Supply Chain Matters calls reader attention to a published report that indicates for one retailer, the sudden shift in consumer demand this year may not have been that sudden.
The Wall Street Journal reported this week (Paid subscription or metered view), that fashion and apparel retailer Macy’s has managed to avoid the significant excess merchandise inventory levels that are challenging other retailers. Instead, a detailed analysis of consumer buying and general apparel and clothing trends buying trends proved beneficial in limiting overall inventory exposure. We recommend that our readers have a view of this report.
Reportedly, earlier this year, the executives along with the retailer’s inventory and merchandise planning teams analyzed credit-card as well as external market data to ascertain the impact overall inflation and higher gasoline prices were having on consumer spending patterns. They further honed-in on specific travel and entertainment spending patterns and reportedly were able to discern that shifts in spending were indeed occurring.
At this same time in late January, the retailer formed that basis of what is termed as an integrated business planning team that included a group of executives representing planning, merchandising, supply chain and corporate finance to engage in a series of monthly meetings to ensure senior executive alignment on inventory planning, deployment and management strategies. One example cited was the decision to cut back orders for stay-at-home comfy clothes that were hot during the heights of the pandemic and instead increase orders for apparel that consumers would likely buy as they returned to in-office, travel and other public events.
For Macy’s most recent quarter, the retailer reported a 7 percent increase in overall inventory compared to a 48 percent increase reported by Kohl’s, a 44 percent increase for Nike, and a 37 percent increase for Gap.
A further insight brought forward in this report was that less than a fifth of Macy’s inventory selection came from private store branding, compared with other competitive retailers that elected to sell a higher percentage of private store branded items, and thus had to take on more of the liability for purchase volumes as well as inventory carrying costs. In the case of Macy’s retail chain competitor Kohl’s, a reported one-third of merchandise offered is privately branded and during the July ending quarter, this retailer had accounted for $269 million of goods in-transit, inventory that was invoiced but not in stores for considerable weeks.
If that pattern sounds familiar, it has been generally reported that the recent firing of the CEO of retailer HomeGoods had more to do with an overall shift in merchandizing strategy that was far more concentrated in private labeling than market aware brands. Thus, at the height of the prior supplier and global transport disruptions that impacted Asian based and other home goods suppliers, HomeGoods inventory buying orders were constantly late, resulting in little on-shelf or online channel availability when demand levels were high.
The experience of Macy’s provides another industry example of the power of integrated planning and operations alignment supported by advanced analytics driven decision-making tools. The leveraging of both internal and external data sources, coupled with the integration of tactical planning and operational execution helps to more quickly sense changes in market or product trending, resulting in enhanced agility in decision-making and reduced inventory and working-capital costs.
We conclude this commentary with noting the “elephant in the room” which is whether the infamous supply chain bullwhip planning effect remains a go-to during times of supply crisis or that sales and operation planning teams are possibly not equipped to deal with a lack of cogent data in times of high uncertainty.
In Supply Chain Matters blogs published in August, and previously in 2021, we put forth the notion that S&OP or integrated business planning teams need to up their game in inventory management agility and responsiveness. There is little doubt that retail industry sales and operations teams have been continually challenged these past two plus years.
Bold and somewhat unprecedented decisions were made that generally focused on boosting inventory levels to overcome unprecedented levels of supply chain material and transportation disruptions. Some might observe that the “bullwhip” principle of too much inventory ordered might have been practiced vs. that of “just-in-case.”
The above Macy’s report provides one more example of collaborative and aligned integrated business planning processes, supported by key external and internal information and market risk data, and aligned to actual on the ground operational planning, can lead to more timely sensing of market and product changes, and the determination of a balanced risk plan.
They are all the new table stakes
In this era of high uncertainty and rapidly changing economic and business developments, planning and inventory management processes supported by advanced analytics or what-if digital twin decision-making processes are indeed new table stakes.
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