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American Eagle, PVH Talk Data-Driven Inventory Strategies

Since the start of the pandemic, apparel retailers have experienced an inventory rollercoaster—from the overabundance and accompanying heavy discounts of the early lockdown periods to the current shortages tied to transportation and supply delays.

This disruption and unpredictability has caused companies to rethink their approaches to inventory planning, buying and distribution to guard against risks. During a panel discussion at the Sourcing Summit on Oct. 19, speakers discussed how to build more data-driven, flexible and responsive inventory management.

Data has become an integral part of the inventory planning process. But Ahmed Zaidi, co-founder and chief technology officer of consultancy Catalyst AI, advised that despite the benefits of data, particularly in turbulent times, there are limits to what artificial intelligence can do for forecasting the future.

“What we’re trying to do in this scenario, with the access to data, is to make more intelligent decisions, and not necessarily predict the future, but be able to optimize and minimize our risk and uncertainty,” he said.

Today, there are expanding opportunities for data capture at a consumer level. Cloud-based platform Evrythng uses the Internet of Things to give products a digital twin, which collects relevant data along the supply chain. Once items reach the point of sale, this product information can be served up to a consumer via tags or codes. When the customer scans the garment, it tells the brand which channel they are shopping in and how they are engaging with the merchandise.

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“Brands can now understand where their products are being consumed, how much interest there is in it, and really impact their supply chain and distribution strategies,” said Keith Turco, chief commercial officer and president, Americas and APAC at Evrythng.

In its own data move, Calvin Klein and Tommy Hilfiger parent PVH has been leveraging size and body shape information to raise the efficiency of its inventory by making clothing that will fit the greatest percentage of the population with the fewest number of SKUs. Ada Suneson, vice president digital, go-to-market strategy at PVH, noted that the stretchy styles that took off during the pandemic also offer an opportunity to make sizing more flexible.

At a development level, over the past five years, PVH has been ramping up its capabilities in 3D virtual sampling. Suneson said that replacing physical mockups with digital garments has had a sustainability benefit, since it reduces the need to ship products around the world. But it also has the operational advantage of speeding product development timelines.

“We can dramatically reduce the amount of time from when a designer has to start with their first initial idea to when we can take that idea to market,” Suneson said. “And as a result, we should be making better decisions about that product that we’re bringing to the consumer.”

Even though digital design was a lifeline and necessity during the pandemic as office workers went remote, Suneson sees this technology as a permanent shift.

At the sourcing level, American Eagle Outfitters has also been working to shorten its lead times. The company’s senior vice president of global sourcing and production Mark Rose said that by using postponement strategies, AEO had been able to push decision making later to be more responsive to demand. During the pandemic’s supply disruptions, this strategy evolved from “decision postponement” to “decision segmentation,” in which lower risk raw materials such as yarn and fabric were procured and allocated to mills early in the development process, with the ability to adjust specific styles later.

Breaking the Inventory Cycle panel Sourcing Summit 2021
Not all inventory carries the same risk level, Zaidi said, since items like basics have a more evergreen audience than trendy designs. By using AI, firms can calculate the dollar amount of risk they are taking on with specific inventory and then develop plans to mitigate potential issues. Sourcing Journal

Distribution disruption

Once products are manufactured, getting them from the factory to the destination has become trickier amid port congestion and transportation delays—including carrier backlogs.

Retailers are also serving numerous channels. For instance, during the pandemic AEO rolled out more omnichannel services such as buy online pick up in store. On the backend, American Eagle added regional distribution centers, robotic and automated warehouse solutions, and analytics capabilities that can help make allocation decisions, making fulfillment more flexible.

Given the complexities of inventory management, having a real-time view of products via item-level tracking can help retailers see where exactly product is sitting—whether it’s still on a boat, on a truck or at a DC. Tagging can also help prevent overbuying, noted Evrythng’s Turco. Tracking goods enables companies to locate excess merchandise that already exists in their distribution network or store fleet. Rather than reordering if a fulfillment point is short, goods could be reallocated to meet demand.

Rose pointed out that previously, companies would overbuy to prevent a missed sale, banking on the ability to move product—even if it meant markdowns. But now, the focus is on preventing overstocks and building in more agility to guard against variable demand.

“Inventory is among our most precious assets,” Rose said. “I believe it’s one that’s often times underappreciated.”