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Expert Investment Buying Tips for your Optimized Inventory Replenishment

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Inventory Investment Buying (forward buying) is a strategic part of the buying role that many companies don’t realize today. The truth: Investment Buying that is based on accurate demand forecasting and effective inventory optimization processes delivers significantly higher gross margins, better GMROI, and balanced inventory levels.
Buying and maintaining inventory is often viewed as a cost center and companies struggle with these 4 basic questions:

  • When do I buy?
  • What quantity should I buy?
  • When I buy, how can I balance inventory levels?
  • A vendor has offered a discount, how much more, if any, should I buy?
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Is your Promotion Planning and Execution Process Out of Date?

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Promotions are Vital for Greater Revenue and Reduced Inventory

In-Store trade promotions are the lifeblood of the supermarket industry and discount retailer. Trade promotions include products featured in ads and in-store circulars, products displayed on end of aisle caps or away from their normal shelf location, and products with temporary price reductions. They create Trial and Repeat Purchases AND create all important Impulse Sales. You know impulse sales; they are all of those items you purchased that were not on your shopping list!

According to a recent study from The Nielsen Company, 42.8% of grocery purchases are sold on promotion, up from 40.8% a year ago. Drug stores, too, sell a significant portion of products on promotion, with 40.4% of sales linked to displays and/or features. Read more

Why Sales Forecasting Systems are Wrong for Inventory Replenishment

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Sales Forecasting is the wrong tool for inventory replenishment and inventory planning. Sales Forecasting, by its very name itself, is a measure of total sales. In our last article, we discussed that the key difference between sales forecasting and demand forecasting is whether (or not) sales data is broken out into the type of sale, analyzed, and the results input into the forecasting algorithms. Sales type might include any or all of the following: regular, lost, promo, event, and closeout sales. Without the knowledge that sales went up or down due to market factors like out of stock and promotions, a sales forecasting system will forecast based only on the total sales. This may not be the intended goal for inventory replenishment or inventory management.

Key Limitations to Sales Forecasting

Sales Forecasting, by its very nature, doesn’t know why sales rise or fall and cannot connect events to sales behavior. For example, when sales were down 20% four weeks ago, you probably knew this was due to constrained supply which created out of stock issues. The sales forecasting system will react to the 20% drop by lowering the forecast. The resulting inventory replenishment orders from the new forecast will be low, creating a repeat scenario of lost sales again next month.
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Differences between Demand Forecasting and Sales Forecasting for Inventory Replenishment

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Demand Forecasting and Sales Forecasting are different, and the results of each can have a dramatic impact on your profitability. Demand Forecasting and Sales Forecasting should be calculated with some similar and some different data points. While closely related, the two resulting forecast numbers will not be the same in most business situations. The forecast results will impact the inventory replenishment by impacting available inventory, expected inventory orders, and sales. An inventory replenishment system that is based on a demand forecast (demand driven) can reduce the risk of lost sales while improving service. This in turn delivers higher sales by connecting inventory levels with demand forecast.

What is Sales Forecasting

Sales Forecasting is the easier of the two choices: you load your sales history into the sales forecast engine and the system delivers a sales forecast. Sales Forecasting is critical for the retail business to create financial plans with the banks, plan sales growth, and plan resource strategies. Sales Forecasting systems have a ‘vanilla’ approach that is clean and simple, and it works without issues for the most basic of products. Legacy systems often will pair the sales forecasting with their demand planning tools to determine inventory replenishment for the business. Read more

Seasonal Index Lessons from History

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Reviewing Seasonal Indexes is critical for an accurate demand forecast. Seasonal Indexes, also called seasonal multipliers, are used to adjust the demand forecast by multiplying the product base forecast by a multiplier. The effect will raise or lower the demand forecast for the time period, often a week or month. The results are often used to help calculate the inventory needed to support sales. Holidays like Easter, seasons like springtime, and events like the Super Bowl that repeat based on some factor of time are frequently better serviced with a seasonal index applied across the year.

Problems with Seasonality

The problem with seasonality is that it can change each year, and your current fiscal year may not map back to your seasonal index. Sales from the last seasonal event may impact your base demand forecast to create inaccuracy. Easter is in a different month and fiscal week this year. How did you account for the differences when purchasing Easter inventory for this year? Next year, Easter is again in a different month and will be several weeks different from this year. Thanksgiving is a holiday that based on the time of year can add or subtract a whole weekend of December holiday shopping. There are two issues that need to be reviewed and adjusted: the current year fiscal week seasonal index values and the base demand forecast. Read more

Slow and Intermittent Product Demand Forecasting Facts & Myths

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Slow and Intermittent products make up 35-40% of most retailer assortments.  These products often are critical to the assortment because a top 20% product is often paired with a selection from an assortment of slow demand product choices.  This large group of products in your assortment can ruin your turn goals and your GMROI when managed incorrectly.  There are two key pieces that must work together for a retailer to win with slow movers: the demand forecast and how the supply chain software uses the demand forecast to manage the inventory. The results of poor buying are low turns and loss of capital for other product.

Slow and Intermittent Product Demand Forecasting Myths

“How do you forecast slow and intermittent demand products?” The same question was posed to me in three different meetings at NRF this year.  Many software companies differentiate their demand forecast capability from their competition by highlighting their skill in forecasting slow and intermittent product demand; at the same time, they strike fear into the hearts of retailers by highlighting retail losses delivered due to poor demand forecasting of slow moving products.  The key to this discussion is to not get trapped into a no win conclusion. More than a great Demand Forecast is needed to attain winning results with these product groups. Like the story of the ‘Tortoise and the Hare’, Slow demand products are part of any assortment and can be big winners.
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Proof: Improving Forecast Accuracy delivers High ROI

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A mountain of research today shows that improving forecast accuracy delivers a high ROI. Improved forecast accuracy, when combined with software that translates the forecast into demand-driven events, will decrease inventory and operating cost, increase service and sales, improve cash flow and GMROI, and increase pre-tax profitability.

Lowering Inventory and Raising Sales at the Same Time

Many people are conditioned to accept mediocre demand forecasting accuracy. The most common excuses I hear for keeping inaccurate forecasting include: “We paid a lot of money for the software” and “The software does a good job with other operations.” The irony is that the same people when asked if they shopped for better software, will respond no. The explanations range from they do not see the value to disbelief – there isn’t a better demand forecasting solution in their market. Businesses have reacted for the last 20 years by placing more value on the plan, a top-down approach that costs more money and has lower returns.

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How To Get Rid of your Planners Once and for all

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Demand-Driven Forecasting discussions seem to run into a debate on the differences between demand forecasting and planning. We know how new technologies have moved beyond many planner job descriptions, some still think a planner and inventory manager are the same. Unfortunately, many people don’t realize the value proposition that bottom up, demand-driven retail delivers; they continue to use the old planning models and rename their process as demand-driven. I sat in on a presentation for an international retailer a short time ago. They were a mid-tier retailer with sales in excess of $500M, a strong web presence, and stores found in shopping centers and malls. Their products are purchased by male and female shoppers resulting in strong return shopper experiences and new customers which deliver strong sales growth year after year.

Attendance for our meeting included the CIO, Chief Merchant, Director of Forecasting, planners, and inventory management people. They told us their goals were to reduce operating capitol but maintain service levels for the web and store customers. The company wanted to increase turns while re-purposing the capital from inventory into new stores and acquisitions. The irony of the meeting is that while they used words like Demand Driven retail and Demand Forecasting, they were really talking about planning and goal setting. They believed that allocations were great and had never even thought of discussing top down versus bottom up as two distinctly different methodologies that are used to achieve entirely different goals. Read more

Inventory Optimization and Supply Chain Visibility: Top 5 Blogs of 2012

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Hottest Topics of 2012: Inventory Optimization and Supply Chain Visibility

Inventory Optimization and Supply Chain Visibility are the top interest blogs (stories) from 2012. Based on the number of blog viewers and average time each viewer spent on each page, the following five blogs are 3-1 favorites from 2012. These blogs indicate the key areas that companies want to improve in 2013.

Inventory Optimization is critical to Success

Inventory Optimization (IO) is a goal that often delivers substantially more profits at reduced operating expenses. The math and processes are too complicated for Excel and often software companies use IO as buzzwords and not deliverables. The reality is IO provides great promise in a world where supply chains are getting more and more complex and logistics is getting faster and more efficient.
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How Holiday Sales will Impact Retail in 2012

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Data Profits’ Predictions for 2012 that Retailers need to Know Now

The official holiday shopping and Christmas season kicks-off this weekend, and is considered a bellwether for the retail industry, as this is the time of year when retailers earn up to 40% of their annual profits. Everyone is watching to see:  will post-election results and the continuing shaky global economy drive shoppers back into their recessionary, frugal spending habits or will they be more willing to loosen purse strings?

Another major trend that industry insiders are speculating about is the influence of social media and ecommerce on this year’s holiday shopping season. Will consumers seek and find the best deals from their sofas by using their device of choice, avoiding the mob scenes at the Malls all together? With so many big questions looming, what can retailers do on the eve of the 2012 Holiday Shopping season that will make a strategic impact? Read more

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