Appropriately enough, everything is big at pure-play retailer Bodybuilding.com. The site gets more than 32 million unique monthly visitors and it ships a wide range of fitness products, including workout apps, supplements and apparel, to more than 150 countries. But one thing had grown too big: the retailer’s inventory. Executives determined that pursuing a goal of zero out-of-stocks for its entire product catalog was tying up too much working capital and leading to lower inventory turn rates.
In mid-2019, Bodybuilding.com made a strategic decision to address these issues, with impressive results: “We reduced our total working capital by 30% in approximately three months,” said Greg Dahlstrom, VP of Operations and Supply Chain at Bodybuilding.com in an interview with Retail TouchPoints. “We’ve also substantially improved our forecast accuracy percentages, which had started to dip into the 60s, and brought them back up to our targeted rates of 80% or better.”
A key factor in achieving these results was agreeing on what constituted an acceptable level of out-of-stocks. “Previously we had been chasing getting to zero, but we came to an internal consensus that that wasn’t the proper way to drive our business,” said Dahlstrom, noting that the “zero” requirement had put a strain on the company’s working capital.
“It wasn’t a drastic increase in out-of-stocks, just a slight one,” said Dahlstrom. Even so, he acknowledged that achieving consensus wasn’t easy: “There was internal disagreement and worry that [being out of stock] would damage the business, so we had to break the stigma that being out of stock was always unacceptable.”
First, the retailer took a more strategic approach to in-stock levels. Bodybuilding.com always had segmented its products into “A,” “B” and “C” demand tiers, but it created both a strategic and a non-strategic set of “A” items and established different service level parameters for each sub-category. “There’s a set of products that our core customers look to get consistently from us, so we focused more on those,” said Dahlstrom.
Additionally, the company changed internal processes, better aligning previously siloed departments such as marketing, category management, planning and supply chain, and holding more frequent planning meetings.
The strategic change, which kicked off in August 2019, also allowed Bodybuilding.com to make better use of planning and forecasting solutions from Logility. “The system and the demand planning, inventory planning and replenishment planning tools allowed us to reduce the inventory to an acceptable level, and now things are better than they have ever been in terms of inventory turns,” said Dahlstrom.
Unexpected Benefit: Shrinkage Reduction
Bodybuilding.com also got rewarded for its efforts in the form of lower shrinkage rates. “When we were only loosely able to plan our inventory and had low turns, there was a lot of shrinkage with expired items, as well as our warehouse not being as organized as it could have been in terms of storage and handling,” said Dahlstrom. “The more efficient they are [in the warehouse], the better things are handled, which reduces the risk of other errors.”
The overall effort to lower inventory levels in Q3 and Q4 of 2019 coincided with already-planned visits from Logility support consultants. “The timing was good,” said Dahlstrom. “While the consultants were here, some of the challenges we were having got incorporated into our discussions, and that provided a lot of value. When you invest in a tool with the capabilities that Logility has, you need some extra training internally. Also, as you become more familiar with the tool, your team starts asking better questions, including ‘what if’ scenarios. All this helps us be better at utilizing the tools.”
Bodybuilding.com’s efforts also have contributed to more productivity among its planners, forecasters and supply chain/operations associates. The initiative has “reduced the non-value-added activities of these employees,” said Dahlstrom. “When it comes to something like demand planning, I want our team to focus on managing the exceptions to these processes, and allow the tools we’ve invested in to play their role.”