After struggling for four years to strike the right balance between stock availability and excess inventory, retailers are turning to an old playbook to manage their inventory levels. The focus is now on replenishing items rather than stockpiling goods in case of supply chain disruptions. This marks a shift back to the “just-in-time” inventory management strategy that was prevalent before the pandemic-induced product shortages and volatile shifts in consumer demand. Retailers are confident in their ability to predict shopper demand and are willing to hold leaner inventories given the moderating spending growth and fewer disruptions in the supply chain.
Companies, such as Tailored Brands and IKEA U.S., have implemented this strategy successfully by gaining better visibility into their production orders overseas, allowing them to adjust their inventory levels based on demand signals. This approach eliminates the need for safety stock inventory, which ties up capital, requires additional space and manpower, and risks becoming outdated.
While retailers have managed to realign their inventories with sales, new supply chain disruptions, like recent attacks on containerships and low water levels at the Panama Canal, could prompt them to adopt a different approach and increase their excess stock levels. However, experts suggest that the current confidence in the supply chain and logistics network encourages retailers to maintain a just-in-time inventory approach.
Retailers, such as Walmart, are leveraging advanced technology to fix forecasting tools that were compromised during the pandemic. This allows them to gain a better understanding of consumer buying patterns and accurately predict demand. The technology enables retailers to receive smaller, more accurate shipments, optimising inventory management and improving supply chain efficiency. With this renewed focus on just-in-time inventory management, companies aim to strike a balance between meeting customer demand, avoiding excess inventory, and optimising capital utilisation.
