Low inventory levels do not mean failing to have products available for customers. Now, if you manufacturing in huge batches and can’t respond to customer feedback then it might mean failure to predict customer demand does mean failure to deliver. But lean thinking has shown how to avoid this problem. People need to adopt lean manufacturing practices and gain the benefits of low inventory levels without the costs of failing to deliver what customers want.
Retailers themselves are battle-scarred by last year’s fourth-quarter fiasco. Following the financial meltdown of September 2008 and amid the most severe economic crisis since The Great Depression, consumers retrenched.
That’s when stores hit the markdown panic button, slashing prices upwards of 75 percent. The result was the worst holiday selling season since 1970, according to The International Council of Shopping Centers.
But although leaner inventory levels should drive profit margin gains this holiday, “retailers might not have enough inventory to fully satisfy demand,” said Citigroup retail analyst Deborah Weinswig, in a research note. It is a risk they are willing to take.
“They would rather lose a sale than take the markdowns they had last year,” said Goldman Sachs analyst Adrianne Shapira.
The retailers need to design their systems with lean thinking in mind (not lean – as in cut expenses without thought). And they need to work with suppliers using lean manufacturing principles.
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