On my way to work this am, I called a good friend to see if she wanted to meet for a drink after work. She couldn’t because her husband is out of town and she didn’t have a babysitter. It was a bummer because I really enjoy her company. She told me that her husband was at a week long annual forecast meeting for his business. Knowing that her husband works in the chocolate industry and I said something like, “is 2008 going to be a good year for chocolate?” That is when she told me he is forecasting inventory and sales for 2011!
It got me to thinking about today’s topic. Forecasting Sales and Holding Inventory.
Wholesale Supplies Plus, on average forecasts inventory 8 weeks out. In other words, we place an order with our manufacturers 8 weeks before we actually run out of stock. Some manufacturers have a lead time of 2 weeks, some are 12 weeks and a few are 24 weeks….but on average it is about 8 weeks.
I always feel bad when we run out of stock but it is so darn hard to forecast when new customers present themselves everyday and loyal customers land that “big account” they have been working months to land. Let me tell you, they inevitably order all of a type of a candle wax that would normally take two months to sell....and there is a four week lead time! Overall, I think our purchasing department does a pretty good job.
We have learned, from the last 10 years, that we need to increase our stock on hand by 25% in August and let it run back down in June. It is an expensive swing that causes cash flow to be incredibly tight…..but as my very wise Uncle Stan once told me, “don’t think of it as money sitting on the shelf, think of it as…you can’t sell apples with an empty apple cart!”
As our lead times lengthen with the fall season approaching, I am sure you also have to increase your inventory for your upcoming busy season. My guess is that we are both glad we are not trying to forecast for 2011!
Wishing You Much Success!