Posts Tagged ‘Forecasting’

How much do retail out of stocks cost?

February 10, 2010

A recent RIS article  titled “How Much Are Out-of-Stocks Costing You? Much More Than You Might Think” By Greg Buzek provides  more evidence that retail out of stocks are costing vendors huge lost sales.   Buzek quantifies the scope of the loss “A retailer that invested in completely fixing its out-of-stock problem would gain a solid competitive edge. The average retailer could increase same store sales 3.7% by converting all perceived out-of-stocks into transactions. Specialty soft goods could have the biggest potential win: solving out-of-stocks would boost their same-store sales 7.1%, while department stores would see a 4.2% jump.”

The good news is we have seen dramatic improvements in in-stock performance by active store and item level analysis.  The methodology is pretty straightforward:

  1. Determine the lead time from order to product arriving at a store.  Let’s say this averages 2 weeks.  This is your minimum on hand weeks supply to avoid a stock out.
  2. Next calculate the average weekly sales velocity for each item, and each store.  Yes you must know the average sales velocity for each peg or shelf position.
  3. Calculate the weeks supply on hand for each item and store by dividing the current on hand inventory by the average sales velocity.
  4. Filter the results to show only those items with less than the 2 weeks supply on hand.  These are the stores you need to make sure place an order immediately to avoid a stock out.

This type of analysis is not hard to do, but if you don’t have the proper tools it can be very time consuming.  But it’s well worth the effort if you can improve your in stock performance by even 2% you stand to gain significant sales.

Retail sales improvement requires careful forecasting

February 5, 2010

The WSJ reported retail sales Rose 3.3% showing signs consumers are returning to stores.  This is a great sign for the retail market as it seems a turnaround may be in the works.  Macy’s posted a 3.4% increase, Saks reported 7%, and Costco 8%.  As demand begins to increase vendors need to keep a careful eye on the supply chain.  Retail buyers have been operating on low open to buy for over a year so inventory levels may be below where they will need to be to satisfy demand.  Vendors using EDI 852 data for forecasting need to make some careful adjustments to their forecasting model to not be caught by surprise.  Here’s why.  Forecast models using historical demand as the foundation for current year predictions but last January was a terrible month for retail sales so a simple look at comp year demand will give a misleading result.  To correct for this vendors should be considering not only last year’s demand but also the prior year’s demand and the current period trend.  By combining these three numbers vendors will have a more accurate model and hopefully not get caught by surprise.  But even with a good forecast we expect sales to be unpredictable for the foreseeable future so vendors must carefully watch demand and inventory levels by analyzing the EDI 852 data weekly or even daily and making push order recommendations to their buyers.