4 Essentials to managing seasonal inventories

Posted by Michael Villeneuve on Jun 21, 2012 2:53:00 PM

When it comes to managing inventory and supply chains in today’s competitive world, Canadians have it tough. With over 5,000 kilometers from coast to coast and a highly decentralized population spread across 9,984 square kilometers of land, it’s not always easy to have the right inventory at the right place at the right time.

Then when you add the complexity of our seasons, very distinct and unpredictable as they are, one can imagine the never-ending challenges Canadian companies face in managing inventory forecasts.

Would you want to be the person responsible for having the right amount of snow blowers in Montreal on November 1st? Only to have winter take the year off?

Fortunately, there are some logical steps planners can take to minimize the downside risk of having an “off season” while ensuring that product is in the right place at the right time to take advantage of “the perfect season”.

Step 1: Plan for “The Perfect Season”.

You can’t sell something that’s not on the shelf. So what does your ideal season look like? If you could summon all the laws of nature and deploy the ideal weather conditions for your product, what would that mean for sales? Because that is what you should plan for.

Here at Active, we have several customers who face the daunting task of building inventory levels to season-based forecasts. And inevitably, if they build inventory levels to match the average season, 50% of the time they are shorting clients and the other 50% of the time they are scrambling to liquidate inventory. So rather than deal with irate retailers and shrinking consumer market share due to being sold out, make a commitment to your retail partners to plan for “The Perfect Season” and leave no customer unsold.

Step 2 : Build flex space into your warehousing footprint.

Building to your ideal selling season does present its challenges. So it is critical to work closely with a 3rd party warehouse company who can provide you with the right amount of space in the best possible location (typically as close as possible to your existing DC(s)) at the time that you need it.

Take the client I referred to earlier. Their peak selling period lasts for a total of 2 months of the year, after which inventory levels drop back into manageable levels. Why pay for all that extra space for the balance of the year when there are companies set up for this exact scenario?

Step 3: Communicate, communicate, communicate.

I know, in today’s age of email, tweeting and texting, communication is often considered a foregone conclusion. To challenge that theory I will ask you just one question? When was the last time a customer of yours asked you to rush an order? It happens all the time! As sophisticated as we are with just-in-time inventories, integrated SAP systems with full EDI compliance, and a team of customer-centric planners, sales people and supply chain personnel, fill rates very rarely hold above 98% throughout the busy season.

Why? Because no matter how many metrics you use to build your forecasts, nothing beats the sharing of information – both ways (buyer to seller and visa versa). The only way to truly manage seasonal product flow is to communicate with your customer – by region, by price point, by sku, by category, by lead time, etc.

There’s a book I read with my 5 year old daughter that continually reminds its readers that “In kindergarten, WE SHARE EVERYTHING!” This is what true business partners with mutual interests do – share everything.

Step 4: Have a contingency plan.

Let’s go back to my customer I was telling you about earlier. They’ve planned for “The Perfect Season”. They’ve built flexibility into their inventory storage solutions, which comes with additional costs. And they’ve communicated with their customers as much as their customers would communicate with them. So they’ve managed every piece of the equation that is within their control. Now what?

If they have an ideal selling season, that’s great. They’ll never upset their customers by not having the product to ship. They’ll never leave the end consumer high and dry at the store shelf. And they’ll maximize the effectiveness of their advertising dollars by having the right product in the right place at the right time for when their consumer is ready to complete the purchase.

But, of course, not every season is “The Perfect Season”. So wouldn’t it be great if you got to the end of your season and you had that one customer who every year would buy up all of your excess inventory? And not at liquidation prices, but at regular wholesale prices? As though it were the beginning of the season?

Thus, the contingency plan. And this is what our client does. They sell 100% of their remaining inventory to a Corporate Trading company, Active in this case, who buys the inventory at its regular price using Trade Credits, and then resells the product to buyers approved by the manufacturer. The manufacturer then uses the Trade Credits to pay for a portion of their advertising costs, saving this one company over $1.5million per year.

So if you think that you might like to fill every one of your customer’s orders no matter how good the season is, then maybe this 4 step plan is worth considering. How do you manage your seasonal inventory? I’d love to hear your stories. Email me at mvillene@activeinternational.com.


Mike @ Active

Topics: Corporate Trade Industry Report, Cost Management, EBIT, Risk Management, Supply Chain Management (SCM), Inventory Turnover & Closeouts, Case Studies

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