Editor’s note: Inventory management specialist Jon Schreibfeder will join us this Friday, May 8, at 2 p.m. EDT, for a one-hour live discussion and Q&A session during our weekly MDM Live webcast. Be sure to register for your chance to ask Schreibfeder your inventory management questions live. Register here: https://www.mdm.com/mdmlive.
Over the past six weeks, we have been working with many distributors, manufacturers and retailers to adjust the future demand of products because of the effects of the COVID-19 virus. It is not surprising that some products have increased in demand while others have experienced a significant decrease in usage. It is vital that every business evaluate how the impact of this pandemic, as well as the anticipated gradual recovery from its effects, should be applied to its forecasting models to achieve the best possible forecast of future demand of items.
Here are some of the things we have learned so far:
1) Blanket Policies Covering a Wide Range of Products to Increase or Decrease Inventory Don't Work
One of our clients reported a 29% reduction in sales in one of their divisions. They were about to decrease demand forecasts for all items by 25%. But upon inspection, we found that of the 1,834 items sold in this division 43.7% experienced increasing sales! The drastic reduction in total volume involved only 22 very popular items. Sales of these products were down by more than 90%.
We included a collaborative element to the forecast of these specific items for April to reflect this decrease in demand. In monitoring weekly sales in April, this seems to be working well. Had our client decreased forecasts for all items by 25%, they would have understocked the majority of products in the division while overstocking these 22 troublesome SKUs.
2) What Customers Buy is Not Necessarily What They Want
We have seen a lot of instances of high demand of typically slow-moving products. Often, customers are buying these items because their preferred choice is not available. Usage history for these products customers settle for should be transferred to the preferred items to assure future customer satisfaction. When it comes time to issue replenishment orders, if the preferred product is not available from a supplier, allow your buyers to locate "temporary" substitutes.
3) Closely Monitor Unusual Sales or Usage Activity Every Week
Be sure to adjust forecasts based on "normalized" usage history for the effects of the COVID-19 virus. (Contact me for more information on the process for calculating these "collaborative percentages"). At the end of every week, compare actual sales to these adjusted forecasts. If there is a significant difference (for example, sales, month to date, are more than three times the forecast or less than half the forecast) determine if the collaborative percentage needs to be adjusted in forecasting demand for the rest of the month.
4) Concentrate on Your "A" Ranked Items Based on Hits
Your inventory planners or buyers may be overwhelmed with problems created during these challenging times. Let them focus on the most important tasks and avoid being distracted by less important problems. Keep in mind that a small percentage of items are responsible for the majority of customer requests. Concentrate on these items! Only if you have time left over analyze the items that are requested less often.
I have been in inventory management for more than 40 years. While this pandemic has presented us with a unique situation, it is not the only crisis we have dealt with and overcame. Afterward, we have the advantage of additional knowledge acquired during our experience. We will get through this.
The keys to survival and eventual success is to:
- Accept the situation in which you find yourself.
- Determine what you have the power to do to improve your situation.
- Get started! You will accomplish nothing by sitting in one place and feeling anxious.
We have summarized four procedures you can implement now to adjust your forecast of future demand of items and address the effects of COVID-19. Several states are starting to open up various sections of their economy and wade into the pool of gradual recovery. We will monitor business conditions over the next few weeks to help you manage your inventory in this evolving situation.
Jon Schreibfeder is president of Effective Inventory Management, Inc., a firm dedicated to helping manufacturers, distributors, and large retailers get the most out of their investment in stock inventory. Reach him at [email protected]