Part 1 of this series highlighted four of the most important retailer data points that suppliers need to maintain an efficient supply chain and maximize sales opportunities: Unit Sales (Net), Dollar Sales (Net), Price, and Retailer COGS. Together, they help you understand true demand and its key drivers, and prioritize opportunities according to the business value. For a more detailed explanation, check out Part 1 here.
In this post, we’ll describe four additional key data points from retailers, which fill in the supply side of the equation and are critical to make the demand insights actionable. Without this visibility into available inventory and focus on looking ahead to the future, you'll find it hard to deliver the data-driven recommendations that retailers are looking for from their top partners.
Units on Hand
Units on Hand is the number of units of a product that are physically available at a given point along the supply chain, such as a store or retailer DC.
It’s a very useful number that can itself signal action needs to be taken, such as if Units on Hand drops to zero, indicating a location is out-of-stock and additional product should be ordered or shipped. Furthermore, it’s needed to calculate a number of key metrics that are leading performance indicators and watched closely by brands and retailers:
- Inventory turnover. A key measure for evaluating how efficiently inventory is being used, inventory turnover is the number of times available inventory is sold, or “turned over,” over a given period of time. It’s calculated by dividing Retailer COGS by the average inventory on hand during the period.
- Gross Margin Return on Investment (GMROI). This metric analyzes whether a retailer is making a profit on their current inventory, and will appear on retailer scorecards for suppliers as a gauge of how profitable the relationship is. It is determined by dividing the retailer gross margin by the cost of the average inventory on hand.
- Weeks of Supply. Another way of looking at inventory, Weeks of Supply combines demand with Units on Hand to determine how long available inventory will last. If Weeks of Supply is too low, a retailer is at risk of being out-of-stock and causing lost sales. If Weeks of Supply is too high, you're at risk for product obsolescence or expiration.
Keep in mind that while Units on Hand is usually provided by the retailer, the number is not always accurate. Sometimes, the system will indicate that there are Units on Hand, but in fact, shelves are empty due to theft, scanning issues, or other problems - a case of phantom inventory that brands also need to watch out for.
Units in Transit
Units in Transit refers to the number of units that have been shipped and are en route to their destination, such as from your warehouse to a retailer’s DC, or from a retailer’s DC to a store.
Adding Units in Transit and Units on Hand together offers a more holistic perspective of inventory that will be available for sale to more accurately calculate metrics like Weeks of Supply and lost sales. It also provides brands with insight into retailer replenishment models, especially from DC to store, so you can make actionable recommendations.
For example, if you see stores are only being replenished on a weekly basis, yet there are zero Units on Hand at stores by the middle of the week while inventory sits at the DC, you can recommend that they replenish more frequently. Conversely, if you see a store is out-of-stock but there are already Units in Transit to it, you know the problem is being addressed and don’t need to bring it up to the retailer as a pressing issue.
Units on Order
Units on Order represents the number of units of a product that has been ordered, but has yet to be shipped (Units in Transit), between two points in the supply chain. Units on Order between a retailer DC and store location is a data point you can only get from the retailer, either directly or by subtracting Units in Transit from orders placed.
Similar to taking Units in Transit into account when making recommendations, it’s important to also incorporate Units on Order because orders are not always fully filled. You don’t want to recommend that a store “orders” more from the DC, or that a retailer increase their order from you, when in reality the order has been placed but the product hasn’t been shipped due to a lack of available inventory. Even if a larger order is still needed to meet demand, you can provide a more specific recommendation and gain more trust if you show you’ve taken into account the Units on Order in your calculation.
Forecasted Unit Sales, Retailer
Forecasted Unit Sales, Retailer is the number of units that the retailer predicts will be sold in a specified time period at a given location or locations. As their best estimate of future sales, retailers use this number to plan their future orders and replenishment, and it thus provides suppliers the earliest indication of what future downstream inventory might look like.
This retailer forecast can be used as an input into your own forecasting and supply chain planning processes, assuming you trust its accuracy. If not, it’s still one of the most useful inputs to have because you can understand what retailers are planning to do, and influence it while there’s still opportunity to do so - before it actually happens.
One of the most common issues with analytics is that they’re only descriptive - telling you what happened in the past. While you can incorporate the general learnings into future decision-making, it’s not directly actionable to drive future opportunities or prevent problems before they happen. Using Forecasted Unit Sales overcomes that challenge.
For instance, you can show a retailer where Weeks of Supply will fall short of meeting their Forecasted Unit Sales and influence them to place an order earlier, preventing lost sales or last-minute expedited shipping costs for you. If you think their forecast is off, understanding what their number is will enable you to have a more productive conversation about why and align on a collaborative forecast number.
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Clearly, landing a product on shelves is far from the last step in the sales cycle. Having complete visibility into what happens to product after it's shipped from your warehouse is vital for both supply chain and sales teams. Most major retailers do provide the necessary data, so what differentiates suppliers is their ability to use it effectively to provide precise recommendations and proactively address opportunities and risks.
Alloy is built to help brands do just that and gain a competitive edge. Schedule a demo to learn more, and subscribe below to stay updated as we take in-depth looks at data availability from different retailers, like Amazon and Target.