Striking the Balance: The Art of Reliable Retailing Without Drowning in Excess Inventory

Getting stuck with goods that you THINK will be a best seller.
Be paranoid.
Don’t be hysterical.

The Paradox of Reliability:
Why Less is More in Supply Chain Management

You might think that to be a reliable retailer, you need to always have plenty of stock on hand.
But the truth is, 𝘁𝗼𝗼 𝗺𝘂𝗰𝗵 𝗼𝗳 𝗲𝘃𝗲𝗻 𝗮 𝗴𝗼𝗼𝗱 𝘁𝗵𝗶𝗻𝗴 𝗰𝗮𝗻 𝗮𝗰𝘁𝘂𝗮𝗹𝗹𝘆 𝗵𝘂𝗿𝘁 𝘆𝗼𝘂!

Take the example of a toy company.
They want to make sure they have plenty of dolls and action figures in stock for the holiday season.
So, they place a huge order with their supplier.
But then, when the holidays are over, they’re left with a bunch of extra stock that they can’t sell.

Companies try to expect demand.
They end up over-ordering.
This creates a ripple effect on the supply chain.
We call this the bullwhip effect.

To avoid this, we need to look at the root causes of the bullwhip effect.

Sometimes, it’s because of things like seasonal peaks or promotions. In those cases, we need to work with other departments like
– marketing and
– sales
to make better predictions.

Other times, it’s because of things like cyclical peaks or order batching.
Those are harder to predict, but we can try to reduce the incentives for buyers to place large orders all at once.

Ultimately, though, it’s not just about having more or less stock.
We also need to develop better information systems and share data more effectively.
That way, we can
– make smarter decisions and
– avoid the counterproductive behaviours
that lead to excess inventory.