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Managing the Complexity of Ecommerce Returns

Posted By RCVF Admin, Sunday, January 20, 2019

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Managing the Complexity of Ecommerce Returns
by Scott Weiss, VP of Business Development, Port Logistics Group

As the growth of online shopping continues to rise, so has the volume of ecommerce returns, often referred to as reverse logistics. Did you know that almost 33 percent of all online purchases result in an item being returned, compared to just 9 percent of physical store sales, according to figures from Bloomberg?

 

The challenge is that reverse logistics is generally far more complex than forward logistics. At the same time, consumers are increasingly expecting a seamless experience when it comes to returns. In UPS’s Pulse of the Online shopper study, 89 percent of customers would not shop again at a retailer if their return experience was suboptimal. Simple and free returns are becoming the new standard. In that same study, 79 percent of consumers consider whether a retailer has free shipping when making a purchase. The cost of a return is one of the biggest stumbling blocks for many consumers, so eliminating it makes sense, even if it is expensive. 

 

For online retailers, efficiently managing the returns process is one of the most challenging and costly aspects of ecommerce. Omnichannel retailing brings new processes, including increased dropshipping, BOPIS (buy online, pick up in store), and BORIS (buy online, return in store), making the management of returns difficult when cross-channel inventories are subject to many business rules.

 

Challenges come in small packages

 

Online retailers need to keep costs down and preserve as much of the original revenue of the returned products they can. But returns don’t always involve sending goods back to inventory following inspection or repair. Items may be destined for disposal, destruction, or put into secondary markets for resale. Online retailers may leverage the services of a 3PL fulfillment provider for reverse logistics, or even a 3PL specialist in returns. A proficient 3PL will be able to manage the returns process according to your guidelines and ultimately protect your brand’s reputation.

 

Another potential problem is the volume of returns to the fulfillment center, distribution center (DC), or store on any given day isn’t known, unless the receiver is given advance notice. Returns typically come back within 30 days of sale, or even longer as return policies become more liberal and return time is extended to even 60 days or more.

 

Returns also require more labor to process. New business models for returns are also upping the service ante as third-party returns specialists enter the market. One is Happy Returns which operates “return bars” to enable in-person returns for online purchases at its select customer base of online retailers. Another model is retailer/online retailer partnerships, such as Kohl’s accepting returns on behalf of Amazon at select stores, which makes it easy for the consumer who doesn’t have to package the item but only has to show proof of purchase on Amazon.

 

Whether you manage returns in-house or outsource, here are best practices:

 

Processes and quality control. From the consumer’s perspective, they shouldn’t have to make a phone call to learn how to return an item. Information should be included with the order or at the online retailer’s website. It does the retailer and supplier a favor when the consumer can easily inform them why the product is being returned. Return forms aid this process as do pre-printed labels.

 

Once received, a key benchmark for an efficient returns process is to return the appropriate goods back into stock as soon as possible for resale. So too is planning the flow of returns in the DC or store, allowing plenty of space for returns processing. The returned item will require inspection of its condition and quality to determine if it can be returned to inventory, and may require light repairs.

 

Value-added services and training. Apparel, electronics and shoes are some of the most returned items for direct-to-consumer ecommerce, according to returns optimization company, Optoro. To return to stock, apparel, for example, requires a close inspection under good lighting, refolding and relabeling. Goods may need steam cleaning, sewing or other repair which involves value-added services.

 

Training staff in returns processing is essential. Much of the knowledge for processing returns is specific to the product or brand, with returns specialists becoming very proficient in their craft. Knowledge is often handed down as tribal (undocumented) knowledge. It is always better to err on the side of documentation.

 

KPIs. Key performance indicators (KPIs) can be kept basic within your company or with your 3PL. Fulfillment processing rates for ecommerce orders are typically same-day or within 24 hours, including dropship orders a supplier fills on behalf of the retailer. A typical KPI for ecommerce returns is processing the item within 72 hours after the item is received, tracked as “return cycle time.” Hitting this mark 95 percent of the time is a reasonable aim.

 

Routing guides. With the multiple channels of omnichannel complicating returns, determining which party in the supply chain will handle each return may be subject to change. Developing a vendor routing guide is a great updatable resource. Use it to document which entity will do what processing, whether by type of product or channel, and so forth. For example, a dropshipped apparel order sent to the consumer on behalf of the retailer by the vendor may likely get returned to the retailer’s facility, and not the vendor or their 3PL, in part to maintain the brand image of the retailer. It’s also important to note consumer instructions for returns which must be included with the outbound order.

 

Communication checkpoints

 

In all aspects of the returns process, close communication with participating parties for each key event in the returns process is essential. From the systems perspective, communication should be reflected in alerts and notifications that involve parcel or shipping systems, warehouse management systems (WMS), and order management systems (OMS).

 

The key communication-alerting checkpoints are receiver and consumer confirmations. Once the return is scanned in at the parcel carrier or drop-off location, the receiver is alerted, and can thus better plan for disposition. Consumers want an easy return process. Alert them that the seller has received the item, which is enabled by the initial scan when the consumer drops off their return. Many leading ecommerce companies are providing electronic confirmations to the consumer that their credit card has been credited; the retailer or seller generally provides these confirmations.

 

The expense of handling ecommerce returns are high and the pitfalls are many. Many of these returns practices can reduce the cost of returns processing for online retailers while enhancing the consumer experience and contributing to a positive brand experience. Given the growth of ecommerce and returns, there is a business case for allocating resources into building a strong reverse logistics capability. 

 

Tags:  e-commerce  Inventory Management  KPIs  Omni-Channel  Returns 

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Chargebacks and Penalties for Poor Inventory Productivity?

Posted By RCVF Admin, Saturday, August 4, 2018
Updated: Saturday, August 4, 2018


Chargebacks and Penalties for Poor Inventory Productivity?

by Victor Engesser & Stephany Goodnight of RVCF

Inventory productivity is increasingly becoming a key area of focus for retailers.  As we highlighted in the June issue of the RVCF Link newsletter, inventory is typically the largest asset on the balance sheet for retailers and contributes significantly to the liquidity of the organization.  Many retailers are seeing their inventory turns slowing, which has a direct impact on cash flow.  At the same time, both retailers and suppliers are under pressure to operate with leaner inventory.  We recently read a trade article that got us wondering, "Will inventory productivity become the next element of supplier compliance management?"

In the olden days, inventory management was fairly simple. A retailer met with a supplier, negotiated a price, wrote a purchase order, and paid in full 30 days after the product arrived into the retailer’s distribution center (DC). At that point, the inventory was all theirs to sell (or not sell).

However, over time, compliance management came to be.  Retailers expect orders to be on time, in full and in accordance with a myriad of other requirements.  As retailers keep "fine tuning" this process, is it possible we have reached a point where suppliers will not only be responsible for delivering inventory, but also for ensuring inventory is sold within a reasonable amount of time?  How much responsibility do suppliers have with respect to inventory productivity?

According to a recent article by Daphne Howland in Retail Dive, Amazon is instituting a series of initiatives aimed at improving inventory management on its Marketplace.  In July, Amazon began assigning an “inventory performance index” to each seller.  We are not sure how this index is calculated, but sellers who fail to achieve a minimum index score will be prohibited from sending new shipments to Amazon until their inventory levels drop below specified limits. Sellers will also be charged a “store overage fee” on the excess inventory. 

In the past, Marketplace sellers had been able to pay for unlimited storage.  Not surprisingly, Amazon is also taking a harder look at unsold inventory, especially aged (365 days or older) inventory, by adding additional monthly charges to motivate space productivity improvements.  Amazon’s fulfillment costs have escalated over the past year as new DCs have been added and Prime members’ expectations for customer service continue to rise.

In light of this, we can envision other retailers questioning whether they should be looking at store space productivity or DC space productivity in a similar way. Until now, most traditional merchandise retailers have made store shelf assortment decisions and planagram location and space decisions while looking at sales and margin metrics.  We have heard very little to suggest poor inventory productivity performance has escalated to a compliance program violation or candidate for automated chargebacks.  But we also recognize that fulfillment costs are escalating and DCs do not have unlimited space.

Clearly, inventory productivity can be measured and key performance indicators (KPIs) such as inventory turns, DIOH (days inventory on hand), and GMROI (gross margin return on inventory investment) are valuable performance metrics to add to a supplier scorecard.  But setting a required performance standard and holding suppliers to this performance as part of a compliance program is not the norm today, and with so much variability throughout the supply chain, a single standard seems unrealistic.   However, having supplier performance expectations around inventory performance does seem likely.

We at RVCF would like to hear your thoughts and opinions on this topic. We are especially interested to know if you feel inventory productivity should remain a retailer (internally-managed) responsibility and, as such, a business area best handled as part of the merchant/supplier relationship management process.  Or do you feel that inventory productivity should be thought of as an element of the end-to-end supply chain and would benefit if incorporated into the supplier scorecard so performance could be more broadly managed?

Give this some consideration and, if you agree, we can make this topic a part of the Retailer Open Forum discussion at the 2018 RVCF Annual Fall Conference this October in San Diego.  We are already planning to delve more deeply into the area of Inventory Management and Productivity during the Fall Conference, with three breakout sessions included in the agenda:  Business Processes Driving “Buy Online Pickup in Store,” Selling More with Less – Smart/Lean Inventory, and Best Practices in Inventory Management.

See you in San Diego!

 

 

 

Tags:  Amazon  Chargeback  Chargebacks  Inventory Integrity  Inventory Management 

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From the Desk of Kim Zablocky: Why RVCF Is Launching an Inventory Management Initiative

Posted By Administration, Thursday, June 14, 2018
Updated: Thursday, June 14, 2018


About a year ago, Target and Walmart announced that they were demanding improvement in on time, in full (OTIF) performance from merchandise suppliers to reduce shipment variability. This announcement is indicative of efforts being made across the industry by both retailers and suppliers to more tightly manage inventories.

Retailers want lean inventories with constant replenishment to avoid out-of-stocks, and they need to minimize shipment errors that slow down the flow of goods. Suppliers also want to maintain lean and productive inventories that are in the right place according to demand. If you can't manage inventory, you can't manage any of these requirements. You need visibility into inventory as it flows through the supply chain.

This is what happened to Walmart a couple years ago. Suddenly, they were running out of certain items in their stores and didn't know why. They didn't know if the affected items were in the back of the store, in transit, or stuck at a distribution center. They had lost sight of inventory and stores were running out of product, so there was a huge push to tighten up inventory flow.

We can talk OTIF until our eyes bleed, but we at RVCF determined that we need to expand our offerings in the area of inventory management. This is a natural progression for RVCF, which has long focused on supply chain efficiency, shipment accuracy, trading partner alignment, and increased profitability for retailers and suppliers through collaboration. As an industry, we need to spend more time understanding methodologies and best practices for managing inventory. When customers buy online and pick up in store and suppliers drop ship to fulfill orders on behalf of retailers, clear communication between trading partners and full inventory visibility are required to make it work.

When you master inventory management, you can accelerate speed to shelf. Products get to your stores before your competition's stores. You're able to get out front with the products customers want early in the lifecycle of those products.

You also reduce excess inventory so you don't have money tied up in inventory where you don't need it. When you can operate with lean inventory without going out of stock, you reduce markdowns required at the end of the product lifecycle to get them off the shelf and make room for the next generation of products. When you have visibility into inventory, you can see what's selling well and what's not. This allows you to be more dynamic and adapt on the fly to avoid those markdowns that eat into profits.

Back in the old days, retailers would simply order a million widgets and the supplier would ship a million widgets. Today, retailers are asking the supplier to reserve a million widgets but only ship 100,000 a time while reserving the option to cancel the other 900,000 if they're not selling. This creates a lot of risk for the supplier. If the retailer cancels, they're left holding inventory that isn't as valuable. Effective inventory management is critical to minimizing risk.

OTIF forces retailers and suppliers to become better trading partners by sharing more data. Suppliers can get out in front of retailer demand and make adjustments in their own manufacturing supply chain much earlier. Suppliers can intelligently calculate demand before taking on an acceptable level of risk. Data becomes more available and accessible through better inventory management.

RVCF is excited to welcome Stephany Goodnight, former Vice President of Replenishment with AutoZone, Inc., as a Retail Executive Advisor who will spearhead the development of a new learning track focused on inventory management and productivity. Under Stephany's leadership, we'll get to the root cause of inventory management challenges, identify and share best practices, and develop multiple sessions for the 2018 RVCF Fall Conference.

Of course, the foundation of this initiative must be ongoing collaboration between retailers and merchandise suppliers. We invite professionals in inventory control, supply chain, planning and forecasting, and other areas to get involved in our new inventory management efforts. What's working? What's not? What obstacles are you struggling to overcome? What tools do you use? What are your strategies for keeping inventory lean without out-of-stocks or markdowns?

Give me a call at 646-442-3473 if you want to get involved. We look forward to tackling inventory management together.

Kim
kzablocky@rvcf.com
(646) 442-3473

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Tags:  Inventory Management 

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Under Goodnight's Leadership, RVCF Inventory Management Initiative Hits the Ground Running

Posted By Administration, Thursday, June 14, 2018
Updated: Thursday, June 14, 2018


by RVCF


Inventory is typically the largest asset on the balance sheet for retailers and contributes significantly to the liquidity of the organization. Many retailers continue to see inventory turns slowing, which has a direct impact on cash flow. At the same time, both retailers and merchandise suppliers are under pressure to operate with leaner inventory, walking the tightrope between out-of-stocks and excess inventory.

Multiple order fulfillment options, such as in-store, online, and buy online, pick up in store (BOPIS) have made it difficult for both sides to effectively manage inventory while meeting customer demands. If suppliers can't achieve on time, in full (OTIF) order fulfillment requirements, effective inventory management isn't possible.

Of course, the elephant in the room is Amazon. The Amazon model continues to drive changes in consumer behavior, and many suppliers are changing how they fulfill orders for Amazon. Many suppliers like having this outlet for selling merchandise but need to provide inventory in a way that doesn't create conflict with traditional retailers.

Ultimately, inventory must be where the consumer wants it, online or in-store, and both retailers and suppliers must have full visibility of all inventory. Effective inventory management has never been more critical, but it's an area that seems to be underserved through industry education and conferences.

Welcome Stephany Goodnight to RVCF
RVCF is stepping up to the plate with a new learning track focused on inventory management and productivity. We're excited to welcome Stephany Goodnight, former Vice President of Replenishment with AutoZone, Inc., as Retail Executive Advisor to lead this initiative. Stephany was responsible for more than $4 billion in annual merchandise purchases, as well as inventory planning, forecasting and inventory management and productivity. During her 16 years at AutoZone, Stephany also held Director roles in Finance and Merchandising. Prior to AutoZone, she was an Audit Manager with Ernst & Young, LLP and holds an MS in Accounting from the University of Memphis.

To kickstart our inventory management initiative, we've distributed a survey to RVCF members and inventory management professionals. We want to find out what issues have the greatest impact at your organization, who is responsible for inventory management at your organization, what areas would you like to learn more about, etc. Our goal is to identify and share best practices and develop educational content that drives inventory management improvements for both retailers and suppliers.

As we gear up for the RVCF Fall Conference, we're already developing the following sessions to cover topics that have been identified as areas of need at RVCF events and on conference calls.

Buy Online, Pickup In Store (BOPIS)
In this retailer-only session, we will explore how retailers are managing inventory to support customer purchases made from the company's website but picked up in the company's physical stores. As brick-and-mortar retailers look for ways to compete with online-only retailers, BOPIS is a great way to leverage existing investments in inventory and the convenience and customer service of physical stores to encourage and maintain customer loyalty. In this session, we will walk through the mechanics of a successful BOPIS program and evaluate how a retailer's existing inventory can be managed to improve productivity through this type of program.

Smart/Lean Inventory - Sell More with Less
In this retailer-only session, we will explore best practices for improving inventory productivity. We will share recommendations for improving inventory turnover and accuracy, increasing cash flow and liquidity, improving supply chain labor and productivity, optimizing warehouse space, minimizing shipping errors and chargebacks, and improving the ability to meet customer demand through various channels. We will focus on areas such as managing fill rates, replenishment best practices, and improving in-stock without growing inventory.

Under Stephany's leadership, we anticipate adding at least two sessions on inventory management, including roundtable discussions, to the RVCF Fall Conference agenda. These sessions will focus on areas of interest identified by retailers and merchandise suppliers in survey responses.

We encourage both RVCF members and non-members to participate in this survey and forward it to inventory management professionals within your retail or supplier organization. To the folks who are already involved with RVCF efforts to improve vendor relations and compliance, we need input from the inventory management folks within your organization to help achieve OTIF goals and maximize the benefits.

The more collaborative this process is and the more feedback we receive, the more valuable and effective our new inventory management track will be. Register early for the RVCF Fall Conference, which is being held October 14-17, 2018 at the Manchester Grand Hyatt San Diego in sunny San Diego, CA. Contact Kim Zablocky (646-442-3473 or kzablocky@rvcf.com) to learn more about how to get involved with the Fall Conference and our inventory management program.


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Tags:  Inventory Management 

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Ask a 3PL Expert: E-Commerce Inventory

Posted By Administration, Thursday, November 17, 2016
Updated: Wednesday, November 16, 2016



by Scott Weiss, Port Logistics Group


Advice on routing guide compliance, 3PL relationships, and domestic logistics topics creating supply chain challenges for your organization. If you have a question or challenge please send your questions to sweiss@portlogisticsgroup.com.

Question
E-commerce is really growing for us, but still only represents 10% of our total sales. We also have fifteen of our own retail stores that represent 20% of our sales. So 70% of our sales is to our wholesale customers. Right now we have three separate inventories at our 3PL warehouse. Should we maintain all of our product in one physical inventory at the warehouse or should we continue to separate our product and maintain three physical inventories within our warehouse?
-Jacquelyn, Los Angeles

Importers, manufacturers, and retailers operate in an omni-channel world where orders are fulfilled with a variety of distribution channels – direct to consumer, (D2C), wholesale/business-to-business (B2B), and retail stores. The optimal solution would be one inventory. Having the systems, facilities, and organizational structure to maintain one physical inventory with multiple virtual inventories from which the warehouse can pick, pack, and ship to DC's, stores, and direct to consumer will avoid costly, redundant inventory locations while fulfilling orders seamlessly across all distribution channels. Easier said than done though as there are a number of hurdles and challenges to overcome before you can go this route:

ERP capabilities. Enterprise resource planning (ERP) allows your organization to collect, store, manage and interpret data from many business activities. ERP systems were initially focused on automating back office functions; however, today's ERP systems are integrated with the supply chain and order fulfillment as a key component. Does your ERP have the capability to differentiate orders by distribution channel prior to sending to the warehouse? If so, than you are a good candidate for one physical inventory with multiple virtual inventories. If not, you may have to stay the route of separate physical inventories or consider the benefits of migrating to a more robust ERP.

Organizational structure. What does your organizational chart look like? Do you have a wholesale division, e-commerce division, and (if your own stores) a retail division? Chances are that each division has its own P&L and operates like it its own company within a company – making it a huge challenge to maintain one inventory. Does your company have the ability to break down the silos and maximize your order fulfillment by operating as one single unit?

Expertise and systems to efficiently process complex orders. How complex is your warehouse management system? Item- and SKU-level picking processes are the core of distribution operations, with the ability to manage the most demanding order profiles. Do you have the technology to employ a live EDI system to fulfill pick and pack orders? Once the order is sent to the warehouse, is it immediately available to pick? Can orders sent by a certain time be shipped same day? Can your warehouse management system utilize both wave and batch picking based on order trend?

Full cycle counting capabilities. Cycle counting must be used to validate inventory integrity – both at a perpetual and location level. This is a daily process that involves the validation of the physical product against the systemic expectation with both exception and overall accuracy reporting.

SKU velocity and on hand information. Operationally, this information is used primarily to improve efficiency through product placement – the "high-velocity" SKUs should be stored in more advantageous locations to reduce travel time and reduce labor and cost. Externally, this can provide valuable information to show how quickly each SKU is turning and expose any potential inefficiencies or excess storage that may result from "low-velocity" SKUs, which aids in managing and reducing inventory on hand. Does your warehouse management system have the capabilities to store complimentary products that often ship out together next to each other in order to reduce travel time and increase productivity?

Batch picking capabilities. This is essential in order to maximize picking productivity for multi-channel order fulfilment. For example, when a picker designates the zone they are picking, the RF picking program would guide them through by location. At each location, an item and total quantity is given. The program then designates which orders the pieces go to, and how many go with which order. As each order is fulfilled, the pick quantity is verified and the item is scanned to a box label; this ensures minimal error. Once a box is full, it is closed out and a new box for that order with shipping label is created.

So where do you go from here? If you (and your 3PL) can meet all the above requirements you are ready to take the plunge into omni-channel order fulfillment in its purest form. If you're like most companies, you do not have a robust ERP, have multiple divisions, or do not have the warehouse management system capabilities to maintain one inventory, so you need to work toward this goal.

The world is changing. The customer that has just purchased at the physical store is the same customer that purchased online yesterday or will buy online tomorrow. The customer looks at you as all one company. And so must you.


Scott is a 20 year veteran of the 3PL industry and 13 year member of RVCF. Port Logistics Group is the nation's leading provider of gateway logistics services, including value-added warehousing and omni-channel distribution, transloading and cross-docking, eCommerce fulfillment, and national transportation. With 14 Distribution Centers and 5.5 million square feet of warehouse space strategically located by the Ports of LA/LB, NY/NJ, Seattle/Tacoma, and Savannah, Port Logistics Group provides the critical link between international transportation and the last-mile supply chain. He can be reached at sweiss@portlogisticsgroup.com or (562) 977-7620.

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Tags:  e-commerce  Inventory Management 

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The 2016 Inventory Emergency Continues

Posted By Administration, Thursday, August 11, 2016
Updated: Tuesday, August 9, 2016


by Suhas Sreedhar, GT Nexus


Prologis Inc., the world's largest warehouse owner, posted record profits this past quarter. With revenues up 18% year-over-year at $602 million, Prologis's growth dovetails news that warehouse rents in 2016 are pushing new heights. Warehouse vacancy rates in many major cities sit below 5% and a glut of inventory is building up in across retailers in the US.1 Meanwhile, consumer demand remains relatively high, tossing out an obvious explanation for the high stockpiles. Retailers are caught in a dilemma – they need inventory to attract consumers, yet they're not moving it very well. What gives?

Perhaps the 2016 inventory crisis has other forces propelling it besides simple supply and demand conditions. And perhaps there are other ways to cope than paying higher prices.

Demand
While volatile consumer demand in itself doesn't explain the glut of inventory, a closer look into consumer behavior does. Thanks to companies like Amazon, today's consumers have incredibly high standards when it comes to product availability, choice, and fulfillment. Out-of-stock inventory, in particular, is a killer of customer loyalty. Shoppers will easily switch to a different retailer, or even a different brand, if what they want is unavailable. Along the same lines, even if a product is available, if a store can't deliver it quickly, painlessly, and likely for free, customers will stray.

For most retailers, these high expectations have been worrisome. Traditional brands aren't usually equipped to change their operations so rapidly. So in order to not lose out, many of them have taken an easy step – have lots of inventory on hand. But while that might help with out-of-stock situations, it doesn't really help enable better fulfillment. But it costs a lot.

How can you make sure a product gets from your warehouse to your customer quickly? How can you ensure that shoppers have a choice while not hoarding every product in expensive distribution centers? How can you offer an easy returns process that also doesn't occupy valuable time and resources?

The 2016 inventory crisis reflects a struggle. Retailers are grappling with the new innovations brought on by technology companies and the resultant changes to consumer expectations. And maybe taking some action is better than taking no action at all, but the consequences of taking the wrong action for a long period of time can be incredibly high as the current inventory glut and warehouse rates show.

Fulfillment
So what's the right action to take? Retailers may find themselves asking this, but in a way, it's a trick question. There might not be a single solution that works for every retailer. Depending on the brand, the product, the consumer base, retailers might have to employ different strategies. But in order to do that, one thing that all retailers need to have is a flexible infrastructure.

These days, flexibility is best guaranteed through supply chain network technology. Nordstrom recently acquired a minority stake in DS Co., a cloud-based supply chain software firm. The motivation behind the purchase was to make direct shipments from vendors to customers much easier. Direct shipments are a clever way of reducing inventory burdens. Retailers like Nordstrom wouldn't need to carry inventory themselves, in expensive warehouses and distribution centers. Instead, when customers buy something from a retailer, they receive the goods directly from the vendor. The key to pulling this off is speed and accuracy. Delivery time, from the moment of purchase, has to be short in order to make up for the lack of instant gratification. And the details of the delivery – the right address, timing, packaging, return process – also have to be favorable to the consumer.

A cloud-based supply chain platform enables speed and agility by seamlessly managing the information flow between the various parties involved – the retailer, the vendor, the logistics company, etc. Rapid, accurate communication is essential for sophisticated fulfillment operations.

As 2016's inventory crisis continues, it'll be interesting to see how many retailers press on with higher rents and larger stocks, versus those who find clever ways to fulfill customer expectations while minimizing costs.

[1] http://www.joc.com/economy-watch/us-economy-news/sales-rose-may-so-did-us-business-retail-inventories_20160715.html


Suhas Sreedhar is a strategic writer in the corporate marketing practice at GT Nexus, a cloud-based network for global trade and supply chain management. Learn more at www.gtnexus.com. He writes frequently on technology, supply chain, the Internet of Things and retail. Sreedhar’s work has been featured in Forbes, IEEE Spectrum, and various industrial blogs and trade publications.

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Tags:  Inventory Management 

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What's Behind the Inventory Crisis of 2016?

Posted By Administration, Thursday, June 9, 2016
Updated: Wednesday, June 8, 2016


by Suhas Sreedhar, GT Nexus


1.41 is a number being thrown around a lot this year. It's the ratio of inventory-to-sales in the U.S. as measured by the Census Bureau.1 In short, businesses have built up a glut of inventory that they're not moving. The last time the inventory-to-sales ratio was this high was 2009, when we were in the throes of the Great Recession – people lost jobs, businesses closed, nobody was spending, nobody was growing.

What does it mean that inventory levels are this high in 2016? Are consumers not spending? Are we headed for another recession? Or are other forces at work?

Well, in April the Bureau of Economic Analysis reported that consumer spending experienced its biggest gain in six years.2 And while JPMorgan recently reported an increased probability of a recession in the next 12 months, no one's sounding the alarm bells quite yet. Besides, inventory levels have been high since last fall.3

So what else could be at work?

The Marketplace
Traditionally, a drop in consumer demand would cause a short-term build-up of inventory. But businesses would eventually compensate by cutting orders and manufacturers would produce less. But as we've seen, demand isn't going down. And yet, inventory isn't moving. Why?

One major culprit is the way consumers shop. Their expectations have changed. This is the age of Amazon Prime, Instacart, Uber and Lyft. Free shipping. In-store pick-up. 1-hour delivery. Easy exchanges and returns. Above all – convenience. If it isn't convenient for a customer to buy something they want, they won't buy it – or they'll buy it somewhere else. Fulfillment has usurped the throne of customer satisfaction.

Traditional retailers have struggled because of this. As young, tech-driven start-ups bite into market with the luxury of fresh starts, traditional retailers have tried to stay competitive. One common tactic has been to keep buffer inventory on hand. Out-of-stock inventory kills customer loyalty. Not being able to fulfill quickly kills customer loyalty. But having lots of inventory doesn't equate to efficient fulfillment. That requires having a modern, flexible supply chain. Without agility, retailers often lack the competence to satisfy customer demand, let alone fulfilling profitably.

The Business Model
J.C.Penney Company, Inc. is an example of a traditional retailer who has experienced the full vicissitudes of trying to keep up with consumer demand. Starting in February of 2012, its stock price began a precipitous fall that bottomed out in February of 2014. During that period it implemented radical shifts in branding and strategy. An attempt to modernize threw off many consumers. To gain them back, J.C.Penney returned to a more traditional retail strategy. It's since stabilized and J.C.Penney stock has even gone up a bit. But now, J.C.Penney faces the same problem as so many other businesses – gluts of inventory. Which is why its recent announcement regarding Ashley Furniture is so intriguing.

J.C.Penney recently announced its plan to test out a new business model with its supplier, Ashley Furniture. J.C.Penney won't carry any Ashley Furniture inventory in stores or in its distribution centers. Instead, it'll just hold floor samples and when customers choose to purchase an item, it will ship direct to consumer from Ashley Furniture. If successful, J.C.Penney hopes to extend this showroom strategy to other departments like appliances.

Being able to change business models and come up with strategies that make sense for both retailer and customers is the only way forward in this consumer-dominated age. As J.C.Penney learned, change for change's sake doesn't work. Yet neither does staying still. Businesses need to adjust based on what consumers want and what the business can deliver.

Getting around the inventory crisis requires a combination of knowledge, strategy, and competence in execution. These days, it usually also involves technology.

Execution
Wal-Mart Stores, Inc. recently announced that it is employing drones to manage its inventory.4 The drones would move through a distribution center, capture images, and flag misplaced items. The process would allow Wal-Mart to check inventory in a day, instead of in a month when it's done manually. For Wal-Mart, using technology to enhance visibility is a big part of getting a handle on inventory.

But visibility doesn't just start and end at a distribution center. Businesses who want to fulfill to customers without shortages and gluts need to have visibility all the way up their supply chain. Knowing what raw materials suppliers, factories, and logistics providers are doing will enable them to quickly adjust to demand changes. If there's too much inventory on the West Coast that can be sold more profitably in New York, the supply chain needs to be able to quickly refocus inventory to where the demand is greatest. Executing with this kind of agility requires visibility technologies that can show business processes as they're occurring, in real time, around the world. As companies move ahead in 2016 and aim to deal with inventory gluts and demanding customers, one of the safest and smartest moves they can make is to look within.

By understanding processes and implementing better visibility and control, companies can develop business models that work for them and their customers. Demand might drop, recessions might come, but the best way to weather any storm is to be a master of the factors that you can control. 1.41 may be a warning, but retailers can use it to do an honest self-evaluation, learn more about themselves and their consumers, and chart out a plan that focuses on smart execution.

[1] https://www.census.gov/mtis/www/data/pdf/mtis_current.pdf
[2] http://www.cnbc.com/2016/05/31/us-personal-income-april-2016.html
[3] http://finance.yahoo.com/news/jpmorgan-recession-risk-new-high-160251309.html
[4] http://abcnews.go.com/US/wireStory/wal-mart-testing-drones-warehouses-manage-inventory-39558655


Suhas Sreedhar is a strategic writer in the corporate marketing practice at GT Nexus, a cloud-based network for global trade and supply chain management. Learn more at www.gtnexus.com. He writes frequently on technology, supply chain, the Internet of Things and retail. Sreedhar's work has been featured in Forbes, IEEE Spectrum, and various industrial blogs and trade publications.

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Tags:  Inventory Management 

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How Do Retailers Handle the Summer Sun?

Posted By Administration, Thursday, June 11, 2015
Updated: Tuesday, June 9, 2015

by Leela Rao-Kataria, GT Nexus


It's the beginning of summer and, while shoppers are excited to shed heavy coats and turtlenecks in exchange for summer shorts and tank tops, retailers actually find this time of year one of the most difficult to manage from an inventory perspective. Most people don't realize that the majority of promotional retail holidays fall within the summer months. Mother's and Father's Days are the 3rd and 6th largest retail holidays respectively, falling just behind back-to-school, which is second only to Christmastime holidays. Couple those promotional times with Memorial Day, July 4th and Labor Day Sales, and retailers have to drive customers to their stores and websites using sales and discount offerings to be competitive.

Of course, this presents an issue for the retailer at hand.1 Retailers typically experience great business over the summer months for two reasons: First, many items purchased throughout the summer months are "limited life" items such as beach umbrellas and patio furniture in home furnishing or flip-flops and swimsuits in footwear and apparel. Because the items are available for only a short time, shoppers must go to retailers to purchase or else they will miss out on the season. This is especially true for the back-to-school season where all grade school and college bound students will need new wardrobes as well as school aids like backpacks, laptops, calculators, notebooks, etc. to start the year off right.

The second reason is due to all the discounts and sales. Many shoppers will wait for July 4th sales to buy a new dining room set, knowing prices will be "slashed" through the long weekend. The same holds true for summer clearance sales and flash sales, where shoppers are enticed to buy maxi dresses and other summer-bound items.

So why would there be an issue if promotions and limited life items are winning customers?

It's because limited life items are often produced in small batch quantities, often times not meeting the MOQ (minimum order quantity) set for many companies. MOQ production is often overlooked for limited life items that are prevalent in promotional and summertime to meet customer demand. The reason MOQ's are so important is because they ensure a certain level of profit generated from a SKU since raw materials, labor, tooling and SG&A are all costs that benefit from economies of scales.

Inadvertently, limited life items will cost more to manufacture, due to the smaller production runs, hence limiting the retailer's profit margin. In addition to this profit dilution comes more potential loss due to inventory issues. Retailers always struggle to find the optimal balance between excess inventory and out-of-stock inventory situations. Excess inventory leads to eventual markdowns that are so significant they can often lead to an overall loss for the retailer. Alternatively, out-of-stock inventory, while impossible to measure, results in frustration for the customer, not only leading to the immediate loss of revenue, but future losses as the consumer is forced to seek out products, and thus familiarity, from competitor brands.

While the conundrum of having inventory at the right place at the right seems difficult, there are several factors that can determine how profitable fulfillment is. According to RSR, here are a few things retailers should keep at the top of their mind to enhance their fulfillment strategy and optimize profitability:2

  1. Can your company "see" inventory across the enterprise? This is crucial if the retailer truly wants to have omni-channel capability and not only extend offerings to consumers across channels, but actually be able to fulfill against those orders in a timely manner.
  2. Is your company able to put the right amount of inventory closest to the points of demand at the right time? Retailers are working on ways to reallocate inventory based on customized ordering. For example, it makes more sense for cold seasonal items to be housed in DC's in the Midwest and northern part of the United States, while warehouses in Florida and other parts of the South will be provide more utility to customers in that region. There is no way to make these assortment decisions without data and, with traditional ERP systems, 80% of the data will sit outside of the retailers' reach. Without a truly networked supply chain platform that houses all inventory and customer data, the ability to direct inventory to the points of demand will be lost.
  3. Are non-store customer orders fulfilled in a way that maximizes profitability? As the four walls of retail stores are crumbling down, retailers are spending the money to be able to service customers across channels; however, they are also unsure of what their true cost to serve customers is. Anytime inventory moves or is touched by an employee, the costs go up. According to RSR, if you assume the company can see the inventory necessary to complete the customer order, different decision criteria need to be considered to find the most profitable fulfillment method.3 Possible decision criteria include:
  • Markdown Avoidance
  • Lowest Shipping Cost To Customer
  • Lowest Cost/Most Available Labor
  • Fulfillment Point Closest To The Customer's Physical Location

In conclusion, dealing with limited life items and seasonal demand can put retailers in the precarious situation of having to react quickly to recover sales. Because of the low margins on these items, optimizing profits is even more critical.

Without the ability to completely predict consumer behavior or channel purchasing, the best way for retailers to drive profit is to create a supply chain infrastructure that will support last minute changes and react responsively to changes in consumer habits. If retailers continue to assign inventory based on channel, with siloed demand planning, by the time inventory gets reallocated, it will be too late to sell through the limited life summer offerings.

[1] http://mktforms.gtnexus.com/rs/gtnexus/images/GTNexus-Retailers-Challenge-Seasonal-WP.pdf
[2] http://www.gtnexus.com/resources/blog-posts/how-do-retailers-operate-profitably-in-an-omnichannel-world/
[3] http://www.gtnexus.com/resources/papers-and-reports/achieving-profitability-in-an-omnichannel-fulfillment-model/


Leela Rao-Kataria is Retail Marketing Manager for GT Nexus. She has more than 10 years of experience working with fashion brands/labels including Levi Strauss & Co., Sephora, Estee Lauder, and L'Oreal Companies focusing on global product development, international channel execution and luxury products. Leela helped integrate Sephora's loyalty program, Beauty Insider, into Sephora in JCPenney stores. She later joined Levi Strauss and Co. where she partnered with wholesale and retail partners such as Dillard's, Macy's, and Kohl's to deliver heritage programs to Levi's enthusiasts. She has also developed marketing strategies for new market entrants Yellow Brick Coffee and Amyris. Leela received an MBA in Marketing and Finance from New York University's Stern School of Business.

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Tags:  Forecasting  Inventory Management  Pricing  Seasonal Sales 

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Phase 2 of the Trading Partner Interface of the Future Takes Shape

Posted By Administration, Thursday, April 9, 2015
Updated: Wednesday, April 8, 2015

by RVCF


In 2014, RVCF launched the Trading Partner Interface of the Future initiative with the goal of advancing the concept of a neutral, cloud-based platform in which data could flow between trading partners without human intervention. All stakeholders would have visibility into current, complete, accurate data through a configurable, next-generation portal. This would allow for the automation of product set-up, supplier onboarding, planning and forecasting, order management, replenishment, payment and reconciliation, returns, and end-of-product lifecycle.

RVCF is excited to announce TPI2, the next phase of the Trading Partner Interface of the Future initiative. TPI2 will be presented at the RVCF Annual Fall Conference, which is being held November 8-11 at the JW Marriott Scottsdale Camelback Inn Resort & Spa in Scottsdale, AZ. Please note that we have changed the venue due to unplanned construction at the previous location.

The first part of the initiative focused on the various components of the retail supply chain's functionality lifecycle, including high-level strategy, category management, merchandising, finance and accounts payable, operations, and supply chain. TPI2 is a six-month project that will explore ways to improve productivity, profitability and brand value by analyzing and developing the following attributes:

  • Predictive Analytics. Mining granular retail data will help trading partners identify and forecast trends and make data-driven decisions.
  • Lean Inventory Flow Management. Organizations can improve inventory flow through real time planning, forecasting and allocation collaboration. This attribute will include product data as well as demand, replenishment, fill rate, safety, and out-of-stock information, using dashboards with innovative metrics.
  • Lead Time, Supply Chain and Transportation Audit. Data errors that cause shrinkage, shipped not ordered, substitutions, and shortages can be eliminated by tying a PO and ASN to the actual order and improving real time visibility across the supply chain.
  • POS Data Sharing to Optimize Replenishment. By sharing data, retailers and suppliers can gain insights into consumer demand, improve customer service, and better align retailer and supplier sales data.
  • Scorecarding Supplier Performance. Supplier and merchandise set-up and onboarding processes as well as continuing education for new suppliers should be automated. By integrating scorecarding with previously mentioned attributes, suppliers can improve their performance ratings.

Sponsors for TPI2 are Compliance Networks and Retail Solutions, Inc. and RVCF will continue to look for additional service providers and partners who can help bring this exciting concept one step closer to reality. The overall goal of TPI2 is to meet trading partner needs for simplicity, integration and intuitiveness in data sharing and order fulfillment in order to reduce costs and improve operational efficiency. By eliminating data siloes between retailers and suppliers, and within organizations, stakeholders can find new ways to leverage existing data, produce new types of data, and use advanced tools and metrics to analyze that data and maximize its business value. With the Trading Partner Interface of the Future, data can be seamlessly accessed and shared to improve procurement speed and accuracy, increase sales and margins, reduce risk, ensure the best possible customer experience, and strengthen trading partner relationships.

Instead of having individual organizations build their own engines that eliminate the slow, error-prone process of pushing paper and e-mails back and forth, RVCF believes the future of retailer-supplier communications requires an independent, vendor-neutral engine that serves the retail industry as a whole.

We want to hear your thoughts on the Trading Partner Interface of the Future. What is needed to move the concept forward? What pain points are not being addressed? Contact Kim Zablocky at (646) 442-3473 with your suggestions. We also invite you to register for the RVCF Annual Fall Conference so you can learn more about TPI2.


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Tags:  Inventory Management  Predictive Analytics  Scorecarding  TPI  TPI2  Trading Partner Interface of the Future 

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West Coast Port Strike Averted, But Problems Remain

Posted By Administration, Thursday, March 12, 2015
Updated: Tuesday, March 10, 2015

by RVCF


Retailers and merchandise suppliers breathed a short-lived sigh of relief on February 20 as the dockworkers union and the owners of 29 shipping terminals across all major West Coast container ports reached a tentative deal on a new contract. The labor agreement between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) is the culmination of nine months of tense negotiations and enables normal operations to be resumed.

Even with a return to "normal" operations, it will take a long time to move the cargo backlog created by the dispute and relieve the traffic congestion of ships waiting to dock. Industry analysts estimate this process could take anywhere from six weeks to three months. Although the ILWU and PMA said they expected cargo to keep moving during negotiations, work slowdowns, lockouts and other forms of disruption snarled operations at the West Coast ports.

As for the potentially grave consequences of a full-blown shutdown, consider the numbers:

  • Goods that pass through these ports represent 12.5 percent of the U.S. economy.1
  • A study from the National Retail Federation and the National Association of Manufacturers estimated that a work stoppage would have cost $1.9 billion per day for the first five days and $2.5 billion per day it the stalemate reached 20 days.2
  • Consulting firm Kurt Salmon estimates retailer losses to reach $3.8 billion as a result of port delays.3

All ports negotiate together to prevent small strikes, but this practice increases the risk of a complete shutdown should negotiations break down. After the ports were at a virtual standstill during President's Day weekend, Labor Secretary Thomas Perez and Commerce Secretary Penny Pritzker were dispatched by President Obama to mediate the dispute. Members of the ILWU and the PMA now need to ratify the agreement.

Although most retailers were proactive in minimizing the effect of the strike on the 2014 holiday season, the workarounds put in place are not sustainable for the long-term. Rerouting ships to Gulf and East Coast ports or switching to airplane transport are expensive alternatives and the negative effect on the economy and retail industry has already reared its ugly head. The time required to process shipping containers rose from an average of four days to two weeks.4 Merchandise is stuck at the ports. Revenues are down for many major brands. Shipments from meat, dairy and agriculture exporters have spoiled. Truckers hauled fewer loads and lost money. Jobs have been cut.

The volatility and uncertainty surrounding negotiations has made it difficult to manage and plan retail business strategies. In the apparel sector, inventory management has become a nightmare. There is a growing concern that merchandise will be out of season by the time it arrives in stores. This means retailers have little opportunity to sell many products at full price, while floor designs, window displays and special promotions focused on certain merchandise may be wasted. Carrying costs and out-of-stocks are up.

Although an agreement has been reached, many of the problems causing the worst congestion in a decade at the ports of Los Angeles and Long Beach still need to be solved. There has been a shortage of truck trailers to haul goods. Port terminals designed many years ago are struggling to support today's massive vessels and keep up with the high volume of goods. A lack of consistency in container sorting from multiple shipping lines is making it difficult to quickly move containers out of port.

As a result of these challenges and the near-disaster caused by a prolonged labor dispute, retailers and suppliers are reviewing their strategies for moving products into the hands of customers. They're looking for ways to adapt their supply chain and become less reliant on West Coast ports. Although Gulf and East Coast ports could make shipping longer and more expensive, these alternatives need to be thoroughly explored. Near-shoring and moving manufacturing operations to the U.S. are options that may be more feasible now that the cost savings of overseas manufacturing have dropped significantly. Sourcing strategies need to be reviewed to assess the ability to mitigate risk and improve advance scenario planning.

Although a strike has been averted, the retail industry shouldn't get too excited. The effects of the nine-month battle remain and it will take a long time to recover. In the meantime, retailers, suppliers, shippers and all stakeholders must come together to rethink shipping and supply chain strategies.

[1] http://www.cnbc.com/id/102434185#.
[2] https://nrf.com/resources/retail-library/the-national-impact-of-west-coast-port-stoppage  
[3] http://www.zerohedge.com/news/2015-02-18/track-massive-congestion-port-long-beach-real-time  
[4] http://www.washingtonpost.com/blogs/wonkblog/wp/2015/02/17/why-a-major-backup-at-west-coast-ports-could-cost-the-retail-industry-billions/


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Tags:  Inventory Management  Labor Stoppage  Long Beach Port  Los Angeles Port  Ports  West Coast Strike 

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