Tag: Inventory management

Guest Post: From No Frills to Trendy Food, Fashion and Home, Walmart’s New Product Assortment 

Professor Misty Blessley, at Temple U., cohosts many of our podcasts, as well as sharing her insights with our readers monthly.

 Value retailer, Walmart, known for focusing on price-sensitive shoppers, has moved into premium products and broader brand assortments, with the goal of winning over customers with more buying power. Appealing to higher-income customers (those earning over $100,000), requires the firm to shift from a no-frills mindset. 

The firm remains committed to everyday-low-pricing (EDLP), thus it must continue managing this highly effective strategy while integrating broader lines. This requires a supply chain flexible enough to support both high-turn grocery and slower fashion and lifestyle products, for example. 

On the inbound supply chain side, Walmart diversifies its supply base to procure new products. As is outlined in Chapter 11 of your Heizer/Render/Munson book, this requires identifying, vetting and selecting new suppliers as well as a host of supply-side tasks like vendor and contract management. 

Managing inventory requires additional adaptations. Walmart refreshed the look of its website and stores while avoiding alienating its historical customers. It did so by keeping flagship items in stores and premium lines at distribution centers. Chapter 12 outlines inventory concerns Walmart faces, from the importance of inventory record accuracy to strategies for managing inventory. 

On the outbound side, the firm’s e-commerce and fulfillment operations must be capable of satisfying wealthier customers, who often expect faster, higher-service delivery options, such as same-day delivery or premium curbside pickup. Meeting these expectations puts pressure on Walmart’s fulfillment network for more micro-fulfillment centers and localized inventory pools to reduce delivery times. Facility, inventory, and transportation cost trade-offs are also covered in Chapter 11.

Walmart is an exemplar in omnichannel retailing because it seamlessly integrates its physical stores, online platforms, supply chain, and last-mile services into a unified customer experience. Its customers purchase and receive products when, where and how desired. Walmart is offering frills next to its no-frills strategy.

Classroom Discussion Questions:

  1. How would you call upon Ch. 11 and 12 as a Walmart supply chain manager? 
  2. Some firms target different customer segments under different brand names. For example, Gap Inc. owns Gap, Old Navy, Banana Republic and Athleta. Walmart has chosen a different strategy. How is Walmart capable of serving its price-sensitive and wealthier customers under one brand?

Guest Post: Forecasting, Inventory Management, and “No-Buy 2025”

Professor Misty Blessley at Temple U. looks at the “No- Buy” movement.

Thanksgiving is just 3 months away, and Christmas only 4, but the holidays are long upon retail supply chains. At the same time, a growing number of consumers are pushing back against the pressure to spend, embracing a movement known as “No-Buy 2025,” which is gaining serious traction.

At its core the movement is a consumer mindset focused on refraining from non-essential purchases for a set period, for some an entire year. Trending on online communities are people sharing their No-Buy challenges and success stories. Some are motivated to cut debt or save for long-term goals, while others are concerned with sustainability, minimalism, or anti- consumption values. Participation is surging, especially among millennials and Gen Zs, who are juggling inflation, student debt, and climate anxiety.

Baby boomers, in contrast, are known to possess a large portion of total disposable income and to spend on luxury and leisure items. Participants are cutting back on categories often linked to impulse spending or excess and are instead using what they have:
 Apparel and accessories
 Home décor and seasonal items
 Beauty and skincare
 Toys and impulse gifts
 Functioning electronics

Why It Matters for Supply Chains
No-Buy 2025 has a ripple effect on retail supply chains. The holiday season typically drives massive retail volume, but with intentional non-buying, companies could face missed orders if underestimating demand or excess inventory if forecasts are too high.

Many demand forecasts rely on past trends, but for some generational cohorts demand is eliminated or potentially delayed. Retailers may need to reconsider their demand planning models, where inventory is held in the network, and be aware of consumer behavior (e.g., generational preferences, while remembering that generalizations are, by nature, generalizations). Supply chains that account for today’s values will be best positioned to respond.

Classroom discussion questions:
1.  What are the shortcomings with traditional time-series and seasonality forecasting methodologies given the no-buy movement?

2. Do you think the product categories identified above should be forecasted differently when compared to one another? Why?

3. How does the purchasing power of various generational cohorts come into play?

Note: The Silent Generation (born 1928-1945), Baby Boomers (born 1946-1964), Generation X (born 1965-1980), Millennials (born 1981-1996), Generation Z (born 1997-2012), and Generation Alpha (born 2013-2024).

OM in the News: Implementing ERP at Coach and Kate Spade Brands

Luxury-goods company Tapestry, the owner of the Coach and Kate Spade brands, has undergone a tech makeover aimed at cutting costs and improving the shopping experience, reports The Wall Street Journal (Oct. 25, 2019). Acquiring Kate Spade in 2017 and Stuart Weitzman in 2015 left the company, formerly called Coach, with 3 brands operating independently under one roof. Various employees were doing similar tasks using different processes and information-technology systems. (Tapestry also sells its handbags, shoes and apparel in department stores).

NY-based Tapestry operates 1,500 stores under its 3 brands: Coach, Kate Spade and Stuart Weitzman

The company’s overhaul that has reduced duplication and centralized business operations across the three brands with a common technological backbone for functions including inventory management, distribution and sales. The centerpiece of the IT overhaul is a new software platform built around SAP’s S/4HANA enterprise-resource planning software that bridges back-office, logistics and other systems. ERP software integrates various functions into one system, streamlining processes and data across the company.

In the past the systems were integrated into seven ERP systems across brands and geographies and now Tapestry has one, single, global, multibrand platform. That provides a foundation for real-time features including inventory checks, in-store pickup for online purchases or the ability for sales associates to reserve a product for customers. The company is taking a 2-year charge of about $80 million related to ERP implementations. As we note in Ch. 14, ERP systems are long-term investments that don’t necessarily pay for themselves right off the bat. Seven years to eight years is often the break-even where a company sees its ERP investment pay off.

Tapestry’s ERP system takes information from point-of-sales systems in stores into a common back-office operation so there is a single process on reporting functions. The company now has a common system to collect and merge data generated by operations including inventory management and sales, providing a better high-level view of business performance across brands.

Classroom discussion questions:

  1. Why spend $80 million for someone else’s ERP system? Why don’t companies hire their own team of programmers to develop a customized version in-house?
  2. Provide examples of ways in which an integrated computer system can improve operations for Tapestry.

OM in the News: The Case of the Vanishing Drugs

The Aethon Tug mobile robot delivering meds at U. of Maryland hospital
The Aethon Tug mobile robot delivering meds at U. of Maryland hospital

“Hospitals have a drug problem.,” writes The Wall Street Journal (Feb. 24, 2014),  “and they’re looking to technology to solve it.” The problem is the way medications are being mishandled by hospital pharmacies and wards. Inventory management is inefficient, drugs are too often misplaced, and narcotic medications are prone to theft.  In addition to turning to password-protected dispensing machines, RFID tags and roaming robots to deliver prescriptions, hospitals are adopting software that tracks every dose of medication to identify suspicious activity.

By making it easier to track medicines, the changes give nurses more time to spend with patients. Mercy Hospital in St. Louis, for example, estimates that its medication-tracking system saves the hospital $600,000 a year just in time lost from pharmacists, technicians and nurses locating meds. The new systems also help improve patient safety by identifying staffers who are siphoning drugs for their own use, a problem known as “diversion.” About 15% of health-care professionals are addicted to prescription drugs at some point in their career. These drug-related inventory losses cost millions each year. The software also allow hospitals to better manage inventory by not stocking medicines that are never used, or by keeping just enough of expensive drugs on hand to meet demand.

At the University of Maryland Medical Center, mobile robots deliver medications to nursing units. Pharmacy staffers print a label, scan and place the medication in one of the robot’s locked drawers, and then enter a destination into a program that communicates wirelessly with the robot. The robot navigates its way to the right unit, where a nurse uses a passcode and fingerprint scanner to retrieve the medication. Delivery reliability—how often the drugs arrive at the unit as promised—has increased by 23%, and delivery predictability—how often they get there within the time promised—has risen by 50%. The per-trip cost with a robot averages $2.40, down from $5.50 for hand delivery, and in its first year the system freed up 6,123 hours of nurses’ time.

Classroom discussion questions:

1. Why is inventory control so important in hospitals?

2. What is the danger of “diversion”?

OM in the News: J.C. Penny Loses Control of its Inventory

pennyShoppers are buying more at J.C.Penny after a disastrous overhaul under former CEO Ron Johnson, who drove customers away when he did away with promotions and eliminated in-house brands. But the problem is that customers are also stealing more, reports The Wall Street Journal (Nov.21, 2013). As the chain is learning, its extensive inventory makes inventory management crucial. We note in Chapter 12 the importance of controlling pilferage through RFID and bar codes.

Theft spiked last quarter after Penny removed sensor security tags from merchandise while it shifted to a new inventory-tracking system that uses radio tags. Shoplifting took a full percentage point off  Penny’s profit margins. That was just one more weight that dragged the 1,100-store chain down to a loss of half a billion dollars. The need to liquidate old inventory did further damage to profits.

The shoplifting. Penney unveiled plans in 2012 to add RFID tags to every item in its stores. The tags are more expensive than traditional bar codes, but they promise to make it easier to manage inventory. Sensor tags designed to prevent theft were removed from merchandise, because they would have interfered with the radio frequency. At the same time, Penney had switched to a friendlier return policy that did not require customers to present a receipt. The combination gave people the opportunity to grab armloads of merchandise off store shelves, walk over to a cash register and return the goods on the spot. New CEO Mike Ullman says “the move away from sensors actually encouraged thieves to come to Penney. Competitors were still using the devices, so most of the theft comes to our place.”

The company is now retagging items on the sales floors with sensors, as well as tagging those that it is bringing in. It also recently tightened its return policy by giving store credit, rather than a refund, to customers who return goods without a receipt and are unable to produce the credit card used for purchase.

Classroom discussion questions:

1. What else can Penny do to eliminate pilferage?

2. Why is inventory control crucial is service industries like retailers?

Teaching Tip: Teaching Inventory Modeling in the Real World

Our research shows that the most frequently covered topic in OM courses is Inventory Management (Ch.12). In that chapter, we do discuss the importance of record accuracy, cycle counting, and shrinkage. But what we do not discuss is the use of the numerous inventory models if  inventory is only “partially observed”.

In today’s issue of Decision Line (Oct., 2010), an excellent article by Prof. Suresh Sethi, at U.Texas-Dallas, goes into the reasons for partial observation of inventory levels and then discusses how these impact modeling efforts. Here are 5 causes Suresh details:

1. Sales recorded wrong (eg, a clerk scans an item twice, when there were actually 2 different flavors of soup).

2. Misplaced inventory (eg, when items are stored dynamically, not in a fixed location). Suresh tells of a top retailer who discovered 16% of its items were misplaced.

3. Spoilage (eg, when customers tear open a package to look at the item inside, spill drinks on clothes, or scratch a car they test drive).

4. Product quality and yield (eg, when some items coming into the warehouse are unknowingly damaged).

5. Theft (eg, break-ins, employee pilferage, and customer shoplifting). The Limited, eg., recorded an inventory discrepancy of $142 million a few years ago—the equivalence of 21,000 ocean containers!

Suresh concludes, “By now it should be clear that the  incomplete inventory information (i3) problem is quite common in practice, that policies in current use are neither optimal nor applicable”. He finishes the article by discussing 4 ways to classify i3 problems.

The real point worth making in class is that the models we discuss in Ch.12 depend on accurate record keeping, which may be impossible in a variety of real world companies.