Retailers Rethink Inventory/Supply Chain Strategies

Retailers Rethink Inventory/Supply Chain Strategies by: Paul Ziobro Jun 28, 2016

TOPICS: Supply Chain and Inventory Cost Management Re-read text coverage of supply chain management in Chapter 8 pages 161-164 before answering these questions.

SUMMARY: Home Depot wants to cut inventories while maintaining merchandise on store shelves. Its approach is to grow without increasing inventory costs. The way it will accomplish that is change the flow of the supply chain. With its Project Sync it want suppliers to send two trucks five days a week instead of five trucks two days a week. Wal-Mart is also working on inventory management. Inventory rose slower than sales in the first quarter which helped gross profit margins. Target and Wal-Mart want to reduce the amount of goods in backrooms. Inventory management, even when it responds to demand instead of forecasting, is complicated. Companies have to decide if they will ship from a distribution center or store. The payoff from enhanced inventory management can be significant because this is one of retailers’ highest costs.

CLASSROOM APPLICATION: If inventory management is done well it’s not really something most customers spend much time thinking about, but companies understand the importance of cost effective strategies that keep the shelves stocked. Most of us are aware of how online shopping affected the retail sector. Another important issue is how it affected inventory management. Inventory management involves tradeoffs. Reducing inventory frees up resources, but bare shelves are not good for business. The current inventory management models evolved over time. As companies started selling online they set up distribution centers for e-commerce, but that risked doubling inventory costs. Next they tried to use stores as online fulfillment centers and merged systems, but that meant more work for employees at stores if companies store products closer to customers.

QUESTIONS:  1. Explain how e-commerce has affected companies’ inventory strategies? 2. Identify the key changes Home Depot made to lower inventory costs. 3. What are the tradeoffs associated with inventory management? 4. Compare and contrast the costs and advantages of using distribution centers or stores to service e-commerce sales. 5. Describe and evaluate the changes Target and Wal-Mart made to inventories.