Why Allocation Decisions Matter Now More Than Ever
Omnichannel retailers who make rapid improvements to allocation decisions prevent inventory discrepancies, improve customer loyalty, and increase net profits.
It wasn’t long ago that the death cry of traditional brick-and-mortar stores could be heard across the country. But today that cry is nothing more than a whimper. In a recent report titled, Debunking the Retail Apocalypse, IHL Group reviewed over 1,800 retail chains with more than 50 U.S. stores in 10 retail vertical segments. They found that for every chain with a net closing of stores, 2.7 companies showed a net increase in store locations for 2017. Over 4,000 more stores are opening than closing among big chains, and when smaller retailers are included, the net gain is well over 10,000 new stores.
As brick-and-mortar storefronts continue to be vital for omnichannel retailers, more attention is being paid to poorly managed inventory across physical stores, warehouses, and online channels. According to Stitch Labs, worldwide retailers lose $1.75 trillion every year due to overstocks, out-of-stocks, and preventable returns. In other words, they are losing trillions due to poor allocation strategies.
Allocation requires accurate, real-time inventory data. Yet according to Stitch Labs, 75% of retailers surveyed report having inaccurate inventory levels in stores. Allocation also requires data related to demand (customer, sales, etc.) and to other aspects of supply (product master, purchase orders, sales, etc.) Unfortunately, much of this data is often stored in poorly governed, disparate repositories, making data-driven allocation decisions difficult. Successfully integrating the data requires strong master data and data governance practices, many of which are absent within the industry.
With accurate data across a retailer’s inventory and fulfillment systems, retail allocation becomes a data-driven exercise. Removing “allocation by intuition” is a key step toward a successful omnichannel strategy.
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Tom Mech, Partner, Sagence, Inc.
Ryan Liebman, Manager, Sagence, Inc.
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