November 22, 2019
Inventory’s Impact Ripples Throughout the Organization
Nowadays, the sum of the parts determines corporate success and failure. With competition exceedingly intense, an organization cannot afford to have any poorly performing business unit, especially one like supply chain management that sets the tone for customer interactions. The impact of poorly managed inventory, in cases like JCPenney, Forever21, and H&M, rippled throughout the organization and resulted in customer loss, brand damage, and executive shakeups.
What are the reasons for inventory management success or failure? To answer that question, we convened a panel of industry experts using the Currnt platform. Here are their thoughts.
Inventory Management Needs to Mimic Goldilocks
Inventory management is often a difficult balancing act. “Not enough inventory can close a business down, and too much inventory impacts the Profit and Loss statement,” noted Debora Bielecki, Global Executive, Board Member, Co-Chair & Board Advisor.
Many companies struggle in this area. “Slow-moving inventories, overstocks, under-stocks, and returned inventories all jointly create a 'Ghost Economy' in the market,” noted Sumant Parimal, Global Director of Consulting and Business Development at Innogress Professional Services. In the retail sector alone, the Ghost Economy accounts for over $1.75 trillion, according to a study by IHL Group Research that was commissioned by OrderDynamics.
A Ripple Effect
The direct and indirect results for companies that do not monitor inventory well can be shocking. H&M, a retailer, did a poor job and ended up with $4.3 billion in unsold inventories last year.
Ripple effects occur from mediocre inventory management. “Flooding the market with a mass sale for this slow-moving inventory must be managed in a way that doesn’t disturb the brand name or the future products that are coming to market,” explained Bielecki. “This is a serious issue and makes me wonder how these companies can get their inventory nightmare under control.”
Its impact is not limited to just high-profile retailers. “Logically businesses with inventory that is in a finished goods state or perishable items, like food, especially in trend, season, time and price-driven markets are most impacted from slow-moving inventory,” noted Raoul Gruenberg, President of Green Mountain & Associates.
Yet some enterprises excel at managing inventory. “Zara, which claims it can design, manufacture, and deliver clothes to stores within 15 days,” explained Innogress Professional Service’s Parimal. “Zara remains one of the high street's beacons due to its ‘Just in Time Approach' in inventory management, through which it produces around 450 million items a year and is regarded as a benchmark by the rivals.”
Technology has simplified some steps in managing inventory, but it remains a complex process. The financial stakes are great and other impacts, such as brand reputation and executive shakeups, are seen. This area is fast-moving, so tried-and-true business processes will need to evolve. We will continue to explore the many facets of this discussion. Please feel free to chime in and add your experiences to the topic.
About the Author
Dennis is Chief Revenue Officer, US Division at Active International, a leading Corporate Trade Company providing excess asset solutions to hundreds of brands across industries. In his role, he is responsible for developing the company’s long-term strategy for client acquisition and retention as well as strategic partnerships across all of Active’s business units.