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From Chaos to Control: Improving Inventory Velocity

Written by
Dropit Team
Published on
July 17, 2024
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From Chaos to Control: Improving Inventory Velocity

Are your inventory turns too spread out, pushing up carrying costs? Are you leveraging business intelligence to turn more stock into cash,
or is it stealing from the bottom line? If you answered “yes” to the first and third questions, it’s time to examine inventory velocity,
and look for ways to optimize it.

In 2021 and 2022, stock levels skyrocketed to meet demand in a “just in case” model, then had to be bled off in various ways as demand cooled.
Now the industry has largely shifted back to the leaner “just in time” approach. 

Innovative companies like online furniture seller Lovesac leverage smart inventory management to reduce the cost of goods sold (COGS),
reducing warehousing and freight expenses. Getting inventory velocity, then, is a true difference-maker in a hyper-competitive environment.

Inventory Velocity and Its Challenges

The industry standard for inventory turn falls between 2x and 4x a year. If you’re less than 2x, you’re probably carrying too much dead stock; over 4x and stockouts become a factor. Considering that many retailers operate on lower margins, improving inventory velocity is critical. 

Here are a couple of hypotheticals to illuminate:

  • A small cosmetics brand had a COGS of $60,000 and an average inventory value of $15,000, for an ideal inventory turn of 4x. But if the ratio increases, they need to boost pricing and cool demand, or increase the replenishment rate.
  • A niche seller of men’s slippers posted a COGS of $35,000 and an average inventory value of $20,000 for a low turn ratio of 1.75. They can look at discounting to push out slow-moving SKUs, but really need to do a better job of forecasting.

Here are two more scenarios to help illustrate what happens with poor inventory velocity: 

  • A popular sneaker brand sells DTC through its website and through sports retailers. This requires constant vigilance of cross-channel sales. Sudden store demand for a new release forces planners to shift DTC inventory, risking out of stocks.
  • A women’s fashion retailer has physical stores and sells into Amazon and Walmart. Planning teams for both set quarterly sales and purchase forecasts. But it becomes a game of “push me, pull you” when one channel or the other sees demand above forecast. The resulting reallocation causes channel conflict. 

    These situations can domino into greater fulfillment and transportation costs to deal with sudden demand shifts.
    They can also disrupt replenishment cycles and purchasing schedules.
    Technology is needed to synthesize and analyze demand data from multiple sources, smoothing out inventory allocation and SKU-level
    velocity across channels. Dropit, an innovator in data analytics and predictive modeling for inventory management, connects sales data from across the tech stack.
    Its powerful machine learning models help retailers build more accurate forecasts, optimize purchase plans, and avoid channel imbalance.

Out Of Synch Inventory Velocity Comes at a High Price

Poor inventory velocity ties up capital, increases storage and maintenance costs, and leads to obsolescence.
Cash flow is reduced and profitability lowered, making it difficult to respond quickly to market changes.

Businesses incur storage fees, insurance, depreciation, and opportunity costs when holding inventory for extended periods, as values depreciate.

While high velocity helps cash flow, precise forecasting is required. Frequent reordering can strain supplier relationships,
increasing administrative costs and stockouts.

Low inventory velocity increases obsolescence risk, particularly for products with a limited shelf life.
Outdated, unsellable inventory results in write-offs. It also ties up resources that could have been invested in more profitable ventures.
Slow-moving inventory also results in excess lead times, reducing agility and responsiveness to changing demands.

Effective Inventory Control: Three Strategies for Improved Velocity

To avoid these painful scenarios, innovative solutions enable you to keep inventory velocity in that just-right zone.

Demand Planning and Forecasting

Improving demand planning and forecasting is one sure way to improve inventory velocity.
The importance of looking ahead a quarter or two with precision cannot be overstated.

Dropit unifies retail data across the tech stack for optimized inventory management and improved fulfillment allocation.
By analyzing historical data, active transactions, and external  factors, Dropit’s innovative technology enables retailers to streamline
operations and optimize inventory management seamlessly. 

Dropit’s machine learning models and simulations automate decisions and integrate corrective actions into retailers' systems,
improving efficiency. Fulfillment capabilities and analytics enable improved inventory turn and savings. Committed to operational excellence,
Dropit empowers retailers to unlock growth opportunities.

Proactively syncing data from ERP, OMS, POS, and CRM systems helps you constantly rebalance inventory across channels to meet demand
while minimizing excess stock and stockouts. Dropit helps businesses improve inventory velocity and reduce carrying costs by better aligning
inventory levels with forecasts.

Fulfillment Optimization

Dropit optimizes order fulfillment processes that streamline operations.
We help businesses fulfill orders more efficiently and minimize order processing times by automating order routing,
batch picking, and inventory replenishment.

Additionally, Dropit provides recommendations for inventory allocation and replenishment based on dynamic sales data and forecasts
so you can prioritize fast-moving SKUs and allocate inventory more effectively. By optimizing fulfillment operations, Dropit helps you improve order accuracy
and reduce lead times, enhancing inventory velocity.

Data Integration and Analysis

As inventory, customer, and order data constantly flow in, how it’s integrated and analyzed spells the difference between a finely tuned process
and one that’s constantly putting out fires.

Dropit seamlessly integrates with existing systems, aggregating historical and data. We  harmonize disparate data sources,
providing a comprehensive view of inventory across channels and locations. 

This enhanced visibility enables more accurate forecasts, better inventory planning, and proactive decision-making.
Ultimately, excess inventory is reduced and turn rates improve.

Improved Inventory Velocity Demands the Right Partner

For years, inventory management and calculating velocity in retail was a combination of gut instincts, industry smarts, and heavy technology debt.
Yet, we still struggle to make omnichannel efficient and profitable. 

Technology is the key, empowering retailers to scale effectively in an omnichannel world.
But retailers need to prioritize solutions that deal with the root issue of data silos. Automation helps streamline demand planning,
reducing manual errors and improving productivity. 

By syncing multi-point data and leveraging machine learning, Dropit helps retailers access the most up-to-date view into demand signals.
This facilitates better decision-making, order orchestration, lowers costs, and optimized inventory flows.
See why top companies like L’Occitane, Abercrombie & Fitch and Estée Lauder trust Dropit as their retail technology platform.

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