Mollo Finds Gold in Inventory Management
Mollo, who worked for J. Crew and Lillian Vernon before setting up his consultancy, got straight to the nitty-gritty, discussing topics such as initial item fill rates and gross margin return on investment. But while the concepts often were technical, he made sure to provide nuggets of advice on how to increase sales.
One such golden rule was to have the per-item initial fill rate for apparel catalogs be 10 points below the final fill rate. In other words, if a company's goal ultimately is to fill 95 percent of its orders, it's OK to initially fill only 85 percent and put the remaining 10 percent of orders on back order. If the spread goes any higher, that company risks losing customers. And if it goes lower, it has too much money invested in inventory.
On hard goods, which are often staple items, the spread should be narrower as consumers are likely to go elsewhere faster if a company doesn't have what they want, he said.
Another piece of advice was that overall return rates can be decreased as much as 25 percent simply by improving communication among departments within a catalog company.
Mollo suggested creating a weekly list of the 10 items that were placed on back order the most and distributing it to the call centers, distribution centers and management. Having a committee with representatives from each of these departments that meets quarterly to discuss items with high return rates also can help.
Mollo also pushed the importance of capturing demand data. For example, if a new item in an apparel catalog is available in various colors but not black, and many people call asking for it in black, this is important information to have. If those consumers end up ordering the item in blue but the demand for black wasn't recorded, a year later it's easy to see how that company might reorder the item in blue and not even know to get it in black.