How to capture the most profit for your inventory investment
In fast fashion, speed is key not only in the changeover of your assortment, but in the logistics that manage your supply chain. When you are dealing with 4-8 weeks of supply in a fast fashion assortment it may seem that there is little time to do anything but allocate your stores and markdown the excess, but it is likely that you are missing sales in the process.
What it takes to turn those losses into profit is a smart holdback strategy, real-time demand awareness, and a multi-level distribution method.
For many fashion retailers, it is common practice to use distribution centers simply as a flow-through point as they allocate their stores. But by pushing all of your inventory out to stores in a one-shot allocation, you lose any chances of utilizing real-time trends from your stores to place the rest of your stock where it has the most potential.
Even if you think you have the best forecasts and order plans, nothing compares to true sales insight. If you can instead, allocate 60-80% of initial supply to cover the minimum presentation quantity, you can learn which products are selling best in which stores so you can easily re-assess your order quantities for the rest of the assortment’s life and then push the rest of the merchandise to the stores where it will make the most profit.
Retailers that can turn their distribution centers (DC’s) into a holding location for real-time replenishment will increase their profit, inventory efficiency and service levels. To take it a step further, retailers can even break down packs at the DC to smaller packs or eaches in order to ship the most optimal quantity based on profitability at every location.
An alternate approach at holding back stock is to break the order into two allocations and receive them a few weeks apart. This can be an effective alternative to retailers who have constraints about holding merchandise in their DC’s.
To make the most of your hold back process, it pays to have multi-tiered distribution centers, ranging from national (NDC) to regional (RDC) and to allow replenishment from multiple levels. By allowing replenishment from multiple levels and utilizing routing logistics to analyze the cost comparison between each level and the store, you can assess if it is more cost effective to replenish from your RDC, your NDC, direct from the vendor, direct from a franchisee or direct from another store.
Challenges for retailers
Speed: The speed of turning demand forecasting into execution is the biggest challenge for retailers. Distribution centers, buyers, and business analysts must have the right tools to act and execute on real-time demand in order to keep up in today’s cutthroat retail environment.
Data: In order to make the replenishment process faster, retailers need better data. Data needs to be real-time and a retailer’s processes need to be granular enough that they can understand the need for every item and every store, not just at the cluster level. The quality of the data is also crucial. Retailers need to be sure that they are receiving data that is trustworthy of true demand. Understanding the need at the lowest level and working that demand insight from the bottom up through the supply chain are key to optimizing supply chain performance.
Distribution center constraints: Some retailer’s distribution centers do not have the capacity to hold inventory, or the logistic power to manage real-time replenishment. But enhancing these management processes and increasing the capacity for short-life goods as well as longer life stock will ultimately pay off through full-price sales and customer service increases.
Allocation and replenishment processes: Many retailers do not find it feasible to utilize a process of holding back stock for shorter life products and end up cutting corners by doing a one-shot allocation. It will be worthwhile to do a feasibility assessment to see where you could be saving money in your distribution, allocation and replenishment processes.
Advanced Multi-Level Distribution (MLD) and Order Planning/Warehouse Replenishment Technology
These ideas seem great in theory, but without the right tools and capabilities in your supply chain, these theories may be far-fetched. One of the only tools on the market that has the intelligence to replenish in real-time through the process of multi-level distribution is Quantum’s solution, Q.
Q multi-level distribution works in conjunction with the order planning/warehouse replenishment and ordering. Q order planning and ordering utilize demand side information to request inventory at different levels of the supply chain. Q distribution takes the inventory actually available in the supply chain and moves it through the supply chain based on demand and profitability.
Allocation and Replenishment
Typically, the distribution of inventory is grouped into allocation or replenishment. The former is a top-down mechanism of looking at like item historical data to send inventory to stores for new items, or those with a very short life and limited inventory. Allocation uses rules to balance inventory across the chain when given limited goods. Replenishment is a demand based requesting of inventory, assuming an unlimited supply of goods.
The actual world sits in the middle of these two. Rarely does the supply match the demand, but demand is often available to make better decisions about where to send inventory.
- Short-lived items can still use customer demand to request inventory
- Long-lived items have inventory shortages
- Items are often bought in inner packs, cases, or multi-packs, so the ideal amount cannot be requested.
MLD Functionality
Q distribution utilizes the demand side information with allocation principles of balancing inventory to distribute each incremental unit of inventory based on where it is needed the most to support inventory strategies.
Q distribution principles can be used to:
- Request inventory where item packaging or vendor constraints do not allow for the requesting of single items.
- Allocate inventory that is cross-docked. Even when inventory may have been requested at store level and then aggregated, at the point it reaches the DC the optimal inventory need has changed, and can be re-allocated.
- Request inventory from a pool taking into account the desired lifespan of the product.
- Place inventory to best meet the strategies of the individual product/locations.
- Protect Inventory for a group of locations, or ensure that all location groups are given equal treatment.
- Restrict allocation to individual locations to best manage supply shortages.
- Push out inventory to locations to maximize sales from surplus.
Make more profit with smarter strategies
When you take the leap to optimize your supply chain, ordering, planning, allocation, replenishment and distribution processes, it will incrementally increase your efficiency and result in lasting profit gains for your company. Utilize today’s technology and become an industry leader.
That concludes our Fashion Forward series. Look out for the next series on Optimizing Hard Lines.
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Read more on Strategies for Hold Back Stock HERE»
Read more on Strategies for Linking Your Data Across Channels HERE»
