Inventory risk is margin loss exposure arising from in-day imbalances between real customer demand for a specific product and the actual available supply. Over stock conditions result in discounting or, worse in the case of perishable food, waste; with the consequent loss of 100% of retail price from margin, plus the costs of disposal. In the case of perishable products, this over-supply accounts for annual store losses >4% of total store sales. Under-stock conditions are no better, as they invariably deliver out-of-stock occurrences, which will lose customers and deliver margin losses between 1.5% and 4% of total store sales.
When operating profits run around 3% in the US and 5% in Europe, the ability to attack a problem eroding operating profit by as much as a combined 6% or more, is compelling. Even more so when one considers perishable products are generally paid for with no right of sale-or-return; effectively “sunk” costs. Any recovery of these losses flows 100% to operating profit.
With supermarket chains facing restrictions on the opening of new stores, combined with an environment limiting the option of extracting more margins from food products, the ability to reverse losses in poor performing skus, particularly in perishables where the costs are already “sunk”, is a compelling consideration. When the impact can be as high as an annually recurring 4% of total sales, the consideration becomes an imperative.
DSM delivers on the above, but is much more; combining the most accurate “in-day” perpetual demand forecasting alongside real-time inventory management, including sub-level sell-by date segmentation where available.
Impulselogic and its partners can deliver DSM within 90 days and expose the existing in-store Inventory Risk, the current losses realized from Inventory Risk occurrences and the financial impacts available when Inventory Risk is eliminated by the deployment of DSM.
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