I was watching BBC a while ago and saw the documentary about John Lewis. I’m fascinated by this company, the legal structure is a partnership so they do not talk about employees but about partners. They pride themselves on service, which means everyone is knowledgeable about their product line and their call centre performs well.
But the business is under pressure. In the documentary two cost saving innovations were discussed; one was to outsource the call centres, which I can see as a potential cost saver but I wonder about the impact on the level of customer service. The other innovation was to reduce inventory further, to push for their suppliers to supply them faster and hold more inventory. In short “Just in Time” inventory management.
“Just in time” reduces inventory carried as the inventory for sale is delivered much closer to demand. With barcodes and automatic stock taking it’s become possible to use it even in relatively fast moving and dynamic retail environments.
The advantages for retailers are that they don’t have to store large amounts of inventory, and can be more responsive to customer demand. It does push the costs and risks of holding inventory back to the supplier. Some suppliers are charging a premium for supplying on “Just in time” schedules.
However if the distribution channel is not reliable or if the price is volatile it may be wiser for the retailer to choose to hold inventory to reduce the risk of running out of stock, or to take advantage of lower price offers.