Thursday, August 21, 2008

New Stock Items

It is common for new stock items to have a spike in sales or usage volume soon after they are introduced. This temporary high volume may be due to:
* Promotions for the new item or salespeople featuring the new item in sales calls.
* Customers wanting to try the new product.
* Customers establishing a normal stock quantity of the product in their inventory.
As in our other examples, if we were to stock based on monthly usage (i.e., four or five pieces per day), we would not be adequately stocked for the scheduled plant shutdown weeks. Accurate forecasting for these seasonal events again requires examining weekly usage – that is, the quantity sold or used in the same week last year, adjusted for increasing or decreasing trends in business.

An accurate demand forecast allows use to meet or exceed customer expectations of product availability with the least amount of inventory. While few demand forecasts are 100% accurate, we must continue to strive to reduce the forecast error (i.e., the difference between the forecast and actual usage) to better predict future demand of products. After all, no major league baseball player has ever achieved a batting average of 1,000 – but this fact does not stop them from trying to improve and play better baseball. Shouldn't you also continually do your utmost to improve the profitability and productivity of your investment in inventory? One of the ways to do this is to apply forecasts based on weekly usage whenever it is appropriate.

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