Protecting Profitability Through Inventory Management During COVID-19
Valerie Howard interviews Josh Bardell, Lead Strategic Consultant at PROS, on how businesses can effectively manage their inventory through reactive approaches, proactive strategies, and customer focus. Josh suggests that responsible inventory management can help businesses to maintain resiliency and potentially come out of the current downturn stronger than before.
[00:44]: Josh tells us about his background in pricing.
[01:25]: Valerie asks Josh about the conversations he’s having with businesses facing supply chain issues.
[03:06]: Josh shares a high-level perspective on inventory management strategy.
[04:04]: Discussions turn to how to stop an overflow of unneeded inventory.
[05:29]: Josh provides key perspective on how you should be tagging inventory to stay ahead of changing demand.
[08:37] Valerie asks Josh about the proactive measures companies should be taking for inventory management.
[10:07]: Valerie and Josh discuss why it’s so necessary to work with customers and deliver pricing that maintains their trust.
[11:54]: Josh shares details on the “third slice of the pie” – paying attention to customers’ needs.
Bill shares his final words of advice and reminds us that social distancing doesn’t require social isolation.
[14:03] Josh details how organizational departments can come together to build loyalty with their customers.
[15:12] Valerie asks Josh for his final thoughts on managing pricing and inventory through turbulent times.
Valerie Howard (00:00): Thanks everyone for joining us. If you've been following along, we've been talking to experts within the pricing field on managing their price strategy through the COVID-19 crisis. You may have seen some earlier conversations we had with Craig Zawada surrounding maintaining your price discipline, responding agilely to customers' changing demands in these crises. Then you may have seen us talk to Bill Dudziak about what pricing actions you need to take in the immediate term....
Valerie Howard (00:28): I'm here with my colleague and friend Josh Bardell, Lead Strategic Consultant at PROS. He's been working in the pricing field for quite some time and really excited to have him here today with us. Josh, can you share with us a little bit of your background in pricing?
Josh Bardell (00:44): Yeah, good afternoon. Thanks for having me. I'm excited to be on with you today. I really started my career in the airline industry where I was in revenue management pricing for one of the major airlines in the United States. From there, my career kind of led me down several different avenues of pricing, both on the retail sector, working at Fortune 50 companies, Sears holdings, Staples Corporation. But more recently I've really focused my career in the distribution world where I worked in from the manufacturing distribution to just true second and third party distribution channels, hospitality aspects like that from inventory management, pricing and standing up pricing teams.
Valerie Howard (01:25): I'm really interested in hearing about your perspective on supply chains that have been really stretched during this period of time. Right? Where we're seeing some industries really not being able to supply at the demands of their customers, trying to move product quickly to where it's needed and others facing challenging declines in demand. So can you share with us what you're seeing with the companies that you work with?
Josh Bardell (01:50): Yeah, Valerie, you're right. It's really on both ends of the spectrum right now. There are some companies that are getting very taxed because of high demand. Companies when you think about that are serving the home, for example I know Amazon, they do a lot of shipping that competes against the UPS and the FedExes of the world. They've actually scaled that back to focus in on their core distribution, which is serving the customers, the homes. Because ordering has gone up significantly with the stay at home orders and the social distancing throughout the country. Now there are other channels of course, one of them hospitality distribution where I used to work is under a tremendous pressure right now because they've got a lot of inventory on hand, but people aren't staying in hotels. Hotel capacity right now is at one of the lowest rates in recent history and so as a result people aren't replenishing into the hospitality world, so both ends of the spectrum that we're seeing across the various channels.
Valerie Howard (02:47): That's a really good overview of the variants that we're really seeing across the economy. I know we spoke a little bit about inventory management and how that's such an important part of price strategy as well. What's on your shelves? How are you moving that along? Can you give us a high level perspective on how you approached inventory management?
Josh Bardell (03:06): It really is a little bit of a science and art in inventory management and it's even more so today in the COVID-19 era if we want to call it. Companies are having to look at inventory from both a reactive measures, proactive measures, and how do you take customer measures? Both to protect the company from their inventory and their balance sheets, but also finding those opportunities. There's a lot of opportunities and market share that are starting to get framed up as we hopefully peak and flatten the curve in the COVID pandemic. As a result, businesses are getting ready to come out of COVID with a strong positioning to take it market share across their segment.
Valerie Howard (03:52): So you spoke about taking reactive measures to manage your inventory. Can you speak a little bit about what you mean by reactive measures for inventory management?
Josh Bardell (04:04): Yeah, reactive is taking an approach to say how do we start to change our current course of business around inventory to protect us from getting too much inventory and making decisions that are going to hurt our working capital or cashflow position within the company. A few key bullets that I would highlight that the best in class right now are immediately doing when this pandemic started was for example, shutting down non-critical auto replenishment items or algorithms. In businesses today, there's algorithms or replenishment that says when my product level gets below a certain threshold and number, then I'm going to order the next batch. So I always have my product in stock to serve my customer. Both companies are starting to receive these large orders on products that really isn't in demand right now. So proactively managing those algorithms or those auto replenished items to shut that off and start actively managing those inventory levels can help reduce your inventory on hand and therefore improve your overall balance sheet. And that's really important during a time where cash is, so to speak, king.
Valerie Howard (05:17): Yeah, absolutely. That makes a lot of sense. So I was really paying attention to where the demand is and where you need to put a sort of blockade in the supply chain. So how are you seeing that, you know, companies are staying ahead of those measurements? How are they getting these indicators of what safety stock levels are appropriate?
Josh Bardell (05:37): Yeah. Some of the meetings that I've had with various clients right now is we've actually taken their inventory and divided it up. You can be as simple as an A or a B item and they're actually coding that as an attribute to all of their inventory. So anything that is an A item has demand that is still occurring now, and they want to manage that more in the standard auto replenishment, same safety stock, but all of the B items are items that used to be regular hot, turning items. They'd go through regular replenishment that they've shut off and then they're using that type of analytics to say, how does that count to all of our inventory at cost on hand. If we look at it from a percentage of A versus percentage of B. From there they can quickly assess which ones we want to turn off.
Josh Bardell (06:26): It also gives them an indicator that they can run reports every week then to see how is the demand in A or B items and if something is starting to move off of demand, they could shift it from an A to a B and make the appropriate adjustments in safety stock or auto replenishment. But that actually can occur the other way as well, where as this pandemic starts to plateau and we come out of it, you're going to see those B items starting to kick back up and they can then of course recode those over to A, turn the replenishment back on and start to see the sales grow. So utilizing a way to divide that inventory will help them create and run analytics around the productivity of that.
Valerie Howard (07:09): What do you say to customers that have a lot of B type of product, right? Product that's not moving? Should they be discounting that or to save a shelf space? How do you start making those decisions?
Josh Bardell (07:21): Well, I'd actually like them start moving out by getting into the proactive measures. One is shutting inventory down, but if you already have a lot of inventory, now you want to proactively start changing how you go to market and what you can do with your business to drive that demand. There's a couple of things that are noted here. One, when you have a product that just doesn't have demand and regardless of the price point or how you market it in today's COVID-19 pandemic, dropping the price or spending money on marketing is not going to drive any additional demand. What you're going to do is just erode your margin and this is where pricing really starts to come into play.
Josh Bardell (08:04): You have to understand for your product assortment that you have, particularly if we're talking about those B category of items, is do they have elasticity or can I drive demand by adjusting the price and inventory teams working closely with the marketing, sales and pricing teams really can start to identify some products that you can drive demand during this particular time. On the flip side, those items that you can't, you got to be real careful to just erode and reduce pricing on.
Valerie Howard (08:37): Makes a lot of sense. What other kind of proactive measures should companies be taking when it comes to you know, moving inventory through right now, from an inventory management perspective?
Josh Bardell (08:48): Proactively you want to make sure you have your supply chain figured out from upstream. So where you're getting your product from? Is there going to be impacts on imports if you are importing your product or is there going to be production challenges if there isn't one already relating to your product if it's made here in the United States. Regardless of that, you also have to layer in kind of the pricing lens to it as well because you've seen, I'm sure in the news already some people that have been price gouging or marking that product up at significant rates and that is not fairing well of course when you're in a pandemic. People want to see society come together.
Josh Bardell (09:30): So it's a fine balance between making sure you're optimizing your profits for that without coming across as gouging. Another thing that we want to be very sensitive to is even marking it up a little bit and then throwing it on a sale or discount, getting back to that original price. But to say everybody knows what a gallon of milk or a gallon of gas costs. Customers who have been buying your products for years, they know what your product has been costing and if they see you take a 20% increase up and then take that 20% down, they know that you're just playing at perceived [inaudible 00:10:05] , but it's not a true value.
Valerie Howard (10:07): Yeah, absolutely. Distributors have an imperative right now to work with their customers and it's so important right now for these distributors to showcase how trustworthy they are.
Josh Bardell (10:20): Yeah, a lot of loyalty and brand can be either built or tarnished during this type of time because of sensitivities across the entire supply chain.
Valerie Howard (10:30): Absolutely. So businesses are really reliant on one another across the supply chain, right? Distributors are a key part of that and any emotion to price gouge or take advantage of today's situation really erodes some of that trust that you may have built up over time with your clients.
Josh Bardell (10:47): What we've seen a lot of our customers and other people that I've consulted with, they're taking a lot of proactive measures outside of utilizing price to drive any type of behavior. What they want to do is drive loyalty through other means that aren't necessarily costing the company. Some of those can be taken opportunities to work with their suppliers to [inaudible 00:11:09] directly to their customer as opposed to running it through the distribution channel. Still continuing to drive the sales, generate revenue, but not having carrying costs, logistics costs associated with moving into to the DC and then ultimately to the customer.
Valerie Howard (11:26): So these distributors, they've got customers all over the world and some of those customers, just like the distributors, are in conditions both good and bad. So they're likely facing situations where some of their customers have a limited capability to pay. They may have new demands, they may have shifted their needs. So I'm curious about your perspective on how to help customers through this and the ways to better support them through this crisis.
Josh Bardell (11:55): When you think about the customer measures, that third slice of the pie, it's really around assessing each one of their customers. We've got a lot of companies right now that are either enforcing or changing again those receivables, those payment terms, based on the risk of their end customer. Is that customer able to pay, what is the longevity or financial state? And having those types of conversations can really help to make sure that the distribution path and network and product stays open and available to them.
Josh Bardell (12:25): At the end of the day, distribution companies are going in some cases through very difficult times right now when we got to make sure that they're preserving their product, that they're going to be able to put those receivables on the balance sheet and get that revenue for the product they ship out. But you know pricing is obviously [inaudible 00:12:44] kind of work with their customers. Another is around delivery of those. As you've seen, Amazon is another example where when the COVID was real peaked in the Seattle area, Amazon had taken and ran with the prime next day delivery except for so they could reallocate again their trucks, their limited resources to serving more of the healthcare side of the business. And now we're starting to bring back again more of the prime and as you're starting to see products starting to flow at that traditional Amazon rate.
Josh Bardell (13:14): Customers and distributors are working together around those widened delivery windows. So what is critical now versus non critical goods? It does allow the distribution networks to then consolidate those orders that might be going out on five orders or six orders within a week, down to one or two orders. Larger orders get more efficiency and lower the cost.
Valerie Howard (13:36): You mentioned the line about being able to work with them on receivables or helping them to manage the payment terms and inventory that they do need today versus what maybe can wait. So it seems that you'll need a lot of transparency, right? And what I've seen from a lot of organizations is that they have limited transparency into what's going on even inside their business, let alone transparency to share with their customers. Can you speak about that?
Josh Bardell (14:03): Yeah, Valerie. In fact, one of the things that we're seeing in traditional business is that this remote environment where people are scattered, has driven a lot of really hard silos across the channels and as a result, marketing isn't necessarily talking to pricing, pricing isn't working with finance or the sales organization. It's really important right now for an organization to make sure that setting up those lab meetings across the various [inaudible 00:14:32] Having those candid conversations with their customers, those loyal customers that might be a lower cash position customer and say, we want to make sure we can serve you in this very difficult time in our world right now and leverage further and then build those relationships, as we as a society are kind of isolated. Having that relationship and knowing that your supplier is there for you through the good and the difficult times like we're in today, builds a relationship, builds loyalty, and that will lead to of course a more prosperous times when they come out of COVID-19.
Valerie Howard (15:12): That's a great perspective there. Yeah. How we can build trust in challenging times together. Absolutely. Thanks so much for that Josh. So any final thoughts on inventory managements through this crisis and helping our clients to think about their price strategy and inventory management in the midst of this?
Josh Bardell (15:30): Yeah, to wrap it up, I would say that inventory management is a critical part to the overall business process, right? Making sure you have your products, conserve your customers, but you need to work across all of your departments in an open and transparent way. Finding the balance to optimize inventory levels today, while still planning for the inventory levels and that pent-up demand that we know is out there as we exit COVID-19, to set your company up to capture market share, to set yourself up as a leader, looking at investing in the technologies, the analytics, the reporting, and the team structure today so you can really come out of the gate strong and capture that open market share that's going to be there, in the next, hopefully three to six months.
Valerie Howard (16:20): Thanks so much. Wise words of advice Josh, I really appreciate getting the chance to talk to you today. I'm sure our audience really has appreciated a better understanding how distributors are working when it comes to managing through the difficulties of supply chain today. Thanks so much.
Josh Bardell (16:35): Thank you, Valerie. Happy to be on the call with you this afternoon.
Valerie Howard (16:39): Thank you