As retailers pare back their inventories and take less risk in their purchasing, adapting your forecasting techniques is essential. Optimizing your inventory levels while ensuring you can service your retail accounts requires a more focused discipline.
Here are 5 suggestions to help you do that:
1. Ask the buyer (or their allocation team) what procedures or parameters they have changed in terms of their ordering logic. Knowing up front what degree of risk they will (or won't) bear will help you decide how much risk you need to take. It will also allow you to adjust your wholesale production forecast accordingly. You can ask specific questions such as:
- Are they reordering based on earned sales, or simply replacing one unit sold with a new unit?
- Has the weeks of supply model or model stock changed?
- Has the timing of order writing changed?
- Are there other parameters such as a limited dollar amount, or store type that are being applied to their reorder logic?
- How are they prioritizing which stores get allocated, and how are they assigning quantities to those stores?
2. Pay closer attention to the rate of sale, comparing week to week. Compare the average selling price each week, to see if a trend is linked to a price change. Look at the productivity of each item - Units sold per store per week, and sales dollars per store per week. You can use that as a multiplier if stores are added or removed to revise the forecast.
3. On a weekly basis build lists of stores that are sold out, and stores with inventory and no sales yet. When appropriate, share those lists with your buyer. Suggest the suitable action, like a reorder quantity, or alert to make sure the product is actually on the sales floor. Sales and productivity will improve quickly if both of those actions are taken. You will also have a more accurate sales number to forecast from. We just helped a client earn a million dollar reorder with this technique.
4. Integrate your wholesale ownership and on order with a retail forecast based on actualized sales. Project the in-stock levels at both wholesale and retail for at least 6 months and note where the levels are out of tolerance. Use a system that offers exception reporting to highlight these levels.
5. Remember the fundamentals. Simply put, a forecast determines future sales and the inventory required to support the rate of sale. Build a weekly sales and inventory plan for every item (or key category), even if the buyer hasn't provided one. Track the actuals every week and apply the trend forward. Conduct "what-if" scenarios based on different levels of sales.
What we suggest is very doable, but requires the right tools and people to maintain the required discipline. As a point in fact, we have worked with a variety of companies in different verticals to improve their wholesale inventory planning.
The pay off is great - Improving the accuracy of your forecast by even a few percentage points can translate into millions of dollars saved or earned by optimizing inventory levels and minimizing inventory problems.
Jim Lewis
Founder and CEO
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