Over these past weeks there have been constant reminders in industry and financial-related media, as well as the blogsphere, pointing out the strategic importance of optimized inventory management. 

Have you seen them? 

Is your organization positioned to take advantage?

Supply Chain Matters has provided many posts this year commenting on how quickly various manufacturers and industry segments have reduced their overall inventory levels.  My latest posting on this topic, Inventory Reductions- Don’t Rest on Your Accomplishments, paints a picture of the current state of inventory management across industries. That state was reinforced to me from a couple of speakers at last week’s Council of Supply Chain Management Professionals (CSCMP) conference, all noting how low inventory levels have been driven to.

The retail industry is especially embracing smarter inventory management, especially in light of the upcoming holiday season. An article in the Wall Street Journal print edition, Retailers Fret About Inventory Levels for Holidays, notes the results from a survey completed by BDO Seidman LLP, indicates that 79 percent of CFO’s among top 100 retailers by sales, say too much inventory poses a greater risk to their holiday sales.  

Much has already been written and commented regarding Wal-Mart‘s latest initiative, Project Impact, which aims to implement cleaner, less cluttered stores to improve the shopping experience. Besides a smarter looking store layout, Wal-Mart has also been hard at work on more efficient inventory stocking strategies, strategies focused on stocking fast-moving, or more high-demand items vs. slower-moving, or less profitable items. Others major retailers have been following suite in various forms.  We commented previously on Toys R’ Us, and their strategy to open 350 temporary stores stocked with just high-attraction items, in an attempt to spark upcoming holiday sales. Drug chain Walgreen Company has also been hard at work in revamping its stores.  According to an article in today’s Wall Street Journal, (subscription may be required) Walgreen’s cash flow from operations has increased 55% in the latest quarter which ended August 31, mainly because of lower inventories. The article further notes that stores typically squeeze 22,000 different items on shelves, but newly remodeled Walgreen stores carry 4000 fewer items. In total, Walgreen reduced the value of inventory per store by more than 11%.

Meanwhile, the inventory cutbacks by major retailers also cascade themselves to other tiers of the supply chain.  Case in point, apparel makers Nike and Addidas have also had to trim inventories, not only to respond to retailer cutbacks, but also to buffer margin erosion in their own businesses. According to Nike, worldwide orders of shoes and apparel for delivery between September 2009 and January 2010, an indicator of future sales, fell 6% compared with last year’s same quarter. Even consumer goods giant Procter and Gamble was not immune.  Commentary from its fourth quarter earnings results is laced with commentary reflecting cutbacks in trade inventories across many of its product divisions.

Optimization and smart management of inventory will continue to play a very strategic role for firms to survive the current economic downturn. More importantly, when recovery in markets does return, strategic inventory management will play an ever more crucial role, as supply chains determine which inventory investments are the smartest.

 Bob Ferrari