Keeping Inventory In Tune

Keeping up with consumer demand is one of the hardest jobs of retail. Unless you consult a crystal ball on a regular basis, you must rely on past trends to predict what will sell and what won't. But, if your understanding of sales activity is vast and current, you are more likely to attain that perfect inventory balance between supply and demand.

Tower Records recently sought to achieve this goal in its 100 stores. The billion-dollar retailer manages 1.2 million SKUs (stock keeping units), including music, movies, and electronics. But, until recently, Tower Records' inventory management was controlled only at the store level. "Tower Records' diverse selection is a result of decentralized purchasing and inventory management. Managers were given the flexibility to customize their stores' inventory based on location," said Bill Baumann, CIO at Tower Records. A Tower Records store in the mid-west would stock different quantities of each title than a store in New York City.

While some retailers are beginning to focus more closely on inventory at the store level, Tower Records thought its decentralization was creating too many overstocks. If the company could centralize its trend analysis and automatic replenishment, it could react to nationwide demand and make room for more selection by increasing turn times.

Centralization Makes Inventory Rock
Wanting to roll out its centralized inventory plan in phases, Tower Records began by working with Business Analysis Module (BAM) from NExT Information Systems (Sacramento, CA). This software established a central data warehouse of product information that Tower could use to paint a larger inventory picture. In any music store, there is a core catalog of titles that does not include new releases, but includes longer-standing artists like The Eagles. At Tower, the majority of its merchandise is in this core category, but with decentralized ordering, the stores weren't managing this large part of its business efficiently. "We wanted to know inventory levels in terms of in-stock copies chainwide," Baumann said.

Tower Records established its central database in September 2001 and began to see its potential right away. "During the course of the project, smaller efficiencies emerged that were related to the information we were gathering," Baumann said. One example of BAM's extension was the creation of a Web-based application called Find It. Tower Records gave the stores access to this central search database so employees could locate titles anywhere in the chain. In the future, the retailer plans to integrate this search mechanism into the Web site as well.

Data Analysis Determines Stock
Once the company had a consistent and real-time record of its inventory, Tower Records installed Retail Inventory Management Studio (RIMS), also a NExT Information Systems product. This solution uses BAM to evaluate sales trends and provides a sophisticated purchasing model that takes advantage of sales, increases turns, and reduces the amount of merchandise the retailer sends back to its vendors. "It doesn't make sense to have 30 CDs in stock, when we only sold 10 in the last eight months. We want to analyze our sales and carry just enough inventory to maintain a 4- to 6-week stock," Baumann said. If sales of a CD in Tower Records' core catalog begin to consistently increase, RIMS will automatically order more. The system is programmed to reorder based on sales models for each store, but the stores still have buyers who deal with the newly released merchandise. Tower estimates it will realize a payback on this system by September 2002.