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Series: The Ultimate Supply Chain Irony
Part 3: Promotion Planning
Secrets to the Right Amount of Inventory for Successful Promotions
Last issue, we tackled the ultimate supply chain irony by discussing demand forecasting. While having
out-of-stock products means that some shelves and warehouse racks are empty, there
are billions of dollars wasted each year in excess stock. And that's the irony of
it all.
So how does this affect promotions? In light of the world economy, we see more prices
slashed in retail stores, great deals using mail-in rebates and consumers clipping
coupons with a new dose of frugality. But what happens if you order so much inventory
that you end up with too much stock, or even worse, run out of stock altogether?
Well, besides some angry customers, you're losing out on sales. Just ask KFC about
their recent promotion with Oprah for a free meal featuring their new grilled chicken.
In fact, a study by Emory University's top-ranked business school called "Retail
Out-of-Stocks: A Worldwide Examination of Extent, Causes and Consumer Responses"
shows that retailers are likely to lose almost one-half of the intended purchases
when a consumer confronts an out-of-stock item.
So what are the secrets to successful promotion planning?
Cause and Effect
Promotions inherently alter consumer buying habits. When you place a product on
promotion, it seldom just affects the sales of that particular product. Sales on
certain products may cannibalize other products, such as one soft drink on sale
reducing sales of similar products at regular price. In other cases, sales on certain
products may increase sales of complementary sales, like peanut butter and jelly.
In order to successfully plan a promotion, indirect promotional impacts like these
need to be included in your demand plan. By looking at forecast history to pinpoint
these impacts, demand planning software can then forecast the actual uplift you'll
see from a future promotion – for the promoted product as well as the products that
are affected by the promotion. With a comprehensive solution like JustEnough's Demand
Management software, forecasts are then used to accurately project replenishment
orders so your customers find the stock on the shelves.
Success Story
Retail stores Game & Dion (Massdiscounters) sell a wide range of general merchandise
and non-perishable groceries at discount prices. Over three million SKUs generate
annual revenues of over $1 billion, while 40,000 SKUs are active in any one store.
"A big drive for us has been to improve availability of our merchandise, eliminating
excesses and stock-outs in our inventories, and thereby consistently improving customer
service levels," says Jay Currie, Business Systems and Process Director.
Promotional stock ordering is also less cumbersome for Game & Dion. It is now handled
by the replenishment clerks, and the tie-in to advertising campaigns is more accurate,
with 97% of promotional products in stock on replenished lines.
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