How to Fix Common Inventory Problems, Part 3

This is the final article of a three part series about identifying and solving common wholesaler inventory problems.

The Problem

Matching your own supply chain inventory to sell-through

All too often we come across suppliers who forecast their own purchases based on sell-in, i.e. what they have sold into the retail channels. Clearly a better predictor of likely demand is what is selling through those retail channels to the final consumer.

Your supply chain planning process will no doubt be looking at expected demand (based on rate of sale, seasonality, promotional schedules, competitor initiatives, new products and so on), and then looking at stock on hand in-store, stock in transit, stock on order, stock in retailer DC, stock in your own warehouse, and stock on order from your suppliers. All of those metrics are fact, aside from the first one – expected demand.

Looking at the last few weeks of sales is not always going to be the best predictor of what is about to happen, so it is always worth considering the sales profile of the same period last year, e.g. ‘the next six week’s average performance from the previous year’. The real value of this approach is understanding how different stores behave under the same event.

For example, let’s say that there was a 20% off promotion in September last year. It is currently June and you are planning your inventory for the 20% off promo in September this year. Not all stores will have responded to the 20% off promo to the same degree – some will have delivered a fivefold increase in sales, and others may have not moved the dial at all.

Analyzing the sales at the store article level and building that into your demand forecast, will ensure that those stores that respond well under that specific promo will get the stock they need to optimize the impact of the promo.

Conversely, the stores that did not respond so well last year are not going to get an influx of stock that will still be sitting on the floor long after the promo has been and gone. Now, that’s a win-win!