Inventory risk is margin loss exposure arising from in-day imbalances between real customer demand for a specific product and the actual available supply. Over stock conditions result in discounting or, worse in the case of perishable food, waste; with the consequent loss of 100% of retail price from margin, plus the costs of disposal. In the case of perishable products, this over-supply accounts for annual store losses >4% of total store sales. Under-stock conditions are no better, as they invariably deliver out-of-stock occurrences, which will lose customers and deliver margin losses between 1.5% and 4% of total store sales.
With food/grocery chains’ operating profits run around 3% in the US and 5% in Europe, the ability to attack a problem eroding operating profit by as much as a combined 6% or more, is compelling. Even more so when one considers perishable products are generally paid for with no right of sale-or-return; effectively “sunk” costs. Any recovery of these losses flows 100% to operating profit. In an environment delivering 3% operating profit, it is 33% more effective to recover profit from costs than to do so from increased sales. When the cost/loss recovery is immediately available, the problem becomes an opportunity.
Delivering the absolute best return on inventory investment, whether in the food/grocery sector or any other retail market, is a priority of DSM. Optimized supply chain solutions don’t provide either visibility to, or granularity of, the sku item counts required to enable each store to maximize its gross margin return on inventory investment, (GMROII). This failure is too often reflected in too high an inventory carry and too low inventory turns. DSM delivers the in-store granularity of balance-on-hand, shelf balance-on-hand and, where relevant, shelf “project” balance. These sku item counts are maintained in real-time and are the basis of the DSM inventory optimization that adds >2.5% of total sales to operating profit.
DSM delivers on the above, but is much more; combining the most accurate “in-day” perpetual demand forecasting alongside real-time inventory management, including sub-level sell-by date segmentation where available.
Impulselogic and its partners can deliver DSM within 90 days and expose the existing in-store Inventory Risk, the current losses realized from Inventory Risk occurrences and the financial impacts available when Inventory Risk is eliminated by the deployment of DSM.