The Importance Of Localized Inventory Management And Planning

By Dr. Linda Whitaker, Chief Scientist, Quantum Retail

The current state of the global economy means that individuals and organizations are trying to find ways to reduce costs and increase profits. For retailers, things are not only difficult but highly unpredictable. Some retailers have reasoned that the best thing they can do is cut expenditures on new technological systems and processes in order to save money. Others have decided to increase these expenditures, but are being more selective about what they spend their money on. In times like these, demonstrable return on investment is essential before choosing to invest in any new product or system. Yet, the right expenditure on the right technology can yield dividends.

One area that many retailers can improve upon is inventory management. Inventory is the biggest investment a retailer can make, yet retailers are unaware of how to use their inventory processes to achieve a competitive edge. Traditionally, they will carry out assortment planning, allocation and replenishment activities based on a process known as clustering. Each individual store in a retail chain is grouped together with other stores that the retailer believes are similar, for reasons ranging from geographic proximity, to square footage to average income of shoppers. Market demographics are often used to try to understand the potential customer base in a cluster based on geography and other common traits. These clusters of stores are then treated the same in terms of type and quantities of inventory stocked. This is based on average performance of items across the cluster.

Certainly, there are some benefits in utilizing market demographics for clustering. They can be very useful in long range planning, and in understanding how a retailer's core offering can be tailored to meet local requirements. This type of demographic data can also be extremely useful when a retailer is planning to open a new store. Since data on behavior in the new store will not be available for some time – at least for initial allocation – using data from similar stores in that area only makes sense for helping the store get up and running.