SCDigest: Are Retailers Shooting Themselves in Foot with Low Inventory Strategies?
By Dan Gilmore, Editor-in-Chief, SupplyChainDigest
Through a special arrangement,
presented here for discussion is an excerpt of a current article from Supply
The recession has caused almost everyone
to cut back on inventories, due to both a concern about customer demand
and also because right now "cash is king," and inventory uses
Nevertheless, I think many retailers may
be taking it much too far, and costing themselves sales and profit as a
result. Three recent personal anecdotes I hope make the point:
- Two weeks ago I went in a large mass merchant to
purchase some mini-DVD tapes for our video work. Virtually every peg
was empty. The only ones with product available were terrible deals.
An associate there said they hadn’t received inventory in that area "for
several weeks." I walked out without a purchase – as I assume
many others have as well.
- At a different mass merchant just this weekend,
I needed to buy a gallon of anti-freeze for one of our cars. The shelves
were simply decimated. In fact, I assume intentionally, they had taken
some of the product that was still available (higher priced "extended
life" anti-freeze) and moved it around to make it look like the
shelf facings weren’t totally empty. That of course resulted in that
product being placed above shelf labels that were for different, lower
priced SKUs. I went down the street to an auto parts specialty store
that had plenty of inventory and bought a gallon
- I was also at a major office products retailer
this weekend. In addition to the usual no help for what I was looking
for, as I was checking out I heard a woman at the service counter say
this was the third time she had come to the store in the past few weeks
looking for some item, and yet again it was out of stock.
Running "Lean" can be a good thing,
and inventory management right now is a critical discipline. But from my
view, many retailers have gone way beyond smart inventory decisions to
ones that are detrimental not only to their own results but also to those
of their suppliers.
Discussion Question: Are retailers excessively
cutting inventories at the expense of sales and profits? Have you noticed
an increasing rate of out-to-stock situations? How do you weigh the risks
of out-of-stocks versus the markdown risk in overstocks in the current