Managing inventory during COVID crisis

May 13, 2020 7 min
Managing inventory during COVID crisis

Irina Shypulia, Project Manager at ABM Cloud

COVID pandemic and quarantine measures have heavily hit supply chain planning - it became impossible to forecast and predict customer demand.

Global disruption has greatly influenced consumer behavior. Usual customer preferences have been shifted. People have stopped to buy the products they used to purchase, and started searching for the new categories of goods.

During these tough times, business has to keep a pulse on emerging flexible operational processes and being able to act quickly. Companies are seeking ways to retain their cashflow, keep customers loyal, and strike the fragile balance between lost sales and excess inventory. The ability to effectively manage inventory has never been more important. That is why ABM Inventory can help retailers to focus on the most pressing issues brought by the COVID pandemic.

Retailers have to concentrate their attention on 3 product groups:

   ▷ Goods which have unplanned and unpredictable demand tendencies - personal hygiene items, home cleaners, hand sanitizers and disinfectants, fruits and vegetables (lemon, ginger, and garlic), canned goods;

   ▷ Goods which have regular demand levels and are frequently bought by the customers: dairy products, all fruits, and vegetables (excluding the above-mentioned), coffee, tea, bread, etc.

   ▷ Goods with heavily declining demand - luxury or expensive non-essentials or non-food goods.

Today all retailers are dealing with two serious and unforeseen pandemic consequences - first, the suppliers experience long order delays and delivery disruptions. Second, procurement prices have increased dramatically (7-10% for local products, 20-25% for imported goods).

ABM Inventory has effective solutions to help retailers to deal with all new product types that have emerged during the pandemic crisis:

  • Managing demand fluctuations and unforeseen demand curves
  • Effectively dealing with regular-demand items ensuring their availability
  • Finding ways to deal with demand drop off

So, how to adjust inventory planning for the goods with unpredictable demand behavior?

The first category is being viewed as the riskiest. A significant increase in consumption may lead to shortages of the product and goods deficit. ABM Inventory has four special built-in functions, which can help to effectively tackle deficit risks:

➥ CDA algorithm

Being one of the functions of the ABM Inventory system, CDA manages delivery irregularities and demand fluctuations. CDA Algorithm tracks inventory levels, controls real-time demand, ensures there is safety stock needed to satisfy demand spikes, and minimizes the risk of short supplies.

A couple of things you need to know about CDA:

  1. CDA should be applied for the goods which have high demand volatility;
  2. Inventory level depends on the next order delivery schedule;
  3. CDA immediately reacts to demand fluctuations;
  4. Rounding order value is based on a seller’s demand level.

Being ADU-based, the CDA recalculates buffer levels on the day of order. So, ADU for these goods can be recalculated for a shorter period of time (meaning, the buffer level will automatically increase). Based on the feedback of companies that have already been using CDA, this solution has proved its effectiveness during unstable crisis times.

➥ Safety Buffer calculation based on sales per day

COVID pandemic has disrupted almost all supply chains in different ways, e.g. delivery irregularities, abnormal demand and increased currency rate. Retailers have to manually adapt their supply chains and keep high safety stock levels for the goods with unprecedented demand fluctuations (the first group according to the above classification). To achieve this, retailers can switch to safety buffer calculation based on sales per day.

The system will automatically calculate and adjust the necessary safety buffer based on the sales per day (number of days * average sales level). The period for a safety buffer is being determined by the retailer.

➥ Analyzing lost sales risks for new and top-selling goods

ABM Inventory equips you with the possibility to analyze, monitor, and control sales performance for new and top-selling goods preventing potential lost sales risks. The system of performance tracking is highly intelligent, it has customizable filters, the possibility to manually add or delete goods for tracking, lost sales for certain goods monitoring. You are able to mark the SKUs with a special sign, and the system will automatically order extra supplements behind the schedule product batch (if the supplier can fulfill this request).

lost sales risks report


➥ Sending the order to an alternative supplier

COVID uncertainty, delivery, and price disruptions force businesses to look for new local or alternative suppliers. An alternative supplier is an option that can protect retailers from panic ordering and stockpiling goods in a fear of prices going high.

With ABM Inventory, you can easily manage orders choosing between new and existing suppliers.

How to effectively deal with regular demand goods?

ABM Inventory is a multifunctional system that has all essential features to effectively manage your stock ensuring you have the right quantities of products, in the right place, at the right time.

Here are some of its essential functions and algorithms:

  1. Theory of Constraints methodology perfectly works with DBM store order, which is used for the goods with regular turnover and steady sales rates;
  2. CDA algorithm controls the goods with irregular delivery schedules and volatile demand level;
  3. MOQx technique considers packaging size to effectively manage slow-moving goods;
  4. FRESH algorithm that is used for perishable and fast-spoiling products. Grounded on the most advanced mathematical stats FRESH technique rationally calculates the order taking into account the next parameters:

    • standard discrepancies between factual and average sales rates for the product;
    • SL (service level) - a metric evaluating efficiency of customer care (the level of probability the customer finds the needed product on a store shelf);
    • weekday metric, which shows the demand levels change depending on the day of the week). This metric is being automatically calculated.
    • expiration date for each product.
  5. DFO algorithm that is being deployed for the external supplier orders made by the DC (distribution center). DFO automatically compares current demand levels across sales locations with available stock quantities.

    Notably, the majority of these functions are being performed automatically and they do not require personnel support. The system intelligently keeps track of all developments and demand fluctuations and calculates cost-effective order quantities saving you time and money. Your personnel does not longer spend precious time on routine order placement or calculations. Instead, people can concentrate on anti-crisis strategic issues, such as:

    • assortment planning and reconsideration;
    • analyzing demand and sales, preventing overstock (luxury category shall be additionally scrutinized);
    • keeping FMCG available, controlling out-of-stock risks for this category;
    • supporting supplier relationships, analyzing reliability, and looking for alternative places of resupply.

ABM Inventory has an integrated highly customizable, flexible, and accurate analytics and reporting feature. Analytics module contains more than 40 reports which can monitor sales dynamics, lost sales, stock, and excess inventory levels across the whole company, in every store and warehouse, for every supplier. The reports are being generated in seconds and presented in a user-friendly format, which can either give a helicopter view and show a big picture of the company’s performance or, if necessary, to dig into details. All 40 reports are developed by industry professionals to target strategic business objectives.

ABM Inventory is a modern cloud-based software accessible online from every location. ABM Inventory keeps a record of user data and can be easily used by the company’s management to track employees’ performance remotely.

How to deal with the products hit by a decline in sales?

The products which have already experienced severe demand drop need special attention. First, the retailers have to transfer excess stock and lower order quantities for C- and D-goods, as well as to strategically review the whole product range. ABM Inventory can help you to cope with these tasks:

  • ABM Inventory tracks leftovers quantity and automatically moves them between selected stores and Distribution Centres.
  • The system strategically reviews the orders for the goods which have experienced a harsh demand decline. ABM Inventory will reduce the order quantities for such products to balance the sales levels and prevent lost sales. Money saved can be spent on buying extra urgent-demand goods.
  • Smart reporting based on the ABCD analysis can immediately identify the goods that are less profitable if compared to others. Having this information, a retailer can review or reshape product range and reconsider the next order placement.

Today all retailers are dealing with two serious and unforeseen pandemic consequences:

- the suppliers experience long order delays and delivery disruptions;

- procurement prices have increased dramatically (7-10% for local products, 20-25% for imported good).

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