Balancing Inventory for a Better Customer Experience

Q: How is e-commerce impacting inventory management for retailers?

A: Inventory is a costly investment for retailers. With the growth of e-commerce, retailers have identified a potential opportunity to reduce working capital by thinning inventory at brick-and-mortar stores—opting instead to maintain major portions of inventory at distribution centers upstream. By adopting this strategy, retailers are aiming to reduce aggregate inventory levels through better sales-channel analytics.

In addition, this approach enables retailers to improve e-commerce fulfillment operations, as their distribution centers typically reside close to large population centers, enabling faster product deliveries. By reducing the amount of capital tied up in unsold goods, retailers can then focus on investing in future growth opportunities.

Q: What challenges arise for retailers when leveraging this approach to inventory management?

A: When pushing inventory upstream to the distribution center, the challenge shifts from dealing with stockpiled inventory to keeping up with inventory replenishment. Certain inventory levels need to be maintained at brick-and-mortar locations to maintain sales—the challenge lies in determining the optimal amount of inventory necessary. This may require improved Sales & Operations Planning (S&OP) to better prepare distribution centers and retail stores for increases in product demand. The improvement in S&OP, in turn, might dictate a more frequent flow of products to each retail store.

Consequently, increased frequency of deliveries could drive up transportation costs—necessitating a more holistic and strategic evaluation of the supply chain to optimize inventory and keep costs down.

Q: How else can retailers improve inventory management and e-commerce fulfillment operations?

A: Customer expectations about the e-commerce experience continue to drive retailers to offer new products and services. Free product returns are among those challenging expectations, and retailers frequently view those returns as a necessary evil in the overall lifecycle of a product. At GENCO, A FedEx Company, we can help transform returns from a costly and cumbersome process into a strategic advantage. Obviously returns can drive up costs, but they can be leveraged in a retailer’s overall omni-channel strategy to improve fulfillment operations. Put simply, product returns are another source of inventory. With a strategically positioned returns center, a product can be efficiently returned, sorted, refurbished, and primed for e-commerce fulfillment—helping the retailer turn a seemingly inconvenient service into another inventory stream.

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