Inventory Strategies
Inventory Strategies of Global Discount Retailers
It is a universal truth that a successful company, in any area of business, demands a clearly defined and properly structured organizational culture. In the latter, every department of the company has to fulfill its direct functions and be focused exclusively on them. In this respect, the inventory strategies seem to be crucial, especially in case if the companies are large scale and need to monitor huge amounts of spare parts of their products, raw materials, costs and incomes, employees’ performance, etc (Christopher, 2000, p. 38). Thus, inventory strategies are means by which companies can record all the data they need, divide them into respective sections and operate them when necessary: “Developing comprehensive inventory strategies involves a number of departments — including fulfillment, marketing, and merchandising — as well as inventory control” (Barry, 2007). Accordingly, global discount retailers and those high-end market-oriented enterprises will have different inventory strategies.
First of all, global discount retailers are oriented on getting more income, which makes them speed up their production process and delivery terms. These are namely the factors that allow these companies to become discount retailers, i. e. the reduced lead time and production costs allow them to reduce prices and attract more customers. However, inventory strategies become even more important for such enterprises as the speed of trade needs a precise record of all the company’s assets. Thus, global discount retailers need to facilitate metrics accounting in their inventory including the monitoring of their top-line and bottom-line growth, turnover, and gross margin return on investment (GMROI) (Barry, 2007).
High-End Markets
The situation with the inventory strategies for the stores targeting the high-end market customers will be somewhat different. First of all, the definition of the high-end market is necessary to understand this. A high-end market is, as contrasted to a low-end market, the phenomenon where the trade-in of high-quality and expensive goods and services are carried out (Sherman, 2001). Examples of the stores dealing with the high-end markets can be Wal-Mart, Sainsbury, etc. Based on their orientation for high-quality goods, these stores demand long-term relationships [s with reliable suppliers, manufacturers, and promoters to ensure that the quality of the goods sold matches the proclaimed standards of the store (Sherman, 2001). This, in its turn, involves additional costs for preserving the suppliers, deliverers, manufacturers, and other partners and being able to conform to their payment requirements (Sari, 2000).
Moreover, the reduced production and supply chains are not applicable in these kinds of stores to the extent to which they are in global discount retailers (which can also be referred to as low-end market players) (Richardson, 2003). Therefore, additional costs are involved in the points mentioned, which makes it more complicated to carry out the inventory of the company (Sherman, 2001). As a result, the inventory strategies of high-end market stores should include, apart from the already mentioned points for global retailers, such figures as margin losses from write-downs, sell-through percent, and especially stock-to-sales ratios (Sari, 2000). The first point is of special significance for retail stores of all kinds to control the quantity of the goods in stores and losses suffered from write-downs, while the latter two points are crucial for high-end market players as the sell-through percent is a substantial part of the assets of any of the stores of the kind.
Retail Distribution Networks
As well as any other dynamic phenomenon, the structure of the retail networks has undergone certain changes over the recent years (Yurtaykin, 2005). The major change that explains all the minor ones is the shift observed in the focus of the large manufacturers on the work with retailers through their local distributors (Fernie and Sparks, 2004). However, the retailer networks are not the supporters of this kind of change as the work through distributors undermines their competitiveness and puts them under the threat of being taken over by the distributors (Yurtaykin, 2005). As a result, recent times have seen the creation of the manufacturing company-owned retail networks which do not have to cooperate with local distributors and can benefit from the direct work with the producers of the goods they offer to the retail market (Lowson, 2001, p. 281). Drawing from these logistics procedures involved in the operation of such networks are also simplified by the elimination of distributors from the production-scale process.
Time-based competition is another important strategy to be used in the development of modern retail distribution networks. The essence of this strategy lies in speeding up the production process of the company so that to leave its competitors developing the same technology behind (Jaquier, 2003). This strategy also involves the widening of the customer bases of the companies as the customers are more inclined to prefer the company to react in the fastest way possible on the market changes and supply-and-demand shifts (Fernie and Sparks, 2004). This strategy also provides benefits to the companies, including the reduction of costs, improved flexibility of products lines, and almost complete impossibility of imitation of the company’s products and creative ideas (Jaquier, 2003).
Further on, modern companies use the practices of consolidation and postponement in their operations to ensure the competitiveness of their products in the market. These are both the practices of storage of the ready goods or their parts in special premises for the purpose of their timely introduction into the market (Sherman, 2001). The consolidation lies in joining the transportation means of the company for the former to deliver goods or raw materials to a certain site from which the company can supply its manufactures, stores, etc (Yurtaykin, 2005). Postponement is the practice of storing the ready parts for goods so that it would be possible to assemble the goods from those parts and launch them to markets before the competitors (Sherman, 2001).
Centralization, in this context, is viewed differently from the manufacturing and retailing perspectives (Fernie and Sparks, 2004). The manufacturers become interested in the centralization that might allow them to monitor their facilities and stores dealing with their products better. On the other hand, the retailers are against centralization which could deprive them of freedom of making decisions, setting prices, balancing their performance, etc (Fernie and Sparks, 2004). As a result, centralization in retailing networks is argued about but is not implemented actually nowadays.
As contrasted, outsourcing to third parties is actively implemented by modern companies, especially those dealing with consumer goods, electronics, apparel, etc. The essence of outsourcing lies in transferring certain functions in the production or marketing of the goods to the offshore or foreign partners, which allows reducing the production and advertising costs by using the cheaper labor force of the third party. Nowadays, the companies hosted in the most developed companies outsource their manufacturing facilities to Latin American or Asian countries where the labor force is excessive and cheap and the tax climate allows these companies to benefit from such outsourcing. The additional costs that transportation and manufacturing abroad could involve are covered by the resulting benefits (Infosys, 2008).
Needless to say, the decision about centralization, outsourcing, and other important changes are not taken authoritatively by the CEOs of the retail distribution networks. There are three levels of decision-making in such companies including business level, tactical level, and operational level, which can be compared to the court, legislative, and executive branches of authority in any state system. Thus, the business level is the one making judgments of the necessity of certain steps, the tactical level is responsible for the development of the plan, or strategy, of their implementation, while the operational level is charged with the practical side of the task (Fernie and Sparks, 2004).
Finally, the network structure is characterized by consolidation and picking centers. The former is used for gathering and long-time storage of the goods and raw materials delivered by various suppliers. The latter fulfill the opposite function, i. e. are used for the selection of goods or spare parts that are subject to sale at a certain period as related to the postponement process (Fernie and Sparks, 2004). Regional distribution centers (RDC) are also significant for these networks as they are intermediary sections assisting in re-distributing goods from consolidation centers either to picking centers, or to the National distribution centers (NDC), or directly to retailer stores.
Reference List
Barry, C 2007, The Best of Inventory, Multichannel Merchant. Web.
Christopher, M 2000, ‘The Agile Supply Chain: Competing in Volatile Markets’, Industrial Marketing Management, Vol. 29, pp 37-44.
Fernie, John and Sparks, Leigh. 2004, Logistics and Retail Management. 2nd ed., Kogan Page, London/Sterling.
Infosys 2008, Moving Work Offshore: It’s More Than Just Numbers. Infosys.com. Web.
Jaquier, B 2003, Time Based Competition Strategy, Ecofine. Web.
Lowson R 2001, ‘Retail Sourcing Strategies: are they cost effective’, International Journal of Logistics, vol. 4, no. 3, pp 271-296.
Richardson, H 2003, How Cost and Service Goals Drive Inventory Strategy, Supplycore. Web.
Sari, J 2000, Another key to long term customer service, Defining an Inventory Strategy. Web.
Sherman, R 2001, Wholesale Distribution – Back in the Chain Game, MHM. Web.
Yurtaykin, E 2005, Distribution strategy in the consumer goods market: between the past and the future, ALT Research and Consulting Company. Web.