Why Should You Care About Demand-Driven Inventory Optimization?

How DDMRP Creates Business Better and Improves Sustainability

Demand-driven inventory optimization is a trendy topic among the C-suite at the moment, and for good reason.

Many businesses face inventory issues and having too much inventory can be just as harmful as having too little.

Recently in the news, we have heard about a slew of clothing retailers having to throw out inventory. And not just throw it out – according to Vox, some retailers have a policy in place where they actively destroy unsold inventory, rather than donate or re-use it.

The reasons for doing so appear to be to keep the inventory exclusive. The thinking is that if consumers can get it for free at a thrift shop, for example, why pay full price at the store?

Vox reported that the owner of several luxury jewelry and watch brands admitted that to keep its products out of the hands of unauthorized sellers, it had destroyed about $563 million worth of watches over the past two years.

However, particularly in today’s social media and environmentally conscious age, the inventory destruction can have far-reaching impacts that can actually hurt the bottom line beyond the wasted costs.

While retailers may be saving exclusivity by destroying inventory, they are also potentially driving away customers who take issue with these unsustainable practices.

According to Fast Company, in 2015 the fashion industry doubled production from 2000. Apparel companies currently manufacture 53 million tons of clothes into the world annually. That number is expected to reach 160 million tons by 2050. Yet in the U.S. alone, 21 billion pounds of textiles are sent into landfills every year.

Fast Company reports that the fashion industry currently relies on 98 million tons of oil to make synthetic fibers; it contributes 20% to the world’s water pollution thanks to toxic dyes; and it generates 1.2 billion tons of greenhouse gases.

It might seem that these businesses are stuck between a rock and a hard place. How do they keep their inventory exclusive and high-end, while also avoiding the environmental and societal impacts of destroying excess product?

The answer may not be as complicated as it seems. This is where demand-driven inventory optimization – also known as demand-driven material requirements planning (DDMRP) — comes in.

With a DDMRP model, businesses can more accurately predict the amount of stock they need to manufacture so there is less waste and unsold product. By adopting DDMRP, luxury retailers (or any company with unoptimized inventory) can improve cash flow, reduce minimum quantity orders, compress lead times, and create better stock management.

Because there is more control with DDMRP, the chances of having to throw away $563 million of unbought product is slim-to-none.

And for luxury or high-end brands, DDMRP can help create an even more exclusive product. For instance, a brand could strictly and accurately limit the amount of inventory they manufacture and create an intentional shortage — leading to increased demand for their product.

With DDMRP, inventory optimization is simple. However, it does require a fundamental shift in company culture, processes, and thinking to get behind.

At SHEA Global, we can help your business assess the viability of DDMRP and other inventory management processes. We’ll consider your entire business model to find the right inventory solution for you. If inventory is going unsold, we can help manage the impact of limiting stock and mitigating waste.

We believe every business has the opportunity to be excellent and we work with you to achieve Business Better.

Set up a consultation today.