Despite having different objectives and motivations, marketing, sales, and operations must coordinate due to supply chain instability.
For the consumer, online purchasing is like magic. Thanks to the supply chain, you can click a few links and the thing you purchased will arrive at your door in a day or two.
It’s not magic at all for the online shop. The network of producers, shippers, and warehouses that balance supply and demand is hidden from the client. Online retailers typically oversee a physical process that results in inventory, or the items they need to have on hand in anticipation of a purchase.
There is a cost to having items hanging around, so hopefully the wait won’t be too long. Despite not being mind readers, retailers can infer some notion of what customers want from historical purchase data. Their delivery of the goods has been fairly decent.
All of that is lost when something unforeseen occurs. The COVID-19 epidemic gave the current system a severe beating. In order to avoid having too much or too little inventory, online businesses need to reevaluate how they compute inventory. It will require organizational adaptability and teamwork. It also means a great deal to marketing teams, who need to generate demand without going overboard.
Assembling your departmental team:
Certainly, a crucial aspect of managing unpredictability involves aligning sales and marketing strategies with inventory management. While this guidance may seem straightforward, putting it into practice presents significant challenges. Larger corporations often possess the resources necessary to achieve this alignment seamlessly. Conversely, smaller enterprises may find themselves constrained by limited scope and time, preoccupied with the day-to-day tasks of selling and expanding their operations.
Mark Hart, the Chief Operating Officer of Pollen Returns, a service catering to ecommerce businesses, highlights the divergent perspectives among sales, marketing, and operations regarding what constitutes success. Each unit may perceive a “win” differently, emphasizing the importance of establishing shared expectations and realistic targets. Hart underscores the value of learning from setbacks rather than assigning blame when goals are not met.
Dave Emerson, Senior Vice President for Global Ecommerce at SEKO Logistics, underscores the inherent uncertainty in predicting consumer behavior. Despite marketers’ best efforts, there remains a degree of uncertainty regarding what products customers will ultimately purchase or favor. This uncertainty can lead to instances where excess inventory accumulates due to misjudgments in consumer preferences.
Russ Sharer, Chief Sales Officer for The Brooks Group, outlines the potential for conflicting priorities among departments. Marketing may prioritize future initiatives, while sales may neglect to monitor funnel and conversion metrics. Meanwhile, operations may adopt a cautious approach, scaling back production due to reservations about sales and marketing projections. Sharer emphasizes the importance of unified forecasting meetings, where all departments present their plans and rationales to foster alignment and collaboration.
Constructing the buffer for the supply chain:
So, you’ve gathered the data and achieved alignment. But what’s the end goal? It’s about establishing a supply chain buffer.
Companies need to accurately assess their current stock levels and determine the optimal timing for reordering. However, there’s no crystal ball to provide this information. Yet, getting this aspect right enables firms to incorporate a shock absorber into their supply chain, mitigating the impact of unpredictability.
Matt Garfield, Managing Director at FTI Consulting’s retail and consumer products division, emphasizes the critical role of supply chain buffers, particularly underscored by the pandemic. These buffers are designed to absorb uncertainties throughout the supply chain, typically sized based on demand variability. Essentially, they involve adding safety stock or capacity across the value chain.
In the past, maintaining high inventory levels served as the buffer, but it comes with its own set of risks. Casey Armstrong, CMO of ecommerce fulfillment firm ShipBob, highlights the capital tied up in inventory, along with the risks of overstocking and storage expenses. Many brands have shifted to a ‘drop’ style approach, introducing limited quantities of products that sell out quickly, thus minimizing excess inventory.
Armstrong suggests setting up inventory reorder point notifications based on SKU levels and lead times. Smart brands retire slow-moving products in favor of focusing on profitable, best-selling items, closely monitoring inventory turnover and product velocity to optimize SKU count.
Preparing for plausible worst-case scenarios within the company’s means is crucial, notes Mark Hart. This involves budgeting for sudden fluctuations in sales, ensuring the company remains nimble and adaptable.
Russ Sharer proposes a two-supplier strategy, distributing business between them, along with maintaining good relationships and timely payments. This strategy enhances flexibility, especially during supply shortages.
In essence, creating a supply chain buffer entails investing in inventory or capacity in anticipation of future demand spikes. Hart emphasizes the importance of ongoing monitoring and adjustment, viewing it as a dynamic process rather than a one-time fix.