Replenishing stock: Don’t get burnt!
Replenishing stock: Don't get burnt! If you look outside your window, you might be surprised to discover that Summer has already officially begun. However, retailers should not be put off by the recent wintery weather.
While seasonal influxes can present retailers with great opportunities to profit, British weather is a volatile force and even the most marginal drop in temperature or hint of rain can have a devastating impact on sales. Research suggests that a deviation of just 1° from the seasonal average temperature typically leads to a 1% change in sales. Given that the UK retail industry is worth around £300bn, this minor fluctuation could impact retail sales by as much as £3bn.
What can you do to prevent your operations from being left high and dry by uncertainty?
Replenishing stock and noisy demand patterns
For retailers with many stores across the country, demand and automatic replenishment can vary hugely between each location. As a result, supply chain teams a face a real challenge in ensuring not only the right products are stocked in each location but that each location holds appropriate levels of stock: too much could result in waste while too little could leave customers disappointed.
Understanding this demand challenge, Tesco took extreme measures last year to ensure that customers were able to buy exactly what they needed to make the most of the summer sun. With a super market within walking distance of one of the largest festivals in the UK, the super market chain replaced carrots and broccoli with crates of beer and cider in time for the Reading festival weekend. Anticipating over 35,000 festival going customers over the weekend, it seems Tesco understood exactly how this surge in demand would impact their operations and took the necessary actions to keep customers happy and maximise sales opportunities.
Considering that demand can be highly localised, it is important that retailers keep close control of their inventory situation at all levels of the operation: replenishing stock is essential! In the instance of Tesco, it made sense to hold extremely high levels of stock at one particular store in the run up to the Reading festival. However, in times of normal trading, this is unlikely to be the case. For retailers, determining exactly where in the chain stock should be held is one of the most difficult decisions to answer. After all, to what extent does demand fluctuate between stores? Should safety stocks be held at a store level or at one or all of the distribution centres?
The taste of summer
While having to cater for 35,000 festival goers over just a couple of days is an extreme example of a demand spike, volatility is something which must be managed on a day to day basis. Take for instance the sales of fresh meat: the weather can have a huge impact on the kind of fresh products people buy: a staggering 50% of consumers indicated that they based their purchase decision on the weather. As a consequence, retailers have to manage their inventories accordingly. Given the additional challenge presented by the product's short shelf-lives, failure to align operations with customer demand can result in huge costs as excess stock has to be wasted.
Given that retailers exist in a fast moving environment at the best of times, using monthly or event weekly forecasts alone is simply not sufficient to allow your business to pick up and respond to changeable daily demand patterns.
The flip-flop nature of sales
While the nature of food retail calls for responsiveness, fashion retailers face an equally daunting task during the winter months: making sure they have enough stock to last the season without being left with large levels of mark downs at the end of the season. Unlike food retail, where many items are sold throughout the year, a large proportion of fashion items are likely to be stocked for just a matter of weeks before being replaced with new lines.
As a consequence, this means that there is only a very small window in which to determine the initial allocation of stock, distribute items to stores and then convince the end consumer to purchase these items before products have to be marked down to make space for the next collection.
In order to maximise sales opportunities during this limited seasonal window, it is important that retailers get the initial allocation right. A poor decision and wrong automatic replenishment at this point could result in inappropriate inventory levels for the rest of the season. Furthermore, given that the weather could turn at any point in season, it is important that retailers take time to assess their exact order requirements for the second or even third automatic replenishment. If the order moment is wrong or if stock is ordered in the wrong quantities, retailers may leave themselves in a difficult position where excess stock or out of stock dictates their profitability.
Rain or shine: protect your operations by replenishing your stock
From the clothes we wear to the food we eat (not to mention the beer we drink), it seems different seasons has a huge impact on our purchase behaviour. While good and bad weather is partly to blame for the shifts in demand, there are a whole range of other factors which must be accounted for. As a consequence, retailers require complete visibility over anticipated demand at all levels of their operation. However, given that there is only a certain extent to which anyone can predict the weather, it is important that businesses have in place rigorous forecasting processes which encompasses historic demand, emerging trends, seasonality and promotions. Furthermore, it is also critical that the forecasting procedure accounts for volatility on a day to day basis in order to ensure operations are well aligned with the ever shifting demands of the end consumer.
Carefully managed, seasons can provide businesses with a potentially huge opportunity to profit. However, without the sufficient insight, they risk leaving themselves unnecessarily exposed to seasonal fluctuations in demand. With this in mind, what steps have you taken to prepare for the seasonal challenges that lie ahead?