Lights, Cameras, Delayed Action
Despite shining a spot-light on inventory management and capturing snapshots of virtually every conceivable data point in the supply chain, the lag time for taking action to stock stores is alarmingly lengthy for most retailers.
In April, Boston-based Aberdeen Group issued a preliminary report based on findings from research conducted in January that revealed 55% of retailers are unable to detect inventory demand trends until five weeks into a season and 44% of retailers are unable to make decisions based on detected trends until week six or later. Operating with such slow-motion replenishment makes it impossible to optimize sales, particularly on promotional or high-fashion items.
While this was clearly a challenge for retailers at the start of this year, the recession and ensuing plunge in consumer demand has made predicting inventory levels progressively more difficult. John Long, a partner at New York City-based Kurt Salmon Associates, warned, “There is less certainty and less predictability. The fundamental premise that retailers can look at historical sales data and expect there to continue to be a year-over-year increase in consumer spending no longer holds true. That bubble has burst and, for the most part, retailers won’t know what customer demand is until the actual season.”
To work within this shrinking window for demand forecasting requires that retailers and suppliers raise communications and negotiations to a higher level—or as Long suggested, “Retailers have to figure out how to accelerate the manufacturing process while at the same time delaying the decision-making process.”
This is particularly true for retailers of private-label products, as well as for promotional products that by definition have a shortened selling season.
HMV, a leading music, film and games retailer based in Leatherhead, U.K., has embarked on a strategic initiative to improve communications and streamline negotiations with its suppliers. The entertainment retailer has 265 stores located across the United Kingdom and Ireland, 138 stores in Canada and a growing direct-to-consumer channel via its online store.
Steve Consalvi, head of finance systems and information at HMV, said that company revenues increasingly are generated from promotions and special campaigns. However, inconsistencies in supplier management and the inevitable exceptions that occur throughout the negotiations and execution of promotions have created the need to address problematic issues on a daily basis.
To alleviate these issues, HMV is currently implementing a Web-based “Deal and Terms-Management” solution from Burlington, Mass.-based Eqos, which, according to Consalvi, “will provide more consistent and auditable communication with suppliers, enabling us to proactively manage deals and monitor progress.”
The first phase of the rollout will be completed by September, in time to manage the retailer’s deals with suppliers for holiday promotions.
The second phase of the implementation, slated for 2010, will encompass the special campaigns, such as “buy three DVDs, get one free.” Consalvi explained this would be a larger undertaking than the promotions, because campaigns typically run for four weeks at a time and there is always some sort of campaign running in the stores.
By improving the communications with its suppliers, HMV expects to minimize the time and resources required to manage disputes and exceptions, thus improving inventory flow and the effectiveness of its promotions and campaigns.