This is the first part of a three part series about identifying and solving common wholesaler inventory problems.
The Problem
Too little inventory of the best sellers in the top stores. Too much inventory of the poorer sellers in the low volume stores.
Optimizing inventory at store level is tricky. You want to present the consumer with breadth of range, which means stocking inventory that has a slow velocity alongside products with high velocity. Furthermore, demand is dependent on so many variables, some of which are within your control, but many of which are not. So what inevitably happens is that you are regularly out of stock of the best sellers, whilst you have valuable cash tied up in the low velocity products in low volume stores.
The first step in addressing this age old problem is to have visibility of the data. You want to try to grid your data to cluster into quadrants, so you can see how much capital is allocated to your various clusters. The challenge is to shift investment from the bottom clusters to the top clusters.
The question to ask yourself about the bottom clusters is, “Is it really necessary to range these items in these stores?” If you have to have every item represented (for example, to maintain a brand profile or a size curve) make sure you have shallow inventory. If you only sell one XXXXL shirt once every four months, you can afford to have only one on the peg, because it doesn’t matter if it is out of stock temporarily when it gets sold. Conversely, go narrow and deep of the best sellers in the top stores, as these are your cash cows.
The reality is that if you are turning your stock fast of the best sellers in the top stores, the chances are that you have not yet even achieved your true potential in sales, because you are always chasing your tail!
Present your retail buyer with a plan for how to reallocate OTB from bottom quadrants to top quadrants. The beauty of this approach is that it does not require additional OTB, and furthermore drives higher sales with lower absolute inventory, resulting in a rapidly increasing GMROI. You are guaranteed to be flavor of the month!