May 3, 2017
Hidden Causes of Excess Inventory (2 of 5)
Are new items causing your excess inventory?
Businesses need to move forward in order to avoid stagnating or becoming irrelevant, and for many businesses that means starting new product lines. It’s not always easy to get forecasts on new items right. Most warehouses have some new products that were ordered in excess and now have a bit of dust piling up.
That’s bound to happen sometimes and there’s no silver bullet to completely solve the problem, but it’s better to dial in a workable process to make new item excess a rarity. The improved cashflow that will result is critical to staying nimble and responsive.
Let’s dive into some simple strategies to help reduce excess inventory on these newer items.
For new products that are being created only because the vendor changed their code, consider using a concept called supersessions. That’s where the new product is linked to the old product and the sales history can be shared. Follow that by flagging the old product as obsolete to avoid that item coming up on the wrong lists. Also, consider any outstanding sales orders and purchase orders—as well as existing inventory—left from the old code and put together a plan for the remaining old stock.
With product supersessions, remember to look at supply chain links like inter-warehouse links and bill of material structures. Be sure to include the new products when appropriate. That helps ensure that the demand streams that were in place for the old code carry through to the new one and gets the planning off to a good start.
It’s also common to have a product that is likely to behave the same as some other product, but the other product is still active. The solution here isn’t exactly a supersession, but rather a simple override of the forecast for the new product that reflects the older, comparable item.
One key aspect is to clearly identify those new items that require more attention. Remember that while these items are “growing up” they will need a little more examination and occasional manual overrides. It’s common for planners to overbuy because there is no history to lean on, but at least try for a reasonable estimate, even if that’s based on “gut feel.” That’s better than nothing! And aim for a forecast that starts when your stock is due to arrive. That way, any over-or under-performance can be found in the period-to-date forecast analysis. Also, remember to watch out for sudden spikes caused by launch specials later in the product’s life cycle.
Clearly, there’s no go-to solution for new items. But with supersessions and comparable products, realistic forecasts are possible. Add some manual tweaks based on initial performance, and there’s no reason to be saddled with new items in excess.
These new products are often critical to a business’ growth, but ordering too much to start will be a costly problem that could stick around for awhile. Planners that use relevant data and keep their eye on fluctuations will be way ahead of schedule for the creation of quality forecasts in the future.
Get the next lesson: Hidden Causes of Excess Inventory (3 of 5)