What are the best ways to optimize working capital during peak periods? Hari Pillai, CEO of Speed Commerce provides advice on managing inventory for peak season, advocating the use of third party fulfillment specialists to take the strain at these busy but potentially reputation-damaging times.
- As we head into peak trading season, why is it so crucial for e-tailers to have an inventory strategy? What are a few key things to consider when creating one?
The worst thing an e-tailer can do is have a major seasonal promotion and not have the products on hand to fill customers’ orders. You’ve not only lost a sale, you could very well lose a lifelong customer.
Inventory strategy is crucial any time of the year, but it does require laser focus as we move the calendar toward peak Black Friday, Cyber Monday and Christmas shopping season. Your forecast serves as the roadmap for your inventory plan. The more granular you are able to make the forecast, the better.
The forecast should give you a good understanding of what you are predicting to be your big sellers, the timing of your promotions, and what new SKUs (stock keeping units) you’re adding to your product mix.
When you plan for inventory, think about how much product you will need, when to meet your customers’ demands and when you should have it in the warehouse. Consider special locations for ‘oversized’ or ‘ship alone’ products as well as high-velocity pick zones for heavily promoted items.
- Why is it helpful to partner with a third party fulfillment expert during peak seasons?
One of the biggest challenges when you manage fulfillment in-house is scaling and managing labour for peak season. Often you may need to double the amount of people you have picking and packing customer orders as well as keeping on top of inventory with cycle counts.
When you work with a partner, you don’t have to worry about hiring, training and managing temporary staff well in advance of the upcoming peak. Fulfillment providers often serve multiple clients from within the same facility and those may not all share the same peak season. The fulfillment expert is better able to reallocate labour to meet customers’ demands.
- What are the operational benefits of using a fulfillment partner? What are the strategic benefits?
Let’s face it, most retailers didn’t get in the business to run a warehouse. Outsourcing fulfillment to a third party gives you the opportunity to focus on growing your business and resources on doing what you love, not worrying about warehouse organisation and delivery networks.
Strategically, using a fulfillment partner helps you avoid the significant capital expense and time required to develop the full suite of capabilities (IT systems, people, organization, process, equipment and buildings). Managing your own fulfillment operations means investing in facilities, people, infrastructure, and technology. With an outsourced fulfillment provider, you won’t have to make the capital investments and even better you can leave that to fulfilment partners who do this as their core competency and sole mission in business.
- We all know that inventory is a balancing act, how does a fulfillment partner help simplify this balance?
A fulfillment partner has best-in class systems and process in place to help you better understand and manage your inventory levels. Their technology gives you better visibility into your inventory levels so you can better understand what’s selling and how much product you have in the warehouse. You’ll also have better insight into your slow moving SKUs so you can develop promotions to move those out of your inventory.
Additionally, as a result of such large scale and focus on this as their core business, a fulfilment partner can usually achieve greater asset velocity on your goods for sale. That means you can convert goods to cash faster and lower your working capital needs.
- Any other advice you would give to an e-tailer as they put together their inventory strategy?
Don’t forget about returns, and remember that e-tailers typically get more returns than bricks-and-mortar stores.
As you build out your inventory plan, be sure to carve out a designated space to manage returns and give the process the same focus as you have with outbound shipments.
Hari Pillai is CEO of Speed Commerce
- Speed Commerce