The purchase activity in retail setup throws up the dual challenge wherein the owners face the dilemma of having an optimum/ timely inventory and of saving on unnecessary spend, and managing space and wastages. Maintaining the freshness and relevance of the products is another added troublesome dimension to it. The question therefore is can we have enough suitable, relevant stock while we don’t run out of working capital? This document tries to address this question with practical implementable solutions.
Understand the Customer Demand
It is common knowledge that businesses that are deficient in understanding the needs and demands of the customer cease to exist or may stagnate and have its eventual peril. On the other hand, those who have the customer focus by way of knowing their needs, understand their buying patterns, know the wallet factor, and cater to the variety in size and scale are the ones that thrive.
Customer demand forecasting is the process of estimating and predicting customer demand of products or services by using informal methods such as educated guesses, and quantitative methods, such as the use of historical sales data and takes into account external factors like market trends, seasonal demands, yearly growth rate, economic conditions, upcoming promotions among others. For a system-based demand forecasting also called as perpetual inventory system, you need to have clean, well classified master data along with sizable historical sales transaction data.
Based on the Safe Stock principle, setting Reorder Level and Order Quantity that gets reflected in the automated replenishment requests which are fed to the purchase process.