IV. Analysis

Nordstrom uses the first-in, first-out (FIFO) method of inventory calculation. With this method, inventory purchased first is sold first and newer inventory remains unsold. The cost of the older inventory is assigned to cost of goods sold, while the cost of newer inventory is assigned to ending inventory. Nordstrom must be able to predict demand on their inventory to have the best inventory possible. Having too much of an item can lead to over stock which leads to a profit loss; not having enough of an item will lead customers going to Nordstrom's competitors.

Nordstrom analyzes their past demands to predict their future demands. Using this method, Nordstrom managers have a better idea of when to order more of an item and when to order less. For example, using their past demands, managers now know to order more merchandise in the second quarter because of their annual sale and in the fourth quarter because of holiday shopping. This ensures that an equal inventory level is maintained.

Safety stock inventory is the surplus inventory that a company holds to protect against uncertainties in demand, lead time, and supply changes. Nordstrom always keeps a safety stock to avoid customer service problems. If a customer comes in and cannot find what they want, they are most likely going to go to one of Nordstrom’s competitors and won’t return again. Since customer service is Nordstrom’s top priority, they are willing to do anything possible to meet their customer’s needs, make sure they are satisfied and come again.

Anticipation inventory is inventory used to absorb uneven rates of demand or supply. Seasonal demand patterns are a part of anticipation inventory. Since in the summer demand for sandals is high, Nordstrom makes sure that they order many of these items so they won’t have a shortage. In the case where there is a surplus of this seasonal item, it will then be put in sale or clearance so they can try to sell it.

Nordstrom takes inventory twice a year; at the end of January and August, they physically scan everything in the store. After scanning everything, they compare the results to what they should have. The inventory managers try to keep their inventory as accurate as possible. Keeping inventory organized at all times helps them minimize their losses. Sometimes however, confusion occurs and inventory shows a shortage of an item while it’s really in the store. For example, two of the same item might have different bar codes for some odd reason, showing the inventory manager that the item is missing while it’s really there but labeled under a different item. Inventory is also monitored daily but at a much smaller scale, as shipment comes in they check to make sure they received everything that was ordered.

Nordstrom uses the Mobile Point of Sales (POS) system to track their inventory. With this system, employees anywhere in the store can quickly scan an item and locate it through the store’s inventory to see if the customer’s particular preference is in stock. They are also able to track orders, transfer and order merchandise from other stores all at the convenience of a handheld device.

Accenture, a global management consulting, technology services and outsourcing company, partnered with Nordstrom in 2002 to implement a perpetual inventory system to enhance their inventory management and improve their inventory management and improve their competitiveness areas ranging from high-performance technology to processes. With the perpetual inventory system, purchases, returns, discounts, and sales are immediately recognized in the inventory account, causing the inventory account balance to always remain as accurate as possible.

With Accenture's help, Nordstrom utilized RFID chips (Radio Frequency Identification) on their products in order to identify which items are in which stores. This new method now allows sales associates to quickly and easily locate what others stores have the item that the customer is looking for. Customers are benefiting from having merchandise more precisely available to them. The perpetual inventory is said to have contributed higher store sales causing higher profitability and higher customer satisfaction.