The Most Overlooked Reason New Brands Struggle with Out of Stock Items
The Most Overlooked Reason New Brands Struggle with Out of Stock Items
Most new brands don’t forecast sales at the item level – here’s why you should.
Out of stocks are both the best and worst problem to have. On one hand, you’re selling out of product, which is great! On the other hand, you’re disappointing customers when you don’t have the inventory needed to support the sales demand, and you’re missing out on the potential sales you could achieve if you were in stock. It can be even worse if you have inventory tied up in unproductive items while you don’t have enough cash flow to reorder the items that are driving your sales.
So how do we avoid this? By having a laser focus on sales forecasts at the item level, and adjusting them regularly as you accrue more sales history.
Planning sales tops-down vs. bottoms-up
The problem is, many new brands will plan inventory at a high level, or ‘tops-down,’ view and reorder products based on the high level sales history, with some item level data points like average weekly sales. Unfortunately, this doesn’t account for future increases or decreases in demand that you can begin to predict with some more thoughtful sales forecasting.
For example, if your assortment includes items that perform differently depending on the season, you don’t want to be using the same rebuy strategy across the board. One item might be building up to peak selling season while another is going to be more steady week over week.
When you don’t drill down into the details of the sales history by item and apply the qualitative data points around future demand, you’re not able to optimize your inventory buys. You could easily find yourself in the complex situation with some items out of stock while other items sit stagnant as unproductive inventory.
Planning sales at the item level also allows you to sum or ‘roll up’ those sales forecasts and view it at a total level. Often the bottoms-up roll will be different than the tops-down forecast, and having both data points will also get you to a more accurate overall sales forecast for your business.
Do I really need to get this detailed in my sales forecast?
You might be feeling like this is way too much detail for your new assortment, especially if you haven’t seen a lot of sales history yet. And while it can feel like a lot of data to manage, it doesn’t need to be overcomplicated. The sooner you get started, the better you’ll be able to manage your inventory spending and keep yourself from falling out of stock as your business grows.
If you’ve never created an inventory review process, or have a multitude of items on your to-do list, a time-saving place to start is with the Reorder Tool available in our Sales + Inventory Planning Toolkit. This industry tested toolkit is available for instant download here.
The Reorder Tool gives you the ability to input all of your items one time, pull a Shopify report to add your sales history, and review your assortment by item so you can create a forward-looking sales forecast (or demand plan) based on the best methods we utilize for our clients.
Once you’ve created your demand plan, the tool will guide you to input your inventory on hand, minimum order quantities and lead times, so the tool can provide recommended reorder quantities by item. Based on your data inputs and calculations the Reorder Tool will also alert you to future forecasted out of stock periods. This is key information to have not only when committing to reordering inventory but also when making promotional decisions. Based on your delivery timing, being out of stock may become unavoidable, but according to Harvard Business Review, it’s beneficial to communicate potential out of stock periods with your customers.
Boon provides customized demand planning solutions
The reorder tool in our Sales and Inventory Planning Toolkit is a great place to start if you haven’t been forecasting sales at the item level yet. And the toolkit comes with three other tools to help you manage sales and inventory, including an open-to-buy tool, a lineplan and sourcing tool, along with a monthly cash flow tool.
However, if your assortment is especially large or complex, it may be worth hopping on a discovery call with our team to learn more about how Boon could provide customized demand planning and reorder management support. This is something we develop and manage for many of our clients on a monthly basis, and we’d be happy to tell you about how we can customize a solution for your business!
Avoid out of stock periods and optimize your inventory with demand planning support from the team at Boon. Book a free 30 minute consultation here to learn more.