Setting the Vision for 2021
Cameron Howley, Project Manager at Avolin, looks at what lessons can be learned from events in 2020, and identifies a series of steps retailers can take to maximize the sales opportunity, and minimize inventory.
Effective planning and forecasting can be challenging in an average year, never mind one which saw a global pandemic create unprecedented levels of volatility across markets. Even the very best plans were derailed, causing some businesses to spin up new contingency models to compensate, and others to fall by the wayside.
While 2020 was extreme in terms of the disruption caused, the need to plan, plan and plan some more for both the expected, and the unexpected, is nothing new.
The holy grail of 100% stock availability with minimal inventory is not an easy one to achieve. In order to maximize sales opportunities, you need stock in the right place at the right time, in the right quantities. However, our experience shows that at any one time, retailers might have up to 40% of cashflow tied up in overstock, which, when you consider that poor cashflow is one of the main reasons cited when companies file for bankruptcy, isn’t sustainable as we continue to face turbulent times ahead.
Tis the season to be profitable
Seasonality, fluctuating demands and trends inevitably make planning much tougher. Take for example the Christmas shopping period, which typically starts with Black Friday and Cyber Monday, and can see sales soar in certain segments.
However, a lack of granularity and dynamism in planning can negate some of the profits gained in this period, as January and February typically see a combination of customer returns, heavily discounted overstocks, and a need to return large quantities of unsold products back to suppliers. As well as potential penalties and lost revenue, the processes involved are time consuming, labor intensive and costly. Depending on the specific supplier agreements, returns of overstocks are often capped at a certain level, which is hugely significant given that retailers return millions worth of stock in Q1 as a result of overstocks in Q4.
These challenges are not just related to the festive period of course. Valentine’s Day, Mothering Sunday, Easter and Halloween all see similar spikes in certain segments, with lower profile trends such as New Year health kicks, spring cleaning or Autumn baking all creating their own patterns of demand.
Maximizing the window of opportunity
Maximising these seasonal windows, without the costly aftermath, is crucial for successful retailing in 2021. But to achieve it means having the ability to plan for multiple eventualities, reacting to shifts in demand and new patterns in real-time. Logging sales across multiple channels and automatically uplifting replenishments based on product relationships against the time of year is paramount.
Forward thinking retailers are using advanced forecasting algorithms which analyze and map all relevant internal and external data to allow retailers to plan as far out as they need to, from a few days to a full year and beyond. This allows more time for review, planning and execution which removes pressure from the supply chain as a whole, as well as ensuring resources are allocated correctly.
Crucially these plans can be changed continuously in line with new trends and patterns in the market, allowing multiple scenarios to be created. These forecasts can then be matched to actual sales to select the closest one, which promotes the agility to react quickly without any big surprises. Enhancing flexibility further, mobile capabilities help merchandisers get a real time inventory picture, hourly if they wish to, which boosts in store setup which, when you consider that even half a day’s lag in reporting inventory levels can result in lost sales, is hugely valuable.
Planning in unusual times
The ability to plan in such granular and accurate detail is particularly important in a year like 2020, or indeed 2021, where the previous year’s performance is limited as a predictive tool. The pandemic saw many retailers forced to close their physical doors and expand their online capacity, with continuously shifting goalposts. At the same time, new trends were created, with lockdowns seeing massive demand for products relating to baking, working out, home schooling and media and entertainment.
Of course, it’s not limited to supporting existing products. New product launches can be mapped out, using similar products, trends and consumer behavior as a baseline, and adjusted in real-time to ensure the best possible stock availability/inventory balance.
And while some markets have seen a distinct lack of product launches, others have been launching new offerings more frequently, and faster than before. Against this backdrop, retailers need the ability to react quickly to demand, adjust their catalog and plan accordingly, in order to capitalize on the disruption and ride out the storm.
Planning for the long term
Through using dedicated, modern capabilities, long term planning is enhanced substantially. A broad reporting suite facilitates an executive or analyst level view of the stock position, allowing long term planning to be adjusted accordingly. Reporting can identify whether assortments are correct, or whether shifting the product range or store base to take advantage of demand is necessary.
There’s no doubt that the retail landscape is not for the faint-hearted right now. More lockdowns, associated trends and changed consumer habits which may be set to stay for the long haul, all look to be hallmarks of 2021. But as we emerge from this crisis the winners will be those who have adopted modern, intelligent platforms to optimize their planning and enhance their ability to react with speed and agility in order to secure market share.
For more information on how Avolin’s Vision Inventory Management solution can help you plan more effectively, click here.