Retail Inventory: Old Method, New Tricks

Toshifumi Suzuki led 7-Eleven Japan’s spectacular rise from small licensee to the highest-grossing retailer in Japan. At the heart of his strategy was a simple management framework called Tanpin Kanri. The idea is simple: Take an active, rather than reactive, approach to restocking shelves.

Since 1974, 7-Eleven Japan has been helping its franchise owners do exactly that. Then in 2003, 7-Eleven Japan analyzed its sales and concluded that continuous flow of products to meet fluctuating demand allowed them to turn over products at a 70% rate. Tanpin Kanri was at the heart of this success. Sounds obvious. But retail owners constantly fall into the trap of simply ordering what they’re low on. Most just let their suppliers tell them what they should be stocking their shelves with. It’s easier, after all. Let a supplier representative come in, log what you’re low on, and order replacements. This is reactive, not active, management— and fundamentally against the Tanpin Kanri method.

Mom and Pop Beat the CompetitionThe Active Ordering method is actually easier for smaller retailers than larger retailers to adopt. Large retailers have to contend with so much data that it is basically irrelevant to identify granular trends on an item-by-item level basis, forcing them to rely on broader

trends like category-by-category and the competitions’ successes. Top-down pressures also make it harder for store owners to be as flexible as they would need to be to adopt an active method. Like 7-Elevens, small to mid-sized retailers have the edge: They can more clearly see specific customer and item-by-item trends, and have more autonomy regarding supplier purchases. Here’s how smaller retailers can leverage that advantage to boost sales.1. Ask the hard questions. It’s easy to just let suppliers dictate what needs to be on the shelf, or look at the gaps and try to fill them as quickly as possible. Retailers should fight this instinct, and constantly ask: Am I acting or reacting in this purchase? Do I have good reason to think this will sell well, or am I just plugging holes? Not every order has to be Active; a stocked shelf is better than an empty shelf. Pick a balance between acting and reacting that works well; we recommend 75/25.2. Listen to the customer. The most successful businesses live and die by customer feedback. When it comes to ordering stock, the same thing should be true. What do customers care about? Take careful note of their actions as well as their verbal feedback. Note repeat customers and what they usually buy. Design quick questions that will identify (non-intrusively) why they bought what they bought. 7-Eleven Japan estimated that 63% of

customers visited at least twice a week. Don’t let the opportunity slide—develop relationships with them, and figure out some active methods to stock your shelves with the things they like to buy.

3. Adopt the right technology. Steps 1 and 2 are a great start. But retail’s investment in supply chain technology nearly doubled in 2021. If Mom and Pop don’t want to be left behind, they’ll have to consider going higher tech. Technology is only as good as its users, though. It’s easy to fall into the trap of simply using this tech to fill shelf gaps quicker and more efficiently, without regard for the content of the gaps. Make sure the tech is easy for employees to grasp and gives simple and actionable insights, just as long as the power to decide what goes on the shelf isn’t just getting rid of a flashing “low stock” alert. Tanpin Kanri is close to 50 years old, but is still relevant to independent retailers.

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As originally published in Inbound Logistics

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