Inventory planners, do you report to the CFO?
Thanks for joining us for the latest installment of our Innovate with Invent blog series!
On the first Thursday of each month, I host a live chat on LinkedIn where retailers gather to discuss hot topics in the industry and all things inventory. Afterwards, I recap the highlights here on our blog.
In our last post, we covered how retailers can prepare for economic changes, no matter what’s ahead. Now, we’ll build upon those ideas a little further. In this post, we’ll look at how economic uncertainty and changing customer demands are leading to restructuring within inventory and supply chain teams.
Let’s dive in!
3 main reasons why more inventory planning teams now report to the CFO
At Invent Analytics, we talk with global retailers about their goals and challenges, as well as what’s new within their organizations. Over the last few months, we’ve spotted an interesting trend: many retailers are restructuring their inventory planning and supply chain teams. Namely, these teams are now reporting to the chief financial officer (CFO).
Why the change?
Traditionally, inventory planning has primarily been part of the supply chain and the merchandising side of a retail business. Of course, there are always financial aspects to inventory planning. But when making decisions, planning teams usually focus on hitting KPIs—like service levels or weeks of supply—that don’t line up with the company’s financial targets.
The inventory planning function is now tied to the financial side of the organization. CFOs now oversee planning teams, processes, procedures, systems, and data, and everyone is trying to get on the same page to make better inventory decisions that directly improve the bottom line. Inventory has a cost which is tied to revenue and is part of company quarterly filings and investor presentations that CFOs deliver.
Here are the factors that caused this shift:
- Inventory matters more than ever
I know I’ve said it before, but I’ll keep saying it: In retail, inventory is everything. And what retailers do with inventory now matters more than ever before. Retailers know they need the right inventory in the right place at the right time to keep customers happy. But far too often, retailers wind up with imbalances. Sometimes the issue is overstock, where stores get stuck with more than they can sell. In other cases, the problem is too little inventory and early stockouts. Overall, inventory seriously impacts profitability and customer satisfaction in big ways.
With the cost of capital continuing to rise, managing cash flow has become more important than ever. And, since inventory is what drives cash flow, planning teams need to make decisions that will meet financial goals.
- All eyes are on inventory costs
From high-end fashion retailers to dollar stores, every company is dealing with economic uncertainty and keeping a closer eye on costs. And that should come as no surprise.
As CFOs look to optimize costs in every area of their business, one key area they’re focusing on is inventory. Retailers don’t want cash flow tied up in excess inventory. But at the same time, there are risks that come along with reducing inventory levels. So, CFOs are tasking inventory planners with this major goal: reduce inventory investments while improving sales.
- Omni-channel brings new cost considerations
Customers now expect seamless omni-channel experiences at every touchpoint in their shopping journeys. They want the convenience and choice of any possible combination of online and offline channels. For example, some customers might want to research online, then buy in store. Others might research in store, buy online, and have their purchases shipped to their doorstep. And how well retailers can meet these omni-channel expectations is becoming a major competitive differentiator.
However, all the new ways customers can browse, buy, receive, and return goods come with financial implications. CFOs and inventory planning teams are collaborating to optimize every aspect of inventory planning. The goal is to ultimately make things smooth and simple for customers—and profitable for the business.
Why should planners embrace the change?
Change can be scary, but most planning teams are seizing this change as a great opportunity. Planning teams are now being elevated to a very strategic level within the retail organization.
With that said, retailers will need to equip their planning teams with the tools to quantify the financial impact of their decisions. Most planners are still working with outdated systems. They have no real way to calculate the true costs of metrics like lost sales or predict how certain decisions, like changing a service level target, will play out from a financial perspective. CFOs and planning teams are now looking for ways to make financially driven and optimized inventory decisions.
Invent Analytics helps retailers achieve profitability with automated and profit-optimized inventory planning decisions. Customer satisfaction levels remain high because inventory is always available in the right place at the right time. With this new way, planners and CFOs are working together to make a big impact on financial targets, boost overall profitability, and increase customer satisfaction.
Thank you for tuning into this installment of Innovate With Invent! Until next time, keep learning and keep innovating.
Check out the full recording of our huddle on this topic here.
Ready to talk sooner? Reach out here.