Inventory and forecast data from retailers: After your product ships (Part 2)

Date Posted: August 07, 2019

Part 1 of this series highlighted four of the most important retailer data points that suppliers need to maintain an efficient supply chain and maximize sales opportunities: Unit Sales (Net), Dollar Sales (Net), Price and Retailer COGS. Together, they help you understand true demand and its key drivers, and prioritize opportunities according to the business value. For a more detailed explanation, check out Part 1 here.

In this post, we’ll describe four additional key data points from retailers. They fill in the supply side of the equation and are critical to make the demand insights actionable. Without visibility into current inventory and simulated future inventory, you’ll find it hard to deliver the data-driven recommendations that retailers are looking for from their top partners.

Units on Hand

Units on Hand is the number of units of a product that are physically available at a given point along the supply chain, such as a store or retailer DC.

It’s a very useful number that can itself signal you need to take some action. For example, if Units on Hand drops to zero, that indicates a location is out-of-stock. You should ensure additional product is ordered and shipped to it. Furthermore, you need Units on Hand to calculate a number of leading performance indicators that brands and retailers watch closely:

  • Inventory turnover. A key measure for evaluating how efficiently inventory is being used, inventory turnover is the number of times available inventory is sold, or “turned over,” over a given period of time. You can calculate it by dividing Retailer COGS by the average inventory on hand during the period.
  • Gross Margin Return on Investment (GMROI). This metric analyzes whether a retailer is making a profit on their current inventory. It typically appears on retailer scorecards for suppliers as a gauge of how profitable the relationship is. Calculate it by dividing the retailer gross margin by the cost of the average inventory on hand.
  • Weeks of Supply. Another way of looking at inventory, Weeks of Supply combines demand with Units on Hand to determine how long available inventory will last. If Weeks of Supply is too low, a retailer is at risk of being out-of-stock and causing lost sales. If Weeks of Supply is too high, you’re at risk for product obsolescence or expiration.

Keep in mind that while the retailer usually provides Units on Hand, the number is not always accurate. Sometimes, the system will indicate that there are Units on Hand, but in fact, shelves are empty due to theft, scanning issues, or other problems – a case of phantom inventory that brands also need to watch out for.

 

Units on Order

Units on Order represents the number of units of a product that has been ordered, but has yet to be shipped (Units in Transit), between two points in the supply chain. You can only get Units on Order between a retailer DC and store from the retailer. They may provide it directly or you can calculate it by subtracting Units in Transit from orders placed.

It’s important to also incorporate Units on Order when making recommendations because orders are not always fully filled. You don’t want to recommend that a store “orders” more from the DC, or that a retailer increase their order, when in reality they’ve placed an order but you haven’t shipped the product due to an inventory shortage. Even if the buyer still needs to order more to meet demand, you can provide a more specific recommendation and gain more trust if you show you’ve taken into account the Units on Order in your calculation.

Units in Transit

Units in Transit refers to the number of units that have been shipped and are en route to their destination, such as from your warehouse to a retailer’s DC, or from a retailer’s DC to a store.

Adding Units in Transit and on Hand offers a more holistic perspective of inventory that will be available for sale. Combine them to more accurately calculate metrics like Weeks of Supply and lost sales.

Units in Transit also provides brands with insight into retailer replenishment models, especially from DC to store, so you can make actionable recommendations. Let’s say you see a retailer only replenishes weekly, but stores have zero Units on Hand by the middle of the week while inventory sits at the DC. You can recommend that they replenish more frequently. Conversely, if you see a store is out-of-stock but there are already Units in Transit to it, you know the problem is being addressed. You don’t need to bring it up to the retailer as a pressing issue.

Forecasted Unit Sales, Retailer 

Forecasted Unit Sales, Retailer is the number of units that the retailer predicts it will sell in a specified time period at a given location or locations. As their best estimate of future sales, retailers use this number to plan their future orders and replenishment. Thus, it provides suppliers the earliest indication of what future downstream inventory might look like.

You can use this retailer forecast as an input into your own demand forecasting and planning, assuming you trust it. If not, it’s still one of the most useful inputs to have because you can understand what retailers are planning to do. Before it actually happens, you can influence the buyer or replenishment manager while the opportunity still exists.

One of the most common issues with analytics is that they’re only descriptive – telling you what happened in the past. While the general learnings are interesting, it’s not directly actionable to drive future opportunities or prevent problems before they happen. Using Forecasted Unit Sales overcomes that challenge.

For instance, you can show a retailer where Weeks of Supply will fall short of meeting their Forecasted Unit Sales. Use the insight to influence them to place an order earlier, preventing lost sales or last-minute expedited shipping costs. If you think their forecast is off, understanding their number will enable you to have a more productive conversation about why and align on a collaborative forecast number.

Before it actually happens, you can influence the buyer or replenishment manager while the opportunity still exists.
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Clearly, landing a product on shelves is far from the last step in the sales cycle. Having complete visibility into what happens to product after it’s shipped from your warehouse is vital for sales and supply chain management. Most major retailers provide the necessary data, so what differentiates suppliers is their ability to use it effectively to provide precise recommendations and proactively address opportunities and risks.

Alloy is built to help brands do just that and gain a competitive edge. Schedule a demo to learn more and subscribe below to stay updated as we take in-depth looks at data availability from different retailers, like Amazon and Sephora.

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