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Inventory Planning in an A/O Environment….

August 5th, 2009

                In some of my previous posts I’ve discussed the diligent efforts our Company has put in place to bring inventory levels down over the last year and the focus put on working capital levels overall.  However, if you are a follower of Retail or Apparel companies, you’ve probably been reading lately the shift of retailers, across all segments, to decrease their pre-book activities and move towards buying on an At-Once (A/O) basis depending on how the current season progresses. We started to see this trend in the Fall selling season, but it has become more pronounced as we moved into Holiday. It’s worth noting though that this trend is primarily occurring within the smaller retail operations, which may have 10 doors or less. This is a much more difficult, and extremely risky, proposition for the larger retail operations which are under pressure for comp performance and risk not getting the product they need to drive their comps.

 

                So what’s a manufacturer to do in such a situation?  What do you do when you’re lead times are 90-days+ out of Asia and you can’t just do a quick ramp-up in a domestic manufacturing facility? Don’t start looking through your B-school textbooks looking for the answer, because you won’t find it. Unfortunately, this is really one of those game-day calls that need to be exhaustively discussed before committing the capital. It’s an especially difficult commitment when you’ve spent the last year right-sizing your inventories, increasing the velocity of your turns, and no longer have that “problem” inventory that’s affecting your gross margin results.

 

          Do you go increase your current inventory buy based on low-volume Holiday bookings?

          Do you bring in an early release of Spring-10 product based on great verbal feedback?

          Do you offer extended dating to prompt retailers to step up to the plate for the season?

          Do you offer discounts to keep make sure you keep that valuable shelf space?

 

                Ultimately, it’s the shelf space we’re all fighting for and don’t want to find ourselves in any situation where that space is jeopardized. Especially when the smaller shops aren’t pre-booking. What are they planning on filling that space with if you don’t order the necessary product to accommodate their A/O needs?  How do you service the needs of your dealer base when they aren’t providing the necessary insights for you to make appropriate inventory decisions?

 

                It’s really a judgment call that involves the entire management team and determining the level of risk that the company is willing to take. Any poor buying decisions will effectively saddle the company with more working capital issues and poor margin performance for at least the following 2-Quarters, if not more. Unless, of course, you take the step of blowing out that inventory through your available close-out channels at a loss. Fantastic, right back in the same place you were previous to this shift in buying mentalities. So what’s your game-day call for inventory planning when you’re customers shift to an A/O purchase mentality?

 

Thanks for reading . . . .

 

Jeffrey Ishmael

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