In the dog days of summer, few consumers are giving much thought to their holiday shopping lists, but it’s a very different story with retail logistics and supply chain professionals. They’ve already been planning for months now to ensure they procure, position, sort, and store enough inventory to meet holiday demand.
And in 2025, that job has gotten a lot tougher due to ongoing trade wars, shifting tariff policies, and flareups of geopolitical violence.
But disruption is nothing new for supply chain pros. And in many cases, they can apply lessons learned from past disruptions—known as “black swan” events—such as port strikes; the earthquake in Fukushima, Japan; the blockage of the Suez Canal by a wayward containership; the Covid pandemic; and extreme weather events such as floods and hurricanes.
The most common strategy in the playbook for coping with such challenges is to stockpile inventory, says John Santagate, senior vice president, global robotics, at supply chain technology provider Infios. Businesses can either lean on the buffer stocks they maintain as a hedge against supply interruptions, or, if they have advance notice, they can “forward buy” extra goods before the disruption occurs.
The approach is a tried-and-true way to mitigate risk, but holding extra inventory also comes with higher costs, Santagate says. These include the cost of purchasing and storing the extra goods, elevated shipping costs to rush them into warehouses ahead of a deadline, and the risk of holding the inventory too long—since certain goods may expire, apparel may go out of fashion, or clothing may no longer be needed when the seasons change, he says.
THE DEVIL’S IN THE DETAILS
Despite the added costs, many businesses are currently building up safety stocks to reduce their exposure to tariff-driven price hikes, agrees Reid Bishop, vice president, data science, at Deposco, a provider of cloud-based supply chain planning, warehouse management, and order management software.
“We’ve seen a lot of businesses frontloading orders for inventory to lock in prices [before tariffs take effect]. So there has been a big buildup in inventory, measured by ‘days of inventory on hand,’” meaning how many days’ worth of demand a business can satisfy with the inventory that’s sitting in its warehouse, he says. “But there is a cost to building up inventory; it ties up working capital until you work through it,” Bishop adds.
The good news is that businesses today have access to advanced tools that can help them reduce the added costs.
Chief among those tools are cloud-based software platforms that leverage data analytics, predictive modeling, and inventory optimization at a scale not available before, Bishop says. Artificial intelligence (AI) is an important part of that package, since it eliminates the need for users to dig through vast databases for the information they need. And in some cases, it can even clean up the “messy” data gleaned from supply chain operations through better data governance, augmentation, and enrichment.
Armed with that technology, users can mine their databases for insights that enable them to wring every drop of efficiency out of the system, Bishop says. For instance, a company seeking to “rationalize” the inventory it has on hand might use AI to streamline the process, sorting it into A-, B-, and C-level priority categories based on variables like sales velocity and profit margin, he explains. That allows organizations to make sure they have their “money items” readily accessible in the warehouse, ready to meet any sales demand.
Another approach is to drill into the details of exactly where market demand comes from by breaking down aggregate figures into numbers for individual regions or metro areas. By applying that “multi-echelon inventory optimization” approach, companies can access the inventory in their networks that is the closest to end-users, thus enabling shorter shipping distances and lower costs.
And a third solution is to deliberately build redundancy into the company’s supplier base so that it’s not reliant on a single source for specific items. Originally popularized by big automotive companies to ensure that their factories kept running, that approach helps assure that companies can procure inventory whenever it’s needed, since they have multiple suppliers for those items.
That echoes the advice given by financial services giant Moody’s, which said that SKU (stock-keeping unit) rationalization should be a top priority in inventory management during an era when tariffs are driving up costs. “Companies that fail to segment SKUs based on demand stability, cost exposure, and tariff impact risk increasing their Value at Risk [a statistical measure of the risk of loss of investment or capital over a specific period], whether through tied-up capital in slow-moving inventory or lost sales on high-demand items. The key is balancing buffer stock, supplier diversification, and SKU rationalization to protect margins and maintain agility in an increasingly volatile trade environment,” John Donigian, Moody’s senior director of supply chain strategy, said in a statement.
TAKING THE PAIN OUT OF REPLENISHMENT
One example of a company that has chosen the tech route to optimizing inventory is Five Below, a Philadelphia-based retailer that specializes in clothing and accessories for teens and pre-teens. In a bid to replace guesswork with data-driven decision-making, the retailer recently implemented software vendor invent.ai’s retail planning suite, an AI-driven platform that automates forecasting and decision-making processes to help big retailers optimize inventory levels and maximize profitability.
Five Below says its goal for the software project is to generate optimal inventory decisions for literally millions of product-store combinations (the company operates more than 1,800 stores in the U.S.)—with the ultimate objective of improving inventory productivity. The retailer adds that it has already begun using invent.ai’s planning platform to position the right inventory at the right locations in the right quantities, on a daily basis.
The system’s capabilities include “dynamic demand forecasting,” including the ability to create individual forecasts for each store and product combination; “profit-optimized inventory decision-making,” meaning the ability to determine where to position each product to generate the highest incremental revenue; and “optimized replenishment,” the ability to automatically calculate optimal reorder points and order quantities for replenishment shipments, ensuring DCs and stores receive the right amount of inventory at the right time.
As for how the system is working out, the results to date have been highly encouraging, according to the retailer. “Invent.ai has been a game-changer for our operations, helping streamline replenishment processes across a wide range of product categories and a large store network,” said Graham Poliner, chief strategy and analytics officer at Five Below, in a statement. “We expect invent.ai’s algorithms to continue to help us optimize inventory levels [and] reduce stockouts and overstocking while ensuring that each location has the right products at the right time.”
