Note: Running most Fridays in FromGregsHead.com, this is a continuing series of inventory control tips by Jon Schreibfeder. These run Saturday mornings during the BusinessMaker’s Radio Show on Supertalk 97.5. Audio files can be found on the Entrepreneur’s Playbook page of the PKF Texas website.
Competition continues to increase, as new distribution channels evolve and existing channels expand. Twenty years ago most distributors existed on “market islands”. They may have had a few competitors, but they knew how these other firms conducted business.
A number of developments including the Internet, dynamic data processing capabilities, and faster, more reliable transportation have drastically changed the distribution environment. This “buyers market” has forced many distributors to lower their profit margins in order to remain competitive.
Lower margins are not the only result of this increased competition. Customers are in a position to demand more value added services and greater product availability.
The result: Distributors have to provide better material availability and more services with fewer profit dollars. They have to do more with less. In order to accomplish this goal the estimates of future usage of stocked items must be as accurate as possible.
One of the most common methods distributors utilize to forecast future demand of products is to average the usage recorded over the previous several months.
But is that the best way to forecast demands? Stay tuned for our next segment next week on inventory management and we will provide more tips on inventory forecasting.