Two good strategies for reducing inventory waste.
When dealing with problems, companies often focus on mitigating the effects of the problem, rather than fixing the root cause. This is precisely what we see every year in the footwear, apparel, and accessories industries, when brands are forced to either closeout slow moving inventory or send it to a landfill. But there’s a better way: product personalization and customization.
Decades ago, Charles Kepner and Ben Tregoe categorized four types of actions in dealing with problems. The 2×2 matrix below depicts those four types:
|Present Problem||Corrective action to eliminate root cause||Adaptive action to minimize effects|
|Future Problem||Preventive action to reduce probability of recurrence||Contingent action to reduce seriousness of probable effects|
Most companies focus on the effects of the problem—in other words, on adaptive and contingent actions—at the expense of corrective and preventive actions. Unfortunately, dealing with the effects of a problem is not only expensive (e.g. massive discounting), it doesn’t prevent the problem from recurring.
Basing production on long-range demand forecasts inevitably creates a condition of slow-moving inventory, since forecasts can never be 100% accurate. So what should brands do about it? The Kepner-Tregoe model is a useful tool to analyze the way that brands can address this problem:
Corrective Action: Throw out all existing forecasts and shift to a build-to-order model. This solution isn’t financially or logistically feasible for the vast majority of companies at this time but eventually the industry will need to move in that direction.
Adaptive Action: Mark down the inventory and sell through discounters, or send to a landfill. This is the approach that most brands currently employ. However, the bankruptcies of many discounters during the current pandemic, combined with the surge of product in this distribution channel, make it less effective than it once was.
Preventive Action: Shift the riskier portions of your product line to demand based personalized or customized products, so you only make what you sell.
Contingent Action: set up bricks-and-mortar outlet stores and establish an online direct-to-consumer website for closeouts.
The die is cast for the current season, so there’s no point in thinking about the forecasting you used in the past. However, setting up personalized/customized production for future seasons can mitigate, or even eliminate, the problem in the future. The good news is that you don’t even have to commit fully to customization production—your product line can have a mix of mass production, made-to-order, and customized products.
Retain mass production for products that have consistent sales year over year, or that you make in volumes too high for on-demand manufacture. Use made-to-order for smaller volume items that are a bit riskier. And use product personalization—decorating in-line products with custom embroidery, patches, or special trims—for the products that fall in between those two extremes. This kind of diversified portfolio of manufacturing approaches will provide the flexibility that comes with shorter lead times, and reduce the need to closeout or destroy piles of inventory. To learn more about how you can do this, drop us a line.
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