New product's reordering and short shelf life product's reordering
how to deal with New product with little sale history or without any sales history yet? How to set up re-order level, safety stock and forecast, etc? I am thinking we can wait 3 months sale period, then we have limited sales data for calculation for the abovementioned parameters? Do you have any suggestions and how do you handle new product's reordering issues? second question, how do you handle short shelf life product with long lead time or with short leadtime for re-ordering, order qty,safety stock? thanks in advance, please show me the way.
Clarification added 4 months ago:
dear friends,
Thanks for everyone' knowledge & helpful reply, I think an example had better be provided here, Assuming we have a product, that is, Medicine Product A, the estimate demand in the next 2 month is 1000 (the number I made up, I do not think the Marketing personnel has the correct thinking of how they can estimate its demand if no similar products are sold), week 1's sale is 70 units, week 2's sale is 60 units, we are in week 3 now, and also assuming leadtime is 3 weeks and unit value is $100(whatever), how do you handle this or re-order it? Do you think how much we need to stock? 1000 or not?
my email goodluck2007jon@yahoo.com.au
thanks,
Jon
Good Answers (1)
Dan H
Consultant & Projectmanager - Supply Chain & Process Improvement
Best Answers in: Inventory Management (1), Supply Chain Management (1)
How to deal with new products with little or no sales history:
- cooperate with the sales department. Ask them how much demand is expected. They probably as costprice calculation is also based on the expected demand.
- look for a product with sales history which is practically (from a market point of view) the same as the new product.
- monitor demand figures and actual sales. You have to learn about the accuracy of the demand figures from the sales department. Based on the bias planned-actual you can adjust the demand figures from the sales department
- after some period (say 3 to 6 months) you can switch for forecasting based on the educated guess by the sales department to forecasting based on history sales figures. But beware: the latter is not per definition better than the first. I would say stick to demand figures from the sales department and keep monitoring them with actual sales and motivate sales to give better forecasting information.
How to setup re-orderlevel, safety stock?
Basically the same as you do with history sales figures.
Tip: for safety stock: analyse the variation in demand for other new products from the recent past. Is there a lot of variation from month to month? Is there a lot of variation actual to expected sales?
Links:
More Answers (9)
Marc M
Commercial Director, Logistician/Forwarder & Family Man
Best Answers in: Quality Management and Standards (1)
Hi Jon,
for new products you need to rely on your marketing to give you a forecast.
If you have a product with a short shelf life (depending what is short and the value of these products) then it's probably best to order these on indent basis. Unless you have a very good forecast I would not create any buffer stocks for these items.
Rgds, Marc
Muslim L
FMCG consultant for manufacturing systems, packaging solutions, supplier development, toll manufacturing services, etc.
Hello Jon,
I agree with Marc that for new products the initial ordering/stocking has to be done as per the sales forecast. I am assuming that there would have been a launch recommendation for a new product which would have been approved by senior management. Use this document as your initial guide as it would have the requirements for market launch volumes and sunsequent sales.
With regard ot the "short shelf line/long lead time" issue, I would need more information about nature of product and reason for long lead time to suggest anything useful.
Regards,
Muslim Lightwala
Jon,
Although I lean on agreeing with the posted replies, I have to add the following steps-
You need to have great communication with the product's vendor. Obtain data that will substantiate your need to purchase (IRI data etc)-
Any good sales/operations leader will tell you to monitor the thru-put of an item but seriously, the only way you can make any real sense of what is a good mover is your level of value or otherwise know as ROI. -
Forecasts come from historic data, if anyone can provide you any history of the item/s, you knowing your customer base and some good category management, you should be just fine. This practice will also help with close dated items whether they are manufactured with "short shelf life" or not.
Bruce R
Supply Chain and Sourcing Consultant With An Emphasis On Bringing Consumer Products to The Retail Marketplace
Best Answers in: Manufacturing (4), Supply Chain Management (4), Starting Up (3), Exporting/Importing (1), Offshoring and Outsourcing (1), Inventory Management (1), Branding (1), Positioning (1), E-Commerce (1), Using LinkedIn (1)
Jon,
I once developed models that gave reasonably good forecasts for new items with as little as one weeks sales.
We were a catalog company that had to deal with a Christmas season that ran from late Septmeber to mid-December.
The key was determining the type of product that was involved and categorizing them and finding through history what relationship the first week after a catalog was received by customers, sales numbers as compared to the season's total.
Also most new products in my experience have replaced another product and that products sales should be used as the basis for new products that replace it.
If it is totally new then you need to determine with the sales people what their expectations are.
Short shelf life products need to be handled in a similar manner.
Hope this helps.
Jerome F
Supply Chain General Manager
Best Answers in: Inventory Management (1), Supply Chain Management (1)
Jon,
Some hints regarding forecast sales setting.
If you have no sales history, you need to set your forecast model with only 1 week sales history (if your client order 4-5 times/week or the equivalent of 4-5 deliveries). If you wait to long for build your sales history, you may have shortages on your client order if you have long leadtime to replenish your stock.
Also you can add some coefficient of variation in your sales forecast model to over-anticipate the sales.
Last option is to work on double moving average calculation instead of single moving average.
For proper flow management, the right answer will depend of several elements such as :
- order frequency of your customer
- order to delivery lead-time of your sourcing
- quality of your supply
- rotation of items considered (low rotation items will not be treated the same way as high rotation items).
For short shelf life product (fresh products or appliances items), best flow is cross-docking as you will not deal with losses on stock. Once your have your sales history, you may choose another option (such as consolidated stock = stock in your DC but belonging to your supplier)
Regards
Jerome
Hanumat Sastry M
Senior Partner - National Supply Chain at GVK Emergency Management & Research Institute (Ambulance Call 108)
Best Answers in: Inventory Management (1), Supply Chain Management (1)
New Products Forecasting : Best way is to BOTTOM-UP Forecasting model with the help of marketing teams. Frequency of forecasting interval shall be as low as a week, till the sales get stabilised. Then, you can start depending upon the market projects coupled with marketing promos. Once the stable environment is reached, the history can be relied upon.
Best way to resolve New products reordering issues : Comprehensive application of S&OP principles to have a very frquent ( weekly for example) collaborattion with suppliers, manufacturing, and distributing and Marketing.
Weekly coordination of Stocks Vs Demand, is the best way to resolve the concerns of short shelf life, long lead time items
Phil B
M&A and Supply Chain Professional
Best Answers in: Supply Chain Management (2), Mergers and Acquisitions (1), Finance and Securities Law (1)
Phil B suggests this expert on this topic:
Jon,
Maybe drop a note to this guy explaining your issue. His company's been involved in this sort of stuff in software and FMCG industry
Phil
http://www.bubblegroup.com/site/FMCG.htm
My I suggest a little common sense? There has to be a business plan, with demand considerations to decide to introduce this new product. OK? Then the initial stock has to consider that expected demand and the replenishment time or supplier lead time, shelf life, as well as the capital investment (inventory mainly). New products might be a success, or not. There has to be a follow up plan on the sales, inventory levels, marketing actions, expenditures, and so. New product introduction is a Marketing task, Operations role is to have product available at levels set for in the business plan, have a strong relation with suppliers to assure success will not meant stock out.
I stronger agree with former answer on using Sales&Operation Planning as the practice to follow up, there would be ups and downs, actions and reactions by marketing untill the products reach a level where forecast could be build on sales history (including that from other family products in particullar those the new one might replace).
Just be sure to have visibility to supply chain data: open sales orders, inventory, open purchase orders, expedite costs, budgets, cash to cash cycle.
Also, is there a way to get any input from your current or potential customers to help develop your forecast? On a product with such a long lead time, they should be able to help with your analysis.
Are there other suppliers with a better lead time?
Good luck to you.
