How to beat competitors with thoughtful inventory management
February 2023 – A good inventory strategy is not only necessary to reduce inventory costs, it can also give you a competitive and commercial advantage. Everything starts with finding the balance between service and cost.
Driven by e-commerce, delivery times have dropped dramatically over the past decade. Consumers shopping in a major online store expect their order to arrive at their front door the next day. But this is not true for all products and sectors (thankfully).
When determining your inventory strategy, it is important that you first study the market in depth.
1) Map the real expectations of your target market and tailor your delivery time accordingly.
2) Study the competition and determine whether you gain a competitive advantage from faster delivery.
The balance between service and inventory cost
Efficient inventory management is about finding the right balance between service and cost. In the ideal scenario, a company could deliver any product within one working day. In practice, however, this is impossible because the company in question would have to hold an almost endless stock. The associated inventory costs would skyrocket.
So companies need to determine a feasible (and competitive) delivery time for their products and what percentage of their orders they want to deliver on time and in full (On Time, In Full or OTIF).
Why a differentiated approach works
Not every item should be treated the same way in the supply chain. Stock managers would do well to segment products according to their importance to and impact on the business.
For critical items, an OTIF percentage of 97 may be desirable, while for fringe products a lower percentage is acceptable. Such trade-offs depend on rotation rate (how long a product stays in the warehouse on average) and the nature of the customer (loyal customers deserve better service), among other factors.
Know your customer
So the key lesson is: know your customer, as well as the market you are in. Data will help you on your way to making the right inventory decisions and enforcing a competitive advantage.
