A retail supply chain needs to manage a critical tradeoff among three parameters namely inventory, service levels and costs. Inventory impacts service levels and costs; therefore, efficient and effective inventory management is essential for the success of retail supply chains. High inventory not only adversely impacts working capital but also increases the probability of obsolesce/ mark downs leading to reduced returns to the investment.
Inventory management in retail becomes complex due to several reasons—
Nature of products—Perishable, fragile, short life cycle
Customer demands—High variety/ Stock Keeping Units (SKUs), new products,
shorter lead times, complete order fulfillment of multiple products, etc
Suppliers Issues—Long lead times, capability and reliability, high logistics costs
Global retailers have successfully adopted different supply chain management strategies to achieve business objectives, such as speed to market, managing costs and inventory, etc. Modern Indian retailers understand the importance of efficient inventory management and in comparison to the approximate three weeks of inventory in ‘kiranas’, the average modern retail has inventory levels of approximately less than two weeks.