| By Todd Barker | Director, Integrated Demand and Supply Planning | Chainalytics |
A recent article in Business Insider, “’Entire aisles are empty’: Whole Foods employees reveal why stores are facing a crisis of food shortages,” helped reveal some key challenges associated with implementing new inventory strategies and centralizing replenishment. For a customer facing company like Whole Foods, the last thing you ever want is customers ready to buy but no product on shelf to sell them. Having helped clients implement new inventory and replenishment strategies across multiple industries, here are some key learning points that we should take from this situation.
- Balancing costs and service is as much an art as it is a science. Too often companies rely too heavily on technology to solve their inventory issues by setting up the “optimal” parameters only to realize it is not as optimal as they thought. Technology is only as good as the information it receives, and certain customer and human elements always need to be incorporated.
- Variability, whether through demand or supply, has to be accounted for when setting inventory policies and targets. What happens if a supplier ships late? A promotion exceeds expectations? The weather changes and drives spike sales? If not incorporated into the plan, all of these elements, as well as many others, could create the situation Whole Foods now faces.
- When implementing new inventory policies and targets, you need to walk down the path (or lightly jog), not sprint. Too often, companies want to get after savings immediately, and they decide to go straight to the final endpoint. It can be safer to make small to moderate reductions in inventory targets and pull back when you feel some pain. For most companies, it probably took them several years to get where they are with their inventory issues; therefore, they shouldn’t expect to resolve them overnight.
- Centralizing replenishment always creates challenges with understanding the local markets. Any time an organization decides to centralize replenishment, they inherently risk removing the local market expertise from the buying decision process. While store associates may not be experts in planning, their insights still need to be accounted for. Solutions can include providing store level ordering overrides to resolve stock-outs (with certain approvals levels) or providing communication portals (web, dedicated emails, phone hotline, etc.) that allow associates to immediately bring up issues with guaranteed responses.
While there are certainly a lot of factors that come into play in driving stockouts in retail locations, understanding what they are, the probability that they will occur, and how to address them remains a critical step in successfully implementing new inventory policies.
Todd Barker is director for the Integrated Demand and Supply Planning competency at Chainalytics. He has 20+ years of executive management experience developing integrated planning, materials, sourcing, logistics, manufacturing, distribution, merchandising, and overall end-to-end supply chain strategies for small to large scale manufacturing, consumer goods, and big-box retailing businesses.
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