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Executive Summary

Retailing involves understanding customers, their needs and expectations. Satisfying customer’s expectations while maintaining wafer-thin margins is heroic task for most of
the retailers. Retailer’s job is to stimulate customers to visit his store and buy product. Promotions are often used as pull strategy to encourage purchase, but guaranteeing product availability during promotions has proved to be challenging task for many retailers.

Often, past data is utilized to forecast demand using high-end ERP applications and inventory management tools. For all of the capabilities that have been built into software applications, it still requires a merchant’s touch to take that information, interpret and utilize it to generate sales and gross profit increases. It is, therefore, critical for retailers to remember that these applications are tools, not "solutions" as they are frequently billed.

Market Assessment and Survey Results of an analysis done on major retailers (FoodWorld, Reliance, Spencers, Subhiksha and Trinethra) in Hyderabad shows that a store often experiences 23% stock-outs during promotional events. For most part, the product is already in store (in backroom). The literature on missing inventory and inventory record inaccuracy in retailing by Raman et al in 2001 found empirically that, because of execution failures, customers often do not find products they seek, even if these products are within the store.

Indian retailers generally follow traditional inventory management techniques by using Maximum Base Quantity of a Stock Keeping Unit as a criteria for adopting re-order level, stock-days, and safety-stock for a given service level. Given the market uncertainties, efficient promotion management requires greater forecasting accuracy that should not be based solely on past data and experience.

In order to build up adapter strategy to the problem, we recommend Inventory Categorization based on Promotions. Since market uncertainties are difficult to manage, adopting this method leads to gain control over the scale of the problem. SKUs or product groups can be categorized as per their criticality for promotions and inventory levels. In the adapter strategy, the enterprise does not attempt to influence the uncertainty level in the market. It controls the risk exposure of its assets, such as inventory levels and profit margins, by constantly adapting its operations to unfolding demand realizations.

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* Contributed by: -
Sauraraj Nath & Vikrant P. Bawane,
Post Graduate Programme in Agribusiness Management (PGPABM) II,
National Institute of Agricultural Extension Management (MANAGE), Hyderabad.