By Dr. Kandis Boyd Wyatt
Faculty Member, Transportation and Logistics, American Public University
Brace yourself. Prime Day — which is October 12 and 13 — is essentially shifting the traditional pre-holiday rush to buy discounted goods from November to October.
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Why is this important? “eMarketer has projected Prime Day will generate $10 billion in sales, up from $7 billion in 2019, as consumers flock to the shop-a-rama, many flush with stockpiled cash and wanting to get in early on holiday deals,” writes Mike O’Brien in MultichannelMerchant.
The Prime Day Change Has Brought Inventory Control Challenges
While this change may seem like a great jolt to the economy, it also comes with several inventory control challenges. First, Amazon hired over 175,000 workers to adjust to the expected increase in online sales as a result of the 2020 pandemic. While this could be good for the economy, it will serve as a bullwhip effect if the projected sales figures are not realized through the end of the year. In addition, this extra hiring places a strain on seasonal workers who have all but been replaced by more full-time workers, more automation, and an earlier and longer shopping season.
Second is my favorite term when it comes to e-commerce: monkey see, monkey do. In other words, Target, Walmart, and other large retailers are following suit, providing discounted goods earlier.
Third, Prime Day places less emphasis on traditional high-selling days in November, such as Black Friday and Cyber Monday, which are often indicators retailers use to track fourth-quarter profits.
Fourth, and most important, if the rush to sell goods earlier is not accompanied by proper inventory management, it can result in a disaster for both the company and the customer.
What is inventory management? It is satisfying the needs of every person in the supply chain to maximize inventory and profit.
Inventory is quantities of goods. Inventories are cash that can’t be used until sold and the receivable collected. As such, managing inventories is an incredibly important function in any organization and can be the factor that generates a strong positive cash flow and a robust balance sheet.
Inventory management is used by retailers, restaurants and manufacturers. Having the right inventory at the right time at the right place is easier said than done. It includes the flow of goods from suppliers to retailers to customers and can include being housed at a warehouse for an extended period of time.
Believe it or not, both manufacturing and service industries carry inventory. Retailers like Amazon, Walmart, and Target must carry inventory, and a shortage can result in a loss in profits as customers seek the same items from another retailer. As a result, developing an accurate inventory system can be a terrible nuisance to manage, but manage it you must.
The Traditional Process of Inventory Control
Traditionally, goods are delivered, received and then put on the shelves. The item will be pulled for distribution, then shipped to the customer.
This process can be tracked either manually or electronically. There is a lot of data — costs, dates, inventory, supply and quantity — that needs to be tracked. Goods need to be tracked for each step when they come in.
A scanner can automate the process and send the information to a central database. Artificial intelligence, barcodes, or radio-frequency identification (RFID) tags are used for the pick, pack, and ship process. That way, information is dynamically updated in real time. To increase tracking efficiency and decrease time, more business information is needed to make informed decisions.
Proper Sourcing Is Essential to Maximize Materials at the Lowest Costs
Sourcing buys in bulk, manufacturing wants to maximize efficiency and warehousing needs to focus on maximum capacity. Sourcing means finding constant ways to maximize materials at the lowest costs, which results in the need to store more materials.
Marketing Products and Avoiding Obsolescence
Marketing and sales, finance, legal, and accounting departments all have an opinion for marketing. Marketing wants the most products available at all times.
Obsolescence means outdated products, which ultimately results in a loss of profits. Accounting and finance would argue this point. Likewise, if goods are not delivered on time, accounting may have to include financial penalties. The legal department needs to ensure products are delivered on time to satisfy contractual agreements.
The External and Internal Challenges of Prime Day
Prime Day is not new, but it comes with several potential external and internal challenges. Externally, Prime Day can be accompanied by hacking and phishing attacks. While Prime Day is projected to earn $10 billion, there are internal challenges managing the delivery of products, such as having too little or too much stock.
“Out of stock” is the kiss of death, as it limits growth. Likewise, overstocking is not good for products that can quickly spoil or become obsolete.
Inventory up, cash down — it’s an inverse relationship. All departments must trust the expertise of the other departments to make informed decisions and to optimize inventory.
Trust is the basis for inventory maximization and optimization. To build trust, inventory and inventory control is key, as is optimizing products.
About the Author
Dr. Kandis Y. Boyd Wyatt, PMP, is a professor at American Public University and has 20 years of experience managing projects that specialize in supply chain management. She holds a B.S. in meteorology and an M.S. in meteorology and water resources from Iowa State University, as well as a D.P.A. in public administration from Nova Southeastern University.
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