A good solution for operational efficiency for retailers and their suppliers is to establish a model that accurately monitors the behaviour of the end consumer.
The sell-out model guides inventory planning and replenishment to ensure better product availability on the stores’ shelves to increase competitiveness and profit for all along the supply chain.
We will explain in more detail how sell-out can work against overstock and out-of-stocks at once bringing the following advantages:
• Greater transparency against inflated inventories: A common behaviour in supply chain management to avoid product shortages on the shelves is keeping full inventories. However, this causes money being stacked in the inventory, at stores or distribution centre, resulting in incorrect sales indicators along the supply chain. Moreover, it causes sales to stagnate if the consumers’ sales behaviours change expectantly.
• Prevention of waste of expiring products: With inventory levels always at highest, the large volume in stock can jeopardize a product’s shelf life. This leads to waste, or the even higher cost of returning goods.
• Elimination of forced promotions to reduce stocks: Another common behaviour in retail is carrying out promotions when experiencing overstocks to prevent losses and save storage space. However, this reduces the profit margin per item, consequently impacting the working capital.
• No more product shortage: If a product is unavailable, end consumers often change stores or choose a competitor’s brand, which impacts again the profit margin for retailer and manufacturers alike.
• Fair retail pricing: Negotiations in the supply chain become the product’s price to the end consumer and greater transparency in this relationship, aims to regulate the value applied for the end consumer.
By adapting the sell-out model, it is possible to link the interest of all along the supply chain, promoting competitiveness and balancing the relationship – all to prevent overstocks and pout-of-stocks at the same time.