Finding the Right Balance between Too Much and Too Little
Intermittent demand is far too often a stumbling block for inexperienced inventory managers. A few common mismanagement mistakes lead to deep cuts in a retailer’s GMROI.
Generally paired on the shelf alongside high-demand products, intermittent and low-demand products account for 35%-40% of retailer assortments, and can account for 35% of a retailer’s profits. Therefore, effective supply management of intermittent demand and low-demand products, especially in today’s cutthroat retail markets, is no longer a just question of competitive advantage, but rather one of survival.
“To expect the unexpected shows a thoroughly modern intellect.” Oscar WildeRead more on Slow Demand here: Do You Make These Mistakes with Slow Demand Products?
Intermittent Demand: To over-stock or under-stock: That is the question?
When dealing with intermittent demand products, poor inventory management has two results, either over-stocking or under-stocking a particular low-demand item. In the over-stock scenario, the mistake drives up inventory costs, while in the other scenario, the retailer sacrifices service levels, losing potential sales and even customers.
When faced with intermittent demand products, does the company turn away potential customers by not maintaining the product in stock, or will they drive up inventory costs by over-stocking the low-demand product?
When inventory managers focus on the results, overstock and out of stocks without addressing the root causes like intermittent demand, they miss the opportunity to fix a long range issue.
Avoid these Intermittent Demand mistakes
Nevertheless, by avoiding a few common mistakes, masters of inventory supply management can achieve an effective balance when it comes to intermittent demand, giving their company a crucial edge against its competitors.
Here are three common intermittent demand mistakes to avoid:
- Using tools that rely on antiquated demand forecasting models, not agile enough to account for intermittent demand. These products deliver poor models by incorrectly smoothing over zeroes and reviewing within only one demand period.
- Not measuring for service attained by balancing service level to inventory costs. The focus should be on maintaining an inventory stock to match a targeted service level. Inventory managers must maintain an adequate supply for a 90%+ chance of not stocking out and hurting service levels.
Service Attained = [Sales / (Sales + Lost Sales)]
- Not adequately optimizing the inventory. Companies far too often fail to collect specific data or use dynamic enough software when determining an SKU inventory.
Stating the Obvious about Intermittent Demand
Intermittent Demand creates the feeling you are walking a tightrope (on the back of an elephant) between merchants and finance. While there is no magic bullet when dealing with intermittent demand issues, correcting these common mistakes will take your company a long way towards maximizing its GMROI and solidifying a competitive edge against other retailers.
Do you have more intermittent demand or demand forecasting and replenishment questions that need to be answered?
Contact Us. for more information on how to deal with intermittent demand issues. Let us help you to ‘Tighten the Links in Your Chain™.’
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