|
New Series: The Ultimate Supply Chain Irony
Part 1: Is Your Company Making These Three Replenishment Mistakes? (And What to
Do About Them.)
These days, we hear over and over that consumers aren’t buying. But what about those
who are buying, those who want to buy but can’t because the product
they wanted just isn’t on the shelf... or perhaps it’s sitting on the shelf at another
location across town. Frustrating for both you and your customer? You bet. Should
we all just accept it as the unfortunate truth? No way.
While having out-of-stock products means that some shelves and warehouse racks are
empty, the irony is that there are billions of dollars wasted each year in excess
stock. And you’d better believe that most companies exist on both sides of the tracks.
Supply Chain Digest recently shared a study from
researchers at the IHL Group about out-of-stocks, lamenting that the situation is
“worse than the retail industry thinks.” Even with an expanded definition of out-of-stocks,
the study found the out-of-stock rate experienced by consumers is 17.8%, a whopping
123% higher than the rate that retailers declared for themselves.
The truth is that out-of-stocks are not just a retailer issue; it’s an equal opportunity
stitch-in-the-side for manufacturers and distributors as well. The out-of-stock/excess
stock irony leads to unhappy customers, reduced margins and missed sales opportunities.
And given the ubiquitous doom-and-gloom surrounding the economy, it’s more important
than ever to ensure that you don’t miss a sale (and that’s no hyperbole).
So with that, welcome to the first of a series we call “The Ultimate Supply Chain
Irony.” We’ll run through replenishment mistakes and simple fixes that can reduce
out-of-stocks while concurrently reducing your excess inventory. In following months,
future articles will highlight forecasting, promotions planning and more so stay tuned.
Blankets May Be Cozy, But They’re Ineffective In Replenishing Stock
Ordering the same amount of products or materials across the board may sound like
a way to simplify things, but nothing will get you to excess stock more quickly.
The truth is that one product may sell better than another due to color, size or
a combination of other attributes. While this is probably a given, what to do about
it isn’t quite so obvious. The key is to proactively restock faster-selling SKUs
and reactively replenish slower-moving ones. By determining your optimal demand-based
replenishment based on what’s actually selling, you’ll see improved order accuracy
and maximized sales potential based on each location’s sales history.
Specialty Retailer Capitalizes on Selling Opportunities
Australian retailer Strandbags felt the impact of blanket ordering firsthand. On
paper, it sometimes appeared that each store needs at least one of a particular
handbag. But Strandbags’ Business Analyst Nathan Toussaint says the moment Strandbags
“might consider stocking stores that way, you stand the potential of losing a lot
of sales.”
Fluctuating considerations led Strandbags to make store stocking decisions on a
blanket basis, giving each store the same levels. But blanket ordering and practicing
minimum/maximum stocking techniques weren’t successful. Strandbags, lacking a store
SKU prioritization tool and facts, saw itself with a glut of inventory.
“There was very little science being applied to store stocking and we could not
replenish them quickly, given the distances,” Toussaint recalls.
While reactively replenishing slower items to avoid excess inventory, JustEnough
helped to speed faster moving items so the company could capitalize on selling opportunities.
Don’t Just Look Backwards to Move Forward
In essence, there’s nothing wrong with looking at past buying patterns to create
forecasts. But looking backwards for the answers is just part of the equation. What
about events like upcoming seasons or future promotions? Looking at the sales of
a product for the past three winter months may make it seem like the product isn’t
selling that well but in reality it sells like hotcakes in the upcoming spring season.
Scenarios like this leave companies with excess stock for some products and stock-outs
for others. Demand-based forecasting solves this dilemma. In fact, demand-based
software automatically forecasts your future demand using historical sales in addition
to future events like seasonality, customized causals, promotions, public holidays,
short-term weather changes and other significant factors that impact demand.
Software even captures data regarding lost sales opportunities to smooth out historical
data. That way, you take anomalies into account to achieve higher forecast accuracies.
Demand-Based Replenishment Increases Inventory Turns by 38% for McPherson Oil
Without state-of-the-art sales forecasting software, independent lubricant distributor
McPherson Oil struggled to react quickly enough to changing customer needs.
“Customer needs could change and we weren’t always ready,” explains David Bright,
McPherson’s Director of Logistics. “Some motorists in outlying areas of Georgia
were servicing their older model cars with 10W30 oil, but in the city of Atlanta
there’d be lube shops with customers who drove newer models and needed a different
grade oil. We couldn’t always do the faster turnaround or quick formulation change.”
He adds McPherson could not always take advantage of “low-hanging fruit” or ready
sales opportunities. Geography was starting to play a larger role too.
Bright says JustEnough “provided us with visibility into the future and a dashboard-based
reporting services module that offered interpretations of sales histories and suggestions
on stocking and distribution.”
Using the JustEnough system resulted in McPherson increasing its average inventory
turn from 6.5 times per year to nine times, adding approximately $150,000 in added
revenue for each turn.
|