Procurement teams with expertise in category management and supply relationship management play a pivotal role in the task of balancing supply and demand, an academic specialising in logistics has explained.
Dr Can Eksoz, senior lecturer in the faculty of Transport & Logistics at Muscat University, sets out a series of measures to prevent the twin perils of understocking and overstocking in a new article for the Institute of Business Forecasting and Planning.
Eksoz recommends building a clear understanding of consumer demand, including what the latter can afford, what goods they like most (and why), and the environmental and cultural influences that shape their preferences.
Historical data showing sales trends, seasonality and market validity is crucial here, and should be regularly reviewed.
This prevents, for example, overstocking cheaper brands when consumers actually prefer higher-end premium products, enabling cost reductions by avoiding unnecessary additional storage rental for products that aren’t going to sell well.
Consulting regularly with colleagues in category management, supply relationship management and supply chain management more broadly is vital, Eksoz maintains.
For a new in-store promotion of a particular product category, for example, supply chain and category management experts often possess invaluable forecasting skills to understand the likely impact.
Another step is to ensure a comprehensive forecasting model, garnering insights from colleagues in supply chain, sales and marketing, finance and perhaps also customer service.
However, supply chain professionals play perhaps the most pivotal role.
Tesco, for instance, radically improved its product availability and cut inventory by handing responsibility for replenishment to its supply chain directors.
In collaboration with category management teams, these directors managed shelf space, promotions and new launches far more efficiently.
Eksoz concludes with a warning:
“If promotions are not factored into the lead times and not communicated to the Supply Chain and Procurement teams, plans will not include the promotional volume.
“This not only gives rise to missed sales/understocking, but also poor customer service, and even penalties at the downstream level depending on your agreements with retailers.”