It was a small decision that ended up costing millions of dollars.
Inventory management is unforgiving. Because it happens on such a large scale, the impact of a simple mistake or missed detail can quickly balloon into a multi-million-dollar loss.
We have seen this happen to our clients again and again. Small miscalculations, like shipping stock too frequently, or carrying the wrong mix of inventory, can be devastating to the bottom line.
Don’t have an item in stock? Your customer just has to walk across the street to buy it from your competitor. Pick the wrong courier? That small price difference adds up quickly once you’ve shipped thousands of items. Carry too many units of the latest device? Your investment may sit on the shelf indefinitely.
For telcos, the stakes have never been higher. In an increasingly competitive world, they need to capitalize on every opportunity to increase their profitability.
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Risk Management in Inventory
If you ask any telco COO or CFO about what keeps them up at night, inventory management would be at the top of their list. Although the oft-repeated mantra of “right product, right place, right time” is straightforward, it can be complicated to get it right – and there are lots of ways to lose money.
When inventory is out of balance, whether stores are over or understocked, it can be devastating to the bottom line.
The Risks of Understocking
The risk of understocking items is fairly obvious – if you don’t have an item in stock, the customer will go elsewhere. This is especially easy to do in the telco industry, as most stores are congregated in the same physical areas; for the customer, “going elsewhere” is as simple as walking across the street.
Anytime the customer leaves your store empty-handed due to lack of stock is worrisome, but it’s especially devastating with accessories; these high-margin items are relatively easy to sell and are where telcos make most of their profits – if you have them, that is. It’s crucial that telcos carry the right levels of stock, and if they do run out, that they have a plan to quickly get that item into the customer’s hands.
The Risks of Overstocking
Unfortunately, overstocking can be just as devastating to the bottom line as understocking. Device lifecycles are very short in the telco industry. This is both a blessing, and a potential curse. While telcos appreciate the frequent upgrade opportunities, they also have to be mindful of how much stock they carry.
Devices used to have a shelf life of 3 years, but now they are obsolete after just 6 months. After this timeframe, there is little chance of selling any remaining stock. With top-tier devices now approaching a thousand dollars per unit, it’s crucial that telcos only carry
enough stock to cover customer demands, and not a single unit over.
This is a problem we have witnessed firsthand. Before they became our client, we encountered a telco that was slightly overstocked with a particular device by a couple dozen extra units per store. Those units didn’t sell, and they were left with millions of dollars’ worth of unsellable inventory. It’s an unfortunate example of how small miscalculations can have a huge impact.
And the risks of overstocking aren’t just about unsold devices. In some markets, a surplus of devices opens telcos up to other risks – namely, theft. By carrying more inventory than is necessary, those unsold devices may “grow legs” and disappear altogether.
The “Push” For Better Forecasting
How do telcos end up in these risky situations?
Poor forecasting plays a big role.
Proper inventory management relies on good forecasting to ensure the right quantities and types of items are shipped to stores to replenish their stock.
For many telcos, forecasting is a completely speculative exercise; no wonder so many struggle with under and overstocking! Many use what is known as a “push” model. In this case, the telco’s procurement managers prepare the replenishment order then ship the stock that they think the store needs.
Sometimes this model is effective, but without direct visibility into which items are actually selling, the accuracy of the order will always be in doubt. When procurement managers are guessing, it’s too easy to order too much of a slow-seller, or not enough of a popular item.
Fortunately, there is a better way.
The Advantages of CPFR
The best replenishment approach uses sellout data when preparing an order, rather than speculation. With a proper inventory management system, historical sales data can be analyzed to predict how much stock is needed, and then orders can be auto-generated to bring inventory to the right levels.
Modern inventory management systems are based on the Collaborative Planning, Forecasting and Replenishment model (CPFR). CPFR uses technology to share information between all players in the supply chain, which results in better forecasting, improved customer experience, lower costs and higher ROIs.
It also opens the door to “just in time” replenishment. Now that orders can be highly coordinated with little effort, it’s easy to ensure orders arrive the moment they are needed without needing to carry extra inventory.
It also makes complex data analysis possible. With visibility into every transaction, it becomes easy to gather true intelligence, such as which items and brands are preferred in store, and how often they should be ordered.
Shipping is a detail that is often overlooked, with potentially expensive repercussions. There are a lot of small details that affect the cost of shipping products:
• Frequency: How often are shipments sent to stores? The more shipments, the higher the cost. Instead of multiple shipments per week, telcos can pare this down to once a week, and use their inventory management system to track every item. One of our clients made this change, and it saved them 12 million dollars a year. Small change, big impact.
• Rate: Are you getting the best rate? Many telcos haven’t fully considered their available shipping options. A little research to ensure you’re using the most cost-effective courier, and a little negotiation, can go a long way toward meaningful cost savings.
• Bundling: Bundling is an effective technique to reduce the number of shipments. Coordinating the shipping of like-items, such as SIM cards, devices and accessories, can help ensure the best possible rate.
Maplewave’s Agile Platform
Maplewave’s digital platform is the solution that telcos need. Our strong inventory management capability is built into most of our products.
Inventory Management Module: Our inventory module is specifically designed to address the lifecycle volatility of wireless products through comprehensive supply chain visibility and controls. Where cellular phones are often sold at a loss and later reimbursed, it’s imperative that retail inventory management provides a reliable method for forecasting and decision-making.
The lifecycle of all serialized inventory from manufacturers (including handsets and SIMs) is tracked across all movements — making stock management a much easier process. Unit cost, receipt dates, location, status, selling price, profit, return information and all clerk involvement are stored based on serial number. Complete unit history visibility provides for more accurate financial reporting while supporting fraud prevention initiatives.
This module also provides comprehensive retail inventory management at the store level, enabling store staff to easily check stock availability, complete purchase order management and utilise inventory tracking tools.
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All-Channels Capability: Our platform has been designed to work in all channels, including in-store, online, kiosks, door-to-door, and more. Centralized inventory information is available in every channel.
Inventory-focused Solutions: Inventory information is shared across many modules of our platform:
• Mobile Sales Tools: In addition to greeting and queuing customers, our mobile sales tools can be used to build orders from anywhere in the store for a personalized experience. Inventory information is updated in real-time, so sales reps always know which items are in stock, or which other stores carry the item.
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• Point of Sale: Our comprehensive POS gives front-store staff access to inventory information and functions, such as stock availability, location and status. Staff can check price and availability of stock items by bar code scan or SKU number entry. When processing an exchange, void or refund, returned items can be directed into specific categories/locations (i.e. RMA, avails, rentals, etc.).
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• Business Intelligence & Reporting: Our reporting module uses dashboards to present complex concepts and drive inventory decisions, such as which items to carry or re-order, etc.
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Supply Meets Demand: The real-time flow of information ensures that in-store supply aligns with the actual demand, eliminating speculation-based forecasting.
Optimized Stock Levels: Accurate forecasting significantly reduces “out-of-stock” situations and the overstocking of less popular items, as well as improves in-store space allocation.
Improved Revenue Performance: Improved product lifecycle management reduces markdowns and investment in old stock. Detailed inventory tracking decreases inventory shrinkage.
Inventory Automation: The automation of inventory calculations and reduction in turnaround times for purchase orders gives management the time to focus on maximizing business performance.
Supply Chain Consulting
If you’re considering a supply chain transformation, but aren’t sure how or where to start, our Amplifier consulting team is ready to help.
Optimize – Comprehensive Telco Consultation (Supply Chain Focus): Optimize is an immersive process that examines your pain points and generates a report full of quick wins and long-term projects, and any future threats. We conduct a full evaluation of your supply chain, including third-party logistics services and device lifecycle solutions, to identify quick wins and long-term improvements that maximize your ROI. At the end of the process, you will have a strategy for releasing working capital and improving your forecasting and replenishment over the long term.
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Managing Director, Maplewave International
Bradley is an experienced telecommunications and logistics visionary who specializes in global relationship-building. A strategic thinker, his entrepreneurial approach transforms businesses into major industry players.
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If you’d like to hear more about how Maplewave’s consulting team can enhance your inventory management, we would love to talk about the possibilities.