Taking Stock of your Inventory
The phrase “Knowledge is Power” is often attributed to Sir Francis Bacon; regardless of the origin, knowledge will be paramount to accurately and efficiently determine your course of action for inventory management.
It is critical for you to get visibility of the inventories you own. Only from there can you determine how to approach your inventory management. In our experience, there are two key metrics critical in this process – analysis of Product Type and of Product Aging. We outline the criterion of both below.
Every retailer maintains some form of Product Hierarchy to define their sellable items; what is often missed (or only partially available) is the Product Type. At a minimum, retailers need to be able to determine the levels of Basic inventory.
Basic styles are year-round selling items, sometimes called Never Out of Stock (“N.O.S”) items. Typical retail examples are navy blue polo shirts, khaki chino pants, or white crew socks. These Basic styles represent consistently selling styles always putting ‘money into the register’. Understanding your current in store and in DC position can help you determine whether these are a priority to pick and ship to stores, or whether these items can be held back at the DC to allow the teams to focus elsewhere.
Many retailers have an additional layer of Basic items, often referenced as Seasonal Basics. Mock or Turtleneck sweaters may be strong sellers in Q3/Q4, as are V neck or Scoop neck t-shirts in Spring/Summer, but in the alternate seasons these have very little selling potential. It is critical to be able to differentiate between the year-round Basics and the Seasonal Basic items.
Since fiscal 2020/21 Q1 is coming to an end and we are quickly approaching Q2, assessing the Seasonal Basic levels is even more critical. Based on selling potential versus available inventory, the Seasonal Basics may need to be moved up to fulfill immediate store inventory requirements, or the inventory may need to be stored for the following season. Either way, this will be the first step towards inventory management within the DC.
For many retailers, defining the age of the inventory will be key to define movement from Store to DC, along with the possibility (where relevant) of movement from store to associated outlet locations. Although Made for Outlet (“MFO”) inventory is often the profit life blood of outlet location sales, to alleviate some of the existing store inventory and potentially avoid additional in-season markdowns, it is critical to understand the age of particular styles of store product.
And for Fashion apparel either based on season or fashion, product aging is probably even more important than Product Type.
Although daVinci’s clients define their aging strategies differently, there are some common guidelines to follow. First, there must be a consistent scale to represent age. In our experience the concept of the ‘in store set up date’, initial floor set viewable by the customer, is the easiest measurable method. In DC date can be hampered by vendors delivering to the DC in bulk, or if order invoice date is used, consider also using the actual in store date as this is typically closely related to store set up and is much more tangible and understandable.
A simple example of a valuable aging code could be two fields – one alphabetic and one numeric, to represent the month and year. For example, if the Feb 2020 is the first fiscal month, a code as simple as A0 (A for Feb as 0 as the last year digit) allows for an easy method to reference the list of assortments in stores styles for that timeline. March 2020 in store assortments would be B0, April C0, etc. To differentiate the Fashion and Basic garments, the two field codes could be BA for Basic, or SB / FB for Spring Basic versus Fall Basic, again to differentiate from the Fashion aging codes.
Attaching such codes allows Planning to assess the age of the inventory currently in the DC, as well as in store and in transit. When attempting to define promotional / clearance markdown plans it is much easier to be able to create accurate promotional patterns with such data.
Examples of this type of coding have been in place for decades for some retailers as they long ago realized these codes can assist Store Sales and Visual Merchandising teams to ensure they understand when styles initially arrived. Many retailers have also incorporated these age codes directly on to the sales tickets for all items sent to stores, for greater Store Operations visibility.
Even if this is a new strategy for your organization (and no such ticketing exists at store level), creating an aging scale will allow you to more accurate assess your inventory.
One more note concerning the assignment of Product Type and Product Aging, we recommend both values be assigned at color level, as opposed to only style level. Many retailers maintain consistent style ID codes based on body, so the Fashion, Basic and Seasonal Basic garments’ style numbers are identical. The ability to code at color level allows for a more accurate representation which will ensure a much greater accuracy of your inventory aging position, compared to an inaccurate overall age code only assigned at style level.