Blame it on Taiichi Ohno

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With Christmas just a week away, it’s gift-buying crunch time. But this year, low inventory levels for some products are turning even the most enthusiastic of shoppers a little bit Grinchy. The current supply chain disruption proves that a single glitch in the production or movement of goods can have ripple effects across the globe. And, this has consumers asking what the deal is—where are all the products? To find the answer, let’s turn to Japan for a moment to meet the father of Just-In-Time (JIT) production—part of the reason why there’s no PS5 under your tree this year.

Taiichi Ohno was an industrial engineer at Toyota Motors in Japan in the 1950s. On a trip to America to tour car manufacturing plants, Ohno also spent time browsing supermarkets. He noticed that they kept weeks of inventory in the back to allow for quick restocking—a process that worked well for supply as long as there was enough demand, yet the method was very costly to the supermarket. Ohno theorized that parts and products could instead be delivered Just-In-Time, and the idea of lean manufacturing was born. The idea was to increase profits by eliminating inventories, suppliers could deliver goods, just as they were needed. His methodology spread across the manufacturing, transportation, and retail industries, and major retailers like Walmart and Amazon adopted the process—from the top down to their suppliers. Things run smoothly as long as there are no glitches in the production, demand, and transportation networks.  

Fast-forward to the pandemic, and demand for products skyrocketed (we know people are still working through those toilet paper stockpiles!), and retailers had no inventory to draw from. An issue that is lingering this holiday season. As products arrive at ports, there still aren’t enough workers and truck drivers to move them, causing inventory to pile up, overloaded warehouses, shipping delays, empty shelves, and higher prices—a phenomenon we expect to last well into the new year.

At Channel Signal, we’re starting to see the implications of this low inventory and the impact it’s having at the bottom of the funnel—the Buy Button. We are seeing a drop in reviews in certain verticals starting in the second half of the fourth quarter. Looking at footwear specifically, product review volumes have dropped significantly by up to 60% over the past 12 months for some brands. This tells us that as product inventory drops and consumers are left with empty carts, product review inventory also flatlines. This poses a significant challenge for brands navigating through a recovery period on top of the busy holiday season because reviews are a critical piece of the revenue puzzle. 

On the flip side, inventory isn’t an issue for headphone-maker Skullcandy as we head toward Christmas. As CMO Jessica Klondnicki explained in an episode of Out & Back with Paul Kirwin (link), Skullcandy was able to get ahead of the curve by anticipating demand a year in advance and pre-ordering products from suppliers—like raw materials and chips that are causing a delay for many electronics manufacturer right now—and ordering a larger product volume than usual (going against the JIT grain). Through the Channel Signal platform, it’s clear that this inventory is driving product reviews as customers head online to rate their new gear.

Reviews are essential for brands in two key ways. For one, they help drive revenue. Consumers rely on product reviews—on feedback from other consumers regarding sizing, quality, pricing, shipping, customer service, and more—to hit the Buy Button. They trust each other, and along with comments and star ratings, customers rely on recency—the latest reviews on the products they’re after. With good reviews, products move off the shelves, and the cycle continues. Reviews also give brands a window into consumer sentiment—with the full review landscape, available through the Channel Signal platform, retailers can understand product performance and gain actionable insights to pivot forward. 

With inventory driving product reviews and reviews driving revenue, the clogged supply chain is putting a kink in holiday season sales for many brands. As the Wall Street Journal reported in November, as we head into 2022 many retailers are reducing their product lines to simplify manufacturing and keep goods moving. While product review levels may remain low through the next few months, brands that tap directly into consumer sentiment will gain a competitive advantage by turning these reviews into revenue. 

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