accurate metrics management helps you to get high-quality data and form your reorder correctly. Here are some common problems which illustrate the necessity of accurate data management:
- Assortment matrix is not unified, and each store in a retail network has its product mix, which leads to chaotic orders placement. Each manager organizes his inventory intuitively.
- There are no guidelines for shelf placement and merchandise. Sometimes SKUs number exceeds shelf space.
- Supply chain deliveries are not duly scheduled. Disruption in the supply chain can trigger a series of delayed and late deliveries.
- Surplus inventory is not properly identified and controlled. Poor record keeping may lead to returns’ delays, losses and theft.
- Minimum order quantity (MOQ), packaging, weight and volume of goods metrics are not up-to-date, which causes errors in reorders.
- Data is managed and stored in different sources – Excel spreadsheets, accounting systems, notebook, even verbal deals. Data is often lost, which impacts managerial decisions credibility.
Dedicated professionals which use automated high-performance inventory management tools can tackle all these problems. Retailers must shift from reactive to a proactive management model, which masters change in demand and sales.
Are you making your customers suffer?
Your imaginary client comes to your grocery, and he wants to buy Sensodyne toothpaste, Head & Shoulders shampoo, Horizon Organic milk, and other ‘no name’ goods.
You don’t have any of these products on your shelves. Your customer can find some ‘no name’ substitutes, but when it comes to brand, you lose. The customer is leaving your store…without buying anything.
Do you think the customer will return to your grocery?
I doubt. In customer experience time is money, and if a customer is unhappy, he will not return. As a result, you lose sales. Today technology is revolutionizing customer experience. People want to get the best service at the soonest, they do not want to waste time waiting for their orders, they will better spend this time on learning and self-development.
Tame the beast, tame your inventory. Do not waste human resources. Implement new agile technologies that will secure high profits and sky-rocket your sales!