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Wednesday, February 14, 2018

"Out of Stock": 3 Inventory Management Horror Stories You Need To Learn From

About The Author

Bruce Harpham offers content marketing for B2B SaaS companies. His work has been published in CIO, Infoworld, and IT World Canada. He is the author of “Project Managers At Work.”

Inventory management failure is no theoretical problem. In fact, it’s still with us in 2018. Let me share an example:

Earlier this year, I was shopping for spinach at one of the larger supermarkets in my neighborhood in Toronto. The only options were salad greens… But like Popeye, I prefer spinach!

I ended up tracking down a store employee who explained the day’s produce shipment had been delayed 9 hours. He went to the storeroom and handed me a fresh box. The store managed to recover from their inventory problem.

Here’s the problem:

Ecommerce customers have other options one click away (Amazon Prime!). That means you have less room to maneuver and recover if run out of inventory.

Run out of stock once and your loyal customers may forgive you and come back later. Do it too many times and you’ll have to rebuild that customer base. If your reputation for inventory problems spreads, your business may be doomed.

Inventory management failures, like all tragedies, has many causes. Learn the early warning signs from these horror stories and you’ll be able to keep your customers coming back for more.

My Wedding Décor: how inventory problems shifted their strategy

Remember Chris Anderson’s best selling book “The Long Tail”? I remember picking it up at an airport and reading it with excitement. Endless choices! This will be great!

The reality of endless inventory has two problems. First, there’s a real cost for businesses that have to manage that quantity of physical inventory. Second, psychological research has found that most people are overwhelmed by too many choices and do not buy.

My Wedding Décor, an Australian company that provides wedding clothes and products, experienced rapid inventory growth. Elizabeth Hollingsworth, the company’s founder, put it this way in Practical Ecommerce: “When the website launched in April 2015, it began with 80 products, which had grown to almost 500 products at the end of 2016.”

If coping with a rapidly growing inventory of products wasn’t enough, here’s what happened next:

“One supplier whose original rental threshold was $200 increased it overnight to $500. This forced me to delete many of their lower-priced products that would have required a ridiculous number of units hired to reach their threshold.”

Whether or not you’re in the wedding industry, you can draw inventory management lessons from My Wedding Décor. You never know when a supplier will change the rules on you. You can reduce the impact of such a change on your business though. How?

Use a robust inventory management software solution like Megaventory and do your own analysis regularly. That proactive approach will make it easier to keep your business growing when supplier problems hit you.

Inventory management is the only way to win in India’s grocery ecommerce market

In the dotcom era, several companies attempted to make grocery ecommerce work. Yes, Webvan failed to achieve success as a grocery e-tailer despite railing $800 million.

Despite those early struggles, there is demand for the service. The category has found a following - as of 2017, 7% of Americans order their groceries according to AdAge. How are the winners in grocery ecommerce making it work?

It all comes down to customer expectations and fine tuned inventory management.
Amazon has the bar high for ecommerce. Customers expect their orders to be delivered fast and in great condition. With grocery ecommerce, your inventory cannot sit on shelves for weeks or months even with great refrigeration. A recent surge of investment in grocery ecommerce produced few winners.

Is there a path to win in grocery ecommerce? Yes! That solution lies in mastering inventory management:

“The startups that shut shop followed the on-demand hyperlocal mode, which is a ridiculous business model. That’s why they failed. BigBasket survived because it had its own inventory, distribution centre and directly distributed orders to the customer. That is the business model that can be sustained,” says Arvind Singhal of Technopak.

Hundreds of online grocery startups shut shop since 2015, why are unicorns now betting big?

Investing in inventory management is one reason why BigBasket is winning in the market. Companies in this category are known to spend heavily on customer acquisition. That leaves no margin for error in keeping inventory moving.

For our last example, let’s go outside of the ecommerce field.

What if you had a successful national brand and you wanted to expand? Opening stores in another country shouldn’t be that hard, right? Let’s dive into the Target Canada story next.

Target Canada’s Epic Inventory Failure

In the ecommerce field, it’s easy to dream about expansion. You just add capacity with your outsourced providers and call it a day, right?

In reality, it’s not always that easy. In fact, even companies with a strong brand struggle avoid inventory management failures. Target, a retailer with nearly 2,000 locations in the USA, recently failed in its expansion to Canada. The failure cost millions of dollars and badly hurt the company’s reputation. The failure is all the more notable because many other large American retailers - Whole Foods, Wal-Mart, Home Depot to name just a few – have been successful in Canada for years.

Fundamentally, inventory and supply chain failures lie at the heart of Target Canada’s failure. Let’s dig in and find out what these inventory management problems looked like at the ground level.

According to Canadian Business:

[Target's] concern was that with severe supply chain problems and stores facing the prospect of patchy or empty shelves, Target would blow its first date with Canadian consumers

It didn’t take long for Target to figure out the underlying cause of the breakdown: The data contained within the company’s supply chain software, which governs the movement of inventory, was riddled with flaws. At the very start, an untold number of mistakes were made, and the company spent months trying to recover from them. In order to stock products, the company had to enter information about each item into SAP. There could be dozens of fields for a single product. For a single product, such as a blender, there might be fields for the manufacturer, the model, the UPC, the dimensions, the weight, how many can fit into a case for shipping and so on. Typically, this information is retrieved from vendors before Target employees put it into SAP. The system requires correct data to function properly and ensure products move as anticipated.

A team assigned to investigate the problem discovered an astounding number of errors. Product dimensions would be in inches, not centimetres or entered in the wrong order: width by height by length, instead of, say, length by width by height. Sometimes the wrong currency was used. Item descriptions were vague. Important information was missing. There were myriad typos. “You name it, it was wrong,” says a former employee. “It was a disaster.”

What’s the lesson from Target Canada’s inventory management horror story? Even if you have all the inventory you need in stock, bad inventory data can kill your business. Bad inventory data means your staff (or outsourced providers) have to work much harder to ship products. The likelihood of disappointing customers is high.

What’s next for your inventory management process?

If you’re growing and want to keep your customers coming back, it is a critical function to get right.

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