EDI: Helping Retailers & Customers Work Together
Historically speaking, the apparel industry has always been susceptible to inventory woes. Before the digital age, predicting what clothing would sell best—and in which styles, colors, and sizes—involved some rolling of the dice. If buyers overestimated customer appetites for a particular item, it could lead to overstocks, stagnant inventory, and markdowns representing millions of dollars in losses.
On the other hand, underestimating demand and running out of stock would leave customers disappointed in missing out, and vendors and retailers feeling the sting of missed opportunity. Subject to the whims of fashion and culture, apparel inventory management has always been at best a delicate science, and at worst, a gamble.
Enter 2020 and the coronavirus pandemic, when brick-and-mortar store closings left clothing brands with mountains of excess inventory. McKinsey estimates Q1 worldwide revenue losses from 2020 spring apparel in the hundreds of billions of dollars. In their analysis, however, they also recommend a solution: “Some apparel, fashion, and luxury companies won’t survive the current crisis; others will emerge better positioned for the future. Much will depend on their digital and analytics capabilities.”
Why Traditional Ordering Methods Don’t Work
We all know that in today’s apparel market, and in every other market for that matter, customer experience is king. Consumers’ expectations for great service and product availability is at an all-time high, and if one retailer doesn’t give them what they need, they will quickly search for one that can.
In traditional replenishment models, store associates are the ones who have a finger on the pulse of customer needs and wants. They can see what’s selling quickly, and which items are underperforming. But there’s a disconnect between that visibility, and the procurement process.
Because apparel suppliers don’t know what’s happening in stores, they can only respond to incoming orders. Often, this means that suppliers don’t know to replenish stock until it’s already below ideal thresholds—or at worst, out of stock.
To combat this issue, many retailers and vendors are starting to work together, by leveraging shared data for better forecasting, and digital automation to cut lead times. At the leading edge of those digital solutions is vendor managed inventory (VMI).
VMI and the Power of Data Sharing
VMI is an advanced collaborative replenishment model, facilitated by digital technology solution. Using product activity data (often sent via integrated EDI), the retailer shares sales and demand data with their vendor, who uses the information to anticipate that retailer’s inventory replenishment needs. Armed with real-time data and sophisticated analytics capabilities, the vendor is able to provide the retailer with a more accurate and balanced inventory mix, shorter lead times, and more efficient shipping practices.
Here’s how it works: VMI tracks the movement of each individual SKU at every retail location and applies rigorous analytics and pre-defined rules to create optimized replenishment orders at just the right minute. Those recommended orders are sent to the vendor for approval, and with the click of a button, the fulfillment process begins. No more waiting by the phone or email inbox for new orders, and no manual data entry.
VMI’s advanced forecasting is powerful enough to unravel the mysteries of consumer behavior—even in a market as fickle as fashion. That means retailers get an ample and timely supply of on-trend items that are selling like hotcakes and maintain smaller reserves of items that should be replenished more conservatively. And all of it is delivered like clockwork.
VMI is critical for the success of fashion designers and manufacturers and retailers in today’s landscape, because it squarely addresses the challenges of apparel inventory management. The streamlined, lean inventory management and greater operational efficiency that results save time and headaches on both sides of the supply equation. With just the right items on shelves at just the right times, both parties can optimize their profits while heightening customer satisfaction through better-targeted options and fewer stockouts.
VMI Gives Apparel Vendors Valuable Customer Feedback
A major benefit of VMI is that vendors have greater insight into what customers are buying and where the most profit can be made. Using the shared point-of-sale data from retailers, via EDI they can identify styles, colors, and sizes that are the most successful and pivot their production, marketing, and distribution tactics accordingly. They can even do this in a geo-specific way, taking data from individual stores to allocate products to exactly the places where they will sell well.
Advantages of VMI for Retailers
The operational efficiencies that VMI produces on the vendor side of the equation are mirrored on the retailer’s side. With a VMI solution crunching the inventory data and the vendor taking responsibility for restocking, most of the human guesswork (and time spent manually entering re-orders) is eliminated at the store level. Without that headache, they can focus on what they do best: selling apparel.
With a collaborative replenishment solution in place, retail professionals experience less anxiety about low inventory levels and sell-outs when an item’s popularity takes off. Similarly, since VMI empowers vendors to send a better mix of products across locations, and there is less need for redistribution or markdowns. In the storerooms, where space is at a premium, there are fewer slow sellers cluttering up the shelves, and improved timing makes retailers able to handle seasonality more efficiently.
Working Together for the Future
No business could have been fully prepared for the supply chain disruptions of 2020, but if the overstocking issues that devastated the fashion industry during the pandemic served no other purpose, at least they brought a long-lived problem into sharper focus. To streamline apparel inventory management, retailers and vendors need to come together—and they need to do it with digital solutions like VMI.
Businesses that put advanced VMI technology in place now will be well placed to reap returns on that investment through higher sales and customer loyalty well into the long term.
Don’t worry, Effective Data will assist with helping you define your VMI program. Contact Effective Data today.