Episode 61:
A balancing act:
Is restocking on the horizon?

Intro/Outro:
Hi, and welcome to another episode of Freight to the Point, a podcast by Zencargo. This week, we have a special episode as we feature a session from one of our Navigate sessions. The session is on A balancing act: Is restocking on the horizon, with Sam Greenhalgh, Chief Revenue Officer at Zencargo, is joined by AGR and Spreetail. In this episode, they explore how retailers should handle inventory management and their predictions on when restocking will start again. We hope you enjoy this episode.

Sam Greenhalgh:
Welcome, everyone. I’m Sam Greenhalgh. I’m the Chief Revenue Officer here at Zencargo. I’m really delighted to be joined by Sigrún and by Okyay. Sigrun is the Chief Product Officer at AGR and Okyay is the VP of Supply Chain at Spreetail. And they’re going to be giving us their insights on inventory, challenges that they’ve seen in the market, and some predictions on when the restocking period will happen, which I know there’s lots to talk about on every conversation that I’m having right now. So welcome both. Delighted to have you both on with me. It would be great if you could introduce yourself to our listeners.

Sigrún Gunnhildardóttir:
Thank you. So happy to be here. I’m Sigrún. I’m the chief product officer here at AGR. For 25 years, AGR has helped wholesalers, distributors, and retailers across Europe and North America turn their supply chain into a competitive advantage through our inventory optimization solutions where we strive to eliminate the waste within the supply chain. I’ve been with the business for almost 10 years now, stuffed it out in a customer facing role working with our customers, but soon moved into product development because I was always seeing opportunities on how we could do things better. So super excited to be here and learn from you.

Okyay Oztugran:
Great. So welcome, everybody. This is Okyay. I’m from Spreetail, VP Supply Chain Europe. So I’m coming from more than 25 years of logistics and supply chain experience, beginning with the typical 3PL conventional organizations in regional and global, and then done business around the globe from China to Europe and US. And in my last five years, I’m very focused on the digital part of the logistics, and then helping scaleups and startups in the Europe landscape to go to market strategies and moving their businesses into Europe. And in the last two years, I was heavily focused on the E-commerce part of it, fulfillment part of it. Before Spreetail, I was the CEO of Germany for a European scaleup, which giving 3PL fulfillment services. And then, recently in the Spreetail, SVP supply chain Europe. So thanks for everybody for joining.

Sam Greenhalgh:
Great. Well, it sounds like we’re in for a great session. So first off, I’d like to kick off with you, Sigrun, to, just at the broader level, it would be great if you could give us some insights from your customer base at AGR, based on how they’ve experienced these challenges that we’ve just discussed at the beginning.

Sigrún Gunnhildardóttir:
Definitely. As we all know, inflation levels have been on the rise. This upward trend has had a significant impact on our customers. And one of the key effect of inflation is the volatility it introduces in consumer demand because people have less disposable income to spend. And our customers have had to adopt their strategies to address these challenges. And we have observed a shift from a more of a lean supply chains to more at the launch. Rather than aiming for cost discounts, retailers are now ordering more frequently to adjust the fluctuating demand and mitigate risks associated with excess inventory. This shift has brought the concepts of inventory holding cost and cost to cost cycle to the forefront, and our customers have recognized the importance of optimizing these factors.

Sam Greenhalgh:
And from the different customer base you look at, there’s obviously different industries and we are seeing certainly from our side different trends within different industries. So it’d be good to know from your customer base, are you experiencing any different things based on the industry that your customers are in?

Sigrún Gunnhildardóttir:
So definitely it’s very different and it’s all about knowing your products and knowing your customers. And in sectors where people have more choice in what they spend their money on like luxury goods, the effect of inflation on how demand changes becomes more noticeable. Consumers have less cash to spend on recreational activities and non-essential purchases. So the unpredictability becomes even more. As a result, retailers in this segment have recognized the need for tight planning and agility in the restocking processes. On the other hand, sectors with fast moving consumer goods such as grocery retail have experienced relatively less volatility in demand. But however, it also depends on the product groups, how sensitive customers are to these pricing changes.

Sam Greenhalgh:
And Okyay, from your experience, so I would imagine in the period of COVID, the demand for E-comm and products to service for convenience was really high, but that has meant it’s been volatile for inventory over the last few years. How has that impacted you as a business and how have you changed the way that you are thinking about inventory during this period?

Okyay Oztugran:
Sure. In the COVID period, as everybody knows, we were sitting at homes and then there’s nothing to do and everybody was trying to order something, and especially on the driven by hobby, home garden, outdoor lifestyle things because you are not traveling, you’re not spending that money. And that’s significantly increased the demand for those type of products. And in our company, especially in the US business which our main focus, we have seen more than between 20 to 30% of increase in the demands, and it evolved in a sudden period, in six to eight months, 30% up. So it has happened also in the other regular brick and mortar like Walmarts and other Targets of the world. And then everybody thought that this will just go on like that, and then they order whatever they can as we do it. And then we end up with a super higher stocks at the 30% demand or over uptake will go on.

But when it’s finish up and then last year, and then we suddenly see that everybody just caught up with enormous inventory at hand, and then in other challenges begin, that demand drop and then the money spend just go onto other places like travel or others, and open up and then… So we’ve seen that demand just drop and then we, of course, overstocking has become a super issue, and then the price cuts and all the challenges began through the E-commerce retailers especially, and also for brick and mortar just to clean up the matter. And then that took a long time. I mean, for our case is even more than eight to 10 months of cleanup period for the overstocking inventory.

And then, since the demand has been stabilized, now we’re thinking more carefully on what to bring, when to bring, because there were different challenges in the COVID times as we have experienced more than $20,000 per container rate, which is enormous. And then even you paid, you are waiting just out of the Los Angeles port for how many days the containers to take in. But now, this challenge has been resolved. The container rates dropped, but then another problem came up like Sigrún said. There’s the inflation and then the recession environment and demand little too slow. And then, I think that brings the companies like us to become much more careful, much more agile and dynamic planning of which product sell and which prices to sell and when to make this product available.

Sam Greenhalgh:
Which it then poses the big question which is how do you then balance maintaining the service levels that people expect in terms of convenience and quick delivery, but with also making sure that you don’t have this huge excess of inventory in order to fulfill that customer demand. How are you dealing with that?

Okyay Oztugran:
Currently, we have two side of the game. Since we are E-commerce brand accelerators, we’re a little bit different model. We are buying the products from the brands directly. We’re sourcing globally from China, EU, US, and then we are operating in a specific categories like home garden, do-it-yourself categories, and maybe outdoor lifestyle. So in this range, we are trying to select the products more carefully than the other because compared to the COVID, not everybody ordering everything now. So they only demand specific or make much more season-specific orderings. So we bring the inventory, trying to bring the right on time.

For example, summer period, everybody just goes out and then try to make outdoor lifestyle or pools and spots which we’re very good at. And then, we bring the inventory literally two months ago and then put into marketplaces and sell it and try to deplete the inventory with many promotions, and then just not to carry the inventory probably more than 180 days. There are typical KPIs that we follow, especially not too caught up with inventory because once the season is gone, that we need to wait all the 12 months back into next summer to sell this inventory. So that’s why there are couple of things that we play summer peak and winter peak, different products, different timelines, and better… There’s also some regular products which are prevailing, especially selling on the marketplaces.

And what we’re trying to do is we are trying to put our bets on not too much on the forest productions, trying to select some nearshoring places like Eastern Europe, Turkey, which are the price are favorable now, and even with domestic producers, manufacturers so that we can bring them in same day with the trucks. I mean, like the feeding up the inventory. So that’s why we set ourselves a target of inventory turn off three or less just to meet the demand and then maintain the position in the company.

Sam Greenhalgh:
And has that led to you having more frequent orders at a smaller scale, a small spread across the supply chain rather than single source?

Okyay Oztugran:
Exactly, exactly. That was not the case. I mean, before COVID everybody was trying to ramp up the inventory. The minimum order quantities were five to 10 containers in the US piece, but now we are literally ordering single containers coming and then repeatedly every month because there are a lot of spaces in the ships now. The demand is dropped. The prices are dropped. It’s a matter of dynamic planning now and then placing your orders. And also in the cash management like the working capital. If you tied up too much working capital, then if something goes wrong and then you are just hurt by the financial impacts. But in this way, we could have managed the balance between the more frequent cycles and more diversified type of supply chains. Not only batting on the containers, but some maybe trucking and some partial load and also the container combinations.

Sam Greenhalgh:
And the last question I’ll dive into in that with the smaller orders, more global supply chain more frequent, it maybe demands a little bit more of your freight forwarder than what maybe was previously required when using larger quantities and more infrequent. So what do you think the role of a freight forwarder or supply chain partner be in helping support your commercial side of the business and making sure you are maintaining that right inventory level?

Okyay Oztugran:
Sure. We have a strong preference on choosing digital forwarders in this marketplace, especially in the UK and Europe. The main reason that they can provide, they have much more streamlined processes like the order management and the flawless documentation and everything is online, and then placing orders, and then have the chance of getting the real time visibility on the background seeing where’s my container, and then getting regular status updates. Because since we’re managing more agile supply chains, we have the necessity of getting more frequent data from the freight forwarder. And also our expectations just to manage the exceptions by interacting with us. I mean, I know that when something sound digital is only human list, but actually you don’t eliminate the human. It is the processes are streamlined, but there’s always a human.

I mean, we call, we write an email, and get a response what’s going on, and then try to find the solutions or even sometimes creative solutions how we can do it because there are some products and inventory that are needed urgently or maybe going out of stock. Then in this place, the freight forwarding with the full fledge like the customs experience and on carriage and everything, needs to play a major role to let it happen. Sometimes within three, four days, you lose the sales because we are playing in the E-commerce. We’re not in the brick mortar. We’re fighting for buy bucks. If we are not there right on the time and right place, we are just losing it.

Sam Greenhalgh:
Yeah, really, really interesting. And Sigrun, from your perspective, what does that mean in terms of to what extent the customers, maybe retail even, from their business model need to look at their S&OP process or the sales and operational planning process or their sales and operational executional process to reduce that inventory risk given that we are in constant change now with the different economic environment?

Sigrún Gunnhildardóttir:
I mean, this was really interesting. To have realtime data from the, to be able to execute quickly is crucial. But I would say that one crucial aspect in the S&OP and S&OE processes is to identify the categories in your business with higher demand volatility. It’s important to understand that different types of products can respond differently. But by understanding these dynamics, retailers can really align their pricing strategies ensuring that they are not holding excessive inventory of price sensitive items. But something that is also on top of mind and what you can do is to go to alternative sources of supply. It can play a significant role in mitigating cost increases and reducing risk. During these times of cost of living crisis, retailers can consider offering more affordable brands or sourcing products from lower cost suppliers. This strategy really helps the customer and addresses consumer needs while minimizing the financial risk. And just to reiterate, really consider shorter planning cycles to enhance your agility and to be able to respond quickly.

Sam Greenhalgh:
And from that shorter ordering cycles, how could real time demand data help teams and specifically AGR customers make better predictions around demand?

Sigrún Gunnhildardóttir:
By continuously monitoring ongoing demand trends, teams can adjust their replenishment strategies based on actual demand, dynamically adapting order quantities, reorder points, or lead times. But furthermore, realtime demand data fosters better collaboration across different departments within an organization and also at the supply chain. By sharing, I mean, sharing is caring. And by sharing and aligning based on the latest demand insights, teams can ensure a cohesive and synchronized approach to demand planning, and also to production and marketing. So this collaborative effort allows for more accurate decision making and helps your suppliers as well to be ready when you need their supplies.

Sam Greenhalgh:
From your perspective, obviously being from the customer side in this environment, how much has the collaboration changed internally between it being separate functions for demand and supply? Is there more cohesiveness around the decisions making?

Okyay Oztugran:
I think that’s a very good point Sigrún mentioning. We are still in the evolving phase, although we’re established company operating since 2000 in the US. We’re still seeing some collaboration defects or gaps between teams. And then sometimes due to the demand of the business, one of the teams who are ordering might go, well, I mean might go further, I mean, without talking with the supply chain operational teams. And then that’s what we call exactly S&OP or different terms VSSI in our terms, which the planning it should be go in line with the capacities that we’re managing because we have a very tight commitments, especially not only on the inbound but also for outbound pieces. Like if you’re running a much more higher orders or just get demands rather than out of our capacity, then the sales channels that we’re working like Amazon or other places because we are very much depending on Prime and the Prime has very strict metrics. And then if you just missed your OTS or TDS of the world and then they just suspend your Prime and then you lose sales. It’s a vicious circle.

And then that’s why the planning of the inbound go in line with the outbound on a day-by-day basis. So we very much care about those relations, but it’s still evolving. It’s not there yet. In a proper manner, I think within two years time, we’ll be going to coming to a stage of learning more in, because we are just started in the UK, it’s only one year. We’re operational in Germany now, in the Europe. We’re just learning. And then the company needs to also digest this learning phase, have the demand evolve, especially in a very difficult environment like consumers and you don’t know how they react. For example, if there are temperatures going beyond 30 degrees, then immense pool sales, which is more than expected. And then you suddenly go out of stock and then you cannot fulfill the orders at the same day properly, and then they just review you badly in the marketplace. So we need to close this and make it proper job so that it’s handy net.

Sigrún Gunnhildardóttir:
Exactly. And one other point to add, we have seen a huge increase in usage of our purchase planning functionality. That’s eight years away to share how much we foresee to purchase after supply chain to suppliers, and people are using that functionality much more than before. Powerful information sharing in that direction and even integrations can really also help your suppliers be ready and see more quicker changes in patterns.

Sam Greenhalgh:
What I’ve seen definitely is that supply chain has elevated since the COVID times just in the conversations. And then, the collaboration with the CFO and other teams in demand, the buy and the merch, are definitely evolving for the better. So the big question for this session was restocking, the when, the why, and the how. Just be good as we come into the final bit of the session, looking at the big picture, retailers are all wondering right now when demand is going to return at scale from your data, from the trends that you’re seeing and from, obviously, from the stuff that we discussed to begin with inflation. What do you see or is it too early to make a prediction?

Sigrún Gunnhildardóttir:
Yeah, it is. But current outlook for inflation suggest projected increase to 5% by the end of this year. But we are seeing the projections are saying that we will reach the target of 2% by end of 2024. So as the inflation pressures subside, we can anticipate a greater level of demand stability enabling supply chains to transition to leaner strategies. However, like you say, is it too early to tell? It’s important to acknowledge that we have experienced a series of crisis, whether it’s COVID, the Suez Canal, Ukraine, everything that’s going on now. These events highlight the need for processes to be agile and also for robust supply chain technology that enhances overall real resilience and to prepare us for future crisis. And we see that is really happening and people or more companies are more aware of how critical these functions are.

Sam Greenhalgh:
And, Okyay, from your side, is there any early signs of when the restocking will commence or have you got a different view?

Okyay Oztugran:
I think I’m a little bit in the middle. The restocking will not come back before mid ’24 is for sure because we need to visualize the interest rates and then coming down and the inflation imposed by it, it needs to be stabilized. I call it stabilize because the fear of the people, I mean, it’s not being two or four. If they stay is four, so they know that it’s staying four, but not increasing, so they can make a long term planning. And then especially in the countries like UK and then Europe, the people doesn’t know yet, I mean, what the next winter bringing them because of the war and then the energy prices. Now I’m seeing that they’re started to decreasing, but will this opportunistic approach of the energy provider will still continue and they rise the prices? We don’t know yet.

I mean, I think when they become stable and then when people go out of the winter next year, then there’ll be much more hope with the reduced inflation so that they will look their takeaway home monies and attend and then be more enthusiastic about spending money, especially in the retail because now they’re just holding back. They just only making the proper, even they don’t plan their vacations. I mean, what I’m seeing in the UK. So they’re cautious. So given that information, I think, as a company, we have also seen that every crisis bring their own opportunities. I mean, I can not only say that the demand is low, so we are just not doing well, but if there’s a crisis in the winter, and then cost of living increase, and then energy, people converting themselves to another resources, and then we sold unexpected the rise energy products in the last winter. And we will be selling more if you would brought some more inventory.

That’s why we started to majoring called unmet demand. I mean, because every company is just measuring out of stock, but we also measured the unmet demand because of the opportunistic products or acquisition products that might be selling well, which we didn’t foresee, and then we got brought into our game plan. I think E-commerce retailer game plan is a little bit different than brick and mortar because brick and mortars are stick to their brands and stick to their products. They have their fashion seasons. But we are much more flexible. And then if something doesn’t work out, we can just flexibly buy in other products and then still making our business. It’s a matter of, I mean, how the forecast and how you read the environment. But definitely not before the mid of ’24.

Sam Greenhalgh:
Really interested on that point on the unmet demand KPI, which the next question I was going to ask for both in a quick one sentence was to get what would you advise retailers to be thinking about to optimize their inventory strategies for the remainder of this year and for 2024. I think we touched on a couple of areas quite on the smaller order quantities, more agile purchasing, and the idea of having that unmet demand KPI is really interesting. But what would, Sigrún, I’ll ask you first. One sentence, what would be your advice to retailers for managing their inventories?

Sigrún Gunnhildardóttir:
I would just like to iterate the goal of higher interest rates is specifically aimed to reduce the demand for goods and services. So until we see the inflation pressure go down, we should focus on short cycle inventory levels and optimizing the cash flow.

Sam Greenhalgh:
Great. Same for you, Okyay, in one sentence.

Okyay Oztugran:
What I will advise is will be a little bit more specific to the E-commerce retailer for having some online businesses. I think the critical two KPIs will be the percentage of inventory holding more than 180 days is a critical factor. They need to watch out this. I mean, if something going really up and then they just think about it and then the inventory turn cycles. I mean, they need to keep it somewhere below four or up to three because, otherwise, they will tie up too much working capital and finance. And then with this unprecedented environment or if volatile amount, it’ll be hurting the companies.

Sam Greenhalgh:
Brilliant. So that was, honestly, great session. I was taking notes as we was going through. I think we’ve got a few minutes for some questions, so if there’s anyone that’s got any questions for myself, Sigrún, or Okyay that they’d like to add, that’d be great. I’ve got one here. It’s not directed at anyone specifically, but does the situation in the US differ to that of Europe? Okyay, why don’t you answer that one first?

Okyay Oztugran:
In our company perspective, since we’re operating in both companies, we don’t see too much differences. The same issues also exist in the US in different scale, and still overstock and still inflation, even higher inflation than here especially on the brick and mortar sides like Walmarts and Targets. And then, I think that the challenges are hitting both sides. I mean, there’s no favorability.

Sam Greenhalgh:
Same for you, Sigrún. Have you seen it from your customer base any different between US and Europe?

Sigrún Gunnhildardóttir:
No, not really. I agree. I mean, the inflations are different and different drivers behind inflation, but it’s the same challenges and you really need to stay on top of your product categories and not seeing much big difference.

Sam Greenhalgh:
And from a peak season perspective, obviously in retail, especially in certain categories we work in seasons, but do you think there’ll be a peak season this year or do you think there will remain relatively flat?

Sigrún Gunnhildardóttir:
I mean, we are anticipating normal seasonal patterns, but with potentially lower peaks in non-essential goods. But time will only tell, provide this with a clearer picture.

Sam Greenhalgh:
And Okyay, from your side, is there anything that you are expecting from a peak or are you predicting flat?

Okyay Oztugran:
We are predicting two peaks. Not super strong as the other peaks, but still strong peaks. I mean, especially driven by the weather conditions and especially for the countries like UK or Europe. In the summer peak, there’ll be selling a lot of even non-essential items like the outdoor lifestyle, things in summer gardens. But in the winter peak, there will be a usual Black Friday driven and also the Christmas driven businesses and people. We saw that last year people still spending and they’re still lighting their homes, they are still buying Christmas trees. So it’ll go on. I mean, this is our expectation.

Sam Greenhalgh:
Brilliant. And then the last question that we’ve got in here, which was what are the best KPIs we should always track when managing inventory and inbound?

Okyay Oztugran:
I think it’s coming to me. What I will be in line with the inventory, as I told you, 180 days, less than 180 days of percentage and amount return to KPIs. But on the inbound, the transit times beginning which we call purchase order and then the shortening the time according to your sales forecast is, I mean, so you don’t overshoot your… because, nowadays, that’s the reality. Everybody knows that. Even the demand is low, there’s a lot of trans shipments going on and the vessels are not coming on time. Even they call it direct shipment is there not direct anymore, and you just spent half of your journey instead of 29 days. And then, you end up with 40 days of transit time. And the other challenges in the ports are, like strikes and everything, you should calculate and build it into your, if you are sourcing really remote and from China or US.

Sam Greenhalgh:
Brilliant. Thanks, Okyay. And Sigrún, from when you are speaking to customers, is there any specific KPIs that you focus on?

Sigrún Gunnhildardóttir:
I think I’m just going to echo what he said, but inventory turnover obviously. And then lead time volatility and lead time analysis is really what we are focusing on at the moment because even though it’s easier to get supplies, we are also seeing suppliers with volatile lead times can really hit you.

Sam Greenhalgh:
Brilliant. Well, there is the questions that we had. Thanks, everyone, for listening to our session. And thank you again, Sigrún and Okyay, for sharing your insight.

Intro/Outro:
Thank you for listening to another episode of Freight to the Point. We hope you enjoyed it. If you have any feedback on this episode, please get in contact with us and don’t forget to like and subscribe. But until next time, goodbye.