Have you ever wondered why shoppers can’t
find their selection in their size or color? It’s
because managing inventories at each store by
stock-keeping unit (SKU) is usually
approached with a premise that leads to poor
results. For example:
· What’s the average weekly sales? Let’s
support that rate of sale.
· Let’s set a desired stock level for each
SKU and let the system calculate the
reorders as long as the item performs.
· We need standard assortments by store size
(i.e., an M assortment, a V assortment,
etc.).
· Let’s set a standard size distribution that
every order.
· We can use the same forecasting and
purchasing system that we used for the
warehouse orders.
· The same system rules will apply to most
product categories.
If these approaches look familiar, it’s a sure
bet that you can improve customer service
levels, inventory turn rates and/or gross sales.
Improvement requires understanding the
seasonal demand/behavior pattern for the
product. It also requires knowing vendor lead
times and reliability, and having a way to
forecast demand and control service rates at
the store/SKU-level of detail without being
overwhelmed by paper.
Let’s focus on forecasting consumer purchases
(what we need to buy) since it is the
cornerstone to the solution. It is also the most
different approach.
Store-level forecasting used to set model stock
assortments by SKU requires a very different
approach. The vast majority of items have a
low rate of sale at the door/SKU-level so the
volatility of sales is the important fact — not
the average rate of sale.
Typical forecasting approaches do not deal
well with low volume dem ...