2 Basic Requirements Of A Retailer Aiming To Reduce Inventory


The retail industry is undergoing a big change in terms of inventory. As you know, in many countries, inflation figures were very high in the 90’s, inevitably affecting the retail business. The most critical limitation in this space was – ironically – the limited space available. The economic landscape changed in the 2000’s.  These were the years when the executives figured out that piling up is not contributing to the bottom-line, on the contrary, it is a pretty bad idea. The concept of ‘Minimum stock level’ emerged and changed the inventory management approach. After almost 2 decades, supply chain professionals are still chasing the answer to a  question, where the bar is continually rising; “How can I make my minimum stock policy, even smarter?”. We will discuss in this and our upcoming posts, what a retailer needs to answer this question with confidence.

The 2 main prerequisites of a minimum inventory management approach  are;

1.Demand Forecasting System

It is no secret that, the success of an inventory management strategy is highly dependent on estimating the demand with the smallest error margin possible. While data flows from origin to the end, each step of the supply chain interacts with one another. Forecasting the demand is the first step of any production system and contributes to maintaining the stock levels, providing better service to customers, improving capacity utilization and bottom-line. Other than these, workforce, materials and capacity plannings are made based on forecasts. It is almost impossible to plan and manage in the absence of a solid forecast.

Retail demand is highly affected by discounts, campaigns and special day events, along with the seasonality and trend effects. To add another challenge, in retail it is common to see items removed from sale and then put back again, for certain business-related decisions. This fact distorts the time series and diminishes the confidence in the forecasts.

With a glance to retail, we see that some stores are located in city centers, some on university campuses, near stadiums, in the airports or on the coastline –  heavily affected by seasonal influences. A store in or near the university campus is directly affected by the academic calendar, as a store near the stadium is influenced by the league table. If the products determined to be affected by the special events or dates are not available in the stock room of the stores, customer demand will not be transformed into revenue. Since the effects are of different origins and nature, using a single method to compute the forecasts is not very realistic, after all. For this reason, we employ a multi-algorithm approach. We develop demand forecasting algorithms and race them to select the champion. We choose the best among the forecasting methods (exponential smoothing, regression, Holt-Winters, etc.) according to the nature of the demand and business.

2.Inventory Control System

The results derived from the demand forecasting system are input to the inventory control system. Thus every night, our system checks the constraints; customer service level, the rolling number to box quantity and stock on hand, decides whether the store needs to place an order on any specific product and if the answer is positive, computes the appropriate order quantity.

The value to carry less inventory grows each day and we believe that ignoring the data mining approach and maintaining the inventory management with human intervention hurts the business.

On our next post, we will detail the multi-algorithm structure in  demand forecasting.

Please follow and like us:

Trends that will continue to rise in 2018 ( Part I)


“Change is the only constant thing” said Heraclitus – the philosopher from Ephesus who lived BC, 535-475. We already lived the first 2 months of the new year and we are curious about the advancements we will encounter in 2018 and as a player in the information technology space, I want to talk about what the industry should expect and how it will evolve.

In 2018 the trends of the previous year are expected to rise and converge. I will make my points in five headlines and this post will host the first two; Mobile and IoT.

Mobile: In 2018, mobile apps will continue to offer the customers a unique experience in the physical store and online, offering recognition, personalization, and interaction. In 2010, the share of mobile commerce in total digital commerce was around 2%, but today it is more than 20%. This increase will continue for sure, however, it is foreseen that around 2020, business models providing services on voice and AR will enhance the customer experience, make it easier & more natural and this may reduce the impact of mobile.

Considering that checking a mobile device frequently and looking at it for a considerable time brings some negative health issues, Voice and AR –  technologies that deliver experiences more suitable for the human nature –  will gain ground.

In 2018, mobile will play an effective role in sales conversion and payment. With more advanced barcode recognition standards and image recognition technology, products will be scanned easier and this will help increase the usage. Recently, Kroger announced that they will launch a new concept called ‘Scan, bag, go’ that will enable the customer to use their own device (or a device provided in the store) for checkout and payment, with no need for a cashier.  This was an extraordinary announcement since this was the first time that a checkout model with no cashier will be running in a considerable number of stores.

Store associates will use the mobile devices more effectively and efficiently while giving service to the customers. Especially for retail segments where customer service is crucial such as fashion or consumer electronics, the associate should have instant access to up-to-date information on the product and inventory, should be able to recommend other products, without leaving customer’s site. This will inevitably increase the impact of mobile in the store. Customer returns will be received with less effort by the staff using mobile devices.

 IoT: It is anticipated that in 2020, on a global scale, 34 billion connected devices will be on the market and $ 6T will be invested in IoT devices in the next 5 years. Which developments are supporting this rise? The decrease in sensor costs, the reduction in data processing costs, the reduction in bandwidth costs and the reduction in storage costs have great impacts on this growth. With these developments, the use of RFID will also increase. With this prevalence, retail customers will receive better service by accessing product reviews, high stock availability and digital coupons specifically used for the products with certain expiration dates, freshness and location. For in-house use, it will contribute to dynamic pricing and automatic ordering as well as real-time, up-to-date inventory and product information.

Combined with the blockchain, IoT exposed us to a new concept, BIoT.   BIoT – the combination of real-time and secure data – will emerge new business models. For example;  product traceability will be possible at last. Combined with the reliable environment provided by the blockchain technology, real-time data will make it easier to securely share business data across organizations, improving collaboration and efficiency, supporting collaborative business culture and customer experience.

I will continue the series in my next post and write on the impact of AI, blockchain and AR.

Please follow and like us: