IT’s DAYS OF SUPPLY INSTEAD OF WEEKS OF SUPPLY FOR DIY RETAILERS LIKE HOME DEPOT

While the DIY retail segment is currently booming – Home Depot is targeting a 15% sales growth by 2018 – their strategies for inventory in their stores is changing. “Get comfortable with days of inventory, not weeks,” Tom Shortt, Home Depot’s senior vice president of supply chain, says is the message going out to stores. 

Rather than filling its warehouse stores with inventory, Home Depot wants fewer items on its shelves and wants those items within customers’ reach. Online shopping is making retailers think of better ways to profitably serve online shoppers and have inventory in stores, as well. They need to decide if they will ship to consumers from a distribution center or store.

WalMart and Target have also made changes to in-store inventory levels. WalMart’s inventory levels rose slower than sales, helping to improve their gross profit margins in the first quarter.  Boosting sales and stocking less items increase the percentage of cash they get back from the amount they invest in inventory. The strategy is to put less inventory in the stores and replenish more frequently based on demand instead of a forecast.

Home Depot’s strategy is called “Project Sync” which includes such changes as seeing suppliers send 2 trucks five days a week, versus 5 trucks 2 times per week.

Monitoring the return on invested inventory capital and tracking consumer demand closely in order to manage inventory and replenish based on demand can only be accomplished with frequent analysis of POS data in stores, looking at SKU-Store sales and on hands, trending days of supply and sales to stock ratios.

Source: Wall St. Journal

Recent Reversal in 20-Year Trend Towards Lower Inventory-to-Sales Ratios by Retailers

The US Census Bureau reports monthly on inventory levels for retail, wholesale and manufacturing sectors. This trend will impact retailers themselves, consumer goods manufacturers, suppliers to those manufacturers and transportation carriers.

The inventory-to-sales ratio in retail has been declining pretty steadily for the last 20 years, with the exception of 2008 when the recession hit full force and retailers were caught with too much inventory relative to quickly declining demand. But most recovered quickly, shedding inventories to put things back on the downward trend line within one year.

The retail inventory-to-sales ratio reached a low sometime during early 2012, but has been slowly increasing since then, mainly due to the fact that interest rates are so low (meaning the cost of holding inventory is less), but also perhaps due to increased optimism on the part of retailers as well.

Source: Supply Chain News