Finishing The Year Strong: Q4 Inventory Management Tips
Whether you call it Q4, the festive period or peak season, the holidays bring a host of challenges for retailers looking to cash in on their most profitable time of year. As site traffic, acquisition costs, order volume, and competitor activity increase, so do operational issues across warehouses, logistics, and inventory management.
The solution for overcoming operational hurdles is understanding the performance data behind each product sold. Still, monitoring sales velocity, profitability, and return rates on a per-product and per-channel basis can quickly become unmanageable. Knowing how much inventory to stock, which products are at risk of selling out, which channels will offer the best value, and what new trends could suddenly drive a traffic surge can make it difficult to plan accordingly. Order too much product, and you risk having mountains of fee-incurring deadstock; order too little, and risk selling out too soon and losing precious customers to competitors.
With less than 30 days between Black Friday and Cyber Monday, the pre-Christmas shopping rush, and the surge of post-Xmas returns, there's a lot to consider for a season that can make or break a retailer's bottom line. So how can brands effectively manage their inventory during such a critical time?
Want to dig deeper into which key metrics to track during the holidays? Check out our webinar 9 Sales Metrics to Monitor During the Holidays.
- Operational KPIs that’ll actually move the sales needle
- How to stay ahead of consumer shopping demands in Q4
- Strategic ways to maintain profitability and growth
- Enticing customers to fill their shopping carts to the brim!
The Challenges Managing Peak Season Inventory
Efficient operational workflows don't just happen by accident. Navigating inventory and warehouse management during peak season requires a solid understanding of current processes coupled with the right data to forecast complications before they have a chance to affect performance.
Below are the most common inventory mistakes made by operational teams that, if left unchecked, can impact your peak season bottom line.
Peak Season Warehouse Management Mistakes
Poor dock scheduling, slow cycle times, and dock capacity
Inbound inventory planning is fundamental to fulfilling holiday orders. Poor dock scheduling, slow cycle times, and dock capacity limits are three aspects of your inbound workflow that are interdependent and can become a challenge when holiday inventory starts arriving from your manufacturer. New products come with a new set of data challenges, so collect as much information as you can before it reaches your fulfillment center. If you fail to optimize this portion of the process, you risk suffering from supply chain disruptions.
Running out of storage space
Peak season often means an influx of new inventory, resulting in high occupancy levels across remote or reserve storage spaces. Without capacity planning to support your holiday shipments, you could quickly run out of storage space, requiring you to rent or purchase additional space at a premium (increasing your COGs). Start planning for increased capacity in the months leading up to peak season to determine whether you need offsite storage for saving space, which SKUs need to re-stored, and what kind of logistics you'll need to accommodate the new fulfillment location.
Overlooking a slotting plan
Capacity for current inventory is only one aspect of capacity planning. You need to determine where you'll also be holding reserve stock. High volume items should be easily accessible to reduce warehouse congestion and fulfillment speeds. If a particular product is flying off your shelves, you need to be able to access it quickly and efficiently.
Not syncing promotions with inbound operations
No amount of capacity planning will prepare you for the holiday rush if inbound activities are not aligned with marketing and promotional campaigns. Keeping an open line of communication between operations and marketing departments will help in prioritizing storage space and forecasting sales fluctuations that result from campaigns, promotions, and seasonal discounts.
Not having a contingency plan
What will your business do in the event of a power outage or snowstorm that prevents staff from getting to work or orders from being shipped out? Failing to have contingency plans can make or break your holiday success, especially when inclement weather is a risk.
Not having enough staff
Recruiting seasonal staff ahead of time is critical to supplying the workforce needed to survive the holidays. Workers should be recruited and ready to work by the end of October. By hiring early, your operations team can complete any training or preparation well before BFCM. The key is to look at the previous year and improve upon any issues that came up. Were you short-staffed? Were your temporary workers adequately trained and equipped to handle fulfillment?
Peak Season Inventory Management Mistakes
Inventory gaps can affect credibility, customer experience, and brand loyalty. It forces customers to find substitutions for the product they intend to purchase, and quickly push them into your competitor's lap. The damage goes beyond lost sales and money spent on acquisition. Failing to deliver on the needs of customers is a waste of time, effort, and resources for everyone. Shoppers who have a negative experience during the holiday shopping period are less likely to shop with you in the future.
Inaccurate Inventory Forecasting Tools
Another common but costly mistake is to ignore or overlook tools used for forecasting and managing inventory levels. These tools can help optimize your storage capacity, restocking operations, and help you maintain a healthy amount of required inventory on-hand down to a minimum value, which can help avoid increased carrying and holding costs. These tools can also give you a holistic view of stock across warehouses, 3PLs, and other fulfillment vehicles to help you balance products across online channels and brick-and-mortar locations ensuring you have enough stock wherever you need it
Not having inventory management software
A simple solution for avoiding inventory management mistakes like overselling, delayed fulfillment, or improper forecasting is by implementing inventory management software. IMS software helps you stay organized, master lead times, and automate the workflows. They also help avoid operational complications associated with documentation and human error related to manual fulfillment.
Not knowing when to re-order
Understanding your reorder threshold and the right time to place purchase orders can help prevent inventory shortages, overselling fees, and protect your brand reputation. Leveraging historical data, including lead times, sales velocity, and other purchasing variables can highlight both successes and failures from prior peak seasons, and allow you to plan your stock volume and order quantity accordingly. Inventory management tools can help avoid overselling by implementing inventory allocation rules.
Skubana offers this incredibly useful feature to preset specific inventory levels across all of your sales channels. For example, you can set this up so that if a particular SKU reaches a minimum stock level, then only 50 percent of your remaining inventory will show as available on your fastest-selling channel. Inventory Allocation rules can help hold your business over on specific premium channels (like your storefront) while your warehouse has time to replenish the stock for lower priority channels.
Allocating inventory safety stock
Safety stock is extra product held in inventory in case an item sells out. It protects your business from unexpected spikes in customer demand, distribution problems, or logistics issues that can result in increased lead times or unforeseen delays in fulfillment. Safety stock can be considered as a buffer until production resumes regular operation. The benefit is clear: it helps minimize, or even eliminate, the chance of a stock-out, which, as mentioned above, can lead to angry customers, increased opportunity costs, and loss of sales. The con is that there are additional costs associated with safety stock. Increased holding or carrying costs are inevitable, but you could determine that these holding costs are less than the price of not fulfilling customer orders on time.
What to look for when choosing inventory management software
So, it's clear that inventory management software can reduce or even eliminate many of the inventory-related issues that can occur during peak season, but how do you know what to look for when it comes time to choose one?
The first factor to consider is your unique workflow requirements. Figure out what challenges you're facing, where your pain points are, and what kind of solutions you need to solve your biggest challenges.
Next, consider the costs and myths. Of course, if you have many complex requirements, the price will reflect that, but figuring out what the market cost of the software is can help you determine whether the vendor is too expensive for your needs.
Also, consider if your business can afford to go with an all-encompassing software and whether it's the right time to invest in a complete operational makeover. There may be other in-between options that can help you work your way up to the plan you need, while still helping solve some of your more costly issues.
If you have complex requirements and specifications, you may need a system that can be customized to meet those needs. It may also be an option to combine your existing system with additional features from a new provider, so in addition to research, try contacting your vendor to see who they partner with to expand their capabilities.
Will it work with your current equipment and workflows? Can you use it on mobile devices? Is it a web-based or an on-site system? How many users can use it? These are the kinds of questions you should ask before investing, especially if you have multiple channels and fulfillment locations where everything needs to be implemented at once across the board.
Finally, an important factor to consider is what kind of support you can get from the vendor if you need it, in terms of training, assistance, onboarding, and warranty. You don't want to invest in a system and then be entirely on your own to figure it out.
Peak season inventory management can be a complex and daunting process. By understanding common pitfalls, inventory movement, and fulfillment pain points, with the right knowledge, tools, and operations in place, you can ensure a successful selling season all year long!