Leader, Are You Missing the Inventory Management Mark?

BusinessSales / Service

  • Author Jim Downes, Blueprint Cfo
  • Published March 3, 2022
  • Word count 742

Do you use historical sales data by SKU to drive future inventory purchasing decisions?

If you are basing tomorrow’s inventory demands on yesterday’s numbers, you may be tying up valuable company dollars in slow-selling inventory that no longer meets the mark.

Most ERPs solely use historical data in their demand planning modules. While yesterday’s data can be a useful point of reference for future purchasing decisions, historical information alone shouldn’t be seen as an indicator of future demand. Like all aspects of your growth, product planning & purchasing must be forward-focused decisions, rooted in strategy and process improvement.

As you look to the future of your product lines, you must integrate past evidence with future trends as you determine the best way forward for your brand.

Looking to the future doesn’t mean leaving the past behind. Rather, it means analyzing historical information and identifying relevant metrics to determine future direction.

In other words: what does the past say about how your company should respond in the future?

Maybe your data shows that your business has been inadequately stocked with some of your most in-demand products, while low-selling items have crowded your warehouse shelves for months. This may indicate a need to better understand your cash conversion cycle, and the factors influencing it.

If you’ve been heavily impacted by supply chain issues, that may be another point of consideration. What are you doing to prepare for the future — while protecting yourself from stock outs and lost sales?

Having a full picture of what gaps are there in supply chain management, and what changes (whether in terms of order timing or otherwise) will help alleviate the gap between supply and demand in the future.

While making process improvements based on your data can substantially impact your brand for the better, you must look externally to determine next steps, not just internally.

This starts with having your finger on the pulse of your market, keeping current and future trends at the forefront of your mind as a leader.

Not only must you be aware of your internal conversion cycle and product shelf life – you must also plan this against the external lifecycle of a trend in your industry, and key indicators that it’s time for a strategic move with your inventory.

Timing is key… as is staying true to your brand’s roadmap.

As a leader, you must always balance the lure of industry trends with the stability of your brand image and market differentiation. Stay aware of the landscape, but don’t be distracted by it – otherwise you will surely swerve off course.

One of our clients at Blueprint CFO, a consumer products business, was having issues identifying bestselling SKUs and establishing inventory visibility. In fact, because of poor inventory purchasing planning, they were out of their bestselling product for ten months, significantly impacting company sales!

Blueprint CFO’s Data Analytics team responded by building out an inventory management tool based on predetermined sales goals. The model strived to look beyond historical sales alone, forecasting future units sold by looking at current inventory (including units available on-hand, units in-transit and units that scheduled for production), as well as predicted trends in the industry, and in terms of product seasonality.

Moreover, the tool helped elevate our client’s business by monitoring stock-outs and making recommendations based on top and bottom sellers.

We call our report the Green Light/Red Light report. Taking warehouse stock into consideration, the Green Light report showed where the client was in their production plan and what SKUs they didn’t have enough of – resulting in $2.9 million in lost sales if not addressed. The plan indicated where to take action and fill in the gaps.

The Red Light report, on the other hand, showed the client their “slow movers”. In other words, the SKUs where inventory exceeded demand. This client had $1.4 million worth of slow-moving products, which we advised them to liquidate, as to reduce storage and insurance costs, invest in their in-demand items, and preserve annual profits.

All in all, looking at inventory challenges from a future-focused, strategic perspective, our client has been able to efficiently communicate with various stakeholders, coordinate the process, exceed sales goals and maximize profits overall.

Do you have adequate visibility into the gaps and overlaps in your current inventory purchase planning? If not, our team of data-driven experts can help you transform your product planning experience for the better.

Jim Downes is a Fractional Chief Financial Officer, and the founder of Blueprint CFO, a data-driven accounting & CFO services firm based in Orange County, California. A forward-looking strategist, Jim and his team provide a competitive advantage over typical CFOs. Leveraging data, they go beyond the numbers to make their clients ever more profitable. Learn more at blueprintcfo.com, or reach out at info@blueprintcfo.com.

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