Structurally, because of long lead times for raw materials and the drive for cheaper offshored supply, coupled with the need for instantaneous customer gratification, many Fashion brands are content in thinking that they need to continue holding inventory to do business. Logics follows that a high service level requires high inventory levels. However it is wrong to think like this, because holding inventory it is not good for the planet; is not good for profitability or for customer responsiveness.
- Inventory ties up cash that could otherwise be invested and deployed elsewhere in the business.
According to a post by PWC it is estimated that UK companies have 5.1 billion EUR cash tied up in working capital of which inventory is a part.
At the end of last year H&M reported an inventory of $4 billion, which shows just how big the inventory problem can get.
- Inventory costs money to store, count and to move around, thus increasing the cost-to-serve, thereby reducing profitability;
- Inventory is a waste of precious resources and a liability when it is left over and cannot be sold. In 2017 Burberry burnt 28.6 million GBP worth of unsold inventory in order to protect it future sales revenues . This is not profitable nor sustainable business practise.
- Inventory causes loss of sales revenue, because of stock outs, which cannot be replenished fast enough. These lost sales are costly to the business over time.
- Finally, and most importantly Inventory hides inefficiencies. Why? Because holding high levels of inventory offers comfort and padding when mistakes occur, making it easier to hide failures, avoid explanations and avert disaster.
A very effective way for Fashion brands to become more sustainable, therefore, is to clean up and reduce their Inventory levels!
It is only when you start to reduce inventory that you encounter the real problems and pains behind your inventory. It is only when you start to iron out your inefficiencies that you truly unlock the potential to transform the market value of your brand. Lowering your inventory in the right way will make your business more profitable, more customer responsive and more responsible toward society and the environment.
From past experience, a proper inventory reduction programme can bring between 7-25% reduction in inventory coverage, thereby improving working capital. There are pragmatic ways in which you can reduce inventory in a business. It has been a key result area for me over the last 20 years in supply chain management across a multitude of industries.
At the start of an inventory reduction programme there are always quick wins to be had, which is always great incentive to continue to reduce further. In my experience though; it is achieving an improvement in supply chain maturity that really leads to significant inventory reduction and business transformation. Greater supply chain maturity calls for deeper internal collaboration, more partnerships and a higher degree of time spent on supply chain innovation.
In an ideal world a business should only produce exactly what it needs for a customer, when the customer needs it, at a competitive cost with little or no waste. This is called make-to-order. There are many factors which favour make-to-stock (batch production) over make-to-order (one at a time production) such as cost and supply lead-times. However, in an effort to be more sustainable, more profitable and responsive to customer, a business should always strive to reduce both of these factors through innovation, partnerships and continuous improvement. If you could for example develop a vision and a strategy to manufacture make-to-order using new technologies and automation, you could make exactly what the customer wants when the customer needs it. In striving to reduce inventory your business could be more profitable, waste less resources and always have the right stock in the right place at the right time.
Sometimes we need to step out of what we have always been doing and ask ourselves, is there really not another way? Sometimes we cannot do this alone because we become blinkered by time spent in the business and Industry. Sometimes it takes an outsiders view or a supplier insight to find the hidden 3rd alternative; which alone no-one could have thought of.