The Trade-off between inventory level and satisfaction of a volatile demand -A study of three companies in the Swedish fashion retail industry

Abstract

Background and problem: The fashion industry is characterised by short product lifecycles, where demand is difficult, or almost impossible to forecast. This highlights the importance of having a strategy that can manage flexible inventory levels that can respond to changing customer demand. Questions are raised on how companies in the fashion retail industry should level inventory in order to meet customer demands, inadequate inventory levels lead to over-stock or stock-out situations, which can be both costly and harmful to the business. To broaden the understanding of how companies respond to customer demand similar and further studies are suggested. Objective: Describe and explain the strategic decisions companies are faced with in the balancing of inventory levels and volatile customer demand in the Swedish fashion retail industry. Method: The primary data has been collected through in-depth, and semi-structured interviews with employees at the selected companies. The interviews were designed to capture the strategic thoughts concerning how the companies manage inventory level in response to a volatile demand. Empirical findings have been analysed through an analytical model that was developed from the theoretical framework, and the analytical model provided a structure for the analysis and a foundation for the conclusion. Analysis and Conclusion: To satisfy a volatile demand and achieve optimal inventory levels three considerations are central for fashion retailers; sourcing, product categories, and supplier base. The management of each inter-related consideration is affected by strategic actions, and companies are required to make long-term strategic decisions in advance regarding how to manage a volatile demand and uncertainties during an on-going season. The study shows that the participating companies are taking different strategic actions regarding the same situations and considerations. This means there is no template for companies to follow and the choice in itself is not the most important. The companies in the research combine the strategic actions differently which enhances that decisions should have a strategic fit and an overall match. This study has discovered that companies take different actions when faced with the same considerations and further research of the Swedish fashion retail industry is suggested to explain the impact of different strategic actions.