Inventory and warehouse planning: align them!

Experts say the recent bankruptcies in retail are due to the slow response to the success formulas of well-known e-commerce companies. The discussion mainly revolves around dated assortments, excessive rental rates and lack of experience in shops.

Different view
But there appear to be more differentiating factors when you put successful companies under a magnifying glass:

• The 'better than good' fulfilment of the commercial promise to the customer is always at the centre and is scrupulously translated into concrete design criteria for operational processes. Growth, turnover or profit is never their primary goal but is bescchched as the logical consequence of good performance;
• All (repetitive) processes that can be described in algorithms are automated to give all attention to daily exceptions. Seemingly irrelevant data in separate systems becomes information through smart linking;
• Integral control of inventory and warehouse processes has been chosen.

For many companies, the marketing and sales side of the story turns out to be more understandable and therefore more fun than the complex interrelationship of processes to ensure flawless delivery to the customer at the desired hour. Yet many companies still fail to realise this and salvation is mainly sought in numerous sub-optimisation processes within the financially driven "profit-loss cost centres" in which everyone is expected to keep their own trousers up.

Pitfall
This is precisely what works counter-productively when it comes to realising collaboration initiatives and supporting linkages of processes and IT systems. Having done many projects around inventory improvement and DC optimisation in different sectors, there turned out to be one pitfall that many companies fell into:

Marketing & Sales have started widening and deepening assortments in the hope of more sales from new customers. Losing 'longtails' and the impact of both irregular demand and slow movers on space, productivity and manageability were unknown quantities. Inventory costs were rising and service levels were going down.

The Purchasing department, responsible for purchasing as well as inventory planning, tried to cut inventory costs and started buying full containers from Asia. Warnings that this would not have a positive impact on quality, controllability and integral Supply Chain costs in the longer term were ignored. To eventually cope with increased costs and disappointing margins, Finance launched a cost reduction programme for the Warehouse & Distribution cost centre.

The message was clear and impracticable: deliver flawlessly and at reduced costs from the existing premises with fewer people and resources to handle normal shop deliveries as well as a rapidly growing number of web orders.

Fortunately, many are beginning to realise the need to change course quickly, setting central, inspiring goals that are fully thought through including sophisticated assortments, product life cycle rules, matching stock control and flexible warehouse processes.

In the coming months, I will explore this topic in more depth with practical examples in this newsletter. Should you want to get some inspiration in the short term, you are cordially invited to my lecture on Thursday 17 March at Supply Chain Innovations in Antwerp.

Robert van Ree - Senior Logistics Consultant at St Onge Company