Optimizing New Items: A Demand Forecasting Conundrum
Before jumping in here, I’d like to point out how excited we are to have Tracy Coon back on our LifeLine team!
After defecting briefly from her 13-year stint with Blue Ridge last fall, she wised up and came back to continue bestowing her inventory optimization wisdom on Blue Ridge customers as they look amp up their successes with inventory optimization.
One of the areas where Tracy has led many customers to success is optimizing New Items. She did a podcast with PlanningPosts to discuss a puzzling conundrum…
New-item inventory continues to frustrate many companies. For some reason, poor performance on new items is extremely common – yet, extremely tolerated – and is a huge area of opportunity for improving results.
The Inventory Optimization “Teacher’s Pet”
New items? Really? I would think that inventory planning teams spoil and pamper their new items like they do their children? I would think that their shelves are stocked high with new items and that they are proud to show them off.
Yes, it’s true. As Tracy explains, New Items is THE most common under-performing sector in the retail and wholesale distribution world.
“It’s true. I see it across industries and across companies. Some do it well, but most really struggle for consistency. As a former replenishment analyst, I rarely got into trouble when I was out of stock on new items. I simply had to remind my bosses that the item was ‘new’ and there was a collective shrug and acknowledgement, and like magic, I was off the hook.”
Many inventory teams feel they have a ‘get-out-of-jail-free’ card on new items. This has to change.
We Need Urgency
Tracy says it should be just the opposite.
New Items are the future of the company and they need a strong, solid start. There should be even more emphasis on forecasting these items than the day-to-day items.
Most companies don’t really take new items seriously enough. We rarely hear company presidents and leaders requesting to see weekly or monthly reports on new item success. You need to have some urgency and feel some pressure.
We Need Top-Down Forecast Management
What should the demand forecasting strategy be for New Items? What tone should be set from the top down?
New items should be treated like new team members. There should be special attention and a realization that they need a strong orientation and ongoing mentoring and guidance. There should be extra investment of time paid to them so that they will pay dividends later.
There’s a great overall method or strategy for optimizing New Items called the “3X Strategy”.
The ‘3X Strategy’ means that if 5% of your items are new in recent weeks or months, that they should receive 15% of the time spent on replenishment optimization tasks. Possibly even 4X.
Once you set that level of expectation, everything changes. You start to realize that if you spend the same amount of time on new items as other items, that they will never be successful.
We Need Accountability & Collaboration
Another part of the strategy is simply a focused area of accountability. This means that there is a separate program, with separate and focused reports and very unique goals.
This puts the proper attention on new items as their own inventory sector to manage and monitor. Much of the success relies on collaboration.
Tracy says New items are probably the #1 inventory group of items where communication and collaboration are as important as the process and tools. Some companies do well here. Most could do much better.
You just can’t expect success by using only system tools. You need to load your item components with as much great knowledge as possible. And that knowledge is normally spread across several parties.
Ponder this scenario…
I am the Inventory Replenishment Planner, and I am handed a new item from my Category Manager. I am looking for an idea of the initial forecast and sales pattern from her.
She was given the item from the supplier rep who should have access to the initial plan behind the item and perhaps some early sales numbers.
That rep probably needs to turn to a product manager expert for that data. The knowledge and data need to travel through several channels and can easily get lost in translation.
The best companies Tracy has experienced have a roadmap or flow chart for this information. They work with each supplier to understand how to get to this information and to demand that it is part of the process to add new items.
Once you see success with the best, proactive suppliers, you have a blueprint for success to take to others.
Make New-Item Success a Priority
Recognize if it is a weakness and decide to get better. After coming up with a plan to talk, share and collaborate; what comes next?
What is the Best Strategy to Introduce New Items?
Is there an ideal situation on introducing a New Item? Yes!
The item is typically going to replace an existing item – or sell in a very similar pattern to an existing item. You have years of great data and you don’t want that to go to waste.
This really requires an advanced inventory planning solution beyond just basic ERP or a buying report. A sophisticated inventory tool will step you through this process and connect, or transfer or share the key components of old or existing items with the new items.
In fact, if it is a pure replacement, it will completely manage the transition so that the stock status and on-hand values are combined with the new items. This avoids overstock and ensures service.
These features work great, but they really benefit from your suppliers sharing what they expect, what they have planned and what they are seeing in the market. They might see when patterns are moving differently than expected before a single company does.
So beyond the ideal option of a ‘replacement function,’ what are the key steps to setting up a New Item? What is getting missed today?
We talked about the need to reach upstream for better information. But you need to go beyond that!
Listen to the full podcast to learn the 4 main components that need to happen, including how to handle seasonal demand forecasting and managing new item inventory with suppliers: