Think of the last time you visited your favourite retail store, or even ordered something online from them, and ask yourself this question:
Did they have what you needed ready and waiting for you before you even arrived?
If your answer is yes, then you have just experienced what it feels like for customers to shop at a business that has mastered the art of inventory management.
The Art of Inventory Management
Inventory management is not simply about ordering and storing products; rather, it is a core business process with its own share of intricacies and quirks. Moreover, Inventory management is not some new process invention of the 21st century.
It has been around since the dawn of the human industry, and over the centuries, inventory management professionals have carefully honed their skills and devised strategies that fit almost every model of business conceivable.
Start-ups and small businesses, especially in the retail and e-commerce sectors must study the art of inventory management and learn how their product flows through their business until it is sold to consumers. Experts at Expertise Accelerated have already done detailed breakdowns of inventory management best practices in our publication titled, “Effective Inventory Management Tips in 10 Steps”
The best inventory management strategy is one where a customer does not even get the chance to feel that they will not get what they came to buy from you. That is the goal to strive for and to help entrepreneurs achieve this goal, let’s learn from history this time.
We stand on the shoulders of industry giants, after all, so why not look at the inventory management strategies that got these giants where they are?
The Inventory Management Strategies of Successful Businesses
H&M: Maximizing Price Economy and Minimizing Lead Time
Let’s first take a peek at the fashion giant H&M, one of the leading fashion retailers in the whole world as of 2023, with 4,465 brick-and-mortar stores worldwide, not to mention a comparably large e-commerce platform.
H&M did not get to this point overnight, not at all. Many of H&M’s success can be attributed to their inventory management strategy, which can be summed up as maximizing price economy while minimizing lead time.
In a nutshell, what this means is that H&M has set up its supply chain network to be the most cost-effective it can be so that it can provide its standard quality at the most economical price. Because of this optimized supply chain network, they have short lead times, and stores are almost always stocked as per consumer trends of the times. But how do they do it?
Harvard compiled a highly in-depth research report on H&M and their super supply chain, titled “H&M: How Fast Fashion Translates into Low Prices and Success“, and essentially attributed their success to three major factors:
- Independent Suppliers and strong Supplier Relationship Management (SRM)
- Logistics and inventory management in warehouses
- Technology
What H&M does is they have hundreds of different manufacturers and suppliers dotted across the globe, whom they have strong relationships with, and have established production management centers in key locations near manufacturers to help facilitate an unimpeded supply chain. With this set-up, H&M has 80% of its annual clothing lines manufactured in advance.
That’s right, you heard me, they manufacture 80% of their yearly products before the year even begins, with the remaining 20% manufactured depending on fashion trends and market demand.
What they essentially have done is they have established clusters of manufacturers in strategic global locations and have placed logistical inventory storage hubs in the center of these clusters, where they hold all of their inventory for that geographic area and ship out as needed to the nearby stores. Their stores, similarly, are strategically established in locations near their logistics hub, so the lead time is next to nothing, while cost is minimized thanks to the products being produced well in advance and efficiently moved and stored for the year.
All of this, finally, is tied together with their very own inventory management system, which tracks the buying habits of customers, as well as market trends, and forecasts how much inventory will be needed at what store by what time well in advance, so customers never have the chance to complain that the store’s shelves are empty.
What we can learn from H&M’s example is that they figured out their brand: maximizing price economy, and minimizing lead time, and developed their own unique inventory management strategy that embodied their brand. H&M also makes a great example of why inventory management software and systems are absolutely integral today. Why should a business waste valuable time and money forcing an inventory manager to manually spend eight hours a week just checking the inventory, when it can all be done and updated in real-time with software?
Zara: More Variety and Limited Availability
Zara is another fashion brand renowned for its supply chain and inventory management technique.
Contrary to H&M, who minimized price and lead times by advanced manufacturing and storage, Zara instead hardly ever keeps their inventory for long.
Zara’s game plan is simple: make more, sell less. Basically, their strategy is to increase the variety of their fashion products, so that while a competitor may have 2-4000 unique designs per year, Zara is presenting triple that in variety. This paired with their unique selling strategy where they capitalize on the customer’s Fear of Missing Out (FOMO) by limiting runs of their individual products to only 2-4 weeks allows Zara to essentially never have to hold much inventory, and rather just make, supply, sell and start all over in a matter of weeks.
SCM Globe did an excellent case study on Zara’s supply chain and hit on this stroke of brilliance at Zara! According to the study, what Zara manages to do by making more and selling in limited runs is that they minimize their lead time and storage costs. All of their products are made in-house and stored in a central hub called The Cube. Because they sell new product lines every few weeks with limited runs, they can essentially manufacture a product and ship it out to stores and begin manufacturing another product right away, and because of the scarcity of their products, they always sell out fast and need to restock fast, which makes forecasting that much more accurate.
What we see from Zara is the exact opposite of what we saw H&M do. Zara constantly keeps its production going and never just stashes a year’s worth of inventory to shorten lead times, instead it found its own way of shortening lead times while maximizing revenue. The big lesson to be learned from these two cases is that the same end goal can be achieved in two drastically different ways and that inventory management is very much not something that is a generalized process, but rather a process that the business must develop to suit its own brand and unique needs. There are industry best practices, of course, but the idea is to emphasize that there is no “right” way to optimally manage inventory other than the way that suits your individual business the best.
Walmart: Leveraging Supplier Relations and Cross-Docking Strategies
The last exemplary inventory management strategy we will observe today is Walmart, the retail behemoth that has dominated the US for the past 70 years.
Dynamic Inventory did an excellent case study on Walmart’s inventory management strategy, and the key takeaways are how they leverage their supplier relationships to minimize their inventory management costs, paired with cross-docking, which further reduces inventory holding costs.
Basically, what Walmart does is it puts the management responsibility of products to vendors in its warehouses. This is basically now coined as the Vendor Managed Inventory (VMI) domain of inventory management. Alongside this, Walmart also does not hold any inventory it does not need to via cross-docking, where a truck carrying inbound products immediately loads the shipment into an outbound truck with no intermediate storage time and associated costs.
This unique method of basically negating the need to carry inventory and putting the responsibility of the inventory on vendors as a result of carefully negotiated and crafted vendor deals allows Walmart to save millions on inventory costs, which they reinvest into further optimizing and growing the business
If you asked an inventory management consulting services provider what could be learned from Walmart, it would be their masterful management of supplier relations, which has allowed them to drastically cut down costs. By offering lucrative incentives to vendors and suppliers and solidifying long-term relationships, Walmart has established itself as a trustworthy and solid business to deal with. The amount of benefit that can be gleaned from strong supplier relations is a wellspring of opportunity that entrepreneurs should definitely try and tap into.
How Expertise Accelerated Can Help
With all that said, building an inventory management system like these industry giants is not child’s play. It took them decades to figure out what worked and what didn’t until they finally worked alongside inventory management professionals and carved their own unique strategy that organically fits their business model. And the bottom line is that doing all of this is expensive. Very expensive.
Expertise Accelerated, founded by business process reengineering expert and CPA Mr. Haroon Jafree, is dedicated to helping small businesses and startups find their own voice when it comes to inventory management through our inventory management consulting services, at a fraction of the in-house cost.
EA provides US businesses with the opportunity to link up with its offshore supply-chain management and inventory management professionals, vetted by EA’s upper echelon of industry experts and recruitment professionals, and leverage their expertise under the watchful eye of Mr. Haroon’s decades of experience.
By leveraging EA’s offshore inventory management consulting services, US businesses gain invaluable insight into their supply-chain process. By collaborating with our professionals they can find their own unique inventory management strategy that fits their business and brand perfectly.