Inventory Optimization for a Leading Retail Chain Client in the US

Dec 26, 2017

The client

The client is a leading retail chain

Area of engagement

Inventory optimization

At present, inventory is the most significant investment in the retail sector. It forms the axis of the supply chain network around which the process of product inflow and outflow revolves. To maximize the return on investment (ROI), retail chain companies must ensure that exuberant inventory investments are kept to the minimum. The retail industry is greatly affected by the rise in demand-supply shifts, which calls for the need to streamline supply chain networks. Consequently, several retail chain companies have started using forecasting software to solve inventory challenges arising due to mounting customer expectations. Inventory optimization can be achieved by reducing cycle times, synchronizing supply chains based on demand variability, and inventory positioning.

Although the rising number of retail chains incorporating advanced technologies may fuel the growth of this sector. Let’s look at certain factors that may hinder the growth and profitability of the retail industry in the coming years.

  • Markups: Markup forms an essential part of the retail sector’s competitive strategy. The markup has to be figured out in a way that it covers current costs while accommodating future contingencies. It takes into consideration various factors including the category that the product belongs to and the impact of the markup.
  • Inventory and distribution: The advent of technology has led to increased speed, the rise in real-time accuracy, and has also reduced the cost of inventory tracking. Furthermore, the growing popularity of online shopping and e-commerce platforms have prompted several retail chains to convert their stores into distribution hubs. The retailers can also benefit by installing kiosks in their stores to fulfill orders, which also allows users to compare prices and place orders online.
  • Sales and service strategies: Customer service strategies help retailers in differentiating themselves from their competitors. Therefore, devising effective customer sales and service strategies is a key growth driver for the retail sector. According to a research, online shoppers tend to increase their spending when given free returns. Hence, the retail firms must weigh the potential loyalty benefits against their costs to provide customer service at that level.

The Business Challenge

A leading retail chain in the US wanted to devise effective strategies that would help them handle and better manage their inventory levels. The retail chain was also facing challenges in maximizing the return on investment (ROI). Since the retail market is volatile, optimizing inventory requires the retailers to take immediate action. About 35% of their supply chain inventory was stuck in non-performing stock-keeping units, or SKUs, which contributed to less than 5% of their overall sales. This is known as the long tail of the supply chain.

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The Solution and the Business Impact

Strategies that we recommended based on our inventory optimization solution to improve ROI

The inventory optimization solutions offered by Quantzig helped the retail chain client to optimize their inventory by assisting them to identify and decommission the non-productive merchandise. Also, implementing SKU rationalization techniques for inventory management helped the client increase their profit margins by 30%. The inventory optimization experts at Quantzig helped the retail chain client develop business cases including the estimated savings associated with each opportunity.

Inventory Optimization Predictive Insights

It is essential for the retail chain clients to identify and devise effective strategies that help to re-deploy unbalanced inventories. Adopting this technique brings about improvements in cost efficiency by maximizing profit margins. Inventory optimization coupled with predictive analytics capabilities helps in better managing the logistics to gain actionable insights on the supply chain network. Moreover, this also helps the retailers in avoiding the demand-supply shift related issues by curtailing out-of-stock products.

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