Insight Series
Instock Monitoring — Stop squandering sales opportunities and stay on top of your inventory position
Face it, inventory stock issues can make or break you in such a hypersensitive recessionary climate. Underestimate the number of units you need for a promotion and you've lost sales opportunities and disappointed consumers. Overestimate and you're faced with stagnant inventory sitting on a shelf or within a distribution center for weeks or even months. Either way, product allocation mistakes cost you money and put unnecessary strains on your working capital. According to a recent report by Aberdeen Research, "For many companies, especially with global supply chains, inventory is the biggest lever impacting their working capital position. Due to increased global complexity companies are experiencing long lead times and high demand volatility. This has resulted in an increased emphasis on managing inventory."
According to Aberdeen Research, Best-in-Class companies are 1.5 times as likely to have the ability to analyze demand patterns and create accurate SKU-level forecasts. Another Aberdeen study also demonstrated that 70% of retailers rate themselves average or below average on their inventory management processes. So how do you achieve the critical first step in inventory management? Transparency.Ask yourself - do we have visibility of our instock problems? Do we have the ability to specifically identify which items, in which retailer's stores are in- or out-of stock? Do we have enough items in the store? If so, are there enough of them on the shelf? And do we have an optimal number of units as a "buffer" in in-store inventory? Or too many units wasting space - and revenue - on inventory shelves in distribution centers? Above all, how do you quickly find those exceptions within the mountain of demand data that will help your team focus on actions that will have the most impact?
The next critical step - one that will help keep working capital moving - is to solve the immediate problem. Eliminate the immediate out of stocks with quick actions, such as recommending incremental orders to the retailer that get you back up to proper stock levels; increasing forecasts; or allocating shipments to specific regions or stores that are suffering the most out of stocks.
Do not simply provide inferred, rule-of-thumb recommendations to your retailer. That's just guesswork and doesn't look credible to the retailer. The best way to make your case - and truly address the instock challenges - is to arm yourself with fact-based recommendations supported by reports based on statistical analysis of demand information. It also can help eliminate the finger-pointing that often occurs with stock outs. Data in hand, you can illustrate just where the weak link is in the supply chain - be it forecasting, fill rates, or delivery. Make yourself credible and your case strong with demand information that clearly tells the story.
Immediate fixes - while necessary - aren't the final solution. They're a stop-gap measure. The final step is acting on the root causes of the inventory issue and addressing that problem for the long-term. That means improving your forecast accuracy. In the next Insight series, we'll take a look at demand patterns that typically identify root causes of instock problems, how to put a plan in place to prevent recurrence, and how fact-based demand information reports can make your case with your retailer.
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