Last month I explored the quick wins that builders’ merchants achieve when they use the latest supply chain management technology. This week I look at the additional gains that can be made in the medium term, through good strategic use of demand forecasting and inventory management.
Better sales management = more sales and profits.
Tagging your data in a wide variety of ways makes it easier to analyse. So, by recording sales by customer and grouping those customers into categories, our clients have been able to react more quickly to changes in buying patterns. It provides a demand-forecasting guide for new accounts or an early warning where customer loyalty may be wavering, and a chance for the sales team to take early action rather than lose customers to competitors.
Integrated business planning cuts costs.
A good demand forecast allows you to look forward in a variety of ways – for instance to see what might happen with your purchasing, warehouse, and distribution. Our clients in the builders’ merchants and trade supplies sectors use their data to ensure they have sufficient handling and warehouse capacity to meet the forecast demand at a reasonable cost. They are also alerted to potential problems, for example so that they can re-schedule purchases of bulky construction materials if they’re alerted to a shortage of the required warehouse space.
Ensuring a bargain is a bargain.
Supplier rules are complicated enough but it’s even more of a challenge to decide whether it makes sense to buy an additional 100,000 boxes of clout nails at a 5% price reduction or whether storage costs would offset the gains, or the capital could work harder elsewhere.
Be the builders’ merchant your customers want you to be.
Having information about which customers are buying which products allows you to assess your assortment and analyse what works and what doesn’t. Good data also helps you in refining your range of stock, extending choices in certain areas, restricting it in others and even laying out stores and depots more intuitively to reflect purchasing patterns, all increasing your engagement with customers and in turn helping sales and profits.
Handle demand peaks like a pro.
Most builders’ merchants have thousands of smaller customers whose orders generally aggregate predictably. Equally you’ll probably have a few really big accounts, and when those customers are working on major projects you can see serious spikes in demand. Using the ‘rules engine’ in a good supply chain management system can really help you get a grip on these situations. You can set safety stocks according to different criteria – including by product and the importance of the account. For example, you could configure the system so that safety stock levels need to be ‘greater than the third largest order in last 180 days’ for critical items or ‘equal to the median value of the last 365 days’ for non-critical seasonal items.
Better setting of sales targets and budgets.
The builders’ merchants we work with use customer- or customer group-level demand forecasts as a tool to help them hit sales targets more consistently. Early warnings of trends mean you can react more quickly and effectively. Some of our clients base their forward sales budgets on the baseline demand forecasts they generate, linking them to their pricing plans and business targets, and using the forecasts to create better budget plans for the future.
Tommi Ylinen is managing director of RELEX UK, provider of supply chain solutions.