Originally published October 14, 2008
Effective inventory management translates to having the right amount of the right product at the right location delivered just in time to satisfy customer needs at minimum cost. Implementing an inventory improvement solution driven by business intelligence (BI) can help retailers to improve their business in five key areas: assortments, replenishment, vendors, supply chain and markdowns. Detailed data related to physical and calculated inventories, inventory receipts and adjustments, supplier shipments and intra-enterprise item movements, sales, plans and forecasts, replenishment targets and safety stocks gathered in a centralized data repository serve as the foundation for the solution.
In this article, we discuss the importance of inventory management and how best-in-class retailers are utilizing business intelligence to analyze information from across the supply chain and internal operations to improve the efficiency of inventory throughout the enterprise in order to:
Many retailers have begun to implement assortment planning tools which help them to create the most profitable mix of merchandise to carry within their stores. While assortment planning tools can help retailers create multiple iterations of their plans, integrating business intelligence is critical to providing insight as to what assumptions should be made to guide those plans. BI enables retailers to:
Business intelligence allows retailers to utilize metrics that may not be available in assortment planning tools to provide even greater insight into the assortment planning process.
Many retailers carry an assortment of products that are replenished from a central distribution center based on pre-assigned target on-hand quantities. Best-in-class retailers are controlling and optimizing replenishment throughout their operations by applying BI to:
Business intelligence gives retailers the ability to closely monitor and analyze inventory levels within their enterprise, enabling them to more effectively stock merchandise based on the buying behavior of their customers.
Inefficiencies in the supply chain affect not only the retailer, but also the vendors that supply the goods offered to consumers. Inaccurate or inaccessible data in the inventory management system can lead to retailers ordering unnecessary products because they don't know they have supply on hand or hinder a retailer from placing necessary orders when supplies are low. Leading retailers use business intelligence to collaborate with their vendors to:
BI-based vendor managed inventory systems (VMI) co-opt vendors into taking responsibility for properly managing inventory levels at distribution centers and stores, resulting in exponential value for both the retailer and vendors alike.
Business intelligence gives retailers the ability to gain access to enterprise-wide information on the company's supply chain operations. This insight can help to improve the accuracy of demand forecasts and increase the efficiency of the supply chain, reducing lead times, carrying costs, and operating costs across the enterprise. Retailers can use BI to gain visibility within their supply chain by:
The aggregated effect of using business intelligence for supply chain optimization is a reduced need for safety stock to avoid service interruptions, increased asset liquidity, and easier access to available working capital.
Business intelligence can be instrumental in both quickly identifying products that should be discontinued or marked down and determining the most profitable way to sell through poor performing merchandise. Combining item level plans with sales data allows retailers to quickly identify items to be promoted, marked down, or sent to outlet stores. The ability to react promptly to issues at item level enables retailers to avoid build-ups of non-productive merchandise.
In addition, business intelligence can be used to determine the most efficient ways to sell-through slow selling inventory. Retailers can use BI to identify the levels of discounts that have worked in the past to liquidate similar merchandise. Alternatively, BI can also be used to identify which locations have sold the product better or which sell markdown merchandise better so that broken assortments can be consolidated to the locations that have the best opportunity to sell the merchandise more quickly or at a higher price.
Retailers who take advantage of business intelligence to improve markdown optimization are able to spend less time determining merchandise to mark down and instead are focusing their efforts and investments on more productive inventory.
World-class business intelligence environments allow retailers to increase their visibility into inventory management without hampering daily operations. By extracting information from disparate
source systems into a centralized repository such as an enterprise data warehouse, retailers are concurrently reporting on metrics related to their supply chain, sales, production and internal
operations to make better, fact-based business decisions. By utilizing a data warehouse that supports trending on both historical and future operational metrics such as weeks of supply,
sell-through, inventory turnover, gross margin return on inventory and shrinkage, retailers can improve data quality and accuracy, manage inventory levels to avoid lost sales or oversupply, provide
external vendors with increased visibility into product performance, and allow managers and executives to make more timely decisions using a common set of data trusted across the entire user