It's Time for Item Inventory

Greg Gilkerson, President, PDI

Article Preview: 

In 1989, PDI published “Management and Information Systems in the 1990s.” One of its key predictions was the end of retail inventory, which we called antiquated and inefficient. Well, we wrote another treatise a decade later—and conceded that retail inventory had not gone away and, in fact, was alive and well!

Twenty-three years after our first prediction, we are finally seeing traction in favor of item inventory. It is gratifying to hear retailers talk about the benefits. Before we examine those, let’s take a quick look at the reasons it has taken so long for this idea to take root. First, there were several impediments to moving to item inventory:

  • Audits: The inability to get accurate item counts has been the item inventory Achilles’ heel. Also, the cost required for an audit is two to three times more than the traditional retail inventory. I don’t know about you, but this issue makes me wonder just how good those retail audits really were! Were they counting or surveying?
  • Non-Scannable Merchandise: Novelty items, newspapers and magazines were problematic and costly to include in an item inventory system.
  • Scanning: The ’90s and, for some, the ’00s represented the first commitment to scanning. Without scanning, item inventory is not possible.

Systems Limitations: While retail systems had item inventory capabilities, technological limitations impeded use.

Change in the Air

Throughout the ’90s and ’00s, several changes took place as the first companies experimented with and then implemented item inventory:

  • Improved Systems: Great strides have been made in item inventory systems, especially in the area of foodservice.
  • Audit Frequency: Companies using item inventory began to see that full store audits were not needed as frequently, so the cost of audits per store per year was mitigated.
  • Cycle Counts: Cycle counts on key categories have become standard operating procedure. They allow the retailer to count costly inventory as often as needed to support computer-assisted ordering and to maintain control.
  • Scan-Based Trading (SBT): In the past five years, SBT has become a reality. SBT allows the retailer to turn over pricebook and vendor management to a third party that bills the retailer only for the items that have been sold. SBT addresses categories that were difficult to manage at an item level, such as publications.
  • Doing Business Electronically: Wouldn’t you know that one of the real automation advances of the past 10 years would place some constraints on item inventory?! Many retailers are importing invoices from their suppliers, and the DSD (no preorder) community is challenged to get this information to the retailer on a timely basis. This creates audit reconciliation delays that are a nuisance and adjustments must be made. Thanks to Anheuser-Busch and Coca-Cola for their leadership in making system improvements to reduce this problem.

How You’ll Benefit

For all this effort, what can a retailer expect as benefits? Several retailers tell us these things make the effort not only worthwhile, but also essential:

  • Improved Computer-Assisted Ordering: With “on-hand” inventory position, you have better data to create orders. Better orders reduce out-of-stocks and inventory levels at the same time.
  • Accurate Gross Margins: Retailers report that knowing accurate grossmargin information is revealing and facilitates making ROI-based decisions on product selection.
  • Item-Level Visibility to Inventory Over/Short: When you know, retailers can take the right corrective action.
  • Visibility of Out-of-Stock Conditions: Item inventory allows the retailer to see products that are out-of-stock or nearing an out-of-stock condition, getting the issues addressed before sales and valuable customers are affected. Eliminates “Pad”: This is my personal favorite. With item inventory, there are no retail adjustments for quantity discounts, price changes and other “pad” opportunities. This saves time and money.
  • Creates Organizational Discipline: Item inventory requires organizational discipline from merchandising to operations and accounting. This requires healthy teamwork.

So maybe now is the time to get rid of retail accounting and move to item inventory. We believe it is! n

Click here to download full article