By Daniel Shim
We’ve talked about why inventory management needs to be a transparent and connected process, underscored by some of the potential implications around variables like who gets credit from a sale when a product is ordered online but picked up in a store. Today, we’ll look how to evaluate performance.
If a category manger with his/her own P&L is able to grow revenue with the same or marginal increase in inventory, turnover has improved and the manager’s performance is considered a success. But the shift toward omni-channel will change the traditional metrics behind inventory productivity and what is considered “healthy turnover.”
As inventory becomes more integrated and channel agnostic, the control over who gets what, when and from which vendor becomes less about specific P&L
performance and more about enhancing overall customer satisfaction. As a consequence, retail managers may not be able to use traditional methods to gauge improvement in inventory turnover since customers increasingly engage with, and purchase from, any channel – much of it beyond any single manager’s control. Though the decision lies with retailers to determine how performance should be evaluated, there are some options to consider:
- Inventory turnover will likely change for stores as an increasing amount of fulfillment occurs in the store. Turnover for stores may go up or down based on how the sale is classified and whether the inventory will be replenished. Merchandise Planning executives should assess the impact of the policy they set and evaluate turnover improvements based on new operational practices.
- As digital continues to influence, support and supplement store sales, divisional merchandising leads and CFOs should evaluate business performance from a cross-channel perspective. Store sales may go down as ecommerce sales go up, so performance should be evaluated from a total company perspective to accommodate for this inevitable trend. Furthermore, both store and ecommerce employees may require new training to handle the merging of channels. For example, store employees should know how to serve and upsell customers sourced from ecommerce, and merchandisers in the ecommerce channels should factor in specific store assortment and inventory levels to ensure customer satisfaction. As a consequence, the compensation and incentives may have to change to keep employees happy and engaged.
Disruptive technologies and innovative trends generate a sense of opportunity, as well as a great deal of anxiety for those situated on the front lines. The impact is compounded for a particularly large industry like retail, which generates trillions of dollars and employs millions of people.
Rather than frantically searching for the right answers, retailers should take a moment to embrace the confusion, not be afraid to fail early and often, and adapt as much as possible.
Why? Because change is not coming – it’s already here, and it’s not business as usual anymore.