In contemporary retail, a product's "markdown" often signifies a mistake in its initial placement or distribution, rather than a deficiency in the product itself. Every markdown represents a loss of potential revenue. A persistent challenge for retailers is finding the right balance: effectively satisfying customer demand while simultaneously mitigating the accumulation of excess stock. Studies reveal that non-moving or dead stock carries a heavy financial burden. This is due to the costs associated with the tied-up capital in unsold goods, storage space, insurance, taxes, and depreciation. This often leads to a higher opportunity cost, as money spent on dead stock cannot be used for profitable, fast-moving items. Retailers often resort to markdowns and clearance to mitigate it.
A proactive and intelligent sourcing approach can help minimize markdowns, though. Consider a scenario where a winter coat sitting in a warm San Diego store will eventually be put on clearance, while the same coat in Chicago might be sold out. Traditional Order Management Systems (OMS) attempt to solve the order sourcing with static logic—"fulfill from the closest store"—but they lack the nuance to understand the future demand and the external factors.
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