In order to thrive in the complex retail environment, businesses must have in place an effective Omni-channel strategy. However, this requires business leaders to have a different mentality. After all, to make the customer experience the number one priority, leaders must understand and appreciate the importance of establishing robust retail processes, inventory policies and assortment strategy!
For both traditional retailers and online “pure players”, developing an effective Omni-channel strategy is the first step in becoming a completely customer-centric organisation. However, an effective approach to ommi-channel must also maximsie sales through increasing product availability while protecting profit margins from avoidable cost factors. In this article, Peter Bocken and Walther Van Amstel explores what role category managers play and what it takes to excel!
What challenges do retailers face?
Retailers that were established in the online environment, the so-called “pure players”, now compete with directly with traditional retailers. While very different in terms of business models and the revenue structures, all retailers are ultimately chasing the bounty presented by the end consumer. The problem however, is that the lines between pure online retailers and traditional bricks ‘n’ mortar retailers are becoming increasing more blurred.
Without shelf space to contend with, online retailers often offer huge assortments. Consequently, inventory optimisation must go beyond simply determining the optimal levels of inventory. For these retailers, determining which items they themselves should or should not stock is an important question. In order to make such decisions, effective product life cycle management is essential here.
On the other hand, for retailers with physical stores, the challenge is less about assortment management and more about managing the distribution process between warehouses and retail locations. After all, demand patterns for a store in the centre of a major city will be very different to another store located in the countryside.
Given that pure players generally invest in a much broader range of items in much smaller quantities in comparison to traditional retailers, margins tend to be lower. Furthermore, with a high level of price transparency, online retailers are under constant pressure to keep prices competitive. With the additional requirement for effective SEO and paid click campaigns, marketing costs can also be much higher.
Fulfilment costs for online retailers are driven up by the fact that the end consumers order goods in individual units. However, personnel and location costs are but a fraction of the costs faced by a traditional retailer. After all, an online store has no real need for presentation stock!
Although, out of stocks have a big impact on the processes of traditional retailers, it can be very difficult to measure. For example, regardless of whether a customer’s purchase decision is influenced by a store assistant or not, in a physical store environment, the chance of product substitution is high. For online stores however, the internet has brought about much greater transparency. Within a matter of seconds, a customer can now easily find five different webshops, each offering the same product with the right price, delivery time and, of course, availability. Consequently, no stock means ‘no sale’.
Managing the long tail
Many webshops depend on their broad and deep assortments to provide a unique selling point. Within these large assortments, many different product variants are offered. This in turn can often mean that the famous 80:20 rule can sometimes shift more towards a 90:10 rule. However, while the percentage of articles within the assortment that bring in the bulk of the turnover is admittedly smaller, as the entire assortment grows, in absolute terms the total number of articles that contribute to the bulk of the turnover will only continue to increase. The tail of the assortment can also create value: given that price-based competition is much lower for these items, long tail products can demand much higher margins.
Many physical retailers also make their assortment available via an online channel. As part of their web shops, many blended retailers also try to offer an extensive long tail. However, unlike pure players, traditional retailers often attempt to integrate their online operations with their physical store processes. This provides the ability to encompass local non-moving items which would not normally sell into the assortment. However, this raises an interesting question: Which articles should be made available in physical stores and which should only be offered via the online channel online?
Whereas pure players are experienced when it comes to managing an extensive assortment with a high degree of rationality and extensive or advanced automation, the traditional category manager is not as familiar with this. As a result, in many cases, the long tail does not get the attention it requires which can have a direct impact on margin.
Establishing an effective Omni-channel strategy for efficiency
Given that many retailers are struggling to compete, all retailers must focus on maximising the yield of their assortment. A higher stock turn can directly contribute towards the profitability of the assortment. However, turning stock round quickly can also bolster the innovative power of a retailer. There are a number of ways a retailer can improve the efficiency of their operations.
For instance, closing poor performing stores and centralising the tail of the assortment are just two examples which can have a hugely positive impact on the stock turn as well as the overall profitability. Furthermore, by managing the long tail more effectively, retailers can better position themselves to protect margins at the end of the product lifecycle.
Turnover per m2 VS sales by product per channel
The traditional category manager is always trying to achieve the right assortment for the space available: ensuring that the assortment is in line with both the store format as well as the requirement for presentation stock. The merchandiser is then responsible for translating the proposed assortment in an optimal planogram or shelf plan. The operational impact of a shelf change is so large that, on average, this can often only be done one or two times a year. Consequently, this can often result in suboptimal results from day one!
The product manager of a webshop is typically more focused on the performance of an individual item rather than the entire assortment. The responsibility of the product manager is to check on a daily or even hourly basis if an item is still profitable. Given that margins are much smaller, product life cycle management is even more important here.
Furthermore, to compete with webshops, category managers within traditional retailers also need to maximise the revenue yield at both a product and a channel level. Being able to differentiate the strategic approach for each shop and channel is an important prerequisite for a solid Omni-channel strategy. With the support of detailed data, the category managers can make fact-based decisions far more easily. However, this requires additional system support and a greater requirement for the work of analysts.
From ‘gut feeling’ to ‘fact based’ decisions
The decision processes behind inventory and assortment management are becoming increasingly more fact-based. All departments within a retail organisation are under more and more pressure to become leaner and more efficient. However, Omni channel retailing demands bigger assortments. This in turn means that even more people have to make quicker and more frequent decisions. As a result, automated ‘business rules’ and ‘situational awareness’ are becoming more and more important.
The second competency retailers have to develop, is the ability to extract valuable information from ‘big data’. All channels provide an incredible amount of data, of which the potential is far from being fully exploited. A lot of retailers are already able to see exactly how much revenue they have achieved in a particular store in the last 5 minutes for instance. However, few retailers are able to combine this information with data from other sources such as Google or Facebook through utilising smart algorithms and scenario planning in order to forecast what the future will bring.
Integrated stock control
Many retailers have separate stock responsibilities for each channel. In order to maximise overall supply chain performance, it is important that inventory stocked across all the various stocking locations are taken into account. A strong Omni channel approach to inventory management requires precise planning, effective management and complete transparency over the entire logistics network. Where is the stock? What is the current demand and what will the demand be in the next few days or even hours? And, more importantly, where demand exceeds supply, should the distribution quantities be actively adjusted? If so, which locations should be given priority?
Maintaining a high level of availability for the online channel is more important than in the stores. However, online stock should also be managed differently than stock in stores. An additional challenge associated with the online channel is the large number of returns which means that a sizeable proportion of the inventory is actually held by the end consumers.
Within many retail chains, the majority of the mistakes that arise at the head office and distribution centre are solved on the shop floor. However, often an average performance is more than sufficient here. In e-commerce, this is simply not enough to achieve a return. In order to keep both the return rate and customer complaints to a minimum, online retailers must do everything in their power to fulfil every customer’s order perfectly.
The goal for every order should follow the OTIFNENC principle: On time, in full, no error, no contact. The result of achieving this is an immediate boost to profitability. However, the category manager must first take more responsibility for the operational execution as well as ensure that they are acting on the basis of standard processes.
How can Slim4 support my sales and operations planning process?
An effective (S&OP) process should pull teams from across the business together to ensure a harmonious supply chain operation. However, without the right direction and insight, the whole process can easily result in chaos! But how can Slim4 contribute to your sales and operations planning process?
We are often asked by our customer’s how they can refine and optimise their sales and operations planning process. In this article, we explore how Slim4 fits into the process and how our inventory solution can be used to help our customers realise their goals.
Why do you need an S&OP process?
One of the key challenges that many companies face is in maintaining good communication throughout the organisation and ensuring all teams focus on the same priorities. With no effective means of communicating, organisational silos can develop, and departmental priorities could compromise any coordinated action required to satisfy customer requirements efficiently. Ultimately, working in this dysfunctional way will eventually lead to poor customer service and lost sales.
This is where Sales and Operations Planning comes in!
S&OP is effective when it involves people working a coordinated process, enabled at various stages by technology to meet company goals rather than personal ones. Through establishing an effective process, your business will ultimately benefit from the formalisation of a more structured supply and demand planning process which is underpinned by rules based on organisational accountability and the financial performance goals in place.
One Goal, One focus
An integrated financial perspective of supply and demand will facilitate strategic thinking about your business and help reconcile the operating plan across your teams. In addition, performance indicator reports will help validate the effectiveness of each team's planning cycle and ensure continuous quality is a key expectation of your process. As the complete solution for inventory optimisation, Slim4 can be utilised to provide the vision, insight and control required to enhance your inventory processes.
Sales and operations planning: It’s a team sport
As part of the supply chain planning process, key stakeholders from various disciplines within the company reach a consensus about the corporate strategy. The output of the process is a realignment of tactical plans throughout all departments ensuring that all activity supports of the company’s business plan.
The S&OP planning process is an instrument for dealing with changing business conditions by enabling management to decide what the entire company should prioritise each month.
Some of the key perspectives in an integrated S&OP discussion include:• Reflecting on past performance
• Reviewing upside risk and downside opportunities of demand plans
• Analysing supply constraints and planning simulations
• Understanding the fiscal impact of tactical inventory decisions
Organisations that adopt Sales and Operations Planning quickly discover that they can operate in a more synchronised way. They understand the effect that departmental decisions have on other functional parts of the company, their customers, and the wider business. Operations that don’t apply these initiatives well, usually fail to communicate effectively and often struggle to meet business objectives and customer expectations.
What S&OP processes are supported by Slim4?
At its core capability, Slim4 helps organisations to synchronise supply and demand planning initiatives. However, when it comes to planning, our inventory solution provides a “one true vision” of aniticipated demand. However, Slim4 can also be utilised to re-plan inventory based on new priorities, formulate scenarios around product life cycles, align safety stock strategies to your customer’s expectations, and clarify the potential impact inventory decisions. Slim4's functionality can support our customer’s sales and operations planning process in the following ways:
Product portfolio planning:
The first step in an effective sales and operations planning process is in determining which products should be stocked and which should be ordered as and when required. Slim4 provides relevant insight to ensure successful decision making around product introductions as well as for products approaching the end of the product lifecycle. By providing such insight, can help you make decisions on which items should be stocked and which items should be better off as non-stocked. Ultimately, Slim4 ensures the correct decisions are made to support business goals and streamline cash flow.
Given that all inventory decisions are based upon forecasts, supply chain teams must be confident that the numbers are a reliable reflection of anticipated demand. Using sophisticated exception criteria, Slim4 identifies irregular demand characteristics that could impact your forecast. Using this data, the solution automatically calculates accurate forecasts based on advanced statistics taking into to account seasonality and evolving trends. Through providing more scientific forecasts, you can be confident all decisions made during the S&OP process are based on quality forecast data that you can trust!
Promotions require careful planning and coordination between different departments. Whether you’re launching a new product or promoting seasonal items to increase sales, the promotional planning capability within in Slim4 is designed to close the gap between your upside potential and current baseline forecast. As a result, your business becomes better positioned to anticipate promotional demand, determine the optimal order volumes and align delivery schedules; all while maximising the sales opportunity and minimising the risk of excess at the end of the promotion.
One of the main purposed of sales and operations planning is to identify and resolve inventory issues to achieve the optimal inventory situation. Slim4's order planning functionality automatically determines time-phased inventory requirements that are economically adjusted. Slim4 also supports dynamic replenishment to help balance excess stock across locations and ensure the right amount of safety stock is on hand to meet even the most demanding customer needs without sacrificing your profits.
Optimise your sales and operations process with Slim4!
Slim4 provides the structure to help recognise and discover business exceptions that require review in support of your sales and operations planning process. All aspects of an sales and operations planning process concerning portfolio management, sales management, and supply management are supported by Slim4. Together they form ONE general consensus plan.
If your S&OP process is struggling to produce results, let us help you get it on track!
In a perfect world, suppliers would supply the products your business needs in the exact quantity that you need them. More importantly, they would be more than happy to do this at no extra cost.
However, in reality, placing orders with suppliers is far more complex. Given that most suppliers will impose a Minimum Order Quantity, all constraints must be considered before the order is placed.
But what are minimum order quantities? Why do suppliers need to impose such constraints? What impact do MOQs have on your inventory position? More importantly, how can you optimise purchase orders to satisfy order constraints without exposing your business to risk?
What is a minimum order quantity?
Minimum order quantities or MOQs are the minimum order size that the supplier is willing to accept. This is often expressed as the minimum number of units. However, suppliers may also set the minimum order quantity in terms of order value. For example, Supplier ABC Ltd will only accept an order in excess of £1000.
As a major constraint, it's important that the minimum order quantities for each product is up to date and correct in the master data. If it is not, this could lead to costly mistakes or avoidable delays when placing the purchase order.
Why do suppliers have minimum order quantities?
While MOQs may price some potential customers out, suppliers still need to ensure that they make a profit. After all, the supplier still has transportation, holding, handling and administration costs to cover. Often these overheads account for a small percentage of the overall value of the order. However, the smaller the order quantity, the more these costs eat into the profit margin.
Take for instance the following scenarios:
In scenario A, the supplier makes a healthy profit. However, in scenario B where the customer order quantities are much smaller, the supplier makes no profit at all. Worse still, if the supplier would allow customers to purchase in single units, such as in scenario C, they would actually make a loss on every transaction!
While this is just a simple example, from the supplier’s perspective, selling the products in such small quantities makes no financial sense at all. As a result, suppliers set minimum order quantities to protect their own margins.
What impact do Minimum Order Quantities have on your inventory?
MOQs have a major influence over how many days of stock a business holds as well as how frequently purchase orders are made with suppliers. In the example below, we explore how low MOQs impact the inventory position:
High Minimum order quantity
Where the supplier has a high MOQ in place, the most obvious impact is that inventory has to be held in much higher quantity. As highlighted in the graph below, at the point of replenishment, the business will hold over 20 weeks of inventory. The consequent of this is that the overall holding costs will be very high such as a large volume of stock will take up a much greater amount of space in the warehouse. More importantly, however, a much higher level of working capital will have to be invested in order to satisfy the MOQ. Consequently, the risk of obsolescence is far greater.
However, the upshot of high MOQs is that product will not need to be reviewed or ordered as frequently. As a result, administration and ordering costs can be minimised. Furthermore, the risk of stockouts is also very low. After all, the supply chain team have several weeks to respond to any potential availability issue!
Low Minimum order quantity
Low MOQs have a very different impact on inventory. If suppliers are willing to accept a much lower minimum order quantity, businesses can hold a much lower level of inventory and replenish inventory when required. The real benefit here is that a lower investment of working capital is required and the risk obsolescence is reduced significantly.
The danger of ordering to lower MOQs is that the product will have to be reviewed and ordered far more frequently. This, of course, comes at a cost in terms of admin and order processing costs.
Unlike with high MOQ where volatility is absorbed by the fact that there is a high level of inventory in the first place, low MOQq will mean that the inventory levels are likely to be leaner. Consequently, low MOQs leave the operation more exposed to spikes in demand and supply issues. To safeguard availability from such factors, it may be necessary to hold a strategic level of safety or buffer stock.
Summary: High MOQ Vs Low MOQ
How can you optimise your purchase orders?
Disproportionate order quantities cause expensive high average inventory levels and unnecessary risks related to obsolescence. Equally, order quantities that are too small cause unnecessary warehouse operations and avoidable transportation, administrative costs. So how can supply chain teams find the balance between satisfying the MOQ and keeping costs and risk under control?
Up to this point, we have talked about the MOQ as though it is set in stone. However, where the MOQ is low, in reality, the purchase order will most likely be way above the minimum order quantity. Likewise, with high MOQs, there is always the option to either negotiate a more favourable MOQ or even find another supplier. Even so, all purchase orders, order frequencies and review times must be carefully considered!
Thankfully this is where the economic order quantity (EOQ) comes in to play!
In essence, the EOQ formula focuses on the main cost areas in order to determine the most cost-effective order quaintly. By ordering the right quantities, this will ultimately reduce the operational expenses while boosting the return on inventory investment, thereby resulting into integral optimisation of your total supply chain costs!
What availability issues keep you awake at night? | 5 signs that you need more stock!
One of the main reasons for keeping inventory is to provide customers with the best possible level of service. However, many business leaders still spend sleepless nights worrying about finding the balance between product availability and supply chain cost.
What are the main reasons for keeping inventory?
Inventory is required to satisfy customer demand. However, the actual level of inventory required is influenced by a number of factors:
• Volatility in supply
• Supplier constraints such as minimum order quantity
• The stocking strategy in place
• contractual service level agreements with customers
• Purchasing economies of scale & cost optimisation
• Minimisation of delivery costs
• Level of service expected by the customer
Are you holding enough inventory?
While too much stock can kill margins, too little can be equally as destructive to service levels. After all, how can a business compete if it is not able to fulfil demand in a timely manner?
Based on our experience of working with over 950 organisations across the world, we have outlined the most common signs that a business has availability issues:
1. Too many empty shelves that should be full
The first and most obvious indication that a business has availability issues is empty shelves. Of course, purchasing stock just to keep the shelves full is not a reason for keeping inventory. However, it could be a sign that something is wrong. Furthermore, where there are empty shelves in one part of the warehouse, this is often mirrored with a high level of excess stock elsewhere in the business.
2. An excessive amount of backorders
For many businesses, backorders are a kneejerk reaction to stock outs situations. Although customers may be willing to wait for the stock to become available on the odd occasion if backorders become the norm this can seriously hamper customer satisfaction. If the same products end up with backorders every month, questions must be asked as to why there is never enough inventory in the first place!
3. Over-dependence on air freight & express delivery
From time to time, it is necessary to invest in air freight to ensure that there are sufficient levels of inventory in the short term to satisfy demand. Yet, the additional cost involved in shipping stock via air or utilising express courier services can quickly erode margins. Consequently, as a long-term solution for securing availability, this is at best sub-optimal. Much like with backorders, products that regularly have to be bought in on rush urgent orders should be investigated.
4. Angry customers
If the first time a business notices that they have an availability issue is when customers complain, there is a real problem. After all, by this point, it's far too late to do anything about it. Even so, every customer complaint should be reviewed to outline the true source of the problem.
5. Poor sales figures
At least with customer complaints, the business is given an opportunity to at least try and rectify the issue in the future. In the vast majority of cases, however, availability issues will force the customer to take their business elsewhere. In the short term, this will result in missed sales opportunities. More importantly, there is a very real chance that the customer will never return again. As such, availability issues have a profound impact on sale turnover!
Do any of these familiar?
How to know when your business is ready to upgrade from spreadsheet forecasting and ordering
For many business, Excel is synonymous with demand planning and ordering inventory. It’s often the go-to choice because of its familiarity and seeming ubiquity. There’s a good chance that the computer you’re reading this article on right now has Excel installed, or access to something similar from Google or Open Office.
But as businesses grow and inventory and complexity increases, Excel stops helping and instead makes your life more difficult. Worse, the inefficiency of ordering with a spreadsheet is costing you money through excess stock and wasted time.
Salesforce reports that almost 90% of spreadsheets have errors in them. So, while spreadsheets can seem like the “free” alternative to dedicated order management software, they’re anything but.
Choosing to use an integrated system like Slim4 from Slimstock means equipping yourself with the tools you need to simplify your life while increasing productivity and profits. The typical ROI for Slimstock customers is 6 – 12 months after implementation. How much more complicated is your ordering spreadsheet going to be 1 year from now?
While you consider the thousand-row answer to that, here are 5 ways to tell you’ve outgrown Excel –
1. Formula Errors Are Costing You Money
When you use Excel, formula errors are only a single keystroke away. And if the number of cells in your spreadsheet is heading north of 50K – and we’ve seen far worse than that – then your chances for errors increase exponentially.
Unlike Excel, getting accurate results from Slim4 doesn’t depend on entering both the data AND the formula correctly. With Slim4, the math is handled in the backend for you, ensuring accurate results. Order management systems are also built for seamless upgrades and data migration. Will the macro you rely on work the same in latest version of Office? Are hidden cells you forgot about being copied correctly to a new workbook by coworkers? Is having to worry about potential problems like this really better than simply avoiding them altogether?
JP Morgan Chase once famously attributed a mistake that cost them $6 billion to errors made in Excel. While the spreadsheet mistakes you see might not be enough to finance a lunar mission, they definitely add up (not unlike like boxes of unsold inventory in the corner of your warehouse that were accidentally ordered due to a spreadsheet mistake).
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2. You Don’t Know Who Changed the Spreadsheet
Even if you do detect the mistakes that your spreadsheets are 90% likely to have, how do you know where they came from? Because it only takes one error to ruin an entire workbook, even efforts to doggedly ensure responsible use can be quickly undone.
The core of this problem is that Excel simply wasn’t designed as a collaborative piece of software, so trying to use it as one will always lead to difficulties. Even if it is possible to develop and implement a system of documented changes, the time you spend administering it can no doubt be better spent elsewhere.
Instead of opaque or byzantine usage tracking methods, Slim4 makes seeing who made changes to your data a simple and transparent process. By providing an automatically logged audit trail, you’ll always know who’s making changes to your books and when.
3. You Spend Hours on Reporting
If there’s any benefit to using spreadsheets for complex ordering and inventory tasks, it might be the brief sense of accomplishment you get from producing useful information out such an unwieldy grid of data. That’s a meager reward. And, time spent cleaning and validating data before turning into charts is time you’re not spending on improving customer experience or having dinner at home.
As anyone who’s done it knows, even if you get good at creating reports from spreadsheets the monotony of it is unbearable and unnecessary. Slim4 quickly generates helpful, high-level reports like a Profit & Loss sheet to help with business planning. It is also equipped with a customised reporting dashboard to give you real time insights on key metrics that are always available, instead of having to create them by hand.
Ordering from a spreadsheet leads to frustration and errors4. You’re the keeper of the spreadsheet and you need to go on holiday
If your company orders with Excel, it’s likely that someone in your office is the keeper of the spreadsheet. It’s the person you tell when the data needs to be updated, because the password is a closely held secret. Everyone knows it’s not a good system, but the keeper has made it work for the past 3 years, and it’s not going to change now. But what happens if the keeper quits, or gets fired, or just changes positions within the company?
The only thing worse than this is when you’re the keeper. No one’s doubting your ability to enforce columnar discipline, but what happens when you need to go on holiday? Even you have already named your assistant keeper, do you really trust them?
This is what’s known as a single point of failure, and it represents a serious liability for any business with one because the eventuality of it failing isn’t “if” but “when”. Slim4 removes the risks from single points of failure by being purpose built to allow multiple users different levels of access as assigned.
5. You’re Falling Behind On Ordering Best Practices (And It’s Costing You Money)
Is the fact that it works most of the time the best thing you can say about your forecasting and planning spreadsheet? If so, then it’s unlikely you’re making gains in efficiency. Slim4 is able to save companies money because it identifies inefficiencies, reducing stock levels by up to 30%. It does this by constantly updating with best practices and new features, such as ABC/XYZ stratification, and What-If? analysis.
What would you do if tomorrow your financial team asked you to lower warehouse inventory by 30% to free up capital? While it may be possible to make quick gains in the short term, without a coherent strategy these attempts ultimately end up sacrificing fill rate and CSAT. Slim4 is a system developed by people who understand inventory management. With Excel you have to design your own process, which may or may not be optimal.
Can you keep using Excel to handle your ordering? Probably. But if you can relate to even one of these five signs, then chances are you’re ready to upgrade your business from spreadsheet ordering and optimise your warehouse and your life.
To improve the prevention of inventory obsolescence, it is essential to take into account factors that are unknown or not associated with the problem. For example, more than 25% of obsolescence comes from poor management in the introduction of new articles.
INTRODUCTION OF NEW ITEMS
Obsolescence levels are usually associated with poor inventory management. However, more than 25% of this is generally produced exclusively after calculating the first purchase. When the introduction of new articles is planned, it is the sales and sales area (sometimes in conjunction with the supplier) who make it. They estimate what items will be released, when and in what quantities. Therefore, the first purchase is usually not the responsibility of the supply team. However, they can provide valuable information when it comes to rating a release as a success or failure.
Not all items that are added to the assortment will become a sales top. Even in many of them, the actual sales will not reach the expected ones. For this reason, it is necessary to establish a sound tracking system and thus react quickly. Some possible changes in plans can be the cancellation of purchases or even returns to the provider. It is precisely at this point that the planning department can help to recognize cases in which the sale is not aligned with the projections. It may be necessary to rethink strategies for the introduction of new articles.
The Power Mac G4 Cube was a powerful computer launched in 2000, but against all the odds was only one year in marketing. With design awards to his credit today, a unit is exhibited at the MoMA in New York.
THE PREVENTION OF INVENTORY OBSOLESCENCE
Regardless of the management that can be done to avoid increasing the level of current obsolescence, establishing a mechanism for evaluation of releases is a good option for the prevention of inventory obsolescence. Considering the obsolescence generated can be an additional impulse so that the projections of the new articles are from the beginning as realistic as possible.
Now, it must be assumed that whenever a new article is introduced, a risk is being taken. If the company aims to innovate its articles, this decision responds to a characteristic of the way of doing business and, therefore, innovation translates into risk.
In the case of Apple, it bet 100% on the innovation of its iPhones and products in general. They must continuously withdraw and add new products to the market.
DYNAMICS OF ASSORTMENT
It is well known that the lineup of companies is usually dynamic. While some elements are removed from the active assortment, others enter it. Making a correct phase in and phase out becomes vital when it comes to avoiding inventory obsolescence. Estimates of new products may only be a statement of intent and plans will not necessarily be met. If all the intervening parties of the company work together, it will be easier to evaluate the results obtained. In this way, generate learning curves that are the engine of an improvement in the prevention of inventory obsolescence when managing the introduction of new items.
Anyway, this does not mean that you cannot effectively make proactive management in the prevention of inventory obsolescence: if you have the right systems to obtain visibility regarding the status of the inventory and is complemented with a functional performance analysis, from the sale of new items, alarms can be triggered that allow reacting as soon as possible to a probable risk of obsolescence and, at the same time, prevent the problem from growing and growing …
Are there formal mechanisms for evaluating the performance of new products in your company?
Who determines the forecast of a release and the amount of the first purchase?
Rob Crellin, an expert supply chain consultant, with 14 years' experience in retail and supplier relationships, will be discussing 5 main challenges of being a demand planner to retail customers and how to overcome this.
Retailers customers put a lot of pressure on their demand planners. As a result, businesses across the wider supply chain must be able to guarantee consistently high levels of availability, reliability, flexibility and value! So, how do the best-performing manufacturers, distributors & wholesalers ensure they satisfy these high expectations?
Listen to the podcast below!
Unexpected demand during something like a sporting event or even an unseasonably hot day can have a huge impact on the buying behaviour of consumers. Take for instance BBQ meat or beer: both of these items see demand soar if the weather is nice or England make it beyond the group stages of the World Cup. As a retailer, you need to be able to respond to this. But how can you ensure you achieve the right stock levels to satisfy the demand? Meet the BBQ button!
To take full advantage of any sales opportunities, you must be able to react quickly. In the face of unforeseen events, such as “hot weather”, buyers often have to make additional orders at random without any real insight into how the demand will develop.
Equally, there are some items where sales patterns can differ hugely at the start of the summer season compared with late August or September. Think about BBQ sauces: everyone rushes out to buy these products as soon as the first sunny weekend arrives. But by the end of the season, demand will have all but disappeared. The consequence is that what should have been a fantastic opportunity to profit ends up resulting in a vast amount of surplus cost at great cost to the business!
PUT YOUR REGULAR FORECAST IN THE BIN
How much do you have to order to satisfy the exact demand for a special event? You know how much you sell on an “average” day and you can “overlay” a seasonal demand pattern. However, when it comes to an exceptionally hot or cold day, you really have nothing to go with.
Although, we haven’t quite seen “BBQ weather”, As the temperature soared to a staggering 16 degrees in February this year, retailers no doubt some strange purchasing behavior. If summer comes earlier than expected and half the UK decides to get the BBQ out, supermarkets may as well throw their regular forecasts in the bin. After all, the demand for products like meat, lettuce and sauces would see a completely different dynamic.
THINK IN SCENARIOS
It is becoming increasingly difficult for retailers to ensure the right products are stocked on the shelves: customer demand is becoming more erratic, the number of (online) sales channels are increasing and the life cycles of products are becoming shorter. As an inventory manager, you can no longer rely on just a static plan. You have to learn how to think in scenarios.
Will it be nice weather? Will a new product impact demand? Is a competitor running a promotional? A planner needs to be responsive but this is impossible if they have to adjust the orders manually.
FINETUNING INVENTORY TO A SPECIFIC STORE OR REGION
At Slimstock, we have a lot of experience with companies that need to be able to react quickly to change. Our inventory management solution, Slim4, encompasses an ‘events module’ that enables supply chain teams to anticipate and plan for short-term events. Given that many food retailers have been using this scenario function successfully for a number of years, this is often informally known as the “BBQ button”.
Imagine that good weather is on the way. To prepare, a supermarket chain can build a daily demand profile in which right lift factors are automatically assigned to a specific group of BBQ-related items. Likewise, the opposite happens for items that are sold less in the event of good weather, such as minced meat or microwave meals. A distinction can also be made between the lift factors for products that are sold at the beginning of a BBQ period, such as sauces and charcoal, and articles that are bought fresh on the day, such as meat and salad. A planner can then fine-tune this to a region or store level and enter a start and end date to build a planning scenario.
BRING HARMONY TO THE PLANNING DEPARTMENT
With the ‘events module’ in Slim4, an incidental peak in demand is isolated within the forecast, based on proven scenarios. This ensures better availability – allowing a company to optimise inventory levels and, thus, prevent panic in the purchasing department.
Slim4 automatically converts new forecasts into daily orders, taking into account existing inventory levels and optimal order sizes. This not only brings peace to the ordering process, but it also ensures that buyers always order the right items.
Keep an eye on the weather and let your company benefit from any future sales opportunity with the BBQ button in Slim4. And the beauty is … the functionality works just as well for other incidental sales opportunities such as festivals and sporting events.
5 TOP TIPS TO MAXIMISE THE VALUE OF ABC INVENTORY ANALYSIS
Over the years, we have encountered many businesses that hold thousands upon thousands of SKUs. But has this helped them to become more profitable? In reality, holding so many items can have the opposite effect. So how can more insightful ABC inventory analysis help businesses to reduce their inventory whilst improving service?
As per the laws of the Pareto principle: 80% of the turnover is generated by just 20% of the assortment. The disadvantage of having a large assortment is that many businesses simply invest too much time in managing inventory that has only a small impact whilst neglecting the SKUs that could make a positive change.
When it comes to deciding upon the optimal level of inventory to hold, supply chain managers have to draw the line somewhere. In order to reduce inventory costs without impacting customer satisfaction, businesses need a huge amount of insight! Thankfully, however, this is where inventory analysis comes into play!
ABC inventory analysis is defined as the process for examining inventory in order to determine exactly how much to hold. With the insight this analytical approach provides, businesses can identify some huge opportunities to reduce inventory levels.
ABC/XYZ is the common form of inventory analysis. This is where the inventory is divided into three core categories based on their strategic importance. ‘A’ items are products that are important and require tight control whereas C items are products of lower importance.
A-items: products that are important and thus require tight control
B-items: Products of lower importance but must sill be managed with a medium level of control
C-items: Products of lower importance that require the simplest and easiest level of control
ON WHICH CRITERIA SHOULD YOU BASE YOUR ANALYSIS?
Should two different products with different demand patterns be managed in the same way? Applying the same inventory strategy across the entire assortment is neither profitable nor logical. Using the categories identified through accurate inventory analysis, you can begin to adopt a more tailored approach to manage each item.
However, before you can exploit the potential of inventory analysis, what parameters should you use to determine product categories? On what basis should you determine whether a product is an A, B or C item?
This will depend heavily on what KPIs are most important to your business. If your inventory goals are based on the financial factors, the focus should be on the profit margins of an item or the turnover. However, if customer satisfaction is more important, order lines should be used to build appropriate boundaries.
EXPLOITING THE VALUE OF PORTFOLIO ANALYSIS
Once the inventory analysis has been carried out and reviewed, your assortment can now be categorized into different groups. In order to shape an effective strategy going forward, the insights should underpin all inventory decisions.
To help you maximise the value of inventory analysis, here are 5 top tips to ensure you achieve your supply chain goals.
TIP 1 – DIFFERENTIATED SERVICE LEVELS ARE KEY TO ACHIEVING THE RIGHT SERVICE LEVEL
A service level is the target % of all ordered units of an item that can be delivered from stock at the first requested delivery date. As stock increases, the service level increases. However, poorly considered service levels will lead to excess which ties up vital working capital or poor customer satisfaction due to stock-outs.
Effective inventory analysis shows that “A” items require a higher level of service than “C” items. To be able to realise your inventory goals, it’s essential that these service levels are well thought through.
TIP 2 – DETERMINING YOUR OPTIMAL STOCK LEVELS
Once an appropriate service level has been defined, you can now re-assess your inventory policy. A items are going to have a greater requirement for safety stock as running out of stock could cost the business. B & C-items, while still important, can often be the root-cause of inefficiency. Given the lower requirement for safety stock, optimising these product categories can go a long way in achieving your goals.
TIP 3 – ABC INVENTORY ANALYSIS TO MAKE BETTER STOCKING DECISIONS
If an item does not offer enough margin to justify holding the stock, business leaders must consider whether this item should be included as part of their stocked range. However, this decision is often political and thus, should not be taken lightly. Thankfully, this is another area where where ABC inventory analysis can help.
Want to achieve “quick wins”? Utilising the insights from the portfolio analysis will decide whether or not to change the stocked status of an item. By providing clear insight into the performance of each product categories, ABC inventory analysis can help businesses to launch a focused range rationalisation programme.
TIP 4 – PRIORITISE YOUR FUTURE INVENTORY REDUCTION OPPORTUNITIES
Conducting regular ABC inventory analysis will help in realising further inventory improvement opportunities. After all, this is a great starting point to highlight which areas require the most attention or could deliver the greatest return.
The following areas are just a few examples of additional inventory improvement projects you could achieve through ABC inventory analysis:
Renegotiate lead times
Work with suppliers to agree more suitable order quantities
Identify more effective means of managing specific items
Although these tasks seem simple, they can have a major impact when executed across the entire assortment. This will help improve availability, reduce inventory costs and improve efficiency.
TIP 5 – TRACKING AND REPORTING
Through applying the four steps above, you will see a massive inventory reduction. However, in order to both understand how your inventory position is evolving and to communicate this to the wider business, its vital that you are able to monitor performance. Using ABC inventory analysis, you can benchmark changes and track improvements. As a result, you will gain a better understand of exactly how your strategy is performing.
When it comes to demand planning software, spreadsheets are the weapon of choice for most planners. However, spreadsheets are only as effective as the person entering the data. Even for the most advanced spreadsheet users, trying to manage inventory in this way can quickly become complex clunky and a long-winded exercise. But is there a better alternative? How can you reduce your reliance on cumbersome spreadsheets?
Spreadsheets: friend or foe?
For almost all business professionals, the relationship with spreadsheets started when they were at school. Over time, they become familiar with the intricacies of the tool. As a result, spreadsheets are often the default programme for every bit or analysis required.
However, many businesses are far too reliant on these simplistic data processing tools. While spreadsheets are easy to use, in many business situations, they simply lack the processing power, standard structure or robustness required. This is especially true in supply chain management where almost all decisions have to be underpinned by effective analysis of potentially thousands of lines of data.
To build a spreadsheet that is capable of managing such large volumes of data, someone would have to spend hours upon hours building and refining a spreadsheet to deliver the required results. Even then, the end spreadsheet would no doubt be slow and cumbersome: not to mention prone to crashing!
Can spreadsheets create a single point of failure?
In many businesses, the spreadsheets used to manage the inventory are built by just one individual. However, what happens when they change roll or leave the business? Will their replacement be able to decipher the cryptic formulas which have been developed over years and years of patching?
The reality of spreadsheets is that every sheet becomes totally bespoke. The consequence of this is that businesses become dependant on whoever created the document. Given that this individual could move on or even get hit by a bus tomorrow, risk leaving themselves dangerously exposed to a single point of failure.
Regardless of changes of personnel, in order for a demand planning software to be effective, it must support business continuity. Consequently, forecasting, demand planning, allocation and replenishment procedures must not only be robust but also standardised.
How efficient are spreadsheets as stock control software?
To keep up with the dynamic nature of today’s complex marketplace, supply chain teams must be able to respond to change quickly. However, if your entire inventory management process is underpinned by spreadsheets, keeping up with changes in customer demands or shifting supply conditions is an impossible undertaking. After all, how can the business remain responsive if the spreadsheets in question have to be completely re-invented every time a change occurs?
Change is unavoidable and, thus, in order to work efficiently, supply chain teams need dynamic demand planning software to stay one step ahead. The problem with spreadsheets is that every change requires manual intervention. Even in relatively stable environments, given the sheer number of SKUs, keeping up with the demand of the business can be hugely time-consuming.
Whereas with spreadsheets, where planners are left firefighting, an effective demand planning software solution should allow planning teams to work proactively.
Through enabling businesses to automate inventory management processes across the vast majority of their assortment, supply chain teams can focus their attention on the more critical issues. By allowing the stock control software to do the “heavy lifting”, supply chain teams can focus their time and attention where it is really required.
How reliable are spreadsheets as demand planning software?
Whether making a decision to place a large order with a new supplier or phasing out a struggling product, inventory management decisions can have a far-reaching impact on the wider business. Consequently, it’s important that the insights used to underpin these decisions are reliable. But to what extent can you trust spreadsheet-based analysis?
Ultimately, a spreadsheet is only as accurate as the person who created it. Given that even a minor issue such as an incorrect data input or formula could have a profound impact on the output of any analysis, spreadsheets are not the most robust solutions. Furthermore, when you consider that spreadsheets require constant refinement and human intervention, it’s very easy to lose sight of which is the most up to date version.
Your demand planning software should provide you with insights you can trust. Through utilising proven forecasting models and robust data structures, an effective stock control solution will minimise the risk of errors, ensuring that the analysis is consistent. The result: solid insights on which you can base supply chain decisions with confidence.
Can spreadsheets really keep up with your business’ growth?
When a business is first starting out, spreadsheets are probably sufficient. However, as demand grows and the organisation expands to encompass more locations, the complexity of the operation will spiral. But how scalable are spreadsheets? Do they really offer the capability to support growth?
For most businesses, growth results in greater demand. Thus, planning teams have to manage bigger networks with more customers and more products. However, all of these combined results in an exponential increase in data. If you try and manage this with spreadsheets alone, the number of lines of data and the formula required to keep everything in check would be simply mind-boggling!
Effective stock control software should not only support growth but actively harness the complexity in order to provide businesses with meaningful insights. Your stock control software should not only support growth but effectively harness the complexity in order to provide your business with meaningful insight.
What should you use instead?
With our inventory optimisation solution, Slim4, you can say goodbye to your cumbersome spreadsheets and start reaping the rewards of true demand planning software.
Slim4 is our purpose-built inventory management solution for forecasting, demand planning and inventory control. Underpinned by the basis of management by exception, Slim4 enables businesses to efficiently strike a balance between working capital, operational costs and the optimal service level.
Slim4 allows businesses to re-align their operations with the expectations of their customers while removing the complexity from inventory management. Customers who replace spreadsheets with our solution typically see the following benefits:
- Up to a 50% increase in efficiency
- Automated forecasts for up to 95% of the assortment
- Greater insight and more control
Click here to see how Slim4 has helped our network of over 850 customers.