Why inventory bloat is hurting your cashflow, and what you can do about it

A couple of years ago at the start of the global pandemic many retailers were struggling to source enough stock to meet demand as supply chain disruption hit hard and demand for certain product categories (lounge wear, anyone?) went through the roof. Today, retailers are suffering from ‘inventory bloat’, ‘stockpiling’ to de-risk and become less dependent on global providers and their delivery time frames.

Inventory bloat combined with a softening demand in the economy is taking its toll on cashflow and earnings at retailers in the US such as Target, Urban Outfitters, Abercrombie & Fitch, and Walmart are down.

Some say that the amount of stock being warehoused in the US has risen by about 20% and is creating severe shortages of warehouse capacity. Analysts fear Australian retailers face a similar fate. So, what can be done?

Retailers are faced with changing customer demands daily and are expected to fulfill those requests quickly, through whichever channel the customer wants to use. It is very difficult to ‘predict’ demand in an uncertain economy but it’s also difficult to know where to allocate stock as shoppers switch between shopping online and shopping in brick-and-mortar stores.

A single view of inventory in real-time

This is where a single view of inventory can help. Having a single view of inventory in real-time is vital if retailers want to manage their stock more effectively and free up much needed capital as well as space in stores and warehouses. Accurate inventory visibility means less overselling and underselling.

Having one view of your inventory, stock in stores, distribution centres and warehouses is key to knowing how much stock you have, at any given time.

But it also, perhaps more importantly, tells you where that stock is.

Distributed order management

Knowing where your stock is, is extremely important because it lets you know if your products are in the right place to satisfy different consumption channels and delivery models, including buy and pick-up in stores, order online and collect from stores, and home delivery.

If you have a chain of stores nationwide for example and Queensland has had heavy rain that week, with customers wanting to buy umbrellas, doesn’t it make sense for you to ship those umbrellas up from a store in another state, rather than buying more?

Distributed order management system allows you to see what is available across all locations and then allocate stock according to where and when it is needed.

You know what’s in stock, what is being processed and ready for pickup or shipment — from your stores to your distribution centres. You can even flag damaged items, so unsaleable inventory won’t be shown in online channels.

Dropshipping

Another option is to implement a dropshipping strategy, which saves money and space without losing sales. Dropshipping is an order fulfillment method that does not require a business to keep products in stock. Instead, the store sells the product, and passes on the sales order to a third-party supplier, who then ships the order to the customer.

You’ll need to do your research here, to be as sure as you can be that your dropshipping supplier will deliver, but you can cut costs by stocking up on only the inventory you know will sell. And if an unexpected demand for sales comes in, you can satisfy them with dropshipping.

Having dropshipping options in place also makes great insurance against extreme circumstances. If something like a natural disaster happens to your warehouse, you can still fulfill orders by dropshipping the products from elsewhere. It’s a great safeguard against the uncertainties all retailers face.

If the global pandemic has taught us anything, it’s that the ability to adapt quickly in a changing environment will set you apart from the competition. The answer isn’t buying more stock. Real-time inventory, order management software and dropshipping all give you much better visibility into the stock you have, where it is and helps you get it into the hands of your customers in the fastest, most efficient way.

Jamie Cairns is the chief strategy officer at Fluent Commerce.