If inventory planning is crucial to retail profitability why are most retailers falling behind?

“You call them goods; but, if you do not take care, they will prove evils to some of you” wrote Seeing eye by Valerie Everett some rights reserved small Benjamin Franklin in The way to Wealth. This quote is an early indicator on a fundamental problem with all businesses: inventory management.  As long as there has been trade the simple rule of supplying what people need when they demand it has been essential to success in retail. One man who understands this and has done well as a results is Sergei Galitsky the CEO of Russian food retailer Magnit. His methods are equally valid across retailers of all sizes and stripes – be they a boutique owner in Winnipeg or a sporting goods chain across mid-western USA.

Mr Galitsky used purchase data to increase his market share and gain customer loyalty by addressing his customers greatest concerns, price, while keeping his inventory lean.  This article from The Economist shared how Mr. Galitsky plans his logistics and inventory to offer the most competitive price possible.  This data combined with Mr. Galitsky ‘s obsession with detail has allowed Magnit to be able to determine the inventory of any of his stores at the click of a button.  He is able to send a message to a store manager some 1,900 kilometers away to tell them to restock the milk aisle when it is low, which is crucial since it makes up to 80% of the stores profits.  Russian consumers have repaid Mr. Galitsky’s Magnit by making it the number one retailer in Russia based on earnings despite his competitors much better locations. Clearly, great inventory management pays back.

Successful inventory management is one component of the success of Magnit.  The other is successfully recognizing the customers’ needs.  Magnit, like Sam Walton of Walmart, did this by realizing just how sensitive Russians customers are towards price: when Magnit reduced the price of bananas by one Ruble (CN$0.03) his company increased the daily amount of bananas it shipped by 100 tons a day.

Managing and leveraging information has clearly worked well for the big players.  Now, the issue is how senior managers of small to midsize firms, who are already wearing many different hats, manage their inventory and identify trends? Thechallenge is primarily of budget and of skills shortage. The kind of infrastructure that companies like Magnit have put together is expensive. It needs terabytes of data, armies of analysts and infrastructure that would not be out of place at NASA.

Or… they could just look to the cloud

One of the major developments of the 21st century has been the evolution of cloud based technologies. Indeed our goal for Infernotions has been to democratize analytics by delivering business intelligence over the cloud at prices that small and midsized companies can afford.

In the current context we know companies like Magint look for insights at two levels to bump their bottomlines : Demand management and needs forecasting. The screenshot below illustrates how the Polytab product delivers the intelligence. This example is for a specialty retailer for bath and beauty products. The manager wanted to understand the affinities across products for three purposes

  • What products to co-promote?
  • How to plan merchandise allocation across their 12 stores?

Affinity modeling bath body products

Moreover the manager wanted to look beyond SKU-based allocation to the needs of her customers. And she knew her customers did not come for specific products but foremotive flavors and fragrances. There was the carribean ocean theme, and the Grecian orchard theme etc. This Polytab implementation built up the data mart on the cloud and provided the interface for her to run queries around key flavors and trends. This was the on-demand, store-specific intelligence she needed to be effective in her job.

We created Polytab to help companies with neither the means of an Apple or the attention to detail of a Sergei Galitsky to conveniently manage their inventory and recognize what products they should promote.  As Tim Cook, Apple CEO, has said “inventory is fundamentally evil” and as we know, any firm that does not anticipate their clients needs is fundamentally flawed.

To see how cloud analytics has been used by retailers to improve their bottomline, download the case study below.

How a retailer used local store-level marketingintelligence to grow same store sales

That’s my take. Why do you think retailers fail at effective inventory planning? Do you think they recognize the need? Leave your comments below.

Seeing Eye image by Valerie Everett used with permission under Creative Commons.

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