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To maintain a high level of customer service when cutting back inventory during a market downturn, make sure to have a clear, methodical plan. Slashing inventory without a plan is one mistake many distributors make when they need to reduce inventory, says Jon Schreibfeder in Inventory Reductions On Tap.
One element many distributors struggle with is forecasting. "People are still using models that take into account six, seven, eight months of history," Schreibfeder says. Instead, include just the past three months, taking an average and considering trends.
Alongside forecasting, a distributor must consider how to adapt their replenishment models. One model does not always fit all, but when slashing inventory it can be smart to use a replenishment model.
And when demand does bounce back the short-term forecasting model is adequate for the beginning of an upturn, Schreibfeder says. When the recovery is in full swing, distributors can revert to their pre-downturn forecasting methods.