Replacing inventory with information

by | Jun 15, 2020 | Inventory Management, Omnichannel, Product Information, Retailers

Inventory information can be the lifeline or the death rattle of companies in the retail ecosystem. Companies – regardless of size – need to balance inventory with meeting customers’ needs (whether your customer is an actual shopper, a retailer, or a manufacturer). You improve the chances of meeting all your customers’ needs all the time by maintaining a higher level of inventory, but face the prospect of doing so at significant costs. The financial impact of higher inventory or safety stock, storage of additional goods, and potential for liquidation of obsolete inventory are just some of the consequences. Companies can avoid those potential costs by slashing their inventory levels, but risk missing sales, disappointing customers, and impacting future revenue.

Ultimately, a company needs to address the following question:

How do you successfully manage your company’s inventory position to take full advantage of changing trends while being nimble enough to adapt to changing market demands?

Many companies are finding that the right balance is helped with two words: inventory information. The right information at the right time can actually replace the need for a certain layer of inventory, enabling organizations to become more flexible while continuing to meet the needs of the customer. I am not suggesting that you can put a stack of information on a truck instead of a box of products and send it to your customers. Instead, I am suggesting that the right information can be a replacement for inventory in your supply chain, whether it is in your warehouse, on the water or on your store shelves.

And that inventory information doesn’t have to be solely contained within one organization. Sharing the right information in the right manner with your supply chain partners enables them to make smarter decisions and recommendations for your business.

What types of data can help replace inventory with information?

With the right data, buying organizations can gain the confidence needed to operate with less inventory. Here are a couple of examples of how the right information can help:

  • Order data: retailers often don’t have the information they need from their trading partners to know if orders will be fulfilled on time or in full. Because of the lack of data, retailers overcompensate by ordering excess safety stock. To improve visibility into order status, retailers should require suppliers to send updated order information via order acknowledgements in response to the initial order as well as any order updates as things change. For example, if a supplier determines 24 hours after they receive an order that they can ship complete, but realize later that they are short on inventory, they should share that information with the retailer. Acknowledgements allow suppliers to set expectations with buying organizations about exactly what will be delivered, and when. In addition, they allow the retailer to communicate potential corrections, such as price discrepancies.
  • Shipping data: similarly, retailers often don’t have the insight they need to prepare for the arrival of the shipment, including knowing when the order will ship, how it was packed, what was packed and most importantly, what is not being delivered. This also causes the retailer to mitigate risks by ordering more inventory than they need. Implementing ship notices with trading partners is a key way to replace inventory with information. By doing so, the retailer can determine “plan B” for managing customer demand, as well as resources needed to receive the shipment and expedite the receiving process.

Reduce inventory & safety stock by having better trading partner data

The impact of a lack of inventory information runs deeper than many buying organizations realize, often tying up capital worth tens of millions of dollars each year. With better information, organizations can often reduce inventory by up to 5-20 percent by automating the exchange of critical data with their trading partner community. 

Want to learn more about how to trim inventory levels with better trading partner data? Visit our website or download our Inventory Management Playbook.

Scott Bolduc