As many retailers can attest, crises of inventory can seriously harm a company and its brand/brands, leading to short term financial damage to a fall in stock prices or even bankruptcy and closing of the doors. From small mom and pop stores to big-box retailers, there is always a concern with the everyday and long-term challenges of inventory management and how to avoid the pitfalls that companies of all sizes fall into. Some companies may be looking at updating legacy management systems, while others are looking for real-time ways to future-proof the business. High profile well-known and loved brands are not exempt from inventory crises, and many retailers can learn valuable lessons from their mistakes.
Poor Inventory Can Kill a Brand
When supply chains and inventories are mismanaged, there are some consequences that retailers face. There is a multitude of reasons inventory is mismanaged:
1) Using outdated methods to track items, such as:
- Manual inventory tracking, which becomes time-consuming and error-prone as your company grows. You’ll always be one step behind your actual inventory levels, which will cause ordering issues.
- Excel/electronic spreadsheets, which are prone to severe errors. In a study of errors in 25 sample spreadsheets, the Tuck Business School at Dartmouth College found that 15 workbooks contained a total of 117 errors. While 40% of those errors had little impact on the businesses studied, seven errors caused massive losses of $4 million to $110 million, according to the researchers’ estimates.
2) Too large of an inventory. Large volumes of inventory don’t just lead to more management headaches; they can cut into profits as well. Reports show that most businesses have 20-40% of their working capital tied up in inventory.
3) Inadequate reports and forecasting. When companies don’t use or have access to accurate reports such as sales trends, best-selling items, customer behavior, and the like – they fall into the trap of ordering too much and experience the problems of a bloated inventory, or order too little and experience stockouts and lost customers. With accurate real-time reporting that is accessible 24/7 anytime, from anywhere, companies can forecast their customers’ future behavior and order accordingly to meet customer demand without exceeding their budget.
Let’s take a look at four high-profile brands and how a crisis of inventory created some real problems that could have been prevented had they managed their inventory properly:
Nike’s Excess Inventory Problem
As one of the most recognized athletic brands in the world, Nike has a lot of goods to manage. And as a result, it has had difficulty keeping inventory under control. In the early 2000s, the company adopted an updated inventory management software after losing around $100 million in sales due to issues with tracking goods. The software promised to help Nike predict items that would sell best and prepare the company to meet demands, but bugs and data errors resulted in incorrect forecasts and led to millions more lost.
Nike’s case illustrated just how crucial it is to manage inventory as well as your inventory management system properly. When choosing an inventory management solution, it’s vital to ensure the quality of software that your vendor provides and that it is accurate, flexible and customized for your particular business. It needs to be able to grow and change as the business and the customer base changes.
Nike continues to have issues with inventory. 2016 was a challenging year for the retailer, as Nike’s gross margin declined due to a higher percentage of discounted sales because of inventory management problems. The retailer continues to take steps to control their inventory management practices through manufacturing overhauls better and allowing new technology to bring manufacturing to the digital age. Ultimately Nike will remain a global leader as it keeps on exploring new markets, innovating new products and generating its supply channels.
Best Buy’s Christmas Inventory Nightmare
In December 2011—smack dab in the middle of the holiday season—Best Buy issued a statement: “Due to the overwhelming demand of hot product offerings on BestBuy.com during the November and December period, we have encountered a situation that has affected redemption of some of our customers’ online orders. We are very sorry for the inconvenience this has caused, and we have notified the affected customers.”
Customers were infuriated by Best Buy’s decision to cancel orders instead of delaying shipment, which was most likely because the company ran out of stock. Reportedly many of the withdrawn items were sold on Black Friday. The retailer essentially cast a wide net, collecting just as many orders as they could, likely knowing it would be unable to fulfill them all.
As Best Buy proved, buying items online as an alternative to in-store still carries a risk. Consumers just do not know for a 100% fact that they will get their product. While receipts are issued and shipping estimates given, but there are still some variables that allow consumers to be 100% certain their purchase will be complete every time. It’s not hard to imagine that Best Buy probably lost a lot of its customers to Amazon after that 2011 debacle.
Target’s Disastrous Failed Expansion into Canada
Target is a well-loved brand here in the U.S., so it seemed only natural that it would be just as well-received with expansion up north into Canada. Target executives had a decision to make. They needed a way to track their retail inventory, and they chose to work with an entirely new and untested system. Target Canada would eventually learn what happens when inexperienced employees are working under a tight timeline are expected to launch a retailer using technology that nobody—not even at the U.S. headquarters—really understood.
In 2013, the company was having trouble moving products from its cavernous distribution centers and onto store shelves, which would leave Target outlets poorly stocked. The checkout system was glitchy and didn’t process transactions properly. Worse, the technology governing inventory and sales were new to the organization; no one seemed to understand how it all worked fully. 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.
Besides technology issues, problems of ordering and inventory were running amok. Items with long lead times coming from overseas were stalled—products weren’t fitting into shipping containers as expected, or tariff codes were missing or incomplete. Merchandise that made it to a distribution center couldn’t be processed for shipping to a store. Other items weren’t able to fit correctly onto store shelves. What appeared to be isolated fires quickly became a raging inferno threatening to destroy the company’s supply chain.
Target’s distribution centers were bursting with products. Target Canada had ordered way more stock than it could sell. The company had purchased a sophisticated forecasting and replenishment system, but it wasn’t particularly useful at the outset, requiring years of historical data to provide meaningful sales forecasts. When the buying team was preparing for store openings, it instead relied on wildly optimistic projections developed at U.S. headquarters.
Roughly two years after they launched, Target Canada filed for creditor protection, marking the end of its first international foray and one of the most confounding sagas in Canadian corporate history. The debacle cost the parent company billions of dollars, sullied its reputation and put roughly 17,600 people out of work.
Supply Chain Disruption Closed 900 KFC Branches in the UK
In February 2018, Kentucky Fried Chicken (KFC) was forced to close many of its 900 UK branches due to supply chain disruption. The fast-food giant, in a press release, stated; “We’ve brought a new delivery partner onboard, but they’ve had a couple of teething problems – getting a fresh chicken out to 900 restaurants across the country is pretty complex!”
By changing their delivery partner, approximately 750 KFC outlets across the UK faced delays in receiving their daily delivery of fresh chicken, meaning their restaurants were not able to supply customers and ultimately had to close. At the time, it’s was thought that the giant could be losing up to £1million per day.
Could KFC have done more to ensure their supplier was suitable for the job? The thought is that perhaps multiple supplier contracts could have spread the weight of the mammoth delivery task and a crisis like this could have been avoided. Another issue was that their supplier only had one distribution spot as opposed to multiple that would have been able to service the outlets much easier.
What Can Businesses Learn From Inventory Management Catastrophes?
It takes more than having a large inventory of products to keep a retail business running. All that inventory needs to be stored, moved, and in the right place at the right time. Warehouses need to be efficient, their tools and workhorse vehicles kept up to date, and every part of the supply chain needs to coordinate.
The same can be said about the technology to track and manage the inventory as it moves in/out and from location to location. Companies need to know real numbers when it comes to inventory. Their livelihood as well as their franchisees, investors, and employees depend on it! When you don’t see what you have or how/when it moves about, there’s no real knowledge about the most critical aspect of your business – your inventory.
Retailers of all sizes are looking for asset tracking systems that are easy to use, mobile, affordable, secure and rapidly deployable. They need a reliable method to keep track of the thousands of items of inventory that move through their location(s)/warehouses each day. Asset Panda is the answer. We leverage the cloud and free mobile apps to help retailers get the information they need about their inventory. Our retail clients know where their inventory is, who has what, and what condition it’s in.
Asset Panda is simple to use with a very intuitive platform. Our system records the entire lifecycle of an asset. Other capabilities include custom reports, depreciation calculation, mobile enterprise service desk, and much more. Leading retailers are recognizing that better inventory tracking processes will lead to lower cost of doing business by reducing loss, property taxes, and the amount of insurance they are required to carry. All the home office needs to do is run reports to get detailed, real-time data from the field.
Sign-up for a free 14-day trial and schedule a demo at www.assetpanda.comso you can see what’s truly possible when you manage your inventory the right way.
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